<PAGE>
As filed with the Securities and Exchange Commission (via EDGAR) on
November 12, 1997
Registration No. 333 -
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------------
AMERUS LIFE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
Iowa 6719 42-1459712
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Identification Number) Classification Code Number)
699 Walnut Street
Des Moines, Iowa 50309
(515) 362-3600
(Name, address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Joseph Haggerty, Esq.
General Counsel
AmerUs Life Holdings,Inc.
699 Walnut Street
Des Moines, Iowa 50309
(515) 362-3600
(Address, including zip code, and telephone number, including area code, of agent for service)
------------------------------
COPIES OF ALL COMMUNICATIONS TO:
Jeffrey W. Tindell, Esq. Richard G. Clemens, Esq. J. Mark Klamer, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP Sidley & Austin Bryan Cave LLP
919 Third Avenue One First National Plaza 211 North Broadway, Suite 3600
New York, New York 10022 Chicago, Illinois 60603 St. Louis, Missouri 63102
(212) 735-3000 (312) 853-7642 (314) 259-2000
------------------------------
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As promptly as practicable after this Registration Statement becomes
effective and all the conditions to the proposed merger ("Merger") of a
subsidiary of the Registrant with and into AmVestors Financial Corporation
("AmVestors"), as described in the enclosed Joint Proxy Statement/Prospectus,
have been satisfied or waived (but in no event earlier than the 20th business
day following the date on which the enclosed Joint Proxy Statement/Prospectus
has been given or sent to stockholders of AmVestors).
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO BE REGISTERED PROPOSED MAXIMUM PROPOSED MAXIMUM AG- AMOUNT OF
SECURITIES TO BE REGISTERED (1) (2) OFFERING PRICE PER UNIT GREGATE OFFERING PRICE REGISTRATION FEE(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, no par value 16,100,326 Not Applicable Not Applicable $121,349.71
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This Registration Statement relates to shares of Class A common stock, no
par value, of the Registrant ("AmerUs Common Stock") to be issued in
connection with the Merger upon conversion of shares of common stock, no
par value, of AmVestors ("AmVestors Common Stock"), or issuable upon
exercise of outstanding warrants and options being assumed by the
Registrant in connection with the Merger, as well as public reofferings or
resales of certain of such shares.
(2) Represents the number of AmerUs Common Stock issuable in connection with
the Merger, determined on the basis of an assumed exchange ratio of
0.7407 shares of AmerUs Common Stock for each outstanding share of
AmVestors Common Stock (including shares issuable upon exercise of
outstanding warrants and options of AmVestors being assumed by the
Registrant in connection with the Merger), plus additional shares of
AmerUs Common Stock issuable under certain circumstances as described in
the Merger Agreement.
(3) The registration fee has been computed pursuant to Rules 457(c) and
457(f)(1) under the Securities Act of 1933, as amended (the "Securities
Act"), based on $20.47, the average of the high and low prices per share
as reported on the New York Stock Exchange Composite Tape for AmVestors
Common Stock on November 5, 1997, multiplied by 19,760,578, the maximum
number of shares of AmVestors Common Stock convertible in connection with
the Merger. Pursuant to Rule 457(b) under the Securities Act, $57,158.39
of the fee was paid previously in accordance with Exchange Act Rules
14a-6(i)(1) and 0-11. This fee has been calculated pursuant to Section
6(b) of the Securities Act, as one thirty-third of one percent of
$404,499,031.60.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATES AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a), OF THE SECURITIES
ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
The Registrant has departed from certain Items required by Form S-4 in
certain respects by virtue of the "Plain English" format of the Joint Proxy
Statement/Prospectus.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1997
[AMERUS LIFE HOLDINGS, INC. LETTERHEAD]
STOCK ISSUANCE--YOUR VOTE IS VERY IMPORTANT
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
AmerUs Life Holdings, Inc. to be held on December 18, 1997, at the offices of
AmerUs Life Insurance Company at 611 Fifth Avenue, Des Moines, Iowa. The meeting
will start at 10:00 a.m., local time.
At this important meeting, you will be asked to approve a stock issuance by
AmerUs in connection with a proposed acquisition of AmVestors Financial
Corporation by AmerUs under a merger agreement dated September 19, 1997. The
stock issuance you are being asked to approve is required to complete the
merger. The full text of the merger agreement is included at the back of this
document as Annex I.
Your Board of Directors believes that the merger will benefit AmerUs in a
number of ways. Among other things, the merger, along with the recent
acquisition of Delta, will significantly increase AmerUs' position in the asset
accumulation business. This business involves securing and actively managing
policyholders' funds through insurance and annuity products. The merger also
provides opportunities presented by the combined companies' increased resources,
such as the potential for cross-selling products in the multiple distribution
systems and the expense reductions available from the combining of similar
functions. YOUR BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF AMERUS
APPROVE THE STOCK ISSUANCE AT THE SPECIAL MEETING SO THAT THE MERGER MAY BE
COMPLETED.
If the merger is completed, AmerUs expects to issue shares of its Class A
common stock (generally intended to be valued at not less than $20) for each
share of AmVestors common stock outstanding immediately prior to completion of
the merger, as illustrated in the table on page 1 of this document.
Based on assumptions described in this document, the stockholders of
AmVestors are expected to receive between approximately 33.3% and 35.5% of the
total outstanding shares of common stock of AmerUs following the merger.
Your Board has received a written opinion from Donaldson, Lufkin & Jenrette
Securities Corporation, its financial advisor, dated September 19, 1997, to the
effect that as of such date the exchange ratio in the merger was fair from a
financial point of view to AmerUs.
The Merger will not be completed unless the issuance of shares by AmerUs is
approved by the affirmative vote of a majority of votes cast at the Special
Meeting, assuming a quorum is present. American Mutual Holding Company
beneficially owns shares of AmerUs common stock sufficient to approve the
issuance of shares. AmerUs has been advised that the Board of Directors of
American Mutual Holding Company has passed a resolution to cause all such shares
to be voted in favor of the proposed stock issuance.
Whether or not you plan to attend the Special Meeting, please take the time
to vote by completing and returning the enclosed proxy card to us. A postage
paid envelope is enclosed for your convenience. If you sign, date and return
your proxy card without indicating how you want to vote, your proxy will be
counted as a vote in favor of the stock issuance. Even if you plan to attend the
meeting, please complete and return your proxy.
This document provides you with detailed information about the proposed
merger and related stock issuance. We encourage you to read this entire document
carefully.
Sincerely,
- ---------------------------------------
Roger K. Brooks
Chairman, President and Chief Executive Officer
NEITHER THE SEC NOR ANY STATE SECURITIES REGULATORS HAVE APPROVED THE AMERUS
CLASS A COMMON STOCK TO BE ISSUED UNDER THIS JOINT PROXY STATEMENT/PROSPECTUS
OR DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Joint Proxy Statement/Prospectus dated November 12, 1997 and first mailed to
shareholders on November 12, 1997.
<PAGE>
[AMVESTORS FINANCIAL CORPORATION LETTERHEAD]
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
AmVestors Financial Corporation to be held on December 18, 1997, at the Kansas
City Airport Marriott, 775 Brasilia Street, Kansas City, Missouri. The meeting
will start at 10:00 a.m., local time.
At this important meeting, you will be asked to approve a merger agreement
between AmVestors Financial Corporation and AmerUs Life Holdings, Inc. The
merger agreement was executed on September 19, 1997, and provides for AmerUs'
acquisition of AmVestors. If the merger agreement is approved and certain other
conditions are met, AmVestors will become a subsidiary of AmerUs Life Holdings,
Inc. and AmVestors stockholders will become AmerUs shareholders. The full text
of the merger agreement is included at the back of this document as Annex I.
If the merger is completed, AmVestors stockholders will receive, for each
share of AmVestors common stock, between .6724 shares and .7407 shares of AmerUs
Class A common stock (generally intended to value each share of AmVestors common
stock at not less than $20.00), depending on the average last reported sales
price of the AmerUs Class A common stock on the Nasdaq National Market for a
specified period prior to closing. THE CALCULATION OF THE AMOUNT RECEIVABLE IS
SET FORTH ON PAGE 1 OF THIS DOCUMENT. If such average AmerUs trading price is
less than $27.00 per share (thereby resulting in a value of less than $20.00 per
share of AmVestors common stock), AmVestors may (but is not obligated to)
terminate the merger agreement unless AmerUs adjusts the exchange ratio to
achieve a value of $20.00 per share of AmVestors common stock.
AmerUs also has a Class B common stock, all of which is owned by AmerUs
Group. Under the AmerUs Charter, holders of AmerUs Class B common stock have the
right to cast a majority of the votes on any matters submitted to shareholders,
except where the AmerUs Charter or Iowa law require separate class votes.
We expect that the stockholders of AmVestors will receive between
approximately 33.3% and 35.5% of the total outstanding shares of common stock
(representing approximately 24.2% to 25.4% of the total voting power) of AmerUs
after the merger.
Your Board has received a written opinion from Goldman, Sachs & Co., its
financial advisor, dated September 19, 1997, to the effect that as of such date
the exchange ratio in the merger agreement was fair from a financial point of
view to holders of AmVestors common stock.
Your Board of Directors unanimously approved the merger agreement and
believes that the merger with AmerUs is in the best interests of AmVestors and
its stockholders. The Board unanimously recommends that you approve the merger
agreement at the Special Meeting so that the merger may be completed.
Whether or not you plan to attend the Special Meeting, please take the time
to vote by completing and returning the enclosed proxy card to us. A postage
paid envelope is enclosed for your convenience. If you sign, date and return
your proxy card without indicating how you want to vote, your proxy will be
counted as a vote in favor of the merger agreement. If you fail to return a
proxy, or fail to vote at the meeting or abstain this will have the effect of a
vote against the merger. Even if you plan to attend the meeting, please complete
and return your proxy.
Pursuant to Kansas law, holders of AmVestors common stock do not have
appraisal rights with respect to the merger.
This document provides you with detailed information about the proposed
merger and related stock issuance. In addition, you may obtain information about
AmVestors from documents that AmVestors has filed with the Securities and
Exchange Commission. We encourage you to read this entire document carefully.
Sincerely,
- --------------------------------------------
Ralph W. Laster, Jr.
Chairman and Chief Executive Officer
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY.
NEITHER THE SEC NOR ANY STATE SECURITIES REGULATORS HAVE APPROVED THE AMERUS
CLASS A COMMON STOCK TO BE ISSUED UNDER THIS JOINT PROXY STATEMENT/PROSPECTUS
OR DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Joint Proxy Statement/Prospectus dated November 12, 1997 and first mailed to
stockholders on November 12, 1997.
<PAGE>
PRELIMINARY COPIES [AMERUS LIFE HOLDINGS, INC. LETTERHEAD]
CONFIDENTIAL, FOR USE
OF THE COMMISSION ONLY
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Notice is hereby given that a Special Meeting of Shareholders of AmerUs Life
Holdings, Inc. will be held on December 18, 1997, at the offices of AmerUs Life
Insurance Company at 611 Fifth Avenue, Des Moines, Iowa. The meeting will start
at 10:00 a.m., local time.
The Special Meeting will be held for the following purposes:
1. To consider and vote upon a proposal to issue shares of Class A common
stock, no par value, of AmerUs in accordance with a merger agreement which
provides for the acquisition of AmVestors Financial Corporation.
2. To consider and act upon such other business as may properly come before
the Special Meeting or any adjournment or postponement thereof.
If the merger is completed, AmerUs will issue shares of its Class A common
stock (generally intended to be valued at not less than $20) for each share of
AmVestors common stock outstanding immediately prior to completion of the
merger, as illustrated in the table on page 1 of this document.
Based upon the assumptions described in this document, the number of shares
of AmerUs Class A common stock issued in the merger is expected to be between
approximately 11.6 million and 12.8 million shares, (excluding shares underlying
certain convertible securities), and except as provided in the next sentence,
should not exceed 14.7 million shares. If a specified average trading price of
AmerUs Class A common stock during the period defined in the merger agreement is
less than $27, AmVestors may (but is not required to) terminate the merger
agreement unless AmerUs agrees to provide additional shares of AmerUs Class A
common stock necessary to achieve a value of $20 per share of AmVestors common
stock. If the stock issuance is approved and if AmVestors seeks to terminate the
merger agreement in accordance with the prior sentence, your Board of Directors
may increase the shares being issued in excess of the number stated above in
order to achieve the value of $20 per share of AmerUs Class A common stock. The
exact number of shares to be issued in the merger is not likely to be known by
you at the time of the Special Meeting.
Only holders of AmerUs common stock of record as of the close of business on
November 5, 1997 (the "Record Date") are entitled to notice of and to vote at
the Special Meeting or any adjournment or postponement thereof.
The Merger will not be completed unless the issuance of shares by AmerUs is
approved by the affirmative vote of a majority of votes cast at the Special
Meeting, assuming a quorum is present. American Mutual Holding Company
beneficially owns shares of AmerUs common stock sufficient to approve the
issuance of shares. AmerUs has been advised that the Board of Directors of
American Mutual Holding Company has passed a resolution to cause all such shares
to be voted in favor of the proposed stock issuance.
Whether or not you plan to be present at the Special Meeting, please
complete, date, and sign the enclosed proxy and return it in the enclosed
envelope. If you plan to attend the meeting, please mark the appropriate space
on the enclosed proxy.
By order of the Board of Directors,
- ---------------------------------------
James A. Smallenberger
Senior Vice President and Secretary
November 12, 1997
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY
PROMPTLY.
<PAGE>
PRELIMINARY COPIES [AMVESTORS FINANCIAL CORPORATION LETTERHEAD]
CONFIDENTIAL, FOR USE
OF THE COMMISSION ONLY
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Notice is hereby given that a Special Meeting of Stockholders of AmVestors
Financial Corporation will be held on December 18, 1997, at the Kansas City
Airport Marriott, 775 Brasilia Street, Kansas City, Missouri. The meeting will
start at 10:00 a.m., local time.
The Special Meeting will be held for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger dated as of September 19, 1997, as amended (the "Merger
Agreement"). The Merger Agreement provides for, among other things, the merger
of a wholly-owned subsidiary of AmerUs Life Holdings, Inc. into AmVestors
Financial Corporation, with AmVestors surviving the merger as a wholly-owned
subsidiary of AmerUs (the "Merger").
2. To consider and act upon such other business as may properly come before
the Special Meeting or any adjournment or postponement thereof (including
adjournment of the Special Meeting to allow for additional solicitation of
stockholder votes in order to obtain a quorum or to obtain the required vote in
favor of the Merger Agreement).
Only holders of AmVestors common stock of record as of the close of business
on November 11, 1997 are entitled to notice of and to vote at the Special
Meeting or any adjournment or postponement thereof.
The Merger will not be completed unless the Merger Agreement is adopted and
approved by the affirmative vote of a majority of stockholders entitled to vote
at the Special Meeting.
Whether or not you plan to be present at the Special Meeting, please
complete, date, and sign the enclosed proxy and return it in the enclosed
envelope. If you plan to attend the meeting, please mark the appropriate space
on the enclosed proxy.
YOUR BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF AMVESTORS ADOPT
AND APPROVE THE MERGER AGREEMENT AT THE SPECIAL MEETING SO THAT THE MERGER MAY
BE COMPLETED.
By order of the Board of Directors,
- ---------------------------------------
Lynn F. Hammes
Secretary
November 12, 1997
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY
PROMPTLY.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ------------------------------------------------- -----
<S> <C>
WHAT AMVESTORS STOCKHOLDERS WILL RECEIVE IN THE
MERGER......................................... 1
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE
STOCK ISSUANCE................................. 2
SUMMARY.......................................... 3
RISK FACTORS..................................... 15
INTRODUCTION..................................... 22
THE COMPANIES.................................... 22
THE AMERUS SPECIAL MEETING....................... 24
General........................................ 24
Matters to be Considered....................... 24
Record Date; Quorum............................ 25
Vote Required.................................. 25
Proxies........................................ 25
Solicitation of Proxies........................ 25
THE AMVESTORS SPECIAL MEETING.................... 26
General........................................ 26
Matters to be Considered....................... 26
Record Date; Stock Entitled to Vote; Quorum.... 26
Vote Required.................................. 27
Revocability of Proxies........................ 27
Solicitation of Proxies........................ 28
Adjournment of the AmVestors Special Meeting... 28
THE MERGER....................................... 29
General........................................ 29
Background of the Merger....................... 29
Certain AmVestors Projected Financial
Information and Assumptions.................. 32
AmerUs' Reasons for the Merger and the Stock
Issuance; Recommendation of the AmerUs
Board........................................ 33
Opinion of the Financial Advisor to the AmerUs
Board........................................ 34
AmVestors' Reasons for the Merger;
Recommendation of the AmVestors Board........ 40
Opinion of the Financial Advisor to the
AmVestors Board.............................. 42
Regulatory Approvals........................... 47
Form of the Merger............................. 48
Merger Consideration........................... 48
Effective Time................................. 49
Exchange Procedures............................ 49
Nasdaq Listing................................. 50
Certain U.S. Federal Income Tax Considerations
of the Merger................................ 50
Treatment of AmVestors Stock Options........... 52
Resales of AmerUs Class A Common Stock......... 53
Accounting Treatment........................... 53
No Dissenters' Rights.......................... 53
Certain Transactions; Interests of Certain
Persons in the Merger........................ 54
Conduct of Business if Merger Not
Consummated.................................. 56
CERTAIN PROVISIONS OF THE MERGER AGREEMENT....... 57
<CAPTION>
DESCRIPTION PAGE
- ------------------------------------------------- -----
<S> <C>
Certain Representations and Warranties......... 57
Conduct of Business Pending the Merger......... 57
Exercise of Call of AmVestors Convertible
Debentures................................... 58
Indemnification................................ 59
Conditions to the Merger....................... 59
No Solicitation................................ 61
Termination.................................... 62
Fees and Expenses.............................. 63
Amendment...................................... 64
Extension; Waiver.............................. 64
AMERUS LIFE HOLDINGS, INC. SUMMARY CONSOLIDATED
FINANCIAL AND OPERATING DATA................... 65
AMVESTORS FINANCIAL CORPORATION SUMMARY
CONSOLIDATED HISTORICAL FINANCIAL DATA......... 68
AMERUS LIFE HOLDINGS, INC., DELTA LIFE
CORPORATION AND AMVESTORS FINANCIAL CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION.......................... 69
CAPITALIZATION................................... 76
COMPARATIVE STOCK PRICES......................... 77
DESCRIPTION OF AMERUS CAPITAL STOCK.............. 78
COMPARISON OF SHAREHOLDER RIGHTS................. 82
MANAGEMENT BEFORE AND AFTER THE MERGER........... 92
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................. 96
AMERUS OWNERSHIP STRUCTURE....................... 101
ADDITIONAL INFORMATION REGARDING AMERUS.......... 102
Business....................................... 102
Management's Discussion and Analysis of Results
of Operations and Financial Condition of
AmerUs....................................... 137
Executive Compensation......................... 154
Glossary....................................... 161
REGISTRATION OF SECURITIES....................... 169
EXPERTS.......................................... 169
STOCKHOLDER PROPOSALS............................ 170
WHERE YOU CAN FIND MORE INFORMATION.............. 170
AMERUS CONSOLIDATED FINANCIAL STATEMENTS......... F-1
AMERUS CONSOLIDATED FINANCIAL STATEMENT
SCHEDULES...................................... S-1
</TABLE>
LIST OF ANNEXES
<TABLE>
<S> <C>
Annex I Amended and Restated Agreement and Plan
of Merger
Annex II Opinion of Donaldson, Lufkin & Jenrette
Securities Corporation
Annex III Opinion of Goldman, Sachs & Co.
</TABLE>
The securities issuable under this Joint Proxy Statement/Prospectus have not
been approved or disapproved by the Iowa Commissioner of Insurance nor has the
Iowa Commissioner of Insurance ruled upon the accuracy or adequacy of this
Joint Proxy Statement/Prospectus.
<PAGE>
WHAT AMVESTORS STOCKHOLDERS WILL RECEIVE IN THE MERGER
The number of shares of AmerUs Class A common stock into which one share of
AmVestors common stock would be converted in the merger is referred to in this
document as the "merger consideration" or the "exchange ratio". In the merger,
AmerUs expects to issue between 0.6724 and 0.7407 shares of its Class A common
stock for each share of AmVestors common stock held by AmVestors stockholders
immediately before completion of the merger, determined as follows:
- if the average last reported sales price for a share of AmerUs Class A
common stock over the 20 trading day period ending on the tenth trading
day prior to completion of the merger (the "average trading price") is
greater than or equal to $27.00 and less than or equal to $29.75, each
AmVestors share will be converted into a fraction of a share of AmerUs
Class A common stock equal to $20.00 divided by such average trading
price;
- if such average trading price is more than $29.75, each AmVestors share
will be converted into 0.6724 shares of AmerUs Class A common stock;
- if such average trading price is less than $27.00, each AmVestors share
will be converted into 0.7407 shares of AmerUs Class A common stock;
- if such average trading price is less than $27.00, the AmVestors Board may
terminate the Merger Agreement unless AmerUs adjusts the exchange ratio to
the fraction of a share of AmerUs Class A Common Stock equal to $20.00
divided by such AmerUs average trading price (resulting in a $20.00 per
share value for AmVestors common stock). The AmVestors Board is not
required to exercise this termination right and does not currently intend
to resolicit stockholder approval should it decide not to exercise such
right. THEREFORE, AMVESTORS STOCKHOLDERS COULD RECEIVE CONSIDERATION IN
THE MERGER VALUING THEIR SHARES OF AMVESTORS COMMON STOCK AT LESS THAN
$20.00 PER SHARE.
The actual value of the shares of AmerUs Class A common stock issued in the
merger cannot be determined at this time since it is based upon the market price
of such shares at the time the merger is completed. The last reported sales
price on November 11, 1997 for AmerUs shares as reported by Nasdaq was
$31 11/16. If the average trading price were $31 11/16, the exchange ratio would
be 0.6724 with a market value of 21.31. The closing price for AmVestors shares
as reported on the New York Stock Exchange composite tape on November 11, 1997
was $20 3/4. You should obtain current market prices for these stocks. For
information concerning the exchange ratio based on the anticipated closing date
of December 19, 1997, please call 1-800-301-8755 after the projected price
measuring date of December 5, 1997.
EXAMPLE: If you hold 100 shares of AmVestors common stock (worth approximately
$2,075 at $20 3/4 per share), the number of shares of AmerUs Class A
common stock you would receive in the merger would vary depending on
the AmerUs average trading price, for example:
<TABLE>
<CAPTION>
IF THE AMERUS AND YOU WOULD RECEIVE THIS FOR AN APPROXIMATE
AVERAGE NUMBER OF AMERUS SHARES VALUE (BASED ON
TRADING PRICE THEN THE EXCHANGE (PLUS CASH FOR FRACTIONAL SUCH AMERUS AVERAGE
IS: RATIO IS: AMOUNTS): TRADING PRICE) OF:
- ---------------- ------------------- --------------------------- -------------------
<S> <C> <C> <C>
$ 31.75 .6724 67 $ 2,135
$ 29.75 .6723 67 $ 2,000
$ 28.00 .7143 71 $ 2,000
$ 27.00 .7407 74 $ 2,000
$ 25.00 .7407 74 $ 1,852*
</TABLE>
- --------------
* Subject to AmVestors' right to terminate the Merger Agreement unless AmerUs
adjusts the exchange ratio to achieve a $20.00 per share value for AmVestors
Common Stock.
If the stock issuance is approved, the AmerUs Board would have the authority
to increase the number of shares being issued to achieve the value of $20 per
share. AmerUs shareholders should note that the exact number of shares to be
issued in the merger is not likely to be known at the time of the Special
Meetings.
1
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE STOCK ISSUANCE
Q: WHY ARE THE TWO COMPANIES PROPOSING THE MERGER?
A: AmerUs and AmVestors provide a variety of life insurance and annuity
products. The merger would give shareholders a stake in a combined
enterprise with greater financial resources and increased product and
geographic diversification. Management of AmerUs and AmVestors believe the
two companies have compatible business and operating strategies. The merger
would also provide an opportunity for improved efficiency and reduced
expenses.
Q: WHAT WILL HAPPEN TO MY DIVIDENDS?
A: AmVestors currently pays a quarterly dividend of $0.03 per share. AmerUs
currently pays a quarterly dividend of $0.10 per share. In the merger,
AmVestors stockholders will receive fewer shares of AmerUs than they own of
AmVestors. However, if the current AmerUs dividend rate is maintained, an
AmVestors stockholder who retains shares issued in the merger will receive a
substantial increase in quarterly dividends. The ability of AmerUs, like
AmVestors, to pay dividends is dependent upon the receipt of dividends and
other funds from its insurance subsidiaries (see "RISK FACTORS--Holding
Company Structure; Limitation on Dividends") and upon compliance with
certain credit agreements (see "Additional Information Regarding
AmerUs--Management's Discussion and Analysis of Results of Operations and
Financial Condition of AmerUs--Liquidity and Capital Resources").
Q: WILL I OWE ANY FEDERAL INCOME TAX AS A RESULT OF THE MERGER?
A: In general, you will not recognize any gain or loss for U.S. federal income
tax purposes as a result of the merger, except to the extent of any gain
with respect to any cash payment you receive instead of any fractional share
of AmerUs Class A common stock.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: The companies are working to complete the merger as soon as possible. In
addition to shareholder approvals, certain regulatory approvals must be
obtained and other conditions met. The merger is expected to be completed as
soon as possible following approval of all merger-related proposals at the
AmerUs and AmVestors special shareholder meetings.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope as soon as
possible so that your shares will be represented at your special meeting.
The AmVestors and AmerUs special meetings will take place on December 18,
1997.
Q: SHOULD I SEND IN MY STOCK CERTIFICATE NOW?
A: No. If the merger is completed, we will send AmVestors stockholders written
instructions for exchanging their stock certificates. AmerUs shareholders
will keep their certificates.
Q: WHO CAN HELP ANSWER QUESTIONS?
A: If you have more questions about the merger you should contact:
AMERUS SHAREHOLDERS
AMERUS LIFE HOLDINGS, INC.
699 WALNUT STREET
DES MOINES, IA 50309
(515) 362-3600
ATTENTION: SUSAN BOE
AMVESTORS STOCKHOLDERS
AMVESTORS FINANCIAL CORPORATION
555 SOUTH KANSAS AVENUE
TOPEKA, KS 66603
(785) 232-6945
ATTENTION: LYNN F. HAMMES
2
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER MORE FULLY AND FOR A COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS WE HAVE
REFERRED TO YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION."
THROUGHOUT THIS DOCUMENT THE TERM "MERGER" REFERS TO THE MERGER OF A
WHOLLY-OWNED SUBSIDIARY OF AMERUS LIFE HOLDINGS, INC. INTO AMVESTORS FINANCIAL
CORPORATION, WITH AMVESTORS SURVIVING THE MERGER AS A WHOLLY-OWNED SUBSIDIARY OF
AMERUS LIFE HOLDINGS, INC. THE TERM "MERGER AGREEMENT" REFERS TO THE AMENDED AND
RESTATED AGREEMENT AND PLAN OF MERGER DATED AS OF SEPTEMBER 19, 1997, AS AMENDED
AND RESTATED AS OF OCTOBER 8, 1997, A COPY OF WHICH IS INCLUDED AT THE BACK OF
THIS DOCUMENT AS ANNEX I.
THE COMPANIES
AMERUS LIFE HOLDINGS, INC.
699 Walnut Street
Des Moines, Iowa 50309
(515) 362-3600
AmerUs Life Holdings, Inc. ("AMERUS") is an insurance holding company
engaged in the business of marketing, underwriting and distributing a broad
range of individual life insurance and annuity products in 49 states and the
District of Columbia. AmerUs is part of the nation's first mutual insurance
holding company structure, under which American Mutual Holding Company ("AMHC")
is the parent corporation of AmerUs. As of November 5, 1997, the record date for
the AmerUs special meeting, AMHC beneficially owned approximately 72% of the
common stock of AmerUs.
The principal subsidiaries of AmerUs are AmerUs Life Insurance Company and
Delta Life Corporation. AmerUs acquired Delta Life Corporation on October 23,
1997 for $162.9 million in cash. Delta specializes in the sale of individual
single and flexible premium deferred annuities. As of June 30, 1997, Delta had
approximately 52,000 annuity contracts outstanding, assets of $2.0 billion,
total stockholders' equity of $107.4 million, and reserves of approximately $1.8
billion. AmerUs also owns a 34% interest in a joint venture with Ameritas Life
Insurance Corp., through which AmerUs markets variable life insurance and
variable annuity products.
For further information about AmerUs and its business see "ADDITIONAL
INFORMATION REGARDING AMERUS."
AMVESTORS FINANCIAL CORPORATION
555 South Kansas Avenue
Topeka, Kansas 66603
(785) 232-6945
AmVestors Financial Corporation ("AMVESTORS") is an insurance holding
company engaged predominantly in the sale of deferred annuity products in 47
states and the District of Columbia. AmVestors' principal subsidiaries are
American Investors Life Insurance Company, Inc. and Financial Benefit Life
Insurance Company.
For further information about AmVestors and its business see "THE
COMPANIES-- AmVestors Financial Corporation" and "WHERE YOU CAN FIND MORE
INFORMATION."
3
<PAGE>
AMERUS OWNERSHIP STRUCTURE AFTER THE MERGER
The following chart illustrates the general organization of AmerUs
immediately following completion of the Merger, assuming the Merger
Consideration is 0.6724 shares of AmerUs Class A Common Stock and all warrants
and options to purchase AmVestors Common Stock are rolled over into warrants and
options to purchase shares of AmerUs Class A Common Stock. The percentages shown
do not include shares of AmerUs Class A Common Stock which may be issued upon
exercise of warrants and options following the Merger. In addition, the
percentage of AmerUs Common Stock owned by AmerUs Group would be increased if,
as expected, AmerUs Group acquires additional shares of AmVestors Common Stock
prior to completion of the Merger.
AmerUs has two classes of common stock. In the Merger, AmVestor stockholders
would receive AmerUs Class A common stock, the same class held by other public
shareholders. AMHC beneficially owns all outstanding shares of AmerUs Class B
common stock. Under the AmerUs Charter, shares of AmerUs Class B common stock
carry with them the right to cast a number of votes generally intended to ensure
that AMHC has the right to cast at least 50.1% of the votes entitled to be cast
with respect to capital stock of AmerUs. See "DESCRIPTION OF AMERUS CAPITAL
STOCK." See "ADDITIONAL INFORMATION REGARDING AMERUS--Business--Certain
Transactions and Relationships" for information concerning the relationship
between AMHC, AmerUs Group and AmerUs.
[GRAPH]
4
<PAGE>
REASONS FOR THE MERGER
For AmerUs, the Merger is consistent with its strategy of seeking growth
through strategic acquisitions and alliances. In particular, the Merger will
expand the presence of AmerUs in the rapidly growing asset accumulation market.
In addition, the Merger will enhance the breadth and diversity of its
distribution networks and is expected to permit cross-selling of products in
multiple distribution systems and cost savings from combining similar functions,
including anticipated expense savings and operation efficiencies estimated at
between $6-8 million (pre-tax) during 1998, with additional savings expected
thereafter.
For AmVestors, the Merger presents an opportunity for its stockholders to
participate, through a tax-free reorganization, in a combined company with
greater financial resources, diversification and ability to compete in a
consolidating life insurance/annuity products industry, and also an opportunity
to realize a premium over historic market prices for their shares.
RECOMMENDATIONS TO SHAREHOLDERS
The Board of Directors of AmerUs unanimously recommends that the
shareholders of AmerUs approve the proposed stock issuance at the AmerUs Special
Meeting so that the Merger may be completed.
The Board of Directors of AmVestors unanimously recommends that the
stockholders of AmVestors approve the Merger Agreement at the AmVestors Special
Meeting so that the Merger may be completed.
THE MERGER
In the Merger, AmVestors will merge with a subsidiary of AmerUs and become a
subsidiary of AmerUs. The former stockholders of AmVestors will become
shareholders of AmerUs. For a description of what AmVestors stockholders will
receive in the Merger, see page 1 of this document. Based on the current market
price for AmerUs Class A common stock (a $31 11/16 per share last reported sales
price as of the trading day immediately preceding the date of this Joint Proxy
Statement/Prospectus), the aggregate dollar value of the AmerUs Class A common
stock to be paid by AmerUs in connection with the Merger to holders of AmVestors
common stock including holders of existing warrants and options to acquire
AmVestors common stock, would be approximately $421 million. The actual value
will depend upon market prices at the time of the Closing. We encourage you to
read the Merger Agreement because it is the legal document that governs the
Merger and the Stock Issuance.
OWNERSHIP AFTER THE MERGER
Based on the assumptions described in this document, we expect that
following the Merger the stockholders of AmVestors would receive between
approximately 33.3% and 35.5% of the total outstanding shares of common stock
(representing approximately 24.2% to 25.4% of the total voting power) of AmerUs.
Based upon its ownership interest as of November 5, 1997, immediately after
completion of the Merger AMHC would beneficially own a minimum of between 46.6%
and 48.2% of the outstanding common stock of AmerUs. In any event, AMHC would
have the right to cast at least a majority of the votes entitled to be cast at a
meeting of shareholders except where the AmerUs Charter or Iowa law require
separate class votes.
CONDITIONS TO COMPLETING THE MERGER
Completion of the Merger depends upon satisfaction of a number of
conditions, including the following:
(1) approval by shareholders of AmerUs of the issuance of Class A common
stock in the Merger;
(2) approval by stockholders of AmVestors of the Merger Agreement;
(3) receipt of all required regulatory approvals, including from
insurance regulators for the states of Iowa, Kansas and Florida;
(4) absence of any governmental or legal actions prohibiting completion
of the Merger;
(5) receipt of opinions from legal advisors to AmerUs and AmVestors
relating to the U.S. federal income tax treatment of the Merger described
below; and
(6) absence of events between the date of the Merger Agreement and
completion of the Merger which have or could have a material adverse effect
(as defined in the Merger Agreement) on AmerUs or AmVestors.
5
<PAGE>
Certain of the conditions may be waived by the party entitled to assert it.
AmVestors intends to resolicit shareholder approval for any waiver of the six
conditions referred to above. After consultation with AmerUs Group, the
controlling shareholder of AmerUs, the AmerUs Board will determine whether to
resolicit shareholder approval for any waiver of any of such conditions and in
any event will make appropriate disclosures. However, AmerUs will not waive
receipt of the opinions relating to the U.S. federal income tax treatment of the
Merger.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time by agreement of AmerUs
and AmVestors. In addition, either AmerUs or AmVestors may terminate the Merger
Agreement in certain circumstances including if:
(1) completion of the Merger has not occurred by June 30, 1998 (subject
to a 90 day extension period if the failure to complete the Merger is due to
an inability to obtain the required governmental approvals); or
(2) the other party breaches its representations, warranties or
obligations under the Merger Agreement and that breach cannot be remedied;
or
(3) the shareholders of AmerUs do not approve the issuance of Class A
common stock in the Merger or the stockholders of AmVestors do not approve
the Merger Agreement.
In addition, AmerUs may terminate the Merger Agreement in certain
circumstances including if:
(1) the AmVestors Board withdraws
its recommendation to stockholders that
the Merger Agreement be adopted and approved; or
(2) the AmVestors Board recommends to stockholders a tender offer,
merger or similar proposal made by a third party.
AmVestors may terminate the Merger Agreement in certain circumstances
including if:
(1) the AmVestors Board determines that termination is necessary to
satisfy the Board's fiduciary duties in order to enter into a superior
transaction with another party; or
(2) the average trading price for AmerUs Class A common stock is less
than $27 per share (and AmerUs does not agree to provide additional shares
to achieve a value of $20 per share of AmVestors common stock).
If the Merger Agreement is terminated, under certain circumstances AmVestors
may be obligated to pay AmerUs $10.8 million, plus certain expenses of AmerUs
associated with the proposed transaction.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
We have structured the Merger so that it will qualify as a reorganization
for U.S. federal income tax purposes. Assuming that the Merger qualifies as a
reorganization, neither AmerUs, AmVestors, nor their stockholders will recognize
any gain or loss for U.S. federal income tax purposes in the Merger (except for
any gain recognized with respect to the receipt of any cash payment received in
lieu of a fractional share of AmerUs Class A common stock). We have conditioned
the Merger on our receipt of legal opinions that the Merger will be treated as a
reorganization for U.S. federal income tax purposes. No ruling has been (or will
be) sought from the Internal Revenue Service as to the U.S. federal income tax
consequences of the Merger.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU MAY DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR OWN
TAX ADVISOR TO UNDERSTAND FULLY THE TAX CONSEQUENCES OF THE MERGER TO YOU.
COMPARATIVE STOCK PRICES
AmerUs Class A common stock is listed and traded on the Nasdaq National
Market ("NASDAQ") under the symbol "AMRS." AmVestors common stock is listed and
traded on the New York Stock Exchange under the symbol "AMV." On September 19,
1997, the last trading day ending prior to the public announcement of the
proposed Merger, the last reported sales price of AmerUs Class A common stock
quoted on the Nasdaq was $28 3/4 and the closing price of AmVestors common stock
on the New York Stock
6
<PAGE>
Exchange was $24 15/16. On November 11, 1997, the last reported sales price of
AmerUs Class A common stock quoted on Nasdaq was $31 11/16. On the same date,
the closing price of AmVestors common stock reported on the New York Stock
Exchange composite tape was $20 3/4.
AmerUs has agreed to file an application to list on Nasdaq the shares of
AmerUs Class A common stock to be issued in the Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for under the "purchase" method of accounting.
This means that the assets and liabilities of AmVestors will be recorded on
AmerUs' books at their fair market values. The excess of the Merger
consideration over the net fair market value of AmVestors' assets and
liabilities will be recorded as goodwill. After the Merger, the assets,
liabilities and results of operations of the two companies will be consolidated.
REQUIRED REGULATORY APPROVALS
The Hart-Scott-Rodino Act prohibits AmerUs and AmVestors from completing the
Merger until each has furnished certain information to the Antitrust Division of
the Department of Justice and the Federal Trade Commission ("FTC") and a
required waiting period has expired. AmerUs and AmVestors each filed the
required notification and report forms with the Antitrust Division and the FTC.
The required waiting period is scheduled to expire on December 10, 1997
(assuming no request for additional information is received).
In addition, the issuance of AmerUs stock in the Merger will require
approval of insurance regulatory authorities in Iowa. Completion of the Merger
will require approval by regulatory authorities in the states of Kansas and
Florida.
NO DISSENTERS' RIGHTS
Neither holders of AmerUs stock or AmVestors stock may demand appraisal of
or receive appraisal payments for their shares in connection with the Merger or
the stock issuance.
CERTAIN TRANSACTIONS/INTERESTS OF CERTAIN PERSONS
In considering the recommendations of the AmVestors' Board, stockholders of
AmVestors should be aware that members of its management will receive benefits
as a result of the Merger that will be in addition to benefits received by its
stockholders generally. Among other things, certain directors or executive
officers of AmVestors may become employed by AmerUs or receive incentive and/or
severance payments. Mr. Ralph W. Laster, Jr., the Chairman and Chief Executive
Officer of AmVestors, will be appointed to the AmerUs Board and Mr. Mark V.
Heitz, President and General Counsel of AmVestors, has entered into an
employment agreement with AmerUs to serve as the President of AmVestors (as the
surviving corporation in the Merger). Certain executive officers and directors
of AmVestors also may receive cash payments or shares of AmerUs Class A common
stock on account of stock options held by them relating to the purchase of
AmVestors common stock. Mr. Laster would receive approximately $2 million if he
elects to cash out his AmVestors options, $2.15 million on payment of incentive
arrangements and $1.69 million on payment of severance compensation as a result
of the Merger.
AMVESTORS REDEMPTION OF CONVERTIBLE DEBENTURES
As part of the Merger, AmVestors agreed to redeem its outstanding
convertible debentures. On or before November 7, 1997, the outstanding
debentures were converted into approximately 3.8 million shares of AmVestors
common stock. Holders of such shares on the AmVestors Meeting Record Date are
entitled to vote at the AmVestors Special Meeting.
COMPARISON OF SHAREHOLDER RIGHTS
After the Merger, the voting rights of the former stockholders of AmVestors
will differ in certain important respects once the Merger is completed and they
become shareholders of AmerUs. For example, under Iowa law and the AmerUs
Charter, AMHC will retain the right to cast at least a majority of the votes
entitled to be cast at a meeting of AmerUs shareholders, even if AMHC does not
own a majority of the outstanding shares of the AmerUs common
7
<PAGE>
stock, except where the AmerUs Charter or Iowa law require separate class votes.
In addition, the former stockholders of AmVestors will not be entitled to
cumulative voting in the election of members of the Board of Directors of
AmerUs. A more extensive discussion is set forth in the body of this document.
OPINIONS OF FINANCIAL ADVISORS
In deciding to approve the Merger Agreement, among the factors that the
AmerUs Board considered was the opinion of its financial advisor, Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"), to the effect that as of
September 19, 1997 the exchange ratio provided for in the Merger Agreement was
fair from a financial point of view to AmerUs. The full text of DLJ's written
opinion, which sets forth assumptions made and limitations on the review
undertaken by DLJ, is included at the back of this document as Annex II. DLJ's
opinion was provided for the information and assistance of the AmerUs Board and
is not a recommendation as to how AmerUs shareholders should vote at the AmerUs
Special Meeting. Payment of a substantial amount of DLJ's fees is contingent
upon consummation of a transaction, such as the Merger. SHAREHOLDERS OF AMERUS
ARE URGED TO, AND SHOULD, READ DLJ'S OPINION IN ITS ENTIRETY.
Similarly, in deciding to approve the Merger Agreement, one of the factors
that the AmVestors Board considered was the opinion of its financial advisor,
Goldman, Sachs & Co. ("GOLDMAN SACHS"), to the effect that as of September 19,
1997 the exchange ratio provided for in the Merger Agreement was fair from a
financial point of view to the holders of AmVestors common stock. The full text
of Goldman Sachs' written opinion, which sets forth assumptions made and
limitations on the review undertaken by Goldman Sachs, is included at the back
of this document as Annex III. Goldman Sachs' opinion was provided for the
information and assistance of the AmVestors Board in connection with its
consideration of the transaction contemplated by the Merger Agreement and is not
a recommendation as to how any holder of AmVestors common stock should vote at
the AmVestors Special Meeting. Payment of a substantial amount of Goldman Sachs'
fees is contingent upon consummation of a transaction, such as the Merger.
STOCKHOLDERS OF AMVESTORS ARE URGED TO, AND SHOULD, READ GOLDMAN SACHS' OPINION
IN ITS ENTIRETY.
RISK FACTORS
In considering whether to approve the proposals presented at the respective
Special Meetings of AmerUs and AmVestors, shareholders of AmerUs and
stockholders of AmVestors should carefully consider the risks associated with
the Merger and with ownership of AmerUs shares following the Merger. These risks
are described in detail in the section entitled "RISK FACTORS" which follows
this Summary.
8
<PAGE>
AMERUS SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following information is being provided to assist you in analyzing the
financial aspects of the Merger. The summary consolidated financial data below
as of or for the six months ended June 30, 1997 and 1996 and each of the five
years ended December 31, 1996 are derived from the consolidated financial
statements of AmerUs. The consolidated financial statements as of or for each of
the four years ended December 31, 1996 have been audited by KPMG Peat Marwick
LLP, independent auditors. The summary consolidated financial data provided
below as of or for the six months ended June 30, 1997 and 1996 and as of or for
the year ended December 31, 1992 are derived from the unaudited consolidated
financial statements of AmerUs.
The information presented below is only a summary and should be read in
conjunction with: "ADDITIONAL INFORMATION REGARDING AMERUS--Management's
Discussion and Analysis of Results of Operations and Financial Condition of
AmerUs"; "CONSOLIDATED FINANCIAL STATEMENTS"; and the other financial data
included elsewhere in this document.
<TABLE>
<CAPTION>
AS OF OR FOR THE SIX
MONTHS ENDED JUNE AS OF OR FOR THE YEAR ENDED DECEMBER 31,(A)
30,
-------------------- -----------------------------------------------------
1997(B) 1996 1996(B) 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Total revenues.................................... $ 164.0 $ 361.7 $ 505.1 $ 643.4 $ 552.4 $ 571.6 $ 534.2
Total benefits and expenses....................... 124.1 272.7 388.1 532.9 526.3 515.8 476.9
Net income........................................ 29.0 56.5 74.2 69.3 6.7 31.2 38.7
Earnings per share (C)............................ 1.25 2.44 3.20 2.99 -- -- --
Dividends declared per common share............... .10 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
CONSOLIDATED BALANCE SHEET DATA:
Total assets...................................... $ 4,450.5 $ 4,271.5 $ 4,384.2 $ 4,371.9 $ 4,036.9 $ 4,030.7 $ 3,707.6
Total liabilities................................. 3,829.5 3,769.0 3,926.7 3,832.0 3,618.6 3,524.8 3,286.4
Company-obligated mandatorily redeemable preferred
securities...................................... 86.0 -- -- -- -- -- --
Total shareholders' equity (D).................... 535.0 502.5 457.5 539.9 418.3 505.9 421.2
</TABLE>
- --------------
(A) The merger of the two predecessor entities of AmerUs, which was consummated
in 1994, has been accounted for as a pooling of interests transaction.
(B) AmerUs formed the Closed Block on June 30, 1996 as a part of the AmerUs
Reorganization. Revenues and expenses associated with the Closed Block are
shown net as a single line item. Accordingly, the individual income
statement components for the first six months of 1997 are not comparable
with the first six months of 1996, prior to the establishment of the Closed
Block. See "ADDITIONAL INFORMATION REGARDING AMERUS--Business--The AmerUs
Reorganization--Establishment and Operation of the Closed Block",
"--Management's Discussion and Analysis of Results of Operations and
Financial Condition of AmerUs--Results of Operations--Six Months Ended June
30, 1997 Compared to Six Months Ended June 30, 1996", and "--Management's
Discussion and Analysis of Results of Operations and Financial Condition of
AmerUs--Results of Operations--1996 Compared to 1995."
(C) Retroactively reflects the pro forma effect of the issuance in the initial
public offering of 18.16 million shares of AmerUs Class A common stock at
the beginning of the respective periods.
(D) Amounts reported prior to June 30, 1996 reflect policyowners' equity. From
December 31, 1993, results reflect the impact of SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities."
9
<PAGE>
AMVESTORS SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following information is being provided to assist you in analyzing the
financial aspects of the Merger. The summary consolidated financial data below
are derived from the consolidated financial statements of AmVestors, with the
data as of and for the five years ended December 31, 1996 being derived from
AmVestors' audited consolidated financial statements and the data as of and for
the six months ended June 30, 1996 and 1997 being derived from AmVestors'
unaudited quarterly financial statements. The income statement data and balance
sheet data are derived from unaudited interim financial statements which reflect
all adjustments which are, in the opinion of management, necessary to a fair
presentation of the interim financial statements and consist of normal,
recurring adjustments. The results of operations for the interim periods
presented are not necessarily indicative of the results expected for the full
fiscal year. The consolidated financial statements as of December 31, 1996 and
1995 and for each of the three years ended December 31, 1996 have been audited
by Deloitte & Touche LLP, independent auditors. The financial data as of
December 31, 1994, 1993 and 1992 and for each of the two years ended December
31, 1993 has been derived from AmVestors' audited consolidated financial
statements.
The information presented below is only a summary. More comprehensive
financial information is included in reports and other documents filed by
AmVestors with the Securities and Exchange Commission ("SEC"). Such reports and
other documents may be inspected and copies may be obtained from the offices of
the SEC. AmVestors' Annual Report on Form 10-K for the year ended December 31,
1996 and AmVestors' Quarterly Report on Form 10-Q, as amended, for the quarter
ended June 30, 1997 are each incorporated by reference into this document. See
"WHERE YOU CAN FIND MORE INFORMATION."
<TABLE>
<CAPTION>
AS OF OR FOR THE
SIX MONTHS ENDED AS OF OR FOR THE
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenue......................... $ 117.7 $ 98.7 $ 216.0 $ 166.7 $ 149.7 $ 162.5 $ 175.7
Benefits and expenses................. 97.6 83.0 181.1 141.5 130.4 134.7 156.0
Net earnings.......................... 11.2 9.7 20.9 16.6 13.7 18.0 16.8
Earnings per share:
Primary............................. .81 .80 1.63 1.60 1.32 2.59 2.87
Fully diluted....................... .73 .79 1.54 1.60 1.32 2.46 2.56
Dividends declared per share of common
stock............................... $ .0525 $ .0975 $ .1425 $ .0750 -- -- --
BALANCE SHEET DATA:
Total assets.......................... $ 3,438.3 $ 3,210.4 $ 3,345.5 $ 2,476.2 $ 2,260.0 $ 2,114.7 $ 2,090.1
Total liabilities..................... 3,224.5 3,029.9 3,141.1 2,301.8 2,155.8 2,014.4 2,040.6
Stockholders' equity.................. 213.8 180.5 204.4 174.4 104.2 100.3 49.5
</TABLE>
10
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth selected unaudited pro forma combined
financial data (the "SELECTED PRO FORMA DATA"). The Selected Pro Forma Data are
presented to reflect the effects of the Merger and the recent acquisition by
AmerUs of Delta. In the case of the income statement data, the table below
assumes that the Merger and acquisition of Delta took place as of January 1,
1996 for purposes of the unaudited pro forma combined income statement data for
the six months ended June 30, 1997 and the year ended December 31, 1996. In the
case of the balance sheet data, the table assumes that the Merger and
acquisition of Delta took place as of June 30, 1997 and December 31, 1996. The
unaudited pro forma combined income statement data do not give effect to AmerUs'
anticipated cost savings resulting from the acquisition of Delta or the Merger.
The information below should be read in conjunction with the "AMERUS LIFE
HOLDINGS, INC., DELTA LIFE CORPORATION AND AMVESTORS FINANCIAL CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION" and related
notes appearing elsewhere in this document.
<TABLE>
<CAPTION>
UNAUDITED
AMERUS AMVESTORS PRO FORMA
HISTORICAL HISTORICAL COMBINED
AS OF OR FOR AS OF OR FOR AS OF OR FOR
--------------------------- --------------------------- ----------------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED JUNE DECEMBER 31, ENDED JUNE DECEMBER 31, ENDED JUNE DECEMBER 31,
30, 1997 1996 30, 1997 1996 30, 1997 1996
----------- -------------- ----------- -------------- ------------ --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Total Revenues........................... $ 164.0 $ 505.1 $ 117.7 $ 216.0 $ 302.1 $ 765.0
Total Benefits and Expenses.............. 124.1 388.1 97.6 181.1 251.4 632.2
Net Income............................... 29.0 74.2 11.2 20.9 35.0 82.7
Balance Sheet Data:
Total Assets............................. $ 4,450.5 $ 4,384.2 $ 3,438.3 $ 3,345.5 $ 10,028.5 $ 9,778.5
Total Liabilities........................ 3,829.5 3,926.7 3,224.5 3,141.1 9,059.6 8,973.1
Company-Obligated Mandatorily
Redeemable Preferred Securities........ 86.0 -- -- -- 86.0 --
Total Shareholders' Equity............... 535.0 457.5 213.8 204.4 882.9 805.4
</TABLE>
11
<PAGE>
COMPARATIVE PER SHARE DATA
The following table summarizes the per share information for AmerUs Class A
common stock and AmVestors common stock on a historical, pro forma combined, and
pro forma equivalent basis for the periods indicated below. The AmVestors pro
forma equivalents are calculated by multiplying the pro forma combined per share
amounts by the respective exchange ratio. The historical data for the six months
ended June 30, 1997 and the pro forma data for the six months ended June 30,
1997 are unaudited. The data presented as pro forma per share assumes that the
Merger is completed. This data is not necessarily indicative of the results of
the future operations of the consolidated organization or the actual results
that would have occurred if the Merger had been consummated prior to the periods
indicated.
<TABLE>
<CAPTION>
AMERUS AMVESTORS AMERUS/ AMVESTORS
HISTORICAL HISTORICAL AMVESTORS
------------- ------------- PRO FORMA COMBINED PRO FORMA
SIX SIX EQUIVALENT(1)
MONTHS MONTHS -------------------- --------------------
ENDED ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1997 JUNE 30 1997 JUNE 30 1997
------------- ------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Exchange Ratio............................ 0.6724 0.7407 0.6724 0.7407
Book value per share at end of period..... $ 23.10 $ 16.08 $25.48 25.64 $17.13 18.99
Cash dividends declared per AmerUs
share................................... .10 -- .10 .10 .07 .07
Cash dividends declared per AmVestors
share................................... -- 0.0525 -- -- -- --
Earnings per share:
Primary................................. 1.25 .81 .99 .95 .67 .70
Fully diluted........................... 1.25 .73 .99 .95 .67 .70
</TABLE>
<TABLE>
<CAPTION>
AMERUS/
AMERUS AMVESTORS AMVESTORS AMVESTORS
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
------------- ------------- COMBINED EQUIVALENT(1)
YEAR YEAR -------------------- --------------------
ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 1996 DECEMBER 31 1996
1996 1996
------------- ------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Exchange Ratio............................ 0.6724 0.7407 0.6724 0.7407
Book value per share at end of period..... $ 19.76 $ 15.58 $ 23.25 23.47 $ 15.63 $ 17.39
Cash dividends declared per AmerUs
share................................... -- -- -- -- -- --
Cash dividends declared per AmVestors
share................................... -- 0.1425 -- -- -- --
Earnings per share:
Primary................................. 3.20 1.63 2.35 2.26 1.58 1.67
Fully diluted........................... 3.20 1.54 2.35 2.26 1.58 1.67
</TABLE>
- --------------
(1) The AmVestors pro forma equivalent represents the AmerUs/AmVestors pro forma
combined book value, dividends and earnings per common share multiplied by
the respective exchange ratio of AmerUs Class A Common Stock for each share
of AmVestors Common Stock so that the AmVestors pro forma equivalent amounts
represent the respective values of one share of AmVestors Common Stock.
(2) In the event that the holders of AmVestors' stock options and stock warrants
elect not to rollover and instead elect to receive cash, the impact on pro
forma earnings per share would be less than $.02 per share. The total amount
of funds required to cash out the stock options and the warrants would range
from $18.9 million up to $22.6 million for the exchange ratio of .7407 and
.6724, respectively, assuming an AmerUs Class A Common Stock price per share
of $27 and $31.75, respectively.
12
<PAGE>
RECENT DEVELOPMENTS
AMERUS
The following table sets forth certain financial data relating to AmerUs for
the third quarter of 1997:
CONSOLIDATED INCOME STATEMENT DATA
(millions, except per share data)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE
MONTHS ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997(A) 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues(B)................................................................ $ 88.4 $ 67.2 $ 252.4 $ 428.8
Benefits and Expenses(C)................................................... $ 66.3 $ 55.4 $ 190.4 $ 328.0
Net Income................................................................. $ 16.5 $ 6.5 $ 45.5 $ 62.9
Earnings per Share......................................................... $ .71 $ .28 $ 1.96 $ 2.72
</TABLE>
- ------------------
(A) AmerUs formed the Closed Block on June 30, 1996 as part of the AmerUs
Reorganization. Revenues and expenses associated with the Closed Block are
shown net as a single line item. Accordingly, the individual income
statement components for the first nine months of 1997 are not comparable
with the first nine months of 1996, prior to the establishment of the Closed
Block. See "ADDITIONAL INFORMATION REGARDING AMERUS--Business--The AmerUs
Reorganization-Establishment and Operation of the Closed
Block",--Management's Discussion and Analysis of Results of Operations and
Financial Condition of AmerUs--Results of Operations--Six Months Ended June
30, 1997 Compared to Six Months Ended June 30, 1996", and "--Management's
Discussion and Analysis of Results of Operations and Financial Conditions of
AmerUs--Results of Operations--1996 Compared to 1995."
(B) Revenues include realized gains (losses) on investments of $5.0 million, and
$(1.8) million for the three months ended September 30, 1997 and 1996,
respectively, and $14.5 million and $62.6 million for the nine months ended
September 30, 1997 and 1996, respectively.
(C) Included in the third quarter expenses for 1996 was a $5.0 million provision
for a litigation reserve.
AMVESTORS
The following table sets forth certain financial data relating to AmVestors
for the third quarter of 1997:
CONSOLIDATED INCOME STATEMENT DATA
(millions, except per share data)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE
MONTHS ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues(1)............................................................. $ 68.4 $ 57.7 $ 186.1 $ 156.4
Benefits and Expenses................................................... $ 55.9 $ 47.6 $ 153.5 $ 130.6
Net Income.............................................................. $ 7.2 $ 5.3 $ 18.4 $ 15.0
Earnings per Share...................................................... $ 0.45 $ 0.36 $ 1.17 $ 1.15
</TABLE>
- ------------------
(1) Revenues include realized gains on investments of $8.1 million and $2.3
million for the three months ended September 30, 1997 and 1996,
respectively, and $12.0 million and $4.8 million for the nine months ended
September 30, 1997 and 1996, respectively.
13
<PAGE>
FORWARD LOOKING STATEMENTS
We have made forward-looking statements in this document (and, in the case
of AmVestors, in documents that are incorporated by reference) that are subject
to risk and uncertainties. Forward-looking statements include the information
concerning future results of operations, cost savings and synergies of AmerUs
and AmVestors after the Merger set forth under "QUESTIONS AND ANSWERS ABOUT THE
MERGER", "SUMMARY", "THE MERGER," "THE COMPANIES" "ADDITIONAL INFORMATION
REGARDING AMERUS--Management's Discussion and Analysis of Results of Operations
and Financial Condition of AmerUs," and "AMERUS LIFE HOLDINGS, INC., DELTA LIFE
CORPORATION AND AMVESTORS FINANCIAL CORPORATION UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION" and those preceded by, followed by or that
otherwise include the words "believes", "expects", "anticipates", "intends",
"estimates", or similar expressions. For those statements, we claim the
protection of the "safe harbor" section of the Private Securities Litigation
Reform Act of 1995. You should understand that the following important factors,
in addition to those discussed elsewhere in this document and in the documents
which have been incorporated by reference, could affect the future results of
AmerUs and AmVestors, and could cause those results to differ materially from
those expressed in our forward-looking statements:
- heightened competition, including the entry of new competitors and the
development of new products by competitors;
- adverse state and federal legislation and regulation, including increases
in minimum capital and reserves, and other financial viability
requirements or application of the federal securities laws to the
distribution of certain insurance and annuity products;
- the failure to develop multiple distribution channels in order to obtain
new customers or failure to retain existing customers;
- the inability to carry out marketing and sales plans, including, among
others, changes to certain products and acceptance of the revised products
in the market;
- loss of key executives;
- changes in interest rates causing a reduction of investment income;
- general economic and business conditions which are less favorable than
expected;
- unanticipated changes in industry trends;
- inaccuracies in assumptions regarding future morbidity, persistency,
mortality and interest rates used in calculating reserve amounts;
- adverse changes in ratings assigned by rating agencies;
- changes in tax laws which negatively affect demand for AmerUs' or
AmVestors' products; and
- with respect to cost savings that are expected to be realized from, and
costs associated with, the following possibilities: (a) the expected cost
savings to be realized through combining certain functions of AmerUs,
AmVestors and Delta to eliminate redundancies and better serve AmerUs'
customers cannot be fully realized because the changes are not made or
unanticipated added costs are incurred; and (b) costs or difficulties
related to the integration of the businesses of AmerUs, AmVestors and
Delta are greater than expected.
14
<PAGE>
RISK FACTORS
IN CONSIDERING WHETHER TO APPROVE AND ADOPT THE MERGER AGREEMENT, THE
STOCKHOLDERS OF AMVESTORS AND SHAREHOLDERS OF AMERUS SHOULD CONSIDER, IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, THE FOLLOWING MATTERS. CERTAIN CAPITALIZED TERMS USED IN
THIS SECTION ARE DEFINED IN OTHER SECTIONS OF THIS JOINT PROXY
STATEMENT/PROSPECTUS.
THE NUMBER OF SHARES OF CLASS A AMERUS COMMON STOCK THAT AMVESTORS STOCKHOLDERS
WILL RECEIVE IN THE MERGER IS NOT FIXED
To accomplish the Merger, AmerUs will issue to AmVestors stockholders a
certain number of shares of its Class A common stock for each share of AmVestors
common stock held by Amvestors stockholders immediately prior to completion of
the Merger, determined as follows:
- if the average trading price for a share of AmerUs Class A common stock
over the 20 trading day period ending on the tenth trading day prior to
completion of the Merger is greater than or equal to $27.00 and less than
or equal to $29.75, each AmVestors share will be converted into the
fraction of a share of AmerUs Class A common stock equal to $20.00 divided
by such average trading price;
- if such average trading price is more than $29.75, each AmVestors share
will be converted into 0.6724 shares of AmerUs Class A common stock;
- if such average trading price is less than $27.00, each AmVestors share
will be converted into 0.7407 shares of AmerUs Class A common stock;
- if such average trading price is less than $27.00, the AmVestors Board may
terminate the Merger Agreement unless AmerUs agrees to provide additional
shares of AmerUs Class A common stock necessary to achieve a value of
$20.00 per share of AmVestors common stock. The AmVestors Board is not
required to exercise this termination right. Therefore, AmVestors
stockholders could receive consideration in the Merger valuing their
shares of AmVestors common stock at less than $20.00 per share. If the
stock issuance is approved, the AmerUs Board would have the authority to
increase the number of shares to be issued in order to achieve the value
of $20.00 per share.
In the trading range between $29.75 and $27.00 a higher average trading
price of AmerUs Class A common stock during the 20 trading day period will
result in fewer AmerUs shares being issued to AmVestors stockholders. If the
special shareholder meetings are held before the 20 trading day period has
occurred, AmVestors stockholders will not know precisely how many shares of
AmerUs Class A common stock they will receive in the Merger and AmerUs
shareholders will not know precisely how many shares will be issued in the stock
issuance.
UNCERTAINTIES IN INTEGRATING OPERATIONS AND ACHIEVING COST SAVINGS
As a result of the Merger and the acquisition of Delta, AmerUs will
substantially increase in size. The success of the Merger and the acquisition of
Delta depends on the ability of AmerUs to combine operations, integrate
departments, systems and procedures and obtain cost savings following the
Merger. While management of AmerUs and AmVestors intend to work diligently to
integrate and rationalize the operations following the Merger and the
acquisition of Delta, there can be no assurance as to the timing or extent of
cost savings and efficiencies that will be achieved. It is not certain that the
anticipated benefits of the Merger and the acquisition of Delta will be
realized.
NECESSITY OF RECEIVING GOVERNMENTAL APPROVALS
In order to complete the Merger, the insurance regulatory agency in Kansas
must approve the Merger, the insurance regulatory agency in Iowa must approve
the stock issuance and the insurance regulatory agencies in Florida and Kansas
must approve the redomestication of Financial Benefit Life Insurance Company
("FBL") from Florida to Kansas. In addition, the waiting period required under
the Hart-Scott-Rodino Act must have expired. Various other approvals or
conditions also must be satisfied.
15
<PAGE>
No assurance can be given that the required approvals will be obtained and all
the conditions necessary to complete the Merger will be satisfied. See "THE
MERGER--Regulatory Approvals."
HOLDING COMPANY STRUCTURE; LIMITATIONS ON DIVIDENDS
AmerUs is an insurance holding company whose assets consist primarily of all
of the outstanding stock of AmerUs Life and Delta, and if the Merger is
completed, of AmVestors. AmerUs' ongoing ability to pay dividends to its
shareholders and meet its other obligations depends primarily upon receipt of
sufficient funds from its subsidiaries in the form of dividends or interest
payments.
The payment of dividends to AmerUs by its insurance subsidiaries is
regulated under state insurance laws. Under Iowa law, AmerUs Life may pay
dividends only from the earned surplus arising from its business. It must
receive the prior approval of the Iowa Commissioner to pay a dividend if such
dividend would exceed certain statutory limitations. As a result of an
extraordinary dividend paid in December 1996, AmerUs Life is not able to pay any
dividends until December 1997 without the prior approval of the Iowa
Commissioner. As of September 30, 1997, AmerUs Life had requested and received
approval for the payment of $10 million in dividends. The payment of dividends
by Delta Life to Delta is regulated under Tennessee law, which has statutory
limitations similar to Iowa's. Based on these limitations and 1996 results,
Delta Life could pay $8.7 million in dividends in 1997. The payment of dividends
by AmVestors' insurance subsidiaries to AmVestors is regulated under Kansas and
Florida law. Kansas has statutory limitations similar to Iowa. Under Florida
law, the aggregate dividends that FBL may pay without prior regulatory approval
is limited to $3.8 million (and similar restrictions would apply to FBL under
Kansas law following the planned redomestication). Based upon these limitations
and 1996 results, AmVestors' insurance subsidiaries could pay $13.9 million in
dividends in 1997 without obtaining prior regulatory approval. AmVestors'
insurance subsidiaries paid $2.2 million in 1997 dividends through September 30,
1997.
If AmerUs Life, Delta or AmVestors cannot pay dividends or interest to
AmerUs in the future, it could have a material adverse effect on AmerUs and the
market value of the AmerUs Class A common stock. See "ADDITIONAL INFORMATION
REGARDING AMERUS--Business--Supervision and Regulation" and "DESCRIPTION OF
AMERUS CAPITAL STOCK."
Under the terms of its existing credit agreement with its banks, AmerUs is
prohibited from paying cash dividends on AmerUs' capital stock in excess of an
amount equal to 3% of AmerUs' consolidated net worth as of the last day of the
preceding fiscal year. AmerUs has also pledged to its lenders approximately
49.9% of the outstanding common stock of AmerUs Life owned by AmerUs, 100% of
the outstanding common stock of Delta and a $50 million 9% note payable to
AmerUs by AmerUs Life. See "ADDITIONAL INFORMATION REGARDING
AMERUS--Business--Certain Transactions and Relationships."
In connection with the 8.85% Capital Securities, Series A, issued in
February 1997 by AmerUs Capital I, AmerUs' subsidiary trust, AmerUs has agreed
not to declare or pay any dividends on AmerUs' capital stock, including the
AmerUs Class A common stock, during any period of time in which dividends on the
Capital Securities are suspended, except for stock dividends. Other dividends in
respect of AmerUs' capital stock cannot be paid until all accrued dividends on
the Capital Securities have been paid.
CONTROL BY AMHC; ANTI-TAKEOVER EFFECTS OF IOWA LAW AND AMERUS CHARTER AND BYLAWS
Under Iowa law and the AmerUs Charter, AMHC, as a mutual insurance holding
company, is required to own, directly or indirectly, shares of capital stock of
AmerUs Life which carry the right to cast a majority of the votes entitled to be
cast by all of the outstanding shares of AmerUs Life's capital stock.
Consequently, AMHC may, without the approval of the other shareholders of
AmerUs, elect all of the directors of AmerUs and approve matters submitted for
shareholder approval. In addition, unless AMHC is demutualized, an action beyond
AmerUs' control, AmerUs cannot be the subject of a successful takeover bid.
Certain provisions in AmerUs' Charter and Bylaws may delay, defer or prevent a
takeover
16
<PAGE>
attempt that a shareholder might consider in his or her best interests. These
provisions include supermajority voting rights for AmerUs Class B common stock,
the ability of the board of directors to issue so-called "blank check" preferred
stock and a classified board of directors. Such provisions may adversely affect
the prevailing market price of the AmerUs Class A common stock. See "DESCRIPTION
OF AMERUS CAPITAL STOCK," "COMPARISON OF SHAREHOLDER RIGHTS" and "ADDITIONAL
INFORMATION REGARDING AMERUS--Business--Supervision and Regulation."
RELATIONSHIP WITH AMHC; POTENTIAL CONFLICTS OF INTEREST
AMHC is a mutual holding company which is operated for the benefit of its
members. The members of AMHC are policyowners of AmerUs Life. AMHC (or certain
of its wholly-owned subsidiaries) have entered into agreements with AmerUs
and/or AmerUs Life in which AmerUs and/or AmerUs Life will provide to such
subsidiaries certain management, data processing, legal and other services, or
such subsidiaries will provide services to AmerUs and/or AmerUs Life. AmerUs
management believes the terms of such agreements are fair and reasonable.
However, none of these contracts were the result of arms' length negotiations
between independent parties. These agreements may be modified in the future.
Additional agreements or transactions may be entered into between AMHC or
subsidiaries of AMHC and AmerUs and its subsidiaries. See "ADDITIONAL
INFORMATION REGARDING AMERUS-- Business--Certain Transactions and
Relationships."
As a result of these arrangements, there may be a number of potential
conflicts of interest between AmerUs and AMHC. In an effort to address such
potential conflicts, and as required by regulations of the Iowa Commissioner,
three of AmerUs' outside directors are not directors of AMHC or any of AMHC's
subsidiaries. These outside directors comprise AmerUs' Intercompany Transactions
Committee which reviews intercompany transactions involving potential
conflicting interests. However, there can be no assurance that decisions made by
AMHC will not adversely affect AmerUs. See "ADDITIONAL INFORMATION REGARDING
AMERUS--Business--Certain Transactions and Relationships" and "MANAGEMENT BEFORE
AND AFTER THE MERGER."
The National Association of Insurance Commissioners has formed a working
group to review mutual holding company legislation and regulations. The working
group's review could address, among other things, potential restrictions on
stock ownership by directors and officers, the utilization of non-voting or low
voting stock, standards for affiliate transactions, and regulation of potential
conflicts of interests. It is unclear what effect, if any, this review would
have but it is possible that insurance regulators, including Iowa, could propose
additional laws or regulations which would affect current laws such as exist in
Iowa and, as a result, might inhibit transactions between affiliates, future
stock issuances, the ability of officers and directors to secure significant
ownership positions in AmerUs or otherwise restrict the ability of AmerUs to
take advantage of new business opportunities.
RESTRICTIONS ON RATIO OF AMERUS STOCK CLASSES
The AmerUs Charter provides that the number of outstanding shares of AmerUs
Class A common stock not beneficially owned by AMHC shall not exceed the number
of outstanding shares of AmerUs Class B common stock plus the shares of AmerUs
Class A common stock beneficially owned by AMHC by a ratio of more than three to
one. As a result, AmerUs' ability to issue additional shares of AmerUs Class A
common stock for any reason, including raising additional equity capital, for
stock options or in connection with acquisitions may be restricted if such
condition should occur. Immediately following completion of the Merger, it is
anticipated that such ratio will be between approximately 1.08 to one and 1.15
to one (excluding the effect of shares of AmVestors Common Stock or AmerUs
Common Stock acquired by AmerUs Group after the date hereof).
COMPETITIVE ENVIRONMENT
AmerUs competes with a large number of other insurers and non-insurance
financial service companies, such as banks, broker-dealers and mutual funds.
Many competitors have greater financial resources and offer alternative
products. Other insurers have higher claims-paying ability and financial
17
<PAGE>
strength ratings than AmerUs. Competition exists for individual consumers and
agents and other distributors of life insurance and annuity products. Banks,
with their pre-existing customer bases for financial services products, may pose
increasing competition in the future to life insurers.
Congress is considering changing the laws which regulate banks, insurance
companies and other financial institutions. These changes may permit banks to
own insurance companies and vice versa. None of these proposals has yet been
enacted. It is not possible to predict whether any of these proposals will be
enacted or, if enacted, their potential effect on AmerUs.
AmerUs must attract and retain productive agents to sell its life insurance
and annuity products. Strong competition exists among insurance companies for
agents with demonstrated ability. Competition among insurance companies for such
agents is based on the services provided to, and relationships developed with,
these agents in addition to compensation and product structure.
IMPORTANCE OF RATINGS
Ratings with respect to claims-paying ability and financial strength have
become an increasingly important factor in establishing the competitive position
of insurance companies. Each of the rating agencies reviews its ratings
periodically and there can be no assurance that current ratings will be
maintained in the future. Claims-paying and financial strength ratings are based
upon factors relevant to policyowners and are not directed toward protection of
shareholders.
The following are the ratings as of the date of the Joint Proxy
Statement/Prospectus for the various insurance companies of AmerUs and
AmVestors:
<TABLE>
<CAPTION>
COMPANY RATING SERVICE RATING TYPE RATING
- -------------------------------------------- ---------------------- --------------------- --------------------
<S> <C> <C> <C>
AmerUs Life................................. Duff & Phelps claims-paying AA- (very high)
AmerUs Life................................. Standard & Poor's claims-paying A (good)
AmerUs Life................................. A. M. Best financial condition A (excellent)
AmerUs Life................................. Moody's financial strength A2 (good)
Financial Benefit Life*..................... A. M. Best financial condition B+ (very good)
Financial Benefit Life*..................... Standard & Poor's claims-paying BBBq (adequate)
American Investors Life*.................... Duff & Phelps claims-paying A (high)
American Investors Life*.................... A. M. Best financial condition A- (excellent)
Delta Life.................................. Duff & Phelps claims-paying A+ (high)
Delta Life.................................. A. M. Best financial condition A (excellent)
</TABLE>
- --------------
* Subsidiary of AmVestors
Following announcement of the Merger, certain of the rating agencies issued
statements regarding their ratings. Duff & Phelps reaffirmed its AA-(very high)
claims-paying ability rating of AmerUs Life. Duff & Phelps said it views the
Merger as having long term positive implications. Standard & Poor's has placed
its claims-paying rating of AmerUs Life on Credit Watch with negative
implications. Standard & Poor's stated that its action results from several
operational uncertainties. A. M. Best reaffirmed the A (excellent) rating of
AmerUs Life stating that expanded economies of scale for new business systems
and product support systems should enable it to improve earnings. Following
announcement of the acquisition of Delta, Moody's indicated that AmerUs Life,
rated A2 (good) for financial strength, was under review for possible downgrade.
Moody's has not issued any further statement with respect to AmerUs Life's
financial strength rating since announcement of the Merger.
Also following the announcement of the Merger, Duff & Phelps placed the A
(high) claims-paying ability rating of American Investors Life on "rating watch
up," reflecting potential benefits of the Merger. A. M. Best affirmed its
ratings for American Investors Life and Financial Benefit Life. Moody's placed
the Ba3 (questionable) subordinated debt rating of AmVestors on review for
possible upgrade.
18
<PAGE>
Also following the announcement of the Merger, A. M. Best reaffirmed the A-
(excellent) rating for American Investors Life and the B+ (very good) rating for
Financial Benefit Life.
Future downgrades in the ratings of AmerUs' life subsidiaries could
significantly affect sales of life insurance and annuity products and could have
a material adverse effect on the results of operations of AmerUs after the
Merger. See "ADDITIONAL INFORMATION REGARDING AMERUS--Business" and
"--Management's Discussion and Analysis of Results of Operations and Financial
Condition of AmerUs."
INTEREST RATE FLUCTUATIONS; RISK OF IMPACT OF FORCED LIQUIDATION OF INVESTMENT
PORTFOLIO
Severe interest rate fluctuations could adversely affect the ability of
AmerUs' life insurance subsidiaries to pay policyowner benefits with operating
and investment cash flows, cash on hand and other cash sources. See "ADDITIONAL
INFORMATION REGARDING AMERUS--Management's Discussion and Analysis of Results of
Operations and Financial Condition of AmerUs."
Interest rate fluctuations may also have an impact on policyowner behavior.
If AmerUs does not maintain competitive interest rates with those credited in
the marketplace, increased policy terminations may be experienced. While
policyholders may pay surrender charges to terminate policies, such terminations
would reduce AmerUs' future income.
AmerUs' actual cash flows from investments may differ from those anticipated
at the time of investment. Some of AmerUs' corporate bonds have provisions which
could cause AmerUs to reinvest these proceeds at lower interest rates if such
bonds were prepaid prior to their stated maturities. AmerUs' collateralized
mortgage obligations and other asset-backed securities are purchased based on
assumptions regarding rates of prepayments. If actual prepayments are earlier or
later than anticipated at the time of purchase, AmerUs may not receive cash
flows when expected or needed. These prepayment rates are influenced by interest
rates available for new mortgages as well as general economic conditions.
Most of AmerUs' insurance and annuity products provide for guaranteed
minimum yields. Accordingly, a significant drop in market rates of interest
could have a material impact on AmerUs' future results of operations.
FUTURE POLICY BENEFITS EXPOSURE
The liability established by AmerUs for future life insurance and annuity
policy benefits is based upon assumptions concerning a number of factors. Such
factors include interest rates, mortality, duration of the policies and
expenses. Actual experience will likely differ from assumed experience. If
AmerUs' provision for future policy benefits proves inadequate, future earnings
will be adversely affected.
REGULATORY AND RELATED RISKS
AmerUs' life insurance subsidiaries are subject to regulation by state
regulators under the insurance laws of states in which they conduct business.
AmerUs, AmerUs Group and AMHC are regulated by the Iowa Insurance Division. In
addition, American is regulated by the Kansas Department of Insurance and FBL is
regulated by the Florida Department of Insurance (and would be regulated by the
Kansas Department of Insurance following the planned redomestication). Delta is
regulated by the Tennessee Department of Insurance. The purpose of such
regulation is primarily to provide safeguards for policyowners rather than to
protect the interests of shareholders. The insurance laws of the various states
establish regulatory agencies with broad administrative powers including the
authority to grant or revoke operating licenses and to regulate sales practices,
investments, deposits of securities, the form and content of financial
statements and insurance policies, accounting practices and the maintenance of
specified reserves and capital. In addition, the Iowa Commissioner has adopted
rules regulating the issuance of stock by AmerUs in equity offerings.
Additionally, upon the occurrence of a change of control, certain states in
which AmVestors' insurance subsidiaries do business require that insurance
19
<PAGE>
companies submit new applications to qualify to do business in such states.
There can be no assurances that the new applications of AmVestors' insurance
subsidiaries will be approved to permit them to continue to operate in these
states. The inability to operate in these states could have a material adverse
impact on the sales of such subsidiaries. See "ADDITIONAL INFORMATION REGARDING
AMERUS-- Business--Supervision and Regulation."
Insurance regulators have in recent years investigated allegations of
improper sales practices by insurance agents, including churning and misleading
sales presentations. The National Association of Insurance Commissioners has
adopted a model law and regulation which would standardize the form and content
of any illustrations provided to prospective purchasers of individual life
insurance products. The model law has been enacted in a number of states. AmerUs
expects that similar laws will eventually be enacted in additional states in
which AmerUs sells individual life insurance products. There can be no assurance
as to whether any such changes will have a material adverse impact on sales of
such products by the industry as a whole or by AmerUs.
Certain of AmerUs' insurance and annuity products are innovative and
relatively new. The regulatory framework at the state and federal level
applicable to such products is evolving. The changing regulatory framework could
affect the design of such products and AmerUs' ability to sell certain products.
For example, in August 1996, the SEC requested information and comments about
the structure of equity index insurance products, the manner in which they are
marketed and the federal securities law issues raised by equity index insurance
products. It is possible that the SEC may propose new regulations or policies
with respect to equity index insurance products which may affect the marketing
of such products or impose requirements that some or all such products be
registered with the SEC. See "ADDITIONAL INFORMATION REGARDING
AMERUS--Business--Supervision and Regulation."
RISKS OF CLASS ACTION LITIGATION
In recent years, a number of life insurance companies, including AmerUs
Life, have been named defendants in class action lawsuits arising out of their
business practices. Although AmerUs has denied all allegations against it and
has vigorously defended against the class action lawsuits which have been
brought against its life insurance subsidiaries, there can be no assurance that
any such litigation will not have a material adverse effect on the life
insurance industry generally or on AmerUs. See "ADDITIONAL INFORMATION REGARDING
AMERUS--Management's Discussion and Analysis of Results of Operations and
Financial Condition of AmerUs" and "--Business--Legal Proceedings."
ADVERSE TAX LEGISLATION AND ADMINISTRATIVE PRONOUNCEMENTS
Congress has from time to time considered legislation that would reduce or
eliminate the benefits to policyowners of the deferral of taxation on the
increase of value within certain annuities and life insurance products. Other
proposals affect the taxation of annuities and life insurance products and
insurance companies. A new federal tax law reduces the rate of taxation on
certain long-term capital gains for individuals. This legislation, along with
other possible proposals or administrative pronouncements, including those
relating to the dividends received deduction, the applicability of the equity
add-on tax, and ordinary versus capital gain treatment for corporations, could
adversely affect the taxation of AmerUs or the sale of annuities and life
insurance products. Similarly, there can be no certainty as to what, if any,
future laws or administrative pronouncements on these issues might be enacted or
promulgated or whether any such laws or pronouncements would have any adverse
effects on AmerUs.
RISKS RELATING TO THE CLOSED BLOCK
In connection with the reorganization undertaken by AmerUs in June 1996 (the
"AMERUS REORGANIZATION"), AmerUs Life was required to allocate specific assets
for the benefit of insurance policies and annuities existing at the time of the
AmerUs Reorganization that pay dividends or provide interest credits. This is
known as a "Closed Block." The Closed Block is designed to give reasonable
assurance to policyowners that, after the AmerUs Reorganization, assets will be
available to maintain policy dividends and interest credits in effect prior to
the AmerUs Reorganization if the same experience and performance
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continues. The investment performance of the assets in the Closed Block and the
performance of the policies covered by the Closed Block will affect future
dividends and interest credits. Any excess of cumulative favorable experience
for Closed Block policies over unfavorable experience will be available for
distribution over time to Closed Block policyowners and will not be available to
AmerUs Life or AmerUs. Unless the Iowa Commissioner consents to an earlier
termination, the Closed Block will continue to be in effect until the date on
which none of the policies in the Closed Block remains in force.
AmerUs will continue to pay guaranteed benefits under all policies,
including the policies included in the Closed Block in accordance with their
terms. If the assets allocated to the Closed Block, the investment cash flows
from those assets and the revenues from the policies included in the Closed
Block including investment income thereon prove to be insufficient to pay the
benefits guaranteed under the policies included in the Closed Block, AmerUs will
be required to make such payments from its general funds. AmerUs bears the costs
of operating and managing the Closed Block and, accordingly, such costs were not
funded as part of the assets allocated to the Closed Block. Any increase in such
costs in the future would be borne by AmerUs. See "ADDITIONAL INFORMATION
REGARDING AMERUS-- Business--The AmerUs Reorganization--Establishment and
Operation of the Closed Block."
RISKS RELATING TO YEAR 2000 COMPLIANCE
Many existing computer software programs and operating systems were designed
such that the year 1999 is the maximum date that many computer systems will be
able to process. AmerUs has formed a working group to address potential problems
posed by this limitation in systems software to assure that AmerUs is prepared
for the year 2000. If modifications and conversion to deal with year 2000 issues
are not completed on a timely basis or are not fully effective, such issues may
have a material adverse effect on the results of operations of AmerUs. See
"ADDITIONAL INFORMATION REGARDING AMERUS--Management's Discussion and Analysis
of Results of Operations and Financial Condition of AmerUs--Year 2000
Compliance."
AMERUS CLASS A COMMON STOCK ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of AmerUs Class A common stock (including
shares of AmerUs Class B common stock converted into AmerUs Class A common
stock), or the perception that such sales could occur, could have an adverse
effect on the price of the AmerUs Class A common stock. As of the date of this
Joint Proxy Statement/Prospectus, AMHC beneficially owns 11,706,511 shares of
Amerus Class A common stock. All of the shares of AmerUs Class A common stock
which are currently beneficially owned by AMHC are eligible for sale under SEC
rules, subject to certain volume and timing limitations. AmerUs Group has
advised AmerUs that it intends to acquire additional shares of either AmerUs
Common Stock or AmVestors Common Stock which would be converted into AmerUs
Class A Common Stock. However, there can be no assurance that such purchases
would be made, or if made, that such shares would not be resold.
LIMITED TRADING HISTORY FOR AMERUS CLASS A COMMON STOCK; POSSIBLE VOLATILITY OF
AMERUS CLASS A COMMON STOCK PRICE
From January 28, 1997 (the date on which the AmerUs Class A common stock
began trading on Nasdaq) through November 11, 1997, the per share bid price of
the AmerUs Class A common stock has fluctuated from a low of $19 1/8 to a high
of $35-1/2. In the future, the market price for the AmerUs Class A common stock
may be significantly affected by AmerUs' operating results, the ability of
AmerUs to successfully integrate the Merger and the acquisition of Delta and
fluctuations in the stock market generally, as well as general economic
conditions.
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INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished to shareholders of
AmerUs Life Holdings, Inc. ("AMERUS") in connection with the solicitation of
proxies by the Board of Directors of AmerUs (the "AMERUS BOARD") for use at the
special meeting of AmerUs shareholders (the "AMERUS SPECIAL MEETING") to be held
at the offices of AmerUs Life Insurance Company at 611 Fifth Avenue, Des Moines,
Iowa, on December 18, 1997 at 10:00 a.m., and at any adjournments or
postponements thereof.
This Joint Proxy Statement/Prospectus also is being furnished to
stockholders of AmVestors Financial Corporation ("AMVESTORS") in connection with
the solicitation of proxies by the Board of Directors of AmVestors (the
"AMVESTORS BOARD") for use at the special meeting of AmVestors stockholders (the
"AMVESTORS SPECIAL MEETING") to be held at the Kansas City Airport Marriott, 775
Brasilia Street, Kansas City, Missouri, on December 18, 1997, at 10:00 a.m.,
local time, and at any adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus also constitutes a prospectus with
respect to shares of Class A common stock, no par value, of AmerUs ("AMERUS
CLASS A COMMON STOCK") issuable (the "STOCK ISSUANCE") in connection with the
merger of AFC Corp., a wholly owned subsidiary of AmerUs ("MERGER SUB"), with
and into AmVestors pursuant to the Amended and Restated Agreement and Plan of
Merger, dated as of September 19, 1997, as amended and restated on October 8,
1997 (the "MERGER AGREEMENT"). As a result of the Merger, AmVestors would become
a wholly owned subsidiary of AmerUs and all outstanding shares of common stock,
no par value, of AmVestors ("AMVESTORS COMMON STOCK") would be converted into
shares of AmerUs Class A Common Stock. AmerUs also has outstanding shares of
Class B common stock, no par value ("AMERUS CLASS B COMMON STOCK", and together
with AmerUs Class A Common Stock, "AMERUS COMMON STOCK").
THE COMPANIES
AMERUS LIFE HOLDINGS, INC.
AmerUs is an insurance holding company engaged through its subsidiaries in
the business of marketing, underwriting and distributing a broad range of
individual life insurance and annuity products to individuals and businesses in
49 states and the District of Columbia. AmerUs' primary product offerings
consist of whole life, universal life and term life insurance policies and fixed
annuities. In connection with a joint venture (the "AMERITAS JOINT VENTURE")
with Ameritas Life Insurance Corp. ("AMERITAS"), AmerUs' subsidiary, AmerUs Life
Insurance Company ("AMERUS LIFE") markets fixed annuities issued by Ameritas
Variable Life Insurance Company ("AVLIC") and sells AVLIC's variable life
insurance and variable annuity products. As of June 30, 1997, AmerUs had
approximately 424,000 life insurance policies and annuity contracts outstanding
and individual life insurance in force, net of reinsurance, of approximately
$25.9 billion. As of June 30, 1997, AmerUs had total assets of $4.5 billion and
total shareholders' equity of $535 million.
AmerUs' principal subsidiaries are AmerUs Life and Delta Life Corporation
("DELTA"). AmerUs Life was originally incorporated in 1896 as a mutual insurance
company under the name Central Life Assurance Society of the United States
("CENTRAL LIFE"). On June 30, 1996, AmerUs Life was converted into a stock life
insurance company as part of the AmerUs Reorganization. As part of the AmerUs
Reorganization, all of the shares of capital stock of AmerUs Life were issued to
American Mutual Holding Company, an Iowa mutual insurance holding company
("AMHC"), which subsequently contributed such shares to its wholly-owned
subsidiary, AmerUs Group Co. ("AMERUS GROUP"), which in turn contributed such
shares to AmerUs. See "ADDITIONAL INFORMATION REGARDING AMERUS--Business--The
AmerUs Reorganization."
On October 23, 1997, AmerUs acquired all of the outstanding capital stock of
Delta for $162.9 million in cash. As of June 30, 1997, Delta had approximately
52,000 annuity contracts outstanding, had assets of $2.0 billion, had total
stockholders' equity of $107.4 million, and had reserves of approximately
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$1.8 billion. See "ADDITIONAL INFORMATION REGARDING AMERUS--Business--Recent
Developments--Acquisition of Delta Life Corporation."
For additional information concerning AmerUs, see "ADDITIONAL INFORMATION
REGARDING AMERUS," and "CONSOLIDATED FINANCIAL STATEMENTS."
AMVESTORS FINANCIAL CORPORATION.
AmVestors is an insurance holding company whose subsidiaries are American
Investors Life Insurance Company, Inc. ("AMERICAN"), American Investors Sales
Group, Inc., AmVestors Acquisition Subsidiary, Inc., successor through merger
with Financial Benefit Group, Inc., AmVestors CBO II, Inc., AmVestors Investment
Group, Inc., Annuity International Marketing Corporation, FBL, Annuity
Warehouse, Inc. f/k/a, The Insurance Mart, Inc. and Rainbow Card Pack
Publication, Inc. AmVestors was incorporated in 1986 to serve as a holding
company for all of the common stock of American, a Kansas domiciled insurance
company admitted in 47 states and the District of Columbia. Its business focuses
on the sale of deferred annuity products, which accounted for 97%, 96% and 97%
of all premiums received by it in 1996, 1995 and 1994, respectively. Other
products offered include single premium immediate annuities and flexible premium
universal life policies. AmVestors designs its products and directs its
marketing efforts towards the savings and retirement market. As of June 30,
1997, AmVestors had approximately 113,000 life insurance policies and annuity
contracts outstanding and individual life insurance in force, net of
reinsurance, of approximately $75.8 million and annuity contracts in force with
reserves of $2.9 billion. As of the same date, AmVestors had total assets of
$3.4 billion and total stockholders' equity of $213.8 million. For additional
information concerning AmVestors, see "WHERE YOU CAN FIND MORE INFORMATION" and
"SUMMARY--AMVESTORS SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA."
AFC CORP.
AFC Corp., a wholly owned subsidiary of AmerUs ("MERGER SUB"), was
incorporated in Kansas for purposes of the Merger. Merger Sub engages in no
other business. The Merger Sub's principal executive office is located at 699
Walnut Street, Des Moines, Iowa 50309, and its telephone number is (515)
362-3600.
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THE AMERUS SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is provided to the shareholders of
AmerUs in connection with the solicitation of proxies by the AmerUs Board for
use at the AmerUs Special Meeting to be held on December 18, 1997 at 10:00 a.m.,
local time, at the offices of AmerUs Life Insurance Company at 611 Fifth Avenue,
Des Moines, Iowa and at any adjournments or postponements thereof. A form of
proxy is being provided to the shareholders of AmerUs with this Joint Proxy
Statement/Prospectus in connection with the solicitation of proxies by the
AmerUs Board for use at the AmerUs Special Meeting.
MATTERS TO BE CONSIDERED
At the AmerUs Special Meeting, shareholders will be asked to (i) approve the
Stock Issuance pursuant to the Merger, and (ii) vote upon such other business as
may properly come before the AmerUs Special Meeting or any adjournments or
postponements thereof. The AmerUs Board knows of no business that will be
presented for consideration at the AmerUs Special Meeting other than the matters
described in this Joint Proxy Statement/Prospectus. The aggregate number of
shares of AmerUs Class A Common Stock issued in connection with the Stock
Issuance immediately following the Merger is expected to be between
approximately 11.6 million and 12.8 million shares (based upon an Average AmerUs
Share Price of $27.00 and $29.75, respectively, and in each case assuming that
treasury shares are eliminated and all options and warrants are rolled over into
options to acquire shares of AmerUs Class A Common Stock). Unless AmerUs agrees
to pay the Adjusted Merger Consideration (as defined below), the aggregate
number of shares of AmerUs Class A Common Stock issuable in connection with the
Merger should not be more than 14.7 million shares (which would occur if the
Average AmerUs Share Price is $27.00 or less, and assuming conversion of the
AmVestors Convertible Debentures and exercise of all outstanding options and
warrants to purchase AmVestors Common Stock). See "THE MERGER--Merger
Consideration". If the Average AmerUs Trading Price is less than $27.00, the
AmVestors Board may terminate the Merger Agreement unless AmerUs agrees to
provide additional shares of AmerUs Class A Common Stock necessary to achieve a
value of $20 per share of AmVestors Common Stock. If the Stock Issuance is
approved, the AmerUs Board would have the authority to increase the shares being
issued in order to achieve the value of $20 per share. AmerUs shareholders
should note that the exact number of shares to be issued in the Merger is not
likely to be known at the time of the AmerUs Special Meeting. The AmVestors
Board is not required to exercise this termination right. Therefore, AmVestors
stockholders could receive consideration in the Merger valuing their shares of
AmVestors Common Stock at less than $20 per share.
The vote on the Stock Issuance is being taken because AmerUs, as a company
whose shares are listed and traded on Nasdaq, must comply with a Nasdaq rule
requiring shareholder approval if AmerUs issues common stock in connection with
the acquisition of the stock or assets of another company that has or will have
voting power equal to or in excess of 20% of the voting power outstanding before
such issuance or the number of shares of common stock to be issued is or will be
equal to or in excess of 20% of the number of shares of common stock outstanding
before such issuance. The Stock Issuance would result in the issuance of AmerUs
Class A Common Stock in excess of 20% of the number of shares of AmerUs Common
Stock outstanding before the Stock Issuance. The AmerUs Board has determined
that the Merger and the Stock Issuance are advisable and in the best interests
of AmerUs and its shareholders and has approved the Merger and the Stock
Issuance by unanimous vote of those directors voting. ACCORDINGLY, THE AMERUS
BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE STOCK ISSUANCE. See
"THE MERGER--Background of the Merger" and "--AmerUs' Reasons for the Merger and
the Stock Issuance; Recommendation of the AmerUs Board."
SHAREHOLDERS ARE REQUESTED TO PROMPTLY COMPLETE, DATE, SIGN AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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RECORD DATE; QUORUM
Only shareholders of record of AmerUs Common Stock at the close of business
on November 5, 1997 (the "AMERUS MEETING RECORD DATE") will be entitled to
receive notice of, and to vote at, the AmerUs Special Meeting and any
adjournments or postponements thereof. As of the AmerUs Meeting Record Date,
there were issued and outstanding 18,155,989 shares of AmerUs Class A Common
Stock and 5,000,000 shares of Class B Common Stock. A majority of the
outstanding shares of AmerUs Common Stock entitled to vote must be represented
in person or by proxy at the AmerUs Special Meeting in order for a quorum to be
present. If such a quorum is not present, a majority of shares so represented
may adjourn or postpone the AmerUs Special Meeting to a future date.
VOTE REQUIRED
The approval of the Stock Issuance requires the affirmative vote of the
majority of the votes cast by the holders of outstanding shares of AmerUs Common
Stock present at a meeting duly held at which a quorum is present. Shares which
are present but not voted, either by abstention or non-vote (including broker
non-vote), will be counted for establishing a quorum but will not be counted to
determine whether the Stock Issuance is approved. Each share of AmerUs Common
Stock will be entitled to one vote.
As of the AmerUs Meeting Record Date, AmerUs' directors and executive
officers and their affiliates may be deemed to be beneficial owners of
16,783,210 shares of AmerUs Common Stock representing approximately 72% of the
outstanding AmerUs Common Stock. As of the AmerUs Meeting Record Date, AMHC
beneficially owned 16,706,511 of such shares of AmerUs Common Stock (the "AMHC
SHARES"). On September 19, 1997, the Board of Directors of AMHC approved
resolutions authorizing appropriate officers and its affiliates to cause the
AMHC Shares to be voted in favor of the Stock Issuance. Since the AMHC Shares
constitute a majority of the outstanding shares of AmerUs Common Stock as of the
record date for the AmerUs Special Meeting, the vote of shares beneficially
owned by AMHC would be sufficient to approve the Stock Issuance, regardless of
whether any other AmerUs shareholder votes in favor of the Stock Issuance. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT--AmerUs Common
Stock."
PROXIES
Shares represented by properly executed proxies received in time for the
AmerUs Special Meeting will be voted at the AmerUs Special Meeting, including at
any adjournment or postponement thereof, in the manner specified by the holder
thereof. Proxies which are properly executed but which do not contain voting
instructions will be voted in favor of approval of the Stock Issuance. If a
quorum is not present at the AmerUs Special Meeting, the persons appointed as
proxies will not have the discretion to vote or act to adjourn or postpone the
AmerUs Special Meeting according to their judgment.
The grant of a proxy on the enclosed AmerUs form does not preclude a
shareholder from voting in person. A shareholder may revoke a proxy at any time
prior to its exercise by submitting a new proxy at a later date, by filing with
the Secretary of AmerUs a duly executed revocation of proxy bearing a later date
or by voting in person at the meeting, including at any adjournment or
postponement thereof. Attendance at the AmerUs Special Meeting will not of
itself constitute revocation of a proxy.
SOLICITATION OF PROXIES
AmerUs will bear the cost of solicitation of proxies from its shareholders,
except that AmerUs and AmVestors will share equally the cost of printing this
Joint Proxy Statement/Prospectus. In addition to solicitation by mail, the
directors, officers and employees of AmerUs and its subsidiaries may solicit
proxies, without receiving additional compensation therefor, by telephone,
telefax or telegram or in person. Arrangements will also be made with brokerage
houses and other custodians, nominees and fiduciaries for the forwarding of
solicitation materials to the beneficial owners of stock held of record by such
persons, and AmerUs will reimburse such brokerage houses, custodians, nominees
and fiduciaries for the reasonable out-of-pocket expenses in connection
therewith.
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THE AMVESTORS SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the stockholders
of AmVestors in connection with the solicitation of proxies by the AmVestors
Board for use at the AmVestors Special Meeting to be held on December 18, 1997
at 10:00 a.m., local time, at the Kansas City Airport Marriott, 775 Brasilia
Street, Kansas City, Missouri, and at any adjournments or postponements thereof.
Each copy of this Joint Proxy Statement/Prospectus mailed to stockholders is
accompanied by a proxy card furnished in connection with the solicitation of
proxies by the AmVestors Board for use at the AmVestors Special Meeting.
MATTERS TO BE CONSIDERED
At the AmVestors Special Meeting, stockholders will be asked to (i) approve
the Merger Agreement and the transactions contemplated thereby, and (ii) vote
upon such other business as may properly come before the AmVestors Special
Meeting or any adjournments or postponements thereof (including, without
limitation, adjournment of the AmVestors Special Meeting in order to allow for
additional solicitation of stockholder votes in order to obtain a quorum or in
order to obtain more votes in favor of the Merger Agreement). The AmVestors
Board knows of no business that will be presented for consideration at the
AmVestors Special Meeting other than the matters described in this Joint Proxy
Statement/ Prospectus.
The AmVestors Board has determined that the Merger and the Merger Agreement
are advisable and in the best interests of AmVestors and its stockholders and
has approved the Merger and the Merger Agreement by unanimous vote of those
directors voting. ACCORDINGLY, THE AMVESTORS BOARD RECOMMENDS THAT AMVESTORS
STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. See "THE
MERGER--Background of the Merger" and "--AmVestors' Reasons for the Merger;
Recommendation of the AmVestors Board."
STOCKHOLDERS ARE REQUESTED TO PROMPTLY COMPLETE, DATE, SIGN AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. FAILURE TO RETURN
A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only the holders of record of AmVestors Common Stock as of the close of
business on November 11, 1997 (the "AMVESTORS MEETING RECORD DATE") will be
entitled to notice of and to vote at the AmVestors Special Meeting. At the close
of business on November 10, 1997, there were 12,215,888 shares of AmVestors
Common Stock outstanding and entitled to vote, held by approximately 3,800
stockholders of record. Directors and executive officers of AmVestors and its
affiliates (as a group) were entitled to vote 767,991 shares of AmVestors Common
Stock, or approximately 4.5% of the outstanding votes entitled to be cast at the
AmVestors Special Meeting; all such persons have indicated to AmVestors their
intention to vote their shares of AmVestors Common Stock FOR the approval and
adoption of the Merger Agreement and the transactions contemplated thereby.
Holders of record of AmVestors Common Stock as of the close of business on the
AmVestors Meeting Record Date are entitled to one vote per share on any matter
voted on at the AmVestors Special Meeting.
The presence, either in person or by proxy, of the holders of a majority of
the outstanding shares of AmVestors Common Stock as of the AmVestors Meeting
Record Date is necessary to constitute a quorum at the AmVestors Special
Meeting. Broker non-votes and abstentions count for the purpose of determining a
quorum at the AmVestors Special Meeting. If a quorum is not obtained, or if
fewer shares are likely to be voted in favor of approval and adoption of the
Merger Agreement than the number required for approval, it is expected that the
AmVestors Special Meeting will be adjourned for the purpose of allowing
additional time for soliciting and obtaining additional proxies or votes or for
any
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other purpose, including obtaining necessary regulatory approvals, and, at any
subsequent reconvening of the AmVestors Special Meeting, all proxies will be
voted in the same manner as such proxies would have been voted at the original
convening of the meeting (except for any proxy which has been effectively
revoked or withdrawn), notwithstanding that such proxy may have been effectively
voted on the same or any other matter at a previous meeting.
STOCKHOLDERS SHOULD NOT FORWARD ANY COMMON STOCK CERTIFICATES WITH THEIR
PROXY CARDS. IN THE EVENT THE MERGER IS CONSUMMATED, STOCK CERTIFICATES SHOULD
BE DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF
TRANSMITTAL, WHICH WILL BE SENT TO STOCKHOLDERS BY CHASEMELLON SHAREHOLDER
SERVICES LLC, IN ITS CAPACITY AS THE EXCHANGE AGENT, PROMPTLY AFTER THE
EFFECTIVE TIME.
VOTE REQUIRED
The affirmative vote of the holders of at least a majority of the
outstanding shares of AmVestors Common Stock entitled to vote on the matters to
be acted upon is required to approve and adopt the Merger Agreement and the
transactions contemplated thereby. The failure to submit a proxy card (or vote
in person at the AmVestors Special Meeting) or the abstention from voting by a
stockholder (including broker non-votes) shall have the same effect as a vote
against the Merger Agreement. Brokers who hold shares of AmVestors Common Stock
as nominees will not have discretionary authority to vote shares with respect to
the Merger Agreement absent instructions from the beneficial owner thereof. The
proxy holders named in the enclosed proxy card will vote all shares of the
AmVestors Common Stock represented by proxy cards that are properly signed and
returned by stockholders in accordance with the instructions contained therein.
You may specify your voting choices by marking the appropriate boxes on the
proxy card. Shares as to which an executed proxy card is returned and the
stockholder has abstained from voting on any matter are considered shares
present at the AmVestors Special Meeting for purposes of determining a quorum
and are included in determining whether the proposals presented at the Special
Meeting are approved (I.E., an abstention would have the effect of a vote
against the Merger Agreement and the transactions contemplated thereby, and
against such other business as may have properly come before the AmVestors
Special Meeting, including adjournment or postponement thereof). On the other
hand, brokers do not have discretionary authority to vote on the approval and
adoption of the Merger Agreement as to shares held in street name, and
therefore, if an executed proxy card is returned by a broker holding shares of
AmVestors Common Stock in street name such shares will be considered present at
the AmVestors Special Meeting for purposes of determining a quorum but will not
be voted with respect to such matter (which has the effect of voting against the
proposal). IF STOCKHOLDERS PROPERLY SIGN AND RETURN THEIR PROXY CARD, BUT DO NOT
SPECIFY THEIR VOTING CHOICES, THEIR SHARES WILL BE VOTED FOR ALL PROPOSALS AND
TO APPROVE AND ADOPT THE MERGER AGREEMENT AS RECOMMENDED BY THE AMVESTORS BOARD.
The AmVestors Board is not aware of any matters other than those set forth
in the Notice of AmVestors Special Meeting of stockholders that may be brought
before the AmVestors Special Meeting. If any other matters properly come before
the AmVestors Special Meeting, including a motion to adjourn the AmVestors
Special Meeting for the purpose of soliciting additional proxies, the persons
named in the accompanying proxy will vote the shares represented by all properly
executed proxies on such matters in their discretion, except that shares
represented by proxies which have been voted "against" the Merger Agreement will
not be used to vote "for" adjournment of the AmVestors Special Meeting for the
purpose of allowing additional time for soliciting additional votes "for" the
Merger Agreement. See "--Revocability of Proxies."
REVOCABILITY OF PROXIES
A stockholder may revoke a proxy at any time prior to its exercise by (i)
delivering to Lynn F. Hammes, Secretary, AmVestors Financial Corporation, 555
South Kansas Avenue, Topeka, Kansas 66603, a written notice of revocation prior
to the AmVestors Special Meeting, (ii) delivering, prior to the AmVestors
Special Meeting, a duly executed proxy bearing a later date, or (iii) attending
the AmVestors
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Special Meeting and voting in person. The presence of a stockholder at the
AmVestors Special Meeting will not in and of itself automatically revoke such
stockholder's proxy.
SOLICITATION OF PROXIES
AmVestors will bear the costs of solicitation of proxies from its
stockholders, except that AmVestors and AmerUs will share equally the cost of
printing this Joint Proxy Statement/Prospectus. In addition to solicitation of
proxies by mail, directors, officers and employees of AmVestors and its
subsidiaries, without receiving additional compensation therefor, may solicit
proxies by telephone, telefax, telegram or in person. Arrangements also will be
made with brokerage firms and other custodians, nominees and fiduciaries for the
forwarding of solicitation materials to the beneficial owners of stock held of
record by such persons and AmVestors will reimburse such brokerage firms,
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred by them in connection therewith.
Beacon Hill Partners, Inc. ("BEACON HILL"), a professional soliciting
organization, will assist in the solicitation of proxies by AmVestors. Beacon
Hill's fee for solicitation of the proxies is estimated to be $7,500 plus
reimbursement for out-of-pocket costs and expenses.
In addition, directors, officers and employees of AmerUs and its
subsidiaries may solicit proxies from AmVestors stockholders, without receiving
additional compensation therefor, by telephone, mail, telefax, telegram or in
person.
ADJOURNMENT OF THE AMVESTORS SPECIAL MEETING
A vote (i) in person by a stockholder for adjournment of the AmVestors
Special Meeting, or (ii) for the last proposal on the proxy card authorizing the
named proxies to vote the shares covered by such proxy in their discretion with
respect to such other business as may properly come before the AmVestors Special
Meeting, which would allow such named proxies in their discretion to vote to
adjourn the AmVestors Special Meeting, would allow for additional solicitation
of stockholder votes in order to obtain a quorum or in order to obtain more
votes in favor of the Merger Agreement. The AmVestors Board unanimously
recommends that the stockholders vote in person in favor of any adjournment of
the AmVestors Special Meeting so suggested by the AmVestors Board in order to
solicit additional votes in order to obtain a quorum or to obtain more votes in
favor of the Merger Agreement, or in favor of the last proposal on its
respective proxy card. See "--Vote Required" for the effect of abstentions and
broker non-votes with respect to a vote on a proposal to adjourn the AmVestors
Special Meeting and on such other proposals.
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THE MERGER
GENERAL
The discussion in this Joint Proxy Statement/Prospectus of the Merger and
the description of the Merger Agreement's principal terms are subject to and
qualified in their entirety by reference to the Merger Agreement, a copy of
which is attached to this Joint Proxy Statement/Prospectus as Annex I.
BACKGROUND OF THE MERGER
The AmVestors Board has from time to time considered various corporate
strategies designed to increase long-term stockholder value in recognition of
the increasing importance of scale in the financial services industry. In 1993
the AmVestors Board set a goal to double assets under management over the next
three years, to $4.0 billion by December 31, 1996. In connection therewith,
AmVestors embarked on a strategy of growth which included pursuing acquisitions
of annuity companies, such as its acquisition of Financial Benefit Group, Inc.
("FBG") in April 1996, and blocks of annuity contracts. In addition, AmVestors
continued its emphasis on selling the full range of fixed rate individual
annuity products through existing agency relationships, and expanding such
relationships. By December 31, 1996, AmVestors had approximately $3.3 billion of
assets under management, well below its $4.0 billion goal, and senior management
at AmVestors became concerned with AmVestors' lack of sufficient resources to
successfully pursue an acquisition-based growth strategy. At the meetings of the
AmVestors Board on March 27, 1997 and June 10, 1997, this issue was discussed,
among other things, and the AmVestors Board concluded that while AmVestors had
experienced annual growth in premiums during 1993-1996 and year-to-date 1997,
because of its relative size, its prospects for continued growth in an
increasingly consolidating and competitive industry warranted consideration of
the feasibility of strategic alternatives in order to significantly enhance
stockholder value. At its March 27, 1997 meeting, the AmVestors Board retained
Goldman Sachs & Co. ("GOLDMAN SACHS") as financial advisor and Bush-O'Donnell &
Co., Inc. ("BUSH-O'DONNELL") as special advisor to advise AmVestors' management
in its exploration of strategic alternatives.
Soon after the March 27, 1997 AmVestors Board meeting, another insurance
company expressed interest to AmVestors regarding a potential strategic
combination and preliminary discussions were held between management of
AmVestors and such other life insurance company. Such company entered into a
confidentiality agreement with AmVestors and conducted preliminary due diligence
of AmVestors during May 1997, but such discussions did not result in a specific
transaction proposal and such company indicated that it was no longer interested
in a transaction and withdrew.
On June 10, 1997, the AmVestors Board met with Goldman Sachs and legal
counsel and discussed the withdrawal of the other insurance company and
authorized Goldman Sachs to begin a general solicitation of interest in the
market on behalf of AmVestors in an acquisition of or other strategic
transaction with AmVestors.
Beginning June 11, 1997, Goldman Sachs began such solicitation and made
initial contact with 65 potential acquirors on behalf of AmVestors.
Approximately half of these companies expressed interest in receiving
confidential information, including AmerUs. Following execution of
confidentiality agreements, including customary standstill and certain other
provisions, these potential acquirors were sent an offering memorandum and
actuarial appraisal of AmVestors insurance subsidiaries. AmerUs executed such a
confidentiality agreement on June 19, 1997 and received an offering memorandum
and actuarial appraisal. Subsequently, these potential acquirors were invited by
Goldman Sachs on behalf of AmVestors to submit written, non-binding indications
of interest, in accordance with certain procedures, to acquire or combine with
AmVestors. Five of these companies (including AmerUs) submitted formal
indications of interest, and were invited to conduct detailed due diligence of
AmVestors. After a review of the offering memorandum and an initial analysis of
the value of AmVestors prepared by AmerUs management, AmerUs submitted a
non-binding indication of interest on July 11, 1997.
On July 22, 1997, AmVestors publicly announced that it had retained Goldman
Sachs to assist it in exploring its strategic alternatives. On August 1, 1997,
Goldman Sachs distributed final bid instructions
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to four of these companies, each of which was invited to continue due diligence
on AmVestors and following that to indicate the terms and conditions on which
they might propose to enter into a business combination with AmVestors. At this
time, AmerUs retained Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") to assist it in evaluating a transaction with AmVestors.
Pursuant to the procedures established, on July 28 and 29, 1997 certain
representatives of AmerUs and their advisors conducted initial due diligence on
AmVestors and met with the senior management of AmVestors including Mr. Ralph W.
Laster, Jr., Chairman and Chief Executive Officer of AmVestors, and Mr. Mark V.
Heitz, President and General Counsel of AmVestors. The AmerUs representatives
included Mr. Michael E. Sproule, Executive Vice President and Chief Financial
Officer, Mr. Michael G. Fraizer, Senior Vice President and Treasurer of AmerUs,
and certain other officers of AmerUs.
Between August 1 and August 28, 1997 each of the four companies that had
been invited to conduct further due diligence on AmVestors communicated to
Goldman Sachs various terms and conditions on which they might propose to enter
into a business combination with AmVestors.
Following an extensive evaluation of the operations and financial condition
of AmVestors based upon the materials provided and the results of due diligence,
AmerUs on August 26, 1997, submitted its initial firm proposal for a strategic
combination of AmerUs and AmVestors. Under the proposal, each share of AmVestors
Common Stock would be converted into the right to receive a number of shares of
AmerUs Class A Common Stock valued at $19.00. In addition, AmVestors
shareholders would have had the right to elect to receive $19.00 in cash for
each share, provided that not more than 30% of the total consideration would be
paid in cash. Collar provisions which would allow AmVestors shareholders to
share in the upside potential of AmerUs stock were also offered.
On August 28, 1997 the AmVestors Board met, together with Goldman Sachs and
legal counsel, to discuss the results of the solicitation process and the
initial AmerUs proposal. At such meeting, the AmVestors Board reviewed with
Goldman Sachs the possible terms of a business combination which were
communicated by the companies that conducted further due diligence on AmVestors.
The AmVestors Board considered with respect to such companies and the terms
which they had communicated, among other factors, the type and amount of
consideration proposed and such companies' respective financial status,
prospects and reputation. Based upon such considerations, including its belief
that the initial AmerUs proposal was likely to yield to AmVestors stockholders
the most attractive amount and type of consideration, the AmVestors Board
authorized management of AmVestors to pursue further negotiations with AmerUs.
Pursuant to subsequent telephone negotiations between AmVestors and AmerUs, the
terms and conditions of the AmerUs proposal were modified to include a variable
number of shares of AmerUs Class A Common Stock, subject to a maximum and
minimum number, based upon a range of trading prices which would be used to
determine the number of shares of AmerUs Class A Common Stock into which each
share of AmVestors Common Stock would be converted.
Subsequent to AmerUs' initial proposal and prior to execution of the
definitive Merger Agreement, another company, (one of the companies first
solicited in June which did not submit a preliminary indication of interest)
expressed interest in a possible strategic transaction with AmVestors. After
entering into a confidentiality agreement, this company conducted detailed due
diligence of AmVestors, but did not submit a definitive proposal.
On August 29, 1997, Goldman Sachs on behalf of AmVestors informed AmerUs
that AmVestors was interested in a stock transaction and might consider a
similar but enhanced offer. Various telephone discussions ensued between AmerUs,
AmVestors, and representatives of their respective financial advisors during the
following weekend. The participants included Mr. Roger K. Brooks, Chairman,
Chief Executive Officer and President of AmerUs, Mr. Joseph K. Haggerty, Senior
Vice President and General Counsel of AmerUs, Messrs. Sproule, Laster and Heitz
as well as Mr. James O'Donnell, a director of AmVestors and a partner in
Bush-O'Donnell and representatives of their respective financial advisors. On
September 3, 1997, Messrs, Brooks, Sproule, Laster, Heitz, O'Donnell and
representatives of the respective financial advisors met to discuss the merits
of the proposal providing for a modified collar on the exchange ratios and total
stock consideration. The parties were unable to reach agreement at this
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time. Subsequently, on September 5, 1997, AmerUs offered a per share
consideration with a variable number of shares of AmerUs Class A Common Stock,
subject to a maximum and minimum number, intended to be valued at at least
$20.00, and a $19.00 cash alternative for up to 30% of the total consideration.
Over the next several days, the details were refined by the representatives of
the parties. In further negotiations, the Termination for Price (as defined
below) was agreed upon, and the $19.00 cash alternative was eliminated.
The AmerUs Board has provided AmerUs management with general authority to
consider and negotiate potential acquisitions, with the understanding that all
such actions would be subject to review and approval of the AmerUs Board.
Consistent with this practice, AmerUs management did not seek specific authority
to enter into negotiations concerning this transaction. On September 11, 1997,
AmerUs management initially contacted certain AmerUs directors to inform them of
the possibility of a transaction, the status of the negotiations and to solicit
questions and advice. On September 13, 1997, each of the directors of AmerUs was
sent material concerning the potential transactions with AmVestors including a
review of the proposed transaction and an overview of AmVestors and its
financial results, sales and distribution, investment portfolio and management,
the projected expense savings and summary appraisal analysis. From September 8
through September 18, 1997, AmVestors, AmerUs and their respective financial
advisors and counsel held several meetings in person and by telephone to
negotiate the various terms and conditions of the definitive Merger Agreement
and to conduct due diligence with respect to each other. These discussions led
to the definitive Merger Agreement.
On September 17, 1997, a special meeting of the AmerUs Board was held to
discuss various aspects of the proposed merger with AmVestors. Members of AmerUs
management discussed with the AmerUs Board the proposal to acquire AmVestors
including (1) a description of AmVestors' business, financial condition,
distribution systems, investment portfolio and management; (2) details of
potential expense savings and effects on earnings; and (3) a summary of major
terms of the proposed Merger Agreement. Representatives of DLJ and Fox-Pitt,
Kelton Inc. ("FOX-PITT, KELTON"), a special advisor retained by AmerUs in
September 1997, also reviewed their analysis of the proposed transaction,
including its financial terms. At the conclusion of the meeting, the AmerUs
Board authorized management to finalize the documentation for the proposed
transaction in preparation for a special AmerUs Board meeting scheduled for
September 19, 1997.
On September 19, 1997, the AmVestors Board held a full day special special
meeting to review, with the advice and assistance of its financial and legal
advisors, the proposed Merger Agreement and the transactions contemplated
thereby. At such meeting, AmVestors' management and financial and legal advisors
made presentations to the AmVestors Board concerning such matters. After further
discussions with Goldman Sachs and the management of AmVestors, and having
compared the terms communicated by the three other companies that had conducted
further due diligence on AmVestors to those contained in the proposed Merger
Agreement, the AmVestors Board determined that the Merger Consideration offered
by AmerUs represented the highest price per share likely to be obtained for
AmVestors stockholders. Goldman Sachs rendered to the AmVestors Board its
written opinion to the effect that, as of such date, the Exchange Ratio pursuant
to the Merger Agreement was fair from a financial point of view to the holders
of AmVestors Common Stock. Following the AmVestors Board's review of the Merger
Agreement and the transactions contemplated thereby, including the Merger, the
AmVestors Board unanimously approved the proposed Merger Agreement and
transactions contemplated thereby, including the Merger, and authorized the
execution and delivery of the Merger Agreement.
On September 19, 1997, the AmerUs Board held a special meeting and
considered the proposed Merger Agreement and the transactions contemplated
thereby, including the Stock Issuance. The Chairman reviewed developments since
the AmerUs Board meeting held on September 17, 1997. Members of AmerUs
management and its legal advisors made presentations concerning key elements of
the proposed transaction, including the financial assessment of AmVestors, pro
forma merger analysis, results of due diligence and legal considerations for the
AmerUs Board in discharging its fiduciary responsibilities in connection with
the proposed transaction, and the terms and conditions of the Merger Agreement
which had been negotiated. The AmerUs Board was advised of the financial aspects
of the
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Merger by DLJ and was also provided a written opinion from DLJ that the Exchange
Ratio was fair to AmerUs from a financial point of view. Fox-Pitt, Kelton, an
investment banking firm which served as a financial advisor to AmerUs in
connection with the acquisition of Delta, did not submit a written opinion or
report to the Board, but did verbally review with the Board their observations
about AmVestors, including a comparison of its operation to Delta's, the reasons
underlying the success of the AmerUs offer and the potentially favorable market
reaction to the transaction. Based upon the information presented, the AmerUs
Board unanimously approved the Merger Agreement and determined that the Merger
and the Stock Issuance were in the best interests of AmerUs shareholders, and
recommended that the AmerUs shareholders vote for the Stock Issuance.
Early in the evening on Friday, September 19, 1997, the Merger Agreement was
executed and delivered by all parties thereto, and on September 22, 1997,
AmVestors and AmerUs issued a joint press release announcing the Merger
Agreement.
CERTAIN AMVESTORS PROJECTED FINANCIAL INFORMATION AND ASSUMPTIONS
During the course of due diligence of certain parties, including AmerUs,
relating to potential strategic transactions with AmVestors, AmVestors made
available to such parties certain financial projections and estimates prepared
by AmVestors management.
AmVestors management utilized a top down approach to project financial
results using the following key assumptions. The projections assumed that
annuity premiums received would rise from approximately $514.4 million in 1997
to approximately $943.5 million in 2001. The projections were calculated
assuming level interest rates utilizing the December 31, 1996 yield curve.
Projected yields, calculated by dividing the sum of investment income and
realized gains by average cash and invested assets in the models, were assumed
to decline from 7.80% in 1997 to 7.66% in 2001 for FBL and to rise from 7.39% in
1997 to 7.47% in 2001 for American. Realized gains include the difference
between AmVestors' expected returns (based on historical results) on convertible
stocks and bonds and the coupon/dividend income from these securities. The
projections assume that throughout 1997 American and FBL's holdings of
convertible securities are increased to approximately 5% of invested assets.
Generally, no allowance has been made for default losses. AmVestors has not
experienced a default loss since 1991.
AmVestors' current interest crediting strategy is utilized as the beginning
crediting strategy for the projections. The projections assume that credited
rates are reduced 25 basis points on American's business in 1998. The average
credited interest rates generated in the models by the assumed crediting
strategy were assumed to rise from 4.89% in 1997 to 5.23% in 2001 for FBL and to
decline from 5.59% in 1997 to 5.35% in 2001 for American.
Surrender assumptions contained in the projections represent management's
best estimate of full, partial and free withdrawals. These assumptions were
developed with full consideration to historical results of the existing inforce
business.
The average surrender rates, calculated as a percentage of average policy
reserves, were assumed to decline from 17.90% in 1997 to 16.92% in 2001 for FBL
and to decline from 16.09% in 1997 to 15.48% in 2001 for American (including
deaths, full, partial and free surrenders).
Total fixed maintenance costs were assumed to be constant. All projections
assume a 35% effective federal tax rate in all years.
Based upon the foregoing assumptions and qualifications, the projected total
assets for AmVestors were estimated to rise from approximately $3.6 billion in
1997 to approximately $5.2 billion in 2001, total revenue was estimated to rise
from approximately $238.1 million in 1997 to approximately $343.0 million in
2001, and net earnings were estimated to rise from approximately $24.6 million
in 1997 to approximately $37.2 million in 2001.
AmVestors does not as a matter of course make public any projections as to
future performance or earnings, and the projections set forth above are included
in this Joint Proxy Statement/Prospectus only because the information was
provided to AmerUs. The projections were not prepared with a view to
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public disclosure or compliance with the published guidelines of the American
Institute of Certified Public Accountants regarding prospective financial
information. AmVestors' internal operating projections are, in general, prepared
solely for internal use in connection with budgeting and other management
decisions and are subjective in many respects and thus susceptible to various
interpretations and periodic revisions based on actual experience and business
developments. The projections were based on a number of material assumptions
specified therein and summarized above. These assumptions are beyond the control
of AmVestors, AmerUs and Merger Sub or their respective financial advisors, and
require a degree of economic forecasting that is inherently uncertain and
subjective. None of AmVestors, AmerUs or Merger Sub or their respective
financial advisors assumes any responsibility for the accuracy of any of the
projections. Neither AmVestors' independent auditors, nor any other independent
accountants or financial advisors, have compiled, examined or performed any
procedures with respect to the prospective financial information contained
herein, nor have they expressed any opinion or any form of assurance on such
information or its achievability, and assume no responsibility for, and disclaim
any association with, the prospective financial information. The inclusion of
the foregoing projections should not be regarded as an indication that
AmVestors, AmerUs or Merger Sub or any other person who received such
information considers it an accurate prediction of future events. AmerUs and
Merger Sub can provide no assurance whatsoever as to either the accuracy or
completeness of such projected financial statements or as to whether the
assumptions identified by AmVestors management relating thereto were reasonable.
Neither AmVestors nor AmerUs intends to update, revise or correct such
projections if they become inaccurate (even in the short term).
AMERUS' REASONS FOR THE MERGER AND THE STOCK ISSUANCE; RECOMMENDATION OF THE
AMERUS BOARD
At a meeting of the AmerUs Board (with one member absent) held on September
19, 1997, members of AmerUs' management and representatives of DLJ and Fox-Pitt,
Kelton made presentations concerning the business and prospects of AmVestors and
the potential combination of AmVestors and AmerUs. The AmerUs Board also
received presentations concerning, and reviewed the terms of, the Merger
Agreement with members of AmerUs' management, its legal counsel and financial
advisors. At the meeting, the AmerUs Board unanimously determined that the Stock
Issuance and the Merger, upon the terms and conditions set forth in the Merger
Agreement, are fair to, and in the best interests of, the shareholders of
AmerUs. Accordingly, the AmerUs Board has unanimously approved the Stock
Issuance and the Merger Agreement and unanimously recommends that the holders of
outstanding shares of AmerUs Common Stock vote for approval of the Stock
Issuance at the AmerUs Special Meeting. See "--Background of the Merger."
In reaching its determination, the AmerUs Board consulted with AmerUs'
management, as well as its financial advisors and legal counsel, and considered
the following material factors:
(i) The expectation that the Merger would provide important strategic
benefits, including:
(a) expansion of AmerUs' presence in the rapidly growing asset
accumulation business, which involves seeking and actively managing
policyholder funds through insurance and annuity products;
(b) enhancement of the breadth and diversity of AmerUs' distribution
network;
(c) increased potential for significant cross-selling efficiencies and
expense savings opportunities; and
(d) the complementary fit with the recent acquisition of Delta.
(ii) The opportunity for earnings accretion (as described under "--Opinion
of the Financial Advisor to the AmerUs Board--Pro Forma Merger Analysis") and
reduction in expenses, including anticipated cost savings of $6-8 million in
1998 and additional amounts thereafter.
(iii) The expectation that because of the issuance of additional shares of
AmerUs Class A Common Stock to acquire AmVestors (with the number outstanding
and held by the public estimated at between
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approximately 17.9 and 19.1 million vs. 6.4 million for AmerUs as of September
19, 1997), the AmerUs Class A Common Stock would have increased market float and
greater liquidity.
(iv) The presentations of DLJ delivered to the AmerUs Board on September 17
and 19, 1997, including DLJ's comparison of the calculated values of the Merger
Consideration of $20 per share to the median values described below under each
of the sections "Opinion of Financial Advisor to the AmerUs Board--Transaction
Analysis and Public Company Analysis" and DLJ analyses set forth under "Opinion
of Financial Advisor to the AmerUs Board--Stock Trading History, Pro Forma
Merger Analysis and Contribution Analysis"; and DLJ's written opinion to the
effect that as of such date the Exchange Ratio was fair to AmerUs from a
financial point of view. A copy of such opinion is attached to this Joint Proxy
Statement/Prospectus as Annex II. See "--Opinion of the Financial Advisor to the
AmerUs Board."
(v) The terms and conditions of the Merger Agreement (including the fact
that under certain circumstances, AmVestors must pay AmerUs a termination fee of
up to $10.8 million in connection with the termination of the Merger Agreement
(See "THE MERGER AGREEMENT--Termination", "--Fees and Expenses")), which the
AmerUs Board, based on presentations by its legal and financial advisors, deemed
to be generally favorable to AmerUs, as well as the belief that approval of the
Merger Agreement and the Stock Issuance was consistent with the AmerUs Board's
fiduciary duties as described by its legal advisors.
(vi) AmVestors projected financial information and assumptions,
substantially as described in the preceding section.
(vii) The analysis and recommendation of the Merger by AmerUs' management,
including, without limitation, a discussion of the foregoing factors.
From the information and advice provided by management and its advisers on
the operational and strategic benefits of the acquisition in the annuity market
and the potential for a positive financial impact, the AmerUs Board believes
that the acquisition of AmVestors is a financially and operationally sound step
in its overall strategy of growing the company and increasing its resources and
that it is in the best interests of AmerUs and its shareholders.
The foregoing discussion of information and factors considered and given
weight by the AmerUs Board is not intended to be exhaustive. In view of the wide
variety of factors considered in connection with its evaluation of the terms of
the Merger, the AmerUs Board did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific factors
considered in reaching their determinations. In addition, individual members of
the AmerUs Board may have given different weights to different factors. For
additional information concerning anticipated cost savings and estimated number
of shares held by the public referenced above, see "AMERUS LIFE HOLDINGS, INC.,
DELTA LIFE CORPORATION AND AMVESTORS FINANCIAL CORPORATION PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION".
THE AMERUS BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF AMERUS COMMON STOCK
VOTE FOR APPROVAL OF THE STOCK ISSUANCE.
OPINION OF THE FINANCIAL ADVISOR TO THE AMERUS BOARD
In its role as financial advisor to AmerUs, DLJ was asked by AmerUs to
render its opinion to the AmerUs Board as to the fairness from a financial point
of view to AmerUs of the consideration to be paid by AmerUs pursuant to the
terms of the Merger Agreement. AmerUs engaged DLJ to provide its fairness
opinion based upon DLJ's qualifications, expertise and reputation as well as
DLJ's prior investment banking relationship and familiarity with AmerUs. On
September 19, 1997, DLJ delivered its written opinion (the "DLJ OPINION") to the
effect that as of the date of such opinion and based upon and subject to the
assumptions, limitations and qualifications set forth in such opinion, the
Exchange Ratio was fair to AmerUs from a financial point of view.
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A COPY OF THE DLJ OPINION IS ATTACHED HERETO AS ANNEX II. AMERUS
SHAREHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY FOR ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY DLJ.
The DLJ Opinion was prepared for the AmerUs Board and is directed only to
the fairness from a financial point of view to AmerUs, and does not constitute a
recommendation to any AmerUs shareholder as to how to vote at the AmerUs Special
Meeting. The DLJ Opinion does not constitute an opinion as to the price at which
AmerUs Class A Common Stock will actually trade at any time. The type and amount
of Merger Consideration was determined in arms' length negotiations between
AmerUs and AmVestors, in which negotiations DLJ advised AmerUs. No restrictions
or limitations were imposed by the AmerUs Board upon DLJ with respect to the
investigations made or the procedures followed by DLJ in rendering its opinion.
In arriving at its opinion, DLJ reviewed the Merger Agreement. DLJ also
reviewed financial and other information that was publicly available or
furnished to it by AmerUs and AmVestors, including information provided during
discussions with their respective managements. Included in the information
provided during discussions with the respective managements were certain
financial projections of AmVestors for the period beginning January 1, 1997 and
ending December 31, 2001 prepared by the management of AmVestors, as well as
certain financial projections of AmerUs, pro forma for the acquisition of Delta,
for the period beginning January 1, 1997 and ending December 31, 1999 prepared
by the management of AmerUs. In addition, DLJ compared certain financial and
securities data of AmerUs and AmVestors with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of AmerUs Class A Common Stock and AmVestors Common Stock,
reviewed prices and premiums paid in certain other business combinations and
conducted such other financial studies, analyses and investigations as DLJ
deemed appropriate for purposes of rendering the DLJ Opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by AmerUs and AmVestors or their
respective representatives, or that was otherwise reviewed by it. In particular,
DLJ relied upon the estimates of the management of AmerUs of the operating
synergies achievable as a result of the Merger. With respect to the financial
projections supplied to it by AmVestors, DLJ assumed that they were reasonably
prepared on the basis reflecting the best currently available estimates and
judgments of the management of AmVestors as to the future operating and
financial performance of AmVestors. With respect to the financial projections
supplied to it by AmerUs, DLJ assumed that they were reasonably prepared on the
basis reflecting the best currently available estimates and judgments of the
management of AmerUs as to the future operating and financial performance of
AmerUs. DLJ did not assume any responsibility for making an independent
evaluation of any assets or liabilities or for making any independent
verification of any of the information reviewed by it.
The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to
DLJ as of September 19, 1997. It should be understood that, although subsequent
developments may affect the DLJ Opinion, DLJ does not have any obligation to
update, revise or reaffirm the DLJ Opinion.
The following is a summary of the presentation made by DLJ to the AmerUs
Board at its September 19, 1997 meeting.
TRANSACTION ANALYSIS. DLJ reviewed publicly available information for
selected transactions completed since 1992 involving the acquisition of annuity
companies (the "SELECTED ANNUITY TRANSACTIONS") and the acquisition of life
insurance and annuity companies (the "SELECTED LIFE AND ANNUITY TRANSACTIONS")
(together, the "SELECTED TRANSACTIONS"). In reviewing the Selected Transactions,
several factors were considered, including: (i) the lack of publicly available
information for subsidiary and private company transactions which represent a
significant portion of the relevant merger and acquisition activity; and (ii)
the lack of directly comparable transactions. The Selected Transactions were not
intended to represent the complete list of annuity company transactions or life
insurance and annuity company transactions which have occurred. Such
transactions were used in this analysis because the companies involved were
deemed by DLJ to operate in similar businesses or have similar financial
characteristics to AmVestors.
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DLJ reviewed the consideration paid in the Selected Transactions in terms of
the price paid for the common stock in the Selected Transactions as a multiple
of GAAP operating earnings for the latest reported twelve month period ("LTM")
ended prior to the announcement of such transactions and as a multiple of
shareholders' equity for the latest fiscal quarter ("LFQ") ended prior to the
announcement of such transactions. In analyzing acquisitions of life insurance
and annuity companies, the purchase price paid may be described in terms of
multiples of the price paid for common stock to GAAP operating earnings and to
shareholders' equity. Variances in multiples for different transactions may
reflect such considerations as the consistency, quality and growth of earnings
and the company's capitalization, asset quality and return on capital. Since
GAAP operating earnings and shareholders' equity already reflect the cost of a
company's debt or preferred stock financing, analyses of multiples of GAAP
operating earnings or shareholders' equity are usually based on the price paid
for the company's common stock, which excludes the cost of assuming, repaying or
redeeming such debt or preferred stock financing. Comparing the multiples of the
Merger Consideration to the GAAP operating earnings and stockholders' equity of
AmVestors with multiples paid by acquirers in other transactions indicates
whether the valuation being placed on AmVestors is within the range of values
paid for other life insurance and annuity companies.
The low, average and high multiples of price paid for common stock to LTM
GAAP operating earnings were 7.7x, 16.4x and 36.6x, respectively, for the
Selected Annuity Transactions and 10.4x, 17.0x and 26.9x, respectively, for the
Selected Life and Annuity Transactions. Based on Merger Consideration of $20.00
per share, the implied multiple of Merger Consideration to AmVestors' GAAP
operating earnings for the LTM ended June 30, 1997 was 13.6x. This multiple is
between the low and average multiples of both the Selected Annuity Transactions
and the Selected Life and Annuity Transactions. The low, average and high
multiples of price paid for common stock to stockholders' equity as of the end
of the LFQ ended prior to the announcement of the transaction were 0.9x, 1.4x
and 2.7x, respectively, for the Selected Annuity Transactions and 0.9x, 1.5x and
2.7x, respectively, for the Selected Life and Annuity Transactions. Based on
Merger Consideration of $20.00 per share, the implied multiple of Merger
Consideration to AmVestors' stockholders' equity as of June 30, 1997 was 1.3x.
This multiple is between the low and average multiples of both the Selected
Annuity Transactions and the Selected Life and Annuity Transactions.
DLJ determined the percentage premium of the offer prices (represented by
the purchase price per share in cash transactions and the price of the
constituent securities multiplied by the exchange ratio in the case of
stock-for-stock mergers) over the public market trading prices one day, one week
and one month prior to the announcement date for selected transactions involving
annuity companies where the acquired company's stock was publicly traded (the
"SELECTED PUBLIC ANNUITY TRANSACTIONS") and for selected transactions involving
life insurance and annuity companies where the acquired company's stock was
publicly traded (the "SELECTED PUBLIC LIFE AND ANNUITY TRANSACTIONS"). The
average premiums of offer prices to public market trading prices one day, one
week and one month prior to the announcement date were 15.4%, 17.2% and 26.9%,
respectively, for the Selected Public Annuity Transactions and 17.0%, 18.4% and
26.2%, respectively, for the Selected Public Life and Annuity Transactions.
Merger Consideration of $20.00 per share represents discounts to the trading
prices of AmVestors Common Stock one day, one week and one month prior to
September 17, 1997 of 24.4%, 15.0% and 11.9%, respectively. These discounts are
lower than the corresponding average premiums of the Selected Public Annuity
Transactions and the Selected Public Life and Annuity Transactions. Merger
Consideration of $20.00 per share represents premiums to the trading prices of
AmVestors Common Stock one day, one week and one month prior to the July 22,
1997 announcement that AmVestors was exploring strategic alternatives, including
a sale, of 1.9%, 2.2% and 11.1%, respectively. These premiums are lower than the
corresponding average premiums of the Selected Public Annuity Transactions and
the Selected Public Life and Annuity Transactions.
PUBLIC COMPANY ANALYSIS. To provide comparative market information, DLJ
compared selected historical and projected operating and financial ratios of
AmVestors to the corresponding data and ratios
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of selected annuity companies whose securities are publicly traded. Such
companies included American Annuity Group Inc., Life USA Holding Inc. and
Presidential Life Corp. (the "SELECTED SMALL CAPITALIZATION ANNUITY COMPANIES")
as well as Liberty Financial Companies, Nationwide Financial Services, Inc.,
ReliaStar Financial Corp. and SunAmerica, Inc. (the "SELECTED LARGE
CAPITALIZATION ANNUITY COMPANIES") (together, the "SELECTED ANNUITY COMPANIES").
Such analysis included, among other things, the ratios of stock price to
GAAP operating earnings per share ("EPS") for the LTM ended June 30, 1997,
estimated GAAP operating EPS for 1997 and 1998 (as compiled by Institutional
Brokers Estimating Service for the Selected Annuity Companies) and shareholders'
equity per share as of June 30, 1997. Closing stock prices as of September 17,
1997 were used in this analysis. The ratios described in this paragraph have
been designed to reflect the value attributable in the public equity markets to
various valuation measures of annuity companies. Measures utilized in the public
marketplace to value the stock of publicly traded companies in the annuity
industry are based on, among other things, a company's historical and projected
GAAP operating earnings as well as shareholders' equity. The multiples of stock
price to GAAP operating EPS reflect the value attributed to a company by public
equity market investors based on the company's historical and projected
earnings. The multiples of stock price to shareholders' equity per share reflect
the values attributed to a company by public equity market investors based on
the company's net worth. Variances in multiples for different companies may
reflect such considerations as the consistency, quality and growth of earnings
and the company's capitalization, asset quality and return on capital. Since
GAAP operating earnings and shareholders' equity already reflect the cost of a
company's debt or preferred stock financing, analyses of multiples of GAAP
operating earnings or shareholders' equity are usually based on the price paid
for the company's common stock, which excludes debt or preferred stock
financing. Comparing the multiples of the Merger Consideration to the GAAP
operating EPS and shareholders' equity of AmVestors with the multiples at which
the Selected Annuity Companies trade indicates whether the valuation being
placed on AmVestors pursuant to the Merger Consideration is within the range of
values at which the Selected Annuity Companies trade.
The low, average and high multiples of public stock price to GAAP operating
EPS for the LTM ended June 30, 1997 were 14.0x, 14.4x and 15.0x, respectively,
for the Selected Small Capitalization Annuity Companies and 14.7x, 16.8x and
21.7x, respectively, for the Selected Large Capitalization Annuity Companies.
Based on Merger Consideration of $20.00 per share, the implied multiple of offer
price to AmVestors' GAAP operating EPS for the LTM ended June 30, 1997 was
13.6x. This multiple is lower than the low multiples of both the Selected Small
Capitalization Annuity Companies and the Selected Large Capitalization Annuity
Companies. The low, average and high multiples of public stock price to
estimated 1997 GAAP operating EPS were 13.8x, 14.7x and 15.4x, respectively, for
the Selected Small Capitalization Annuity Companies and 14.3x, 16.2x and 20.5x,
respectively, for the Selected Large Capitalization Annuity Companies. Based on
Merger Consideration of $20.00 per share, the implied multiple of offer price to
AmVestors' estimated 1997 GAAP operating EPS was 12.4x. This multiple is lower
than the low multiples of both the Selected Small Capitalization Annuity
Companies and the Selected Large Capitalization Annuity Companies. The low,
average and high multiples of public stock price to estimated 1998 GAAP
operating EPS were 12.6x, 13.1x and 13.8x, respectively, for the Selected Small
Capitalization Annuity Companies and 12.9x, 14.1x and 17.3, respectively, for
the Selected Large Capitalization Annuity Companies. Based on Merger
Consideration of $20.00 per share, the implied multiple of offer price to
AmVestors' estimated GAAP operating EPS for 1998 was 10.9x. This multiple is
lower than the low multiples of both public stock price to estimated 1998 GAAP
operating EPS of the Selected Small Capitalization Annuity Companies and the
Selected Large Capitalization Annuity Companies. The low, average and high
multiples of public stock price to stockholders' equity per share as of June 30,
1997 were 1.54x, 1.92x and 2.24x, respectively, for the Selected Small
Capitalization Annuity Companies and 1.46x, 2.47x and 3.75x, respectively, for
the Selected Large Capitalization Annuity Companies. Based on Merger
Consideration of $20.00 per share, the implied multiple of offer price to
AmVestors' stockholders' equity per share as of June 30, 1997 was 1.30x. This
multiple is lower than the low multiples of both the Selected Small
Capitalization Annuity Companies and the Selected Large Capitalization Annuity
Companies.
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No company or transaction used in the transaction analysis or the public
company analysis described above was directly comparable to the proposed Merger
or AmVestors. Accordingly, an analysis of the results of the foregoing was not
simply mathematical nor necessarily precise; rather, it involved complex
considerations and judgments concerning differences in financial and operating
characteristics of companies and other factors that could affect the transaction
values and trading prices. For example, many qualitative factors are involved in
valuing a company or analyzing a transaction in the life insurance and annuity
industries, including assessments of the quality of management, the
attractiveness of the company's target market, the economics of the products
being sold and the company's market position relative to its competitors. Other
factors that could affect the transaction values or trading prices include
differences in distribution, products, geographic or demographic customer
concentration, size, accounting practices, asset portfolio quality, interest
rate sensitivity and other factors. These factors may affect the transaction
values or trading prices in each case by affecting in varying degrees investors'
expectations of such factors as the company's risk and future operating
profitability.
STOCK TRADING HISTORY. To provide contextual data and comparative market
data, DLJ examined the history of the trading prices and their relative
relationships for AmVestors Common Stock for various periods ended prior to
September 17, 1997. DLJ also reviewed the daily closing prices of AmVestors
Common Stock and compared the AmVestors stock prices with the indices of the
Selected Annuity Companies. In addition, DLJ reviewed the trading history of
AmVestors Common Stock relative to indices of the Selected Annuity Companies in
order to assess the relative stock price performance of AmVestors and such
indices.
PRO FORMA MERGER ANALYSIS. DLJ analyzed certain pro forma financial effects
resulting from the Merger. In conducting its analysis, DLJ relied upon certain
assumptions described above and financial projections provided by the
managements of AmVestors and AmerUs. DLJ analyzed the pro forma effect of the
Merger on the EPS, stockholders' equity per share, leverage ratios and ownership
of AmerUs. AmerUs' management has indicated that it believes that the Merger
will offer consolidation opportunities which will result in revenue enhancements
and expense savings (together, "SYNERGIES") relative to the stand-alone
projected revenues and expenses of AmVestors and AmerUs. DLJ incorporated
estimates of such synergies provided by the management of AmerUs in its
analysis, although DLJ did not express any opinion as to the likelihood of such
synergies being realized. The results of the pro forma merger analysis are not
necessarily indicative of future operating results or financial position. Based
on these assumptions and on a range of Average AmerUs Share Prices and assuming
all AmVestors options and warrants are converted into comparable AmerUs
securities, AmerUs' shareholders would realize EPS accretion in 1998 and 1999,
and AmerUs' shareholders would realize shareholders' equity per share accretion
as of June 30, 1997. Based on these assumptions and assuming all AmVestors
options and warrants are converted into comparable AmerUs securities and
assuming Average AmerUs Share Prices of $27.00 and $29.75 per share, AmerUs'
ratios of debt and preferred stock to total capitalization as of June 30, 1997
would be 26.2% assuming the Merger is completed. Based on these assumptions and
assuming all AmVestors options and warrants are converted into comparable AmerUs
securities and assuming Average AmerUs Share Prices of $27.00 and $29.75 per
share, AmerUs' shareholders would have pro forma aggregate ownership of the
combined company of 63.5% and 65.6%, respectively. There can be no assurance as
to whether the assumptions regarding financial sources set forth in this
paragraph will occur, and such assumptions are used only for purposes of
illustration.
CONTRIBUTION ANALYSIS. DLJ analyzed AmVestors' and AmerUs' relative
contributions to the combined company with respect to pro forma ownership, 1998
estimated GAAP net income, 1999 estimated GAAP net income, total assets and
total shareholders' equity as of June 30, 1997 and compared this with the
relative ownership of AmerUs shareholders in the combined company after the
Merger. Such analysis was considered on a percentage contribution basis and was
made, where appropriate, with respect to estimated GAAP operating earnings for
1998 and 1999, as projected by AmVestors' and AmerUs' managements and not
reflecting any accounting adjustments related to the Merger or any synergies
expected to result from the Merger.
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AmVestors' relative contribution to the combined company with respect to pro
forma ownership is 34.4% of the total assuming an average AmerUs share price of
$29.75. AmVestors' relative contribution to the combined company with respect to
1998 and 1999 estimated GAAP net income is 31.7% and 30.3%, respectively, of the
total. AmVestors' relative contribution to total assets was 34.8% of the total.
AmVestors' relative contribution to shareholders' equity as of June 30, 1997 was
30.5% of the total. The results of these contribution analyses are not
necessarily indicative of the contributions that the respective businesses may
actually make in the future.
The summary set forth above does not purport to be a complete description of
the analyses performed by DLJ, but describes, in summary form, the principal
elements of the presentation made by DLJ to the AmerUs Board on September 19,
1997. The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Each of the
analyses conducted by DLJ was carried out in order to provide a different
perspective on the Merger and add to the total mix of information available. DLJ
did not form a conclusion as to whether any individual analysis, considered in
isolation, supported or failed to support an opinion as to fairness, from a
financial point of view. Rather, in reaching its conclusion, DLJ considered the
results of the analyses in light of each other and did not place particular
reliance or weight on any individual analysis and ultimately reached its opinion
based on the results of all analyses taken as a whole. Accordingly,
notwithstanding the separate factors summarized above, DLJ believes that its
analyses must be considered as a whole and that selected portions of its
analyses and the factors considered by it, without considering all analyses and
factors, may create an incomplete view of the evaluation process underlying the
DLJ Opinion. In performing its analyses, DLJ made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters. The analyses performed by DLJ are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses.
The AmerUs Board selected DLJ as its financial advisor because it is a
nationally recognized investment banking firm that has substantial experience in
transactions similar to the Merger and is familiar with AmerUs, its business and
the life insurance and annuity industries, as well as the fact that DLJ, as part
of its investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
Pursuant to the terms of an engagement letter dated September 15, 1997 between
AmerUs and DLJ, AmerUs is to pay DLJ $500,000 for the rendering of the DLJ
Opinion and will pay DLJ, upon consummation of the Transaction, cash
compensation equal to $3,000,000, less the $500,000 payable pursuant to the
rendering of the DLJ opinion. AmerUs also agreed to reimburse DLJ for all
out-of-pocket expenses (including the reasonable fees and out-of-pocket expenses
of counsel) incurred by DLJ in connection with its engagement and to indemnify
DLJ and certain related persons against certain liabilities in connection with
its engagement, including liabilities under the federal securities laws. The
terms of the fee arrangement with DLJ, which DLJ and AmerUs believe are
customary in transactions of this nature, were negotiated at arms' length
between AmerUs and DLJ and the AmerUs Board was aware of such arrangement,
including the fact that a significant portion of the aggregate fee payable to
DLJ is contingent upon consummation of the Merger.
In the ordinary course of business, DLJ may actively trade the securities of
both AmerUs and AmVestors for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. DLJ has performed investment banking and other services for
AmerUs in the past and has received usual and customary compensation for such
services. In January 1997, DLJ co-managed an initial public offering of AmerUs
common stock and received usual and customary underwriters compensation. In
addition, in April 1996, DLJ advised FBG, in its sale to AmVestors and received
usual and customary compensation for such services.
Fox-Pitt, Kelton also presented orally its observations about the AmVestors
transaction to the Board. Fox-Pitt, Kelton compared the distinctive distribution
systems of both AmVestors and Delta. While noting
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their differences it believed them to be complimentary. Fox-Pitt, Kelton also
stated that the relative size of AmVestors in the increasingly competitive and
consolidating annuity market, combined with the recent acquisitions in the fixed
annuity company sector by other potential purchasers, limited the number of
potential acquirers. However, the combination of AmVestors, Delta and AmerUs
Life created a competitive basis for the future because of the increased size of
the combined operations and because AmVestors has a demonstrated track record of
growth in the fixed annuity sector of the market. Lastly, Fox-Pitt Kelton
indicated it believed that the market would react favorably to the transaction
because of the recent market performance of AmVestors and because the
transaction reaffirmed the publicly stated acquisition strategy of AmerUs.
AMVESTORS' REASONS FOR THE MERGER; RECOMMENDATION OF THE AMVESTORS BOARD
The AmVestors Board has unanimously approved the Merger Agreement and the
transactions contemplated thereby. The AmVestors Board believes that the Merger
will permit the stockholders of AmVestors to participate, through a tax-free
reorganization, in a combined company with greater financial resources,
diversification and ability to compete in a consolidating life insurance/annuity
products industry.
In reaching its conclusion for such approval, the AmVestors Board consulted
with AmVestors senior management and financial and legal advisors and considered
many factors (at the September 19, 1997 Board meeting and at previous AmVestors
Board meetings), including, but not limited to, the following:
(i) the presentations by management of AmVestors regarding the
financial condition, results of operations, business and prospects of
AmVestors;
(ii) the Merger Consideration's premium over the $17.25 per share
closing market price of AmVestors Common Stock on June 10, 1997, the date of
the decision of the AmVestors Board to explore strategic alternatives
(assuming the per share value of the Merger Consideration equals the minimum
of $20.00, the Merger Consideration represents a 16% premium in comparison
to such price (see "-- Opinion of the Financial Advisor to the AmVestors
Board");
(iii) the determination of the value of the Merger Consideration is such
that (A) such value has the potential to increase over $20.00 per share of
AmVestors Common Stock in the event that the AmerUs Stock Price is greater
than $29.75 and (B) such value has the potential to decrease but cannot fall
below $20.00 per share of AmVestors Common Stock without affording AmVestors
the right to terminate the Merger Agreement and abandon the Merger (see
"--Merger Consideration");
(iv) certain pro forma financial information regarding the Merger,
including the potential realization by AmVestors stockholders of a
significant increase in rate of annual cash dividend without increasing
their current investment (from $0.12 per AmVestors share to $0.27 per AmerUs
share, pro forma);
(v) the terms and conditions of the Merger Agreement, including but not
limited to the representations, warranties and covenants thereof, the
ability of AmVestors to consider unsolicited third party offers in the
exercise of its fiduciary duties and to terminate the Agreement in certain
circumstances, and the obligation of AmVestors to pay to AmerUs its expenses
and/or a $10.8 million "breakup fee" in certain circumstances where the
Merger is not consummated (see "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Conditions to the Merger", "--No Solicitation" and
"--Termination");
(vi) the opinion received by the AmVestors Board from Goldman Sachs on
September 19, 1997 to the effect that, as of such date, the Exchange Ratio
pursuant to the Merger Agreement was fair from a financial point of view to
the holders of AmVestors Common Stock (see "--Opinion of the Financial
Advisor to the AmVestors Board");
(vii) the compatibility of the business and operating strategies of
AmVestors and AmerUs offering AmVestors stockholders the opportunity to
recognize potential increased profits and
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growth resulting in increased stockholder value. Except as set forth below
with respect to the potential efficiencies and cost savings that reasonably
could be expected to be achieved as a result of the Merger (which the senior
management of AmVestors and AmerUs estimate will aggregate approximately
$6-8 million in 1998 and additional amounts thereafter), the AmVestors Board
did not consider it practicable to, nor did it attempt to, quantify all of
the benefits that reasonably could be expected to be realized by the
stockholders of AmVestors as a result of their continuing interest in the
surviving company. Nonetheless, the AmVestors Board considered that there
would be a number of such benefits, including but not limited to (A) the
financial and managerial strength of both AmVestors and AmerUs and the
consequent ability to enhance the on-going growth potential of the business,
(B) the potential for growth of the AmVestors business as a result of the
possibility of cross-marketing AmVestors products to the AmerUs policyholder
base and (C) the potential effect of the Merger on the perception by the
ratings agencies of the business;
(viii) the potential efficiencies and synergies to be realized (including
anticipated expense savings and operation efficiencies resulting from, among
other things, removal of duplicative administrative and support functions
and facilities, estimated at between $6-8 million in 1998 and additional
amounts thereafter) by combining the operations of AmVestors and AmerUs.
(ix) the historical market prices and trading information with respect
to the shares of AmerUs Class A Common Stock and AmVestors Common Stock,
respectively, compared to each other and to industry composites and the S&P
500;
(x) the treatment of the Merger as a "tax-free reorganization" for
federal income tax purposes (see "--Certain U.S. Federal Income Tax
Considerations of the Merger");
(xi) the regulatory approvals required to consummate the Merger (see
"--Regulatory Approvals") and the prospects for receiving such approvals;
(xii) the interest of certain officers and directors of AmVestors and the
fact that such officers and directors could have interests in the Merger
that are different from other AmVestors' stockholders (see "--Certain
Transactions; Interests of Certain Persons in the Merger");
(xiii) the AmVestors' management review and due diligence of AmerUs'
financial condition, results of operations, business and prospects and
AmerUs' ability to consummate the transaction on a timely basis;
(xiv) the potential effects arising from the fact that AmerUs' corporate
parent, AMHC, is an Iowa mutual insurance holding company and indirectly
owns approximately 72% of the voting securities of AmerUs, including but not
limited to possible adverse effects on liquidity and realization of control
premiums (see "RISK FACTORS--Holding Company Structure; Limitation on
Dividends", "--Control by AMHC; Anti-Takeover Effects of Iowa Law and AmerUs
Charter and Bylaws" and
"--Relationship with AMHC; Potential Conflicts of Interest");
(xv) if the AmerUs offer were rejected, the likelihood of negotiating an
alternative transaction on as favorable a basis with another party within a
reasonable time frame; and
(xvi) that the Merger is conditioned upon approval by the holders of a
majority of the outstanding shares of AmVestors Common Stock.
Based on their analysis, the AmVestors Board determined that the Merger is
in the best interests of AmVestors' stockholders. The foregoing discussion of
the information and factors considered by the AmVestors Board is not intended to
be exhaustive, and such were considered collectively by the AmVestors Board in
connection with its review of the Merger Agreement and the transactions
contemplated thereby. In view of the variety of factors considered in connection
with its evaluation, the AmVestors Board did not find it practicable to, and did
not, quantify or otherwise rank in importance the specific factors considered in
reaching its determination. In general, however, the discussions among the
members of the AmVestors Board evidenced the view that, except as described
below, the factors enumerated above were regarded as supporting the AmVestors
Board determination to approve the
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Merger and the Merger Agreement. The factors set forth in paragraphs (ix) and
(xi) were part of the general mix of information considered by the AmVestors
Board and while important, were not necessarily regarded as having critical
importance to its decision-making process. The factors noted in paragraphs (ii),
(v), (vi), (viii), (x), (xii), (xiv) and (xvi) were regarded as important to the
AmVestors Boards' evaluation of the transaction, with the factor noted in
paragraph (xiv) being viewed negatively as described. Finally, the factors set
forth in paragraphs (i), (iii), (iv), (vii), (xiii) and (xv) were considered
highly important to the AmVestors Board and factored heavily in its decision to
recommend approval of the Merger and the Merger Agreement. Notwithstanding the
foregoing, individual members of the AmVestors Board may have attributed
different levels of significance to different factors.
The AmVestors Board has reserved the right, under certain circumstances, to
withdraw, modify or amend the foregoing recommendation in the exercise of its
fiduciary duties. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--No
Solicitation".
THE AMVESTORS BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER AS BEING IN THE BEST INTERESTS OF STOCKHOLDERS OF AMVESTORS AND
UNANIMOUSLY RECOMMENDS THAT SUCH STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND THE MERGER.
OPINION OF THE FINANCIAL ADVISOR TO THE AMVESTORS BOARD
On September 19, 1997, Goldman Sachs delivered its written opinion to the
AmVestors Board to the effect that as of the date of such opinion the Exchange
Ratio pursuant to the Merger Agreement was fair from a financial point of view
to the holders of shares of AmVestors Common Stock.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED SEPTEMBER 19,
1997, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX III
TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. STOCKHOLDERS OF AMVESTORS ARE URGED TO, AND SHOULD, READ SUCH OPINION
IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) an actuarial appraisal, dated May 13, 1997, of
AmVestors' insurance operations prepared by Actuarial Resources Corporation (the
"APPRAISAL"); (iii) Annual Reports to Stockholders and Annual Reports on Form
10-K of AmVestors for the five years ended December 31, 1996; (iv) certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of AmVestors
and AmerUs; (v) the Registration Statement on Form S-1 of AmerUs, dated January
28, 1997; (vi) Statutory Annual Statements filed by American Investors Life
Insurance Company, Financial Benefit Life Insurance Company and AmerUs Life
Insurance Company (including the predecessor companies Central Life Assurance
Company and American Mutual Life Insurance Company) with the Insurance
Departments of the States under the laws of which they are respectively
organized for the five years ended December 31, 1996; (vii) certain interim
statutory reports filed by American Investors Life Insurance Company, Financial
Benefit Life Insurance Company and AmerUs Life Insurance Company with such
Insurance Departments; (viii) certain other communications from AmVestors and
AmerUs to their respective stockholders; (ix) certain information regarding the
reserves of AmerUs; and (x) certain internal financial analyses and forecasts
for AmVestors and AmerUs that were prepared by their respective managements.
Goldman Sachs held discussions with members of the senior management of
AmVestors and AmerUs regarding the strategic rationale for, and the potential
benefits of, the transaction contemplated by the Merger Agreement and the past
and current business operations, financial condition, and future prospects of
their respective companies. Goldman Sachs also discussed the pro forma impact of
the Merger, as well as the pending acquisition by AmerUs of Delta with the
management of AmerUs (the "PRO FORMA INFORMATION"), as well as certain other
financial analyses provided to Goldman Sachs by AmerUs regarding Delta. In
addition, Goldman Sachs reviewed the reported price and trading activity for the
AmVestors Common Stock and AmerUs Common Stock, compared certain financial and
stock market information for AmVestors and AmerUs with similar information for
certain other companies the securities of which are publicly traded, reviewed
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the financial terms of certain recent business combinations in the life
insurance and annuities industries specifically and in other industries
generally and performed such other studies and analyses as it considered
appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it, including the information
furnished by AmVestors and AmerUs relating to reserves and related items, and
Goldman Sachs assumed such accuracy and completeness for purposes of rendering
its opinion. In that regard, Goldman Sachs assumed, with the consent of
AmVestors, that the financial estimates of AmVestors were reasonably prepared
and reflect the best currently available judgments of AmVestors and that such
estimates will be realized in the amounts and the times contemplated thereby.
Goldman Sachs also assumed, with the consent of AmerUs, that the financial
estimates of AmerUs were reasonably prepared and reflect the best currently
available judgments of AmerUs and that such estimates will be realized in the
amounts and the times contemplated thereby. Goldman Sachs is not an actuarial
firm, and Goldman Sachs' services did not include actuarial determinations or
evaluations by Goldman Sachs or an attempt to evaluate actuarial assumptions. In
addition, Goldman Sachs has not made an independent evaluation or appraisal of
the assets and liabilities of AmVestors, AmerUs or Delta or any of their
subsidiaries and, except for the Appraisal and certain information related to
the reserves of AmVestors and AmerUs, Goldman Sachs has not been furnished with
any such evaluation or appraisal.
Goldman Sachs' opinion was provided for the information and assistance of
the AmVestors Board in connection with its consideration of the transaction
contemplated by the Merger Agreement and such opinion does not constitute a
recommendation as to how any holder of shares of AmVestors Common Stock should
vote with respect to such transaction. Goldman Sachs' opinion was necessarily
based upon financial, economic, market and other conditions as they existed and
could be evaluated on the date of such opinion. Goldman Sachs expressed no
opinion as to the value of the AmerUs Class A Common Stock when issued to the
holders of shares of AmVestors Common Stock pursuant to the Merger Agreement or
to the prices at which AmerUs Class A Common Stock will trade subsequent to the
Merger.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its written opinion to the AmVestors
Board on September 19, 1997.
(i) HISTORICAL STOCK TRADING ANALYSIS. Goldman Sachs reviewed the
daily historical closing prices and trading volumes for shares of AmVestors
Common Stock during the period from September 16, 1996 to September 16,
1997. In addition, Goldman Sachs reviewed the volume of shares of AmVestors
Common Stock traded at a range of prices between the periods from June 10,
1994 to June 10, 1997 and from June 10, 1997 to September 16, 1997; this
review indicated weighted
average market prices of shares of AmVestors Common Stock of $14.01 and
$22.01, respectively, for the periods reviewed. Goldman Sachs also reviewed
the daily historical closing prices and trading volumes for shares of AmerUs
Class A Common Stock for the period from January 30, 1997 to September 16,
1997.
(ii) INDEXED STOCK PRICE HISTORIES. Goldman Sachs reviewed the daily
indexed historical trading prices for shares of AmVestors Common Stock
during the period from June 10, 1997 to September 16, 1997, as compared to
the S&P 500 and composite indexes comprised of (i) the following annuity
companies: American Annuity, Conseco, Hartford Life, Life USA, National
Western Life, Nationwide Financial, Presidential Life, SunAmerica and
Western National (the "ANNUITY COMPOSITE"); and (ii) the following small-cap
life insurance companies: American Heritage, Guarantee Life, Kansas City
Life, Liberty Corp, Penncorp Financial and Protective Life (the "SELECTED
SMALL-CAP LIFE COMPANIES"). Goldman Sachs also reviewed (a) the weekly
indexed historical prices for shares of AmVestors Common Stock during the
period from September 16, 1994 to September 12, 1997, as compared to the S&P
500, the Annuity Composite (not including Hartford Life, Nationwide
Financial and Western National), and the Selected Small-Cap Life Companies
(not including Guarantee Life), (b) the daily indexed historical stock price
for shares of AmerUs Class A Common Stock
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during the period from January 29, 1997 to September 16, 1997, as compared
to the S&P 500, shares of AmVestors Common Stock, the Annuity Composite (not
including Hartford Life and Nationwide Financial) and the Selected Small-Cap
Life Companies, and (c) historical forward price-to-earnings ratios for
shares of AmerUs Class A Common Stock for the period from January 29, 1997
to September 16, 1997, as compared to shares of AmVestors Common Stock, the
Annuity Composite (not including Hartford Life and Nationwide Financial) and
the Selected Small-Cap Life Companies.
(iii) SELECTED COMPANIES ANALYSIS. Goldman Sachs reviewed and compared
certain financial information relating to AmVestors and AmerUs to
corresponding financial information, ratios and public market multiples for
the Selected Small-Cap Life Companies and for selected publicly traded
large-capitalization life insurance companies and annuity companies. The
selected large-capitalization life insurance companies were American
General, Equitable, AFLAC, Lincoln National, UNUM, Torchmark,
Jefferson-Pilot, Provident, ReliaStar and Unitrin (the "SELECTED LARGE-CAP
LIFE COMPANIES"). The selected annuity companies were (i) SunAmerica,
Conseco, Hartford Life and Nationwide Financial (the "LARGE-CAP ANNUITY
COMPANIES"); and (ii) American Annuity, Presidential Life, ARM Financial
Group, Life USA and National Western Life (the "SMALL-CAP ANNUITY COMPANIES"
and, together with the Large-Cap Annuity Companies, the Small-Cap Life
Companies and the Large-Cap Life Companies, the "SELECTED COMPANIES").
The multiples of AmVestors and AmerUs were calculated using a price of
$24.88 per share of AmVestors Common Stock and a price of $28.63 per share
of AmerUs Class A Common Stock, the closing prices of such shares on the
NYSE and Nasdaq, respectively, on September 17, 1997. The multiples and
ratios for AmVestors, AmerUs and the Selected Companies were based on the
most recent publicly available information.
Goldman Sachs considered, among other multiples and ratios, (i)
estimated price-to-earnings ratios for 1997 (the "1997 P/E RATIO") and 1998
(the "1998 P/E RATIO"), in each case based on median Institutional Brokers
Estimate System ("IBES") earnings estimates as of September 17, 1997 (the
"IBES ESTIMATES"), (ii) earnings per share ("EPS") growth rates for the
period between 1997 and 1998 based on the IBES Estimates (the "ONE YEAR EPS
GROWTH RATE"), (iii) IBES projected five year EPS growth rates (the "FIVE
YEAR EPS GROWTH RATE"), (iv) price as a multiple of book value adjusted to
exclude the effect of FAS 115 (the "PRICE/BOOK RATIO"), (v) return on
average (A) common equity ("ROACE") and (B) assets ("ROAA"), in each case
for the twelve months ended June 30, 1997, excluding realized gains,
accounting changes and one-time charges, (vi) the dividend yield (the
"DIVIDEND YIELD"), and (vii) the debt to capital ratio (the "DEBT/CAPITAL
RATIO"), giving preferred stock and capital securities 50% credit as equity.
Goldman Sachs' analyses indicated that (a) 1997 P/E Ratios ranged from 15.4x
to 19.3x for the Selected Large-Cap Annuity Companies with a median of
17.7x, from 13.7x to 15.2x for the Selected Small-Cap Annuity Companies with
a median of 14.2x, from 11.5x to 16.9x for the Selected Small-Cap Life
Companies with a median of 14.6x, and from 14.4x to 20.7x for the Selected
Large-Cap Life Companies with a median of 16.0x, compared with 1997 P/E
Ratios of 15.5x for AmVestors and 14.0x for AmerUs, (b) 1998 P/E Ratios
ranged from 13.2x to 16.7x for the Selected Large-Cap Annuity Companies with
a median of 14.7x, from 11.1x to 14.0x for the Selected Small-Cap Annuity
Companies with a median of 12.8x, from 9.0x to 15.2x for the Selected
Small-Cap Life Companies with a median of 13.1x, and from 12.6x to 17.7x for
the Selected Large-Cap Life Companies with a median of 14.4x, compared with
1998 P/E Ratios of 13.6x for AmVestors and of 12.4x for AmerUs, (c) One Year
EPS Growth Rates ranged from 15.2% to 22.2% for the Selected Large-Cap
Annuity Companies with a median of 17.3%, from 8.8% to 22.8% for the
Selected Small-Cap Annuity Companies with a median of 11.4%, from 8.7% to
28.1% for the Selected Small-Cap Life Companies with a median of 12.6%, and
from 9.9% to 25.0% for the Selected Large-Cap Life Companies with a median
of 14.3%, compared with One Year EPS Growth Rates of 14.4% for AmVestors and
of 12.2% for AmerUs, (d) Five Year EPS Growth Rates ranged from 15.0% to
16.5% for the Selected Large-Cap Annuity Companies with a median of 16.0%,
from 10.0% to 12.5% for the Selected Small-Cap Annuity Companies with a
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median of 12.0%, from 9.0% to 15.0% for the Selected Small-Cap Life
Companies with a median of 13.0%, and from 10.0% to 15.5% for the Selected
Large-Cap Life Companies with a median of 13.5%, compared with Five Year EPS
Growth Rates of 13.3% for AmVestors and of 10.0% for AmerUs, (e) Price/Book
Ratios ranged from 2.12x to 4.98x for the Selected Large-Cap Annuity
Companies with a median of 2.85x, from .94x to 2.24x for the Selected
Small-Cap Annuity Companies with a median of 1.97x, from 1.09x to 2.48x for
the Selected Small-Cap Annuity Companies with a median of 1.62x, and from
1.69x to 3.53x for the Selected Large-Cap Life Companies with a median of
2.49x, compared with Price/Book Ratios of 1.66x for AmVestors and of 1.32x
for AmerUs, (f) ROACE ranged from 11.9% to 20.7% for the Selected Large-Cap
Annuity Companies with a median of 16.7%, from 7.6% to 16.4% for the
Selected Small-Cap Annuity Companies with a median of 13.4%, from 7.3% to
15.7% for the Selected Small-Cap Life Companies with a median of 8.9%, and
from 4.5% to 31.6% for the Selected Large-Cap Life Companies with a median
of 13.4%, compared with ROACE of 8.7% for AmVestors and of 9.4% for AmerUs,
(g) ROAA ranged from .36% to 1.66% for the Selected Large-Cap Annuity
Companies with a median of .90%, from .36% to 1.89% for the Selected
Small-Cap Annuity Companies with a median of .93%, from 1.08% to 1.83% for
the Selected Small-Cap Life Companies with a median of 1.39%, and from .43%
to 3.50% for the Selected Large-Cap Life Companies with a median of 1.32%,
compared with ROAA of .78% for AmVestors and of 1.05% for AmerUs, (h)
Dividend Yields ranged from .7% to 1.1% for the Selected Large-Cap Annuity
Companies with a median of .9%, from 0.0% to 1.5% for the Selected Small-Cap
Annuity Companies with a median of .4%, and from .6% to 2.1% for the
Selected Small-Cap Life Companies with a median of 1.7%, and from .5% to
3.8% for the Selected Large-Cap Life Companies with a median of 1.6%,
compared with Dividend Yields of .5% for AmVestors and of 1.4% for AmerUs,
(i) Debt/Capital Ratios ranged from 16.2% to 37.2% for the Selected
Large-Cap Annuity Companies with a median of 32.3%, from 0.0% to 20.4% for
the Selected Small-Cap Annuity Companies with a median of 14.5%, from 0.0%
to 36.2% for the Selected Small-Cap Life Companies with a median of 19.2%,
and from 6.9% to 67.9% for the Selected Large-Cap Life Companies with a
median of 25.8%, compared with Debt/Capital Ratios of 24.6% for AmVestors
and of 18.5% for AmerUs.
(iv) STANDALONE NET PRESENT VALUE ANALYSIS. Goldman Sachs performed a
standalone net present value analysis per share of AmVestors Common Stock
assuming (i) 1997 net income (excluding realized gains and losses and other
extraordinary items) per share of $1.61 (fully diluted) based on management
estimates, (ii) that dividends grow at the rates indicated for EPS and are
all reinvested in AmVestors Common Stock, (iii) EPS growth rates of between
8% and 20% after 1997, (iv) sale of a share of AmVestors Common Stock after
five years at a hypothetical price to earnings ratio of 10.2x the following
year's earnings, and (v) that such price per share of AmVestors Common Stock
is discounted at rates between 8% and 16%. This analysis indicated a range
of values per share of AmVestors Common Stock of between $11.07 and $24.06.
The 13.3% EPS growth scenario (the five year growth rate that reflects IBES
estimates) indicated a range of values between $13.40 and $19.15.
(v) SELECTED TRANSACTIONS ANALYSIS. Goldman Sachs analyzed certain
information relating to certain selected transactions in the life industry
and annuities industries consummated or announced since January 1, 1996 (the
"SELECTED TRANSACTIONS"). Such analysis indicated that for the Selected
Transactions, with several data points being unavailable, aggregate equity
consideration as a multiple of (i) last 12 months net income ranged from
2.8x to 37.4x, with a mean of 17.8x and a median of 16.5x, (ii) tangible
GAAP book value ranged from 1.0x to 5.2x, with a mean of 1.9x and a median
of 1.4x, and (iii) statutory surplus ranged from 0.3x to 12.0x, with a mean
of 3.9x and a median of 3.6x. Goldman Sachs also analyzed certain
information relating to the following selected annuity transactions (some of
which were among the Selected Transactions) over $100 million (the "SELECTED
ANNUITY TRANSACTIONS"): American General Corporation/Western National Corp.
(remaining 55% stake), Metropolitan Life Insurance Co./Security First Group
(London Insurance Group), AmerUs Life Holdings/Delta Life, ING Group
N.V./Equitable of Iowa Cos., SunAmerica Life Insurance/John Alden Financial
(Annuity Operations), Conseco, Inc./American Life Holdings, Inc.
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(remaining 62%), General Electric Capital Corp./First Colony Corp.,
Knightsbridge Capital Fund I/ United Companies Life Insurance, Sun America,
Inc./Ford Life Insurance, Conseco Capital Partners II, L.P./Statesman Group,
Inc., and General Electric Capital Corp./United Pacific Life Insurance. Such
analysis indicated that for the Selected Annuity Transactions consummated or
announced since April 5, 1993, with several data points being unavailable,
aggregate equity consideration as a multiple of (a) last 12 months net
income (excluding realized gains and losses and other extraordinary items)
was a mean of 14.5x and a median of 15.0x, (b) tangible GAAP book value was
a mean of 1.9x and a median of 1.6x, and (c) previous year statutory surplus
was a mean of 2.9x and a median of 3.0x. Goldman Sachs noted that, based on
a transaction price of $20.00, the consideration to be received by AmVestors
stockholders pursuant to the Merger Agreement implied multiples of aggregate
equity consideration to last 12 months net income, last 12 months net income
(excluding realized gains and losses other than on trading securities and
certain convertible securities), tangible GAAP book value and statutory
surplus of 16.0x, 14.0x, 1.41x and 2.63x, respectively.
(vi) SUMMARY PRO FORMA MERGER ANALYSIS. Goldman Sachs prepared a
summary pro forma analysis of the Merger and the acquisition of Delta by
AmerUs. Such analysis was based upon, among other things, a transaction
price of $20.00, IBES estimates of EPS for AmerUs Class A Common Stock in
1997 and 1998, and upon estimates provided by AmerUs management regarding
synergies and other earnings enhancements expected to result from the
Merger. Goldman Sachs' analysis indicated that the Merger and the
acquisition of Delta would be accretive to shares of AmerUs Class A Common
Stock on an EPS basis in 1998 and 1999, and on a book value per share basis.
(vii) CONTRIBUTION ANALYSIS. Goldman Sachs reviewed certain historical
operating and financial information (including, among other things,
earnings, operating earnings, assets and shareholders' equity, and statutory
capital) for AmVestors, AmerUs and the pro forma combined entity resulting
from the Merger, based on publicly available information for each of
AmVestors and AmerUs. Goldman Sachs' analysis was based on a transaction
price of $20.00 and a price per share of AmerUs Class A Common Stock of
$28.63. The analysis indicated that AmVestors stockholders would own 35.5%
of the outstanding total equity of the combined entity after the Merger.
Goldman Sachs also analyzed the relative income statement and balance sheet
contribution of AmVestors and AmerUs to the combined entity on a pro forma
basis for fiscal year 1996. This analysis indicated that AmVestors would
have contributed 28.3% to combined revenues, 36.4% to combined operating
earnings (excluding realized gains and losses and other extraordinary
items), 34.6% to combined assets, 24.9% to combined shareholders' equity,
and 26.2% to combined statutory capital.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
AmVestors or AmerUs or the contemplated transaction. The analyses were prepared
solely for purposes of Goldman Sachs providing its opinion to the AmVestors
Board as to the fairness of the Exchange Ratio pursuant to the Merger Agreement
and do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of the parties or their respective
advisors, none of AmVestors, AmerUs, Goldman Sachs or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, Goldman Sachs' opinion to the AmVestors Board was one of
many factors taken into consideration by the AmVestors Board in making its
determination to approve the Merger Agreement. The foregoing summary does not
purport to be a complete description of the analysis
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performed by Goldman Sachs and is qualified by reference to the written opinion
of Goldman Sachs set forth in Annex III hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with AmVestors, having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
Merger Agreement. Goldman Sachs has also provided certain investment banking
services to AmerUs from time to time, including having acted as its financial
advisor on the formation of a mutual holding company in 1996, having acted as
lead manager of its initial public offering of AmerUs Class A Common Stock in
January 1997 and as lead manager of an issuance of the Capital Securities of
AmerUs Capital I, an affiliate of AmerUs in February 1997, and Goldman Sachs may
provide investment banking services to AmerUs in the future. AmVestors selected
Goldman Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions similar
to the Merger.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of AmVestors and/or AmerUs for its own account and for the account of
customers.
Pursuant to a letter agreement dated April 17, 1997 (the "GOLDMAN SACHS
ENGAGEMENT LETTER"), AmVestors engaged Goldman Sachs to act as its financial
advisor in connection with the Merger. Pursuant to the terms of the Goldman
Sachs Engagement Letter, AmVestors has agreed to pay Goldman Sachs upon
consummation of the Merger a transaction fee of $3.5 million plus 4% of the
amount by which the aggregate consideration paid in the Merger exceeds $362.5
million. AmVestors has agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including attorney's fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "ANTITRUST DIVISION") and
specified waiting period requirements have been satisfied. AmVestors and AmerUs
filed notification and report forms under the HSR Act with the FTC and the
Antitrust Division on November 10, 1997. The latest required waiting periods for
such filings under the HSR Act are due to expire on December 10, 1997 (assuming
no request for additional information is received). However, at any time before
or after the Effective Time of the Merger, and notwithstanding that the HSR Act
waiting period has expired, the FTC, the Antitrust Division or any state could
take such action under the antitrust laws as it deems necessary or desirable in
the public interest. Such action could include seeking to enjoin the
consummation of the Merger or seeking divestiture of AmVestors or businesses of
AmerUs or AmVestors acquired as a result of the Merger.
Under Kansas insurance laws and related regulations, the acquisition of
control of a domestic insurer must receive prior approval by the state's
insurance department. Kansas law provides that a transaction will be approved if
the insurance department finds that the transaction would, among other things,
not violate the law or be contrary to the interest of the insureds of any
participating domestic insurer. Applications for approval of the Merger and all
related transactions were submitted to the Kansas Insurance Department on
October 28, 1997. At the suggestion of the Florida Insurance Commissioner,
AmVestors has filed a document to cause the redomestication of FBL from Florida
to Kansas. Filings of pre-acquisition notification have been made in certain
states where insurance holding systems acts contain anti-competition provisions
pertaining to the lines of business in which AmVestors or any of its
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insurance subsidiaries compete. In addition, certain states' insurance licensing
laws require relicensing of AmVestors insurance subsidiaries after consummation
of the Merger.
Under Iowa insurance laws and related regulations, the offering of stock by
AmerUs must receive prior approval by the Iowa Commissioner of Insurance. An
application for approval of the stock issuance will be submitted by AmerUs to
the Iowa Commissioner of Insurance.
The Merger Agreement generally provides for a ninety day extension beyond
the Outside Date (as defined below) if the Merger shall not have occurred as a
result of a failure to receive governmental approvals.
FORM OF THE MERGER
If the approval of the AmVestors stockholders and the approval of the AmerUs
shareholders are obtained and all other conditions to the Merger are satisfied
or waived, Merger Sub will be merged with and into AmVestors, with AmVestors
being the surviving corporation after the Merger and a wholly owned subsidiary
of AmerUs. The date on which the closing of the Merger shall occur is referred
to herein as the "CLOSING DATE."
MERGER CONSIDERATION
The Merger Agreement provides that, as of the Effective Time, each
outstanding share of AmVestors Common Stock (other than any held in treasury by
AmVestors) shall be converted into the right to receive (x) if the Average
AmerUs Share Price (as defined below) is greater than or equal to $27.00 but
less than or equal to $29.75, the number of shares of AmerUs Class A Common
Stock determined by dividing $20.00 by the Average AmerUs Share Price and
rounding the result to the nearest one ten-thousandth of a share; (y) if the
Average AmerUs Share Price is less than $27.00, 0.7407 shares of AmerUs Class A
Common Stock (subject to AmVestors' termination right described below); and (z)
if the Average AmerUs Share Price is greater than $29.75, 0.6724 shares of
AmerUs Class A Common Stock (as applicable, the "MERGER CONSIDERATION" or
"EXCHANGE RATIO"). The "AVERAGE AMERUS SHARE PRICE" means the average of the
last reported sales prices per share of AmerUs Class A Common Stock as quoted by
Nasdaq for the 20 consecutive trading days (the "VALUATION PERIOD") ending on
the trading day (the "PRICE MEASURING DATE") which is ten trading days prior to
the Closing Date.
In the event that the Average AmerUs Share Price on the Price Measuring Date
is less than $27.00, AmVestors shall have the option to deliver a written notice
to AmerUs on the trading day following the Price Measuring Date providing for
the termination of the Merger Agreement subject to the next sentence (the
"TERMINATION NOTICE"). If AmVestors properly delivers a Termination Notice, the
Merger Agreement shall terminate at the close of business on the fifth trading
day following the Price Measuring Date unless prior to such time AmerUs shall
have delivered a written notice to AmVestors whereby AmerUs agrees to adjust the
consideration into which each share of AmVestors Common Stock is convertible
from the Merger Consideration as determined above to the adjusted Merger
Consideration ("ADJUSTED MERGER CONSIDERATION") determined by dividing $20.00 by
the Average AmerUs Share Price as of the Price Measuring Date and rounding the
result to the nearest one ten-thousandth of a share (termination of the Merger
Agreement under such circumstances is referred to herein as the "TERMINATION FOR
PRICE"). If AmVestors did not deliver a Termination Notice under the
circumstances described in this paragraph, the Merger Consideration would be
valued (based upon the Average AmerUs Trading Price) at less than $20.00. SINCE
AMVESTORS' DECISION WHETHER TO EXERCISE ITS RIGHT TO DELIVER A TERMINATION
NOTICE IS DEPENDENT, TO SOME EXTENT, ON CIRCUMSTANCES EXISTING AT THE TIME OF
SUCH DECISION, THERE CAN BE NO ASSURANCE AT THIS TIME AS TO WHETHER OR NOT
AMVESTORS WOULD ELECT TO EXERCISE SUCH RIGHT.
The Merger Consideration generally is intended to provide shares of AmerUs
Class A Common Stock valued at not less than $20.00, based upon the Average
AmerUs Share Price, provided that the Merger Consideration would be valued at
less than $20.00 per share if the Average AmerUs Trading Price is less than
$27.00 and the AmVestors Board does not terminate the Merger Agreement as
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described above. Therefore, a higher Average AmerUs Share Price up to $29.75
would result in fewer shares of AmerUs Class A Common Stock constituting the
Merger Consideration, and a lower Average AmerUs Share Price down to $27.00
would result in more shares of AmerUs Class A Common Stock constituting the
Merger Consideration. If the Average AmerUs Share Price were equal to $31 11/16
per share, the last sales price of AmerUs Class A Common Stock as reported on
Nasdaq, on November 11, 1997, the Merger Consideration would be equal to 0.6724
of one share of AmerUs Class A Common Stock. The aggregate number of shares of
AmerUs Class A Common Stock issued in connection with the Stock Issuance
immediately following the Merger is expected to be between approximately 11.6
million and 12.8 million shares (based upon an Average AmerUs Share Price of $27
and $29.75, respectively, and in each case assuming that all options and
warrants are rolled over into options to acquire shares of AmerUs Class A Common
Stock). Unless AmerUs agrees to pay the Adjusted Merger Consideration, the
aggregate number of shares of AmerUs Class A Common Stock issued and issuable
should not be more than 14.7 million shares (which would occur if the Average
AmerUs Share Price is $27.00 or less assuming conversion of the AmVestors
Convertible Debentures and exercise of all outstanding options and warrants to
purchase AmVestors Common Stock). If the Stock Issuance is approved, the AmerUs
Board would have the authority to agree to pay the Adjusted Merger
Consideration. If such authority were exercised, the total number of shares of
AmerUs Class A Common Stock issued and issuable in the Merger could exceed 14.7
million, potentially by a significant amount.
AmerUs and AmVestors anticipate that the Closing Date will occur as promptly
as practicable following satisfaction or waiver of each of the conditions to the
Merger, including approval of the Merger Agreement by the holders of the
requisite number of shares of AmVestors Common Stock and approval of the Stock
Issuance by the requisite number of shares of AmerUs Common Stock. If the
Special Meetings occur prior to the end of the Valuation Period, the number of
shares of AmerUs Class A Common Stock constituting the Merger Consideration will
not be known at the time the vote on the approval of the Merger Agreement is
held. The Merger Agreement provides that the Valuation Period will end ten
trading days prior to the Closing Date, and therefore the number of shares of
AmerUs Class A Common Stock constituting the Merger Consideration will be fixed
at that time. The market price of AmerUs Class A Common Stock and hence the
value of the Merger Consideration are expected to fluctuate with the performance
of AmerUs and general market conditions. The last sales price of AmerUs Class A
Common Stock on the Closing Date may be higher or lower than the Average AmerUs
Share Price, and as a result, the value of the Merger Consideration at the
Closing Date may be more or less than $20.00. See "RISK FACTORS."
If between the date of the Merger Agreement and the Effective Time the
outstanding shares of AmerUs Class A Common Stock shall have been changed into a
different number of shares or a different class, by reason of any stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Merger Consideration shall be correspondingly adjusted
to the extent appropriate to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
EFFECTIVE TIME
The Merger will become effective upon the filing of a Certificate of Merger
with the Secretary of State of the State of Kansas. Such filing will be made as
promptly as practicable after satisfaction or waiver of the conditions to the
Merger.
EXCHANGE PROCEDURES
From and after the Effective Time, AmerUs shall make available to
ChaseMellon Shareholder Services LLC (the "EXCHANGE AGENT"), for the benefit of
the holders of shares of AmVestors Common Stock, exchange certificates
evidencing such number of shares of AmerUs Class A Common Stock issuable to
holders of AmVestors Common Stock in the Merger and, upon request of the
Exchange Agent, cash in the amount required to be exchanged for fractional
shares of AmVestors Common Stock in the Merger.
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As promptly as practicable after the Effective Time, AmerUs shall cause the
Exchange Agent to mail to each holder of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
AmVestors Common Stock (the "CERTIFICATES") (i) a letter of transmittal (which
shall be in customary form and shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
evidencing shares of AmerUs Class A Common Stock.
Upon surrender to the Exchange Agent of a Certificate for cancellation,
together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, and such other documents as may be
reasonably required pursuant to such instructions, the holder of such
certificate shall be entitled to receive in exchange therefor (i) a certificate
representing that number of whole shares of AmerUs Class A Common Stock, if any,
which such holder has the right to receive and a check in the amount equal to
the cash, if any, which such holder has the right to receive in lieu of any
fractional shares of AmerUs Class A Common Stock and any dividends or other
distributions to which such holder is entitled, and the Certificate so
surrendered shall forthwith be canceled.
No dividends or other distributions declared or made after the Effective
Time with respect to AmerUs Class A Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of AmerUs Class A Common Stock represented thereby, and no
cash payment in lieu of any fractional shares shall be paid to any such holder,
until the holder of such Certificate shall surrender such Certificate. Subject
to the effect of escheat, tax or other applicable laws, following surrender of
any such Certificate, there shall be paid to the holder of the certificates
representing whole shares of AmerUs Class A Common Stock issued in exchange
therefor, without interest, (i) promptly, the amount of any cash payable with
respect to a fractional share of AmerUs Class A Common Stock to which such
holder is entitled and the amount of dividends or other distributions with a
record date after the Effective Time and theretofore paid with respect to such
whole shares of AmerUs Class A Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions, with a record date after
the Effective Time but prior to surrender and a payment date occurring after
surrender, payable with respect to such whole shares of AmerUs Class A Common
Stock.
At the Effective Time, the stock transfer books of AmVestors shall be closed
and there shall be no further registration of transfers of shares of AmVestors
Common Stock thereafter on the records of AmVestors. From and after the
Effective Time, the holders of Certificates shall cease to have any rights with
respect to the shares of AmVestors Common Stock represented by such
Certificates, except as otherwise provided herein or by law. On or after the
Effective Time, any Certificates presented to the Exchange Agent or AmerUs for
any reason shall be converted into shares of AmerUs Class A Common Stock, and
any cash in lieu of fractional shares of AmerUs Class A Common Stock and any
dividends or other distributions to which the holders thereof are entitled shall
be paid.
NASDAQ LISTING
AmerUs has agreed to file an application to list the shares of AmerUs Class
A Common Stock to be issued in connection with the Merger on Nasdaq, subject to
approval of the Stock Issuance by the AmerUs shareholders and the Merger
Agreement by the AmVestors stockholders and official notice of issuance. The
shares of AmerUs Class A Common Stock are traded on Nasdaq under the symbol
"AMRS."
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS OF THE MERGER
The following summary, based upon current law and subject to the
qualifications set forth below and contained therein, sets forth the opinion of
Skadden, Arps, Slate, Meagher & Flom LLP, counsel to AmerUs, and Bryan Cave LLP,
counsel to AmVestors, as to the material U.S. federal income tax consequences of
the Merger to holders of AmVestors Common Stock that hold their shares of
AmVestors Common Stock as capital assets. Such opinion is not binding on the
IRS. This summary is based upon
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the Internal Revenue Code of 1986, as amended (the "CODE"), applicable Treasury
regulations thereunder and administrative rulings and judicial authority as of
the date hereof, all of which are subject to change at any time, possibly with
retroactive effect. Any such change could affect the continuing validity of this
summary. This summary does not purport to discuss all aspects of U.S. federal
income taxation that may be relevant to a particular holder of AmVestors Common
Stock in light of such holder's specific circumstances or to certain types of
holders subject to special treatment under U.S. federal income tax laws (for
example, foreign persons, dealers in securities, banks and other financial
institutions, tax-exempt organizations and holders who acquired AmVestors Common
Stock pursuant to the exercise of options or otherwise as compensation or
through a tax-qualified retirement plan). Tax considerations under state, local
and foreign tax laws are not addressed herein. EACH AMVESTORS STOCKHOLDER IS
URGED TO CONSULT HIS OR HER TAX ADVISOR AS TO THE SPECIFIC TAX CONSIDERATIONS OF
THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS IN HIS OR HER PARTICULAR CIRCUMSTANCES.
No ruling has been (or will be) sought from the Internal Revenue Service as
to the U.S. federal income tax consequences of the Merger. It is a condition to
the consummation of the Merger that AmerUs receive an opinion from its counsel,
Skadden, Arps, Slate, Meagher & Flom LLP, and that AmVestors receive an opinion
from its counsel, Bryan Cave LLP, substantially to the effect that, based upon
certain facts, representations and assumptions, the Merger will be treated for
U.S. federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code; neither AmerUs nor AmVestors will waive such
condition to the consummation of the Merger. In rendering such opinions, counsel
may require and rely upon (and may incorporate by reference), representations
and covenants, including those contained in certificates of officers of AmerUs,
AmVestors, Merger Sub and others. The specific provisions of each such
representation and covenant shall be in form and substance reasonably
satisfactory to such counsel.
Subject to the qualifications set forth herein and assuming that the Merger
is treated for U.S. federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, it is the opinion of Skadden, Arps,
Slate, Meagher & Flom LLP, counsel to AmerUS, and Bryan Cave LLP, counsel to
AmVestors, that the Merger will result in the following U.S. federal income tax
consequences:
1. No gain or loss will be recognized by holders of AmVestors Common Stock who
exchange their AmVestors Common Stock for AmerUs Class A Common Stock
pursuant to the Merger, except with respect to any cash received by such
AmVestors stockholders in lieu of the receipt of fractional shares of AmerUs
Class A Common Stock.
2. A holder of AmVestors Common Stock who receives cash in lieu of a fractional
share of AmerUs Class A Common Stock in the Merger generally will be treated
as if the fractional share had been distributed to such holder as part of
the Merger and then redeemed by AmerUs in exchange for the cash. This cash
payment will be treated as having been received in exchange for the redeemed
fractional share under Section 302 of the Code. The receipt of such cash
payment generally should result in capital gain or loss equal to the
difference between the amount of cash received and the holder's basis in the
fractional share of AmerUs Class A Common Stock deemed to be redeemed.
3. Each holder of AmVestors Common Stock who exchanges his or her AmVestors
Common Stock for AmerUs Class A Common Stock pursuant to the Merger will
have an aggregate tax basis in the AmerUs Class A Common Stock received in
the Merger equal to his or her aggregate tax basis in the AmVestors Common
Stock exchanged therefor, decreased by the amount of any tax basis allocable
to any fractional share interest for which cash is received.
4. Provided that the shares of AmVestors Common Stock are held as a capital
asset at the Effective Time, the holding period of AmerUs Class A Common
Stock received in the Merger in exchange therefor will include the holding
period of such AmVestors Common Stock.
5. AmerUs, AmVestors and Merger Sub will not recognize any gain or loss as a
result of the Merger.
BACKUP WITHHOLDING. To prevent "backup withholding" of U.S. federal income
tax on any payments of cash to a holder of AmVestors Common Stock in the Merger,
a holder of AmVestors Common
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Stock must, unless an exception applies under the applicable law and
regulations, provide the payor of such cash with such holder's correct taxpayer
identification number ("TIN") on a Substitute Form W-9 and certify under
penalties of perjury that such number is correct and that such holder is not
subject to backup withholding. A Substitute Form W-9 will be provided to each
holder of AmVestors Common Stock in the letter of transmittal to be mailed to
each holder after the Effective Time. If the correct TIN and certifications are
not provided, a $50 penalty may be imposed on a holder of AmVestors Common Stock
by the Internal Revenue Service, and any cash to be received by such holder may
be subject to backup withholding at a rate of 31%.
THE U.S. FEDERAL INCOME TAX CONSIDERATIONS SET FORTH ABOVE ARE BASED UPON
PRESENT LAW, ARE FOR GENERAL INFORMATION ONLY AND DO NOT PURPORT TO BE A
COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS WHICH MAY APPLY TO A
HOLDER OF AMVESTORS COMMON STOCK. THE TAX EFFECTS AS APPLICABLE TO A PARTICULAR
HOLDER OF AMVESTORS COMMON STOCK MAY BE DIFFERENT FROM THE TAX EFFECTS AS
APPLICABLE TO OTHER HOLDERS OF AMVESTORS COMMON STOCK, INCLUDING THE APPLICATION
AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAW, AND THUS, HOLDERS OF
AMVESTORS COMMON STOCK ARE URGED TO CONSULT THEIR TAX ADVISORS.
TREATMENT OF AMVESTORS STOCK OPTIONS
Prior to the Closing, the AmVestors Board (or, if appropriate, any committee
administering AmVestors' 1989 Non-Qualified Stock Option Plan (the "NQSO PLAN")
or 1996 Incentive Stock Option Plan (the "ISO PLAN," and together with the NQSO
Plan, the "AMVESTORS OPTION PLANS") shall adopt such resolutions or take such
other actions as may be required to adjust the terms of all outstanding
AmVestors options issued pursuant to the AmVestors Option Plans and related
agreements (the "AMVESTORS OPTIONS"), to provide that at the Effective Time,
each AmVestors Option outstanding (whether or not vested and exercisable)
immediately prior to the Effective Time shall at the Effective Time cease to
represent a right to acquire shares of AmVestors Common Stock and shall be
converted automatically into an option (a "CONTINUING OPTION") to acquire AmerUs
Class A Common Stock in an amount and at an exercise price determined as
provided in the immediately following sentence (and on substantially the same
terms and conditions as were applicable under such AmVestors Option Plan and the
agreements evidencing grants thereunder). At the Effective Time, if the holder
of an AmVestors Option which is then outstanding and unexercised has not timely
elected (with respect to AmVestors Options granted under the NQSO Plan) or has
not timely requested (with respect to AmVestors Options granted under the ISO
Plan; or if so requested, if such request has been denied by AmVestors) to
receive cash for such AmVestors Option as described below, then such AmVestors
Option shall, in accordance with the provisions of the NQSO Plan or the ISO
Plan, whichever is applicable, become a Continuing Option to acquire (x) the
number of shares of AmerUs Class A Common Stock equal to the product of (i) the
number of shares of AmVestors Common Stock subject to such AmVestors Option
immediately prior to the Effective Time multiplied by (ii) the Merger
Consideration (a partial share shall be rounded down to the next lower whole
share), with (y) an exercise price equal to the quotient of (i) the original
exercise price per share (the "ORIGINAL EXERCISE PRICE") of AmVestors Common
Stock subject to such AmVestors Option in effect immediately prior to the
Effective Time divided by (ii) the Merger Consideration and rounding the
exercise price thus determined to the nearest whole cent (a half cent shall be
rounded to the next higher whole cent). In the case of AmVestors Options
intended to be incentive stock options, the exercise price, number of shares of
AmerUs Class A Common Stock subject to such Continuing Option and terms and
conditions or exercise of such Continuing Option shall be determined in order to
comply with the requirements of Section 424(a) of the Code.
Prior to the Closing, AmVestors shall deliver to the holders of AmVestors
Options (whether or not vested and exercisable) a notice offering to (i) holders
of AmVestors Options issued pursuant to the NQSO Plan the right to elect, and
(ii) holders of AmVestors Options issued pursuant to the ISO Plan the right to
request, to receive in consideration for the cancellation of all (but not less
than all) of such holder's AmVestors Options, an amount in cash equal to the
product of (x) the excess of (i) the Option
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Cash Price (as defined below), over (ii) the Original Exercise Price of such
AmVestors Option, multiplied by (y) the number of shares subject to such
AmVestors Option. AmVestors intends to grant all requests from holders of
AmVestors Options issued pursuant to the ISO Plan to receive cash. The "OPTION
CASH PRICE" is the product of (A) the last reported sales price per share of
AmerUs Class A Common Stock as quoted by Nasdaq on the Closing Date multiplied
by (B) the Merger Consideration. Alternatively, with the consent of AmerUs prior
to the Closing, holders of AmVestors Options may request to receive in
consideration for the cancellation of such holder's AmVestors Options, a number
of shares of AmerUs Class A Common Stock (rounded down to the nearest whole
share) equal to the amount of cash which otherwise would be payable upon
termination of such AmVestors Options as described in the first sentence of this
paragraph, divided by the last sales price of AmerUs Class A Common Stock as
reported on Nasdaq as of the Effective Time.
To make the election for cash consideration, any eligible AmVestors Option
holder must deposit with the Exchange Agent at least ten trading days prior to
the Closing a properly completed notice in accordance with the Merger Agreement.
Following the Effective Time, AmVestors shall deliver to each such holder the
cash amount so elected. No interest shall be paid on such amount. If the Merger
Agreement is terminated before the Effective Time, the option agreements will be
returned to each such holder.
RESALES OF AMERUS CLASS A COMMON STOCK
All shares of AmerUs Class A Common Stock to be issued in connection with
the Merger, as well as upon exercise of certain warrants (the "PUBLIC WARRANTS")
which were registered under the Securities Act by AmVestors, are being
registered under the Securities Act. Such shares will be freely transferable,
except that shares received by any person who may be deemed to be an affiliate
within the meaning of Rule 145 of the rules and regulations promulgated under
the Securities Act (each such person being an "AFFILIATE") of AmVestors may not
be resold except in transactions permitted by such Rule 145 or as otherwise
permitted under the Securities Act.
AmVestors has agreed to deliver to AmerUs a list of names and addresses of
those persons who were, in AmVestors' reasonable judgment, Affiliates of
AmVestors. AmVestors has also agreed to use its reasonable efforts to cause to
be delivered to AmerUs, on or prior to the Closing Date, a letter substantially
in the form agreed to by AmVestors and AmerUs, executed by each of the
Affiliates of AmVestors identified in the foregoing list and by any person who
shall have become an Affiliate of AmVestors subsequent to the delivery of such
list.
Prior to the Closing Date, AmVestors shall use its reasonable efforts to
deliver to AmerUs a letter identifying all persons who are, at the time the
Merger Agreement is submitted for approval to the stockholders of AmVestors,
Affiliates of AmVestors (including all directors of AmVestors).
ACCOUNTING TREATMENT
The Merger will be accounted for by AmerUs under the "purchase" method of
accounting in accordance with generally accepted accounting principles.
Therefore, the aggregate consideration paid by AmerUs in connection with the
Merger will be allocated to AmVestors' assets and liabilities based on their
fair market values with any excess being recorded as goodwill. The assets and
liabilities and results of operations of AmVestors will be consolidated into the
assets and liabilities and results of operations of AmerUs subsequent to the
Effective Time.
NO DISSENTERS' RIGHTS
Pursuant to Section 17-6712(k) of the Kansas General Corporation Code
("KGCC"), holders of the AmVestors Common Stock are not entitled to dissenter
appraisal rights in connection with the Merger since (i) the AmVestors Common
Stock is registered and traded on the NYSE (and the AmVestors' Articles of
Incorporation do not otherwise provide for such appraisal rights in connection
with the Merger) and (ii) the shares of AmerUs Class A Common Stock to be issued
to holders of AmVestors Common Stock in the Merger are registered on Nasdaq.
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The IBCA (as defined below) does not provide for dissenter appraisal rights
to holders of the AmerUs Class A Common Stock in connection with the Stock
Issuance.
CERTAIN TRANSACTIONS; INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the AmVestors Board with respect to the
Merger, AmVestors stockholders should be aware that certain directors and
officers of AmVestors have interests in the Merger different from the interests
of other AmVestors stockholders.
CHANGE IN CONTROL ARRANGEMENT. Mr. Ralph W. Laster, Jr., Chairman of the
Board and Chief Executive Officer of AmVestors, and Mr. Mark V. Heitz, President
and General Counsel of AmVestors, are parties to an Incentive Agreement and a
special Incentive Bonus Arrangement which are intended to provide additional
compensation based upon the performance of AmVestors Common Stock ("SARS"). Mr.
Laster and Mr. Heitz hold such SARs with respect to 475,000 shares and 345,500
shares, respectively, at a weighted average strike price of $15.487 per share
and $15.510 per share, respectively. Pursuant to such arrangements, generally,
in the event that AmVestors enters into an agreement providing for a transaction
in which AmVestors Common Stock is converted into the right to receive any
stock, cash or other property, the holder of a SAR is entitled to receive a
payment in cash upon consummation of such transaction equal to the product of
the number of shares referenced by such SAR multiplied by the difference between
the aggregate fair market value of the stock, cash or other property receivable
in exchange for one share of AmVestors Common Stock (generally as determined in
good faith by AmVestors Board as of the date of the exchange) minus the strike
price. Upon consummation of the Merger, Messrs. Laster and Heitz will receive
approximately $2,150,275 and $1,555,334, respectively, pursuant to such terms of
the SARs (assuming an exchange ratio which values each share of AmVestors Common
Stock at $20).
EMPLOYMENT AGREEMENTS. Messrs. Laster and Heitz are parties to separate
employment agreements with AmVestors that entitle them, upon a change of control
of AmVestors, to terminate their employment and be paid, in the case of Mr.
Laster, three years of salary (which is $450,000 per year) and in the case of
Mr. Heitz, two years of salary (which is $337,500 per year) commencing on the
date of termination in consideration for their non-competition obligations under
such agreements. Since Mr. Heitz has agreed to enter into an employment
agreement with the Surviving Corporation on substantially similar terms upon the
Effective Time, Mr. Heitz has agreed to waive his right to any change of control
or severance payment under his existing employment agreement with AmVestors.
Executive vice presidents of AmVestors are parties to employment agreements with
AmVestors that entitle them to payment of twelve months of salary upon any
termination by AmVestors of their employment that is not for cause (which the
AmVestors Board has determined would include any termination resulting from a
change of control). Frank T. Crohn, a director of AmVestors and Chairman of the
Boards of FBL, AIMCOR and Annuity Warehouse, Inc. f/k/a The Insurance Mart, and
Donna J. Rubertone, President of FBL, are parties to employment agreements with
AmVestors that will entitle them to payment of the remainder of the cash
compensation under such contract if, following a merger involving AmVestors, Mr.
Crohn or Ms. Rubertone, as the case may be, is not designated to the positions
and given the duties described in such agreement. Mr. Crohn's and Ms.
Rubertone's contracts terminate by their terms on April 7, 1998 and April 7,
1999, respectively.
BONUS PLAN. Under the AmVestors Bonus Compensation Plan, certain employees,
including all of the executive officers, of AmVestors are entitled to payment of
a "cash bonus" (payment made in a lump sum) and a "salary bonus" (payment made
over time in accordance with normal pay practices), based upon the fulfillment
by AmVestors of certain performance objectives. Pursuant to the Bonus
Compensation Plan, if any such employee's employment is terminated as a result
of a change of control, such employee is entitled to a lump sum payment of the
full amount of any cash bonus and salary bonus for which such employee is
eligible (whether or not performance objectives were obtained) for the remainder
of the calendar year in which the termination occurred. For 1997 compensation,
the maximum bonus potential for executive officers of AmVestors under the Bonus
Compensation Plan ranges from 35% to 75% of base salary.
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SEVERANCE COMPENSATION PLAN. Pursuant to a severance compensation plan
established by the AmVestors Board (the "SEVERANCE COMPENSATION PLAN"),
employees and officers of AmVestors may become entitled to certain severance
compensation in the event of termination of their employment without cause
(whether by AmVestors or by any successor to the business of AmVestors,
including succession by merger), which occurs within one year after such
transaction. The standard severance payment under the Severance Compensation
Plan is two weeks of salary ("BASE SEVERANCE") plus an additional two weeks of
salary for each full year of service, with officers of AmVestors being entitled
to receive the greater of (i) additional weeks of Base Severance (up to 18
weeks) based upon the seniority of the officer position held or (ii) the amount
of severance provided under his or her employment agreement with AmVestors (if
any). In addition, Mr. Laster has discretionary authority to offer to any
employee of AmVestors, in addition to other severance compensation, an
additional severance payment (a "DISCRETIONARY SEVERANCE PAYMENT"). Executive
vice presidents have been granted Discretionary Severance Payments equal to one
year's salary to be paid in the event their employment is terminated as a result
of the Merger. From the date of the Merger Agreement, Mr. Laster may not make
any additional Discretionary Severance Payments to any employee in excess of
$30,000 or amounting to more than $300,000 in aggregate.
LIABILITY INSURANCE COVERAGE. Pursuant to the Merger Agreement, AmerUs and
Merger Sub have agreed to maintain directors' and officers' liability insurance
for the current and former directors and officers of AmVestors for a period of
six years after the Effective Time.
BOARD SEAT; EMPLOYMENT AFTER CLOSING. AmerUs has requested, and Mr. Laster
has agreed, that, after the Effective Time, Mr. Laster will serve as a director
of AmerUs. It is expected that Mr. Laster will be appointed to fill an existing
vacancy on the AmerUs Board and that he will be nominated at the next annual
meeting for a two-year term as director expiring in 2000. As a director of
AmerUs, Mr. Laster will be entitled to receive the compensation payable to
AmerUs directors as described under "MANAGEMENT BEFORE AND AFTER THE MERGER --
Compensation of Directors." Assuming Mr. Heitz does not elect to receive cash
for outstanding options, upon consummation of the Merger Mr. Heitz would become
the beneficial owner of up to 204,786 shares of AmerUs Class A Common Stock
including options to acquire 148,140 shares of AmerUs Class A Common Stock, some
or all of which may be sold from time to time pursuant to the Registration
Statement of which this Joint Proxy Statement/Prospectus forms a part. Mr. Heitz
and AmerUs have agreed to enter into an employment agreement whereby, upon the
Effective Time, Mr. Heitz would become the President and Chief Executive Officer
of AmVestors (the Surviving Corporation) on substantially the same terms as Mr.
Heitz's current employment agreement with AmVestors. Assuming Mr. Laster does
not elect to receive cash for outstanding options, upon consummation of the
Merger Mr. Laster would become the beneficial owner of up to 255,037 shares of
AmerUs Class A Common Stock including options to acquire 185,175 shares of
AmerUs Class A Common Stock, some or all of which may be sold from time to time
pursuant to the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part. Except for the arrangements specifically set
forth in this Joint Proxy Statement/Prospectus and the Merger Agreement, AmerUs
has made no commitments with respect to the retention of AmVestors employees
after the Merger.
AFFILIATION WITH SPECIAL ADVISOR. Mr. James V. O'Donnell, a director of
AmVestors, is President of Bush-O'Donnell, AmVestors' special advisor in
connection with the Merger. Pursuant to the terms of an engagement letter dated
April 22, 1997 between AmVestors and Bush-O'Donnell, AmVestors has agreed to pay
Bush-O'Donnell a fee for its services of $350,000 plus .4% of the amount by
which the aggregate Merger Consideration exceeds $362.5 million.
STOCK OPTIONS. On October 20, 1997, R. Rex Lee, M.D., a director of
AmVestors, exercised options resulting in the net acquisition of 63,675 shares
of AmVestors Common Stock and subsequently sold such shares to AmerUs Group for
$20 per share plus payment, upon consummation of the Merger, of an amount per
share equal to the amount (the "ADDITIONAL AMOUNT") by which the lesser of (i)
the Merger Consideration or (ii) $20.625, exceeds $20. In the event the Merger
Agreement is terminated pursuant to Article IX thereof, AmerUs will pay Dr. Lee
a per share amount equal to the closing price of AmVestors Common Stock on the
fifth trading day following the first public announcement of such
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termination less $20, up to the Additional Amount. As of October 22, 1997, Dr.
Lee retained beneficial ownership of 5,000 shares of AmVestors Common Stock.
In connection with the exercise of options by Mark V. Heitz in October, 1997
AmVestors loaned Mr. Heitz $250,000 for payment of taxes realized by Mr. Heitz
on such exercise. Such loan bears interest at the prime rate and is payable in
full on December 31, 1997.
Each officer of AmVestors who holds AmVestor Options under the ISO Plan will
become fully vested in such options and each director or officer of AmVestors
who holds AmVestors Options will be entitled to elect to convert such AmVestors
Options into Continuing Options of AmerUs or receive (or for options under the
ISO Plan, request) cash payment for the value thereof (or, with respect to
certain AmVestors Options, at the holder's election and with AmerUs' consent,
shares of AmerUs Class A Common Stock equivalent to such value). See
"--Treatment of AmVestors Stock Options." The following table sets forth
information with respect to the cash amounts payable to executive officers of
AmVestors upon consummation of the Merger for AmVestors Options held by them,
assuming (i) that such officers elect or request to receive cash for such
options and (ii) an exchange ratio which values each share of AmVestors Common
Stock at $20 per share.
<TABLE>
<CAPTION>
AGGREGATE CASH PAYMENTS
---------------------------
OPTIONS
CURRENTLY WITH
VESTED ACCELERATED
OPTIONS VESTING
------------- ------------
<S> <C> <C>
Ralph W. Laster, Jr.................................................................. $ 1,781,792 $ 221,331
Mark V. Heitz........................................................................ 1,389,980 221,331
Timothy S. Reimer.................................................................... 556,919 461,956
Thomas M. Fogt....................................................................... -0- 243,206
Lynn F. Hammes....................................................................... 450,645 307,480
James R. Stanley..................................................................... 505,544 243,206
</TABLE>
The AmVestors Board was informed of the interests described herein prior to
approving the Merger Agreement and the Merger.
CONDUCT OF BUSINESS IF MERGER NOT CONSUMMATED
If the Merger is not consummated, AmVestors will continue its current
operations. However, for reasons discussed under the caption, "--Background of
the Merger," AmVestors may continue to explore strategic alternatives, including
a business combination or the sale of AmVestors.
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following summary of certain provisions of the Merger Agreement does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement, a copy of which is attached hereto as Annex I.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
AmerUs and AmVestors and Merger Sub relating to, among other things, the
following matters (which representations and warranties are subject, in certain
cases, to specified exceptions): (i) due organization, existence and good
standing, and similar corporate matters; (ii) the capital structure of each
party; (iii) the authorization, execution, delivery and enforceability by each
party of the Merger Agreement; (iv) the absence on the part of each party of any
conflict with such party's organizational documents or with applicable law, or
with certain contracts, or governmental or regulatory authorization, consent or
approval required to consummate the Merger; (v) reports and other documents
filed with the SEC and the accuracy of the information contained therein; (vi)
the accuracy of the information supplied in this Joint Proxy Statement/
Prospectus; (vii) the absence of certain changes or events; (viii) the absence
of material pending or threatened litigation; (ix) the absence of changes to,
and the qualification, operation and liability under, certain employee benefit
plans; (x) certain tax matters; (xi) compliance with applicable laws; (xii)
title to property and validity of leases; (xiii) the preparation and filing of
financial statements and required reports; (xiv) the determination and adequacy
of reserves by insurance subsidiaries; (xv) title to investments; and (xvi)
validity of contracts entered into by the Acquired Companies (as defined in the
Merger Agreement) and AmerUs and its subsidiaries. In addition, the Merger
Agreement contains certain representations and warranties of AmVestors relating
to, among other things, (i) absence of threats of cancellation by policyholders;
(ii) compliance of covenants in the Indenture (as defined below) by AmVestors;
(iii) no control share acquisition by AmVestors under the Kansas takeover
statute; (iv) the right to use all material patents, trademarks or copyrights
and material computer software, programs and similar systems for use in
connection with the business, and (v) maintenance of insurance. The Merger
Agreement also contains a representation and warranty of AmerUs relating to the
absence of operations by Merger Sub.
CONDUCT OF BUSINESS PENDING THE MERGER
AmVestors has agreed that it will and will cause the Acquired Companies to
conduct its and their respective businesses only in the ordinary course and
consistent with past practice (except as otherwise provided in the Merger
Agreement or except as may be consented to by AmerUs in writing) and to use all
commercially reasonable efforts permitted by the Merger Agreement to and cause
each of the Acquired Companies to (i) preserve intact its present business
organization, field force, reputation, and policyholder, annuitant or customer
relations, (ii) keep available the services of its present key officers,
directors, employees, agents, consultants, and other similar representatives,
(iii) maintain all Permits (as defined in the Merger Agreement) to do business
in each jurisdiction in which it has such Permits, (iv) maintain in full force
and effect all material contracts, documents, and arrangements disclosed to
AmerUs, except to the extent they are terminated in the ordinary course of
business, (v) maintain all of its assets and properties in current working order
and condition, ordinary wear and tear excepted, (vi) continue all current
marketing and selling activities relating to its business, operations, or
affairs in accordance with its current marketing plan and applicable law, and
(vii) with respect to AmVestors Insurance Subsidiaries (as defined in the Merger
Agreement), maintain the rating classification, or its equivalent, assigned as
of the date of the Merger Agreement to it by A.M. Best Company Inc. AmVestors
also agreed to maintain, and to cause each of the Acquired Companies to
maintain, their respective books and records in the usual manner and consistent
with past practice and will not permit a material change in any applicable
underwriting, investment, actuarial, financial reporting, or accounting practice
or policy of each Acquired Company or in any assumption underlying such a
practice or policy, or in any method of calculating any bad debt, contingency,
or other reserve for financial reporting purposes or for
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other accounting purposes (including without limitation, any practice, policy,
assumption, or method relating to or affecting the determination of insurance or
annuities in force, premium or investment income, reserve liabilities, or
operating ratios with respect to expenses, losses, or lapses). AmVestors also
agreed to (i) prepare properly and file duly and validly all reports and all tax
returns required to be filed with any governmental or regulatory authorities
with respect to its business, operations, or affairs and (ii) pay in full and
when due all taxes indicated by such tax returns or otherwise levied or assessed
upon it or any of its assets and properties, and withhold or collect and pay to
the proper taxing authorities or hold in separate bank accounts for such payment
all taxes that it is required to so withhold or collect and pay, unless
reasonable reserves therefor have been established and reflected in its books
and records. AmVestors agreed not to make any tax election with respect to such
tax returns without the consent of AmerUs, which consent shall not be
unreasonably withheld. AmVestors shall not and shall not permit any Acquired
Company to settle any material audit, make or change any material tax election
or file any amended tax return (except as previously disclosed to AmerUs). At
least 10 days prior to filing any income tax return or other material tax return
relating to AmVestors or any Acquired Company, AmVestors shall deliver a copy of
such tax return to AmerUs for AmerUs' review and comment. AmVestors agreed to
refrain from making, filing, or entering into (whether before or after the
closing) any election, consent, or agreement with respect to any Acquired
Company or any of their respective assets and properties. AmVestors agreed to
cause (i) all reserve liabilities with respect to insurance and annuity
contracts established or reflected in the books and records of AmVestors
Insurance Subsidiaries to be (A) established in accordance with the methods for
establishing liabilities and reserving methods followed by AmVestors Insurance
Subsidiaries in the preparation of the AmVestors' Annual Report and (B) adequate
(under generally accepted actuarial principles consistently applied) to cover
the total amount of all reasonably anticipated matured and unmatured benefits,
dividends, losses, claims, expenses, and other liabilities of AmVestors
Insurance Subsidiaries under all insurance and annuity contracts pursuant to
which AmVestors Insurance Subsidiaries have or will have any liability
(including without limitation any liability arising under or as a result of any
reinsurance, coinsurance, or other similar contract) and (ii) AmVestors
Insurance Subsidiaries to continue to own assets that qualify as legal reserve
assets under all applicable insurance laws in an amount at least equal to their
required reserve liabilities. AmVestors agreed to use all commercially
reasonable efforts to maintain in full force and effect until the Closing
substantially the same levels of coverage as the insurance afforded under
existing contracts previously disclosed to AmerUs pursuant to the Merger
Agreement. Any and all benefits under such contracts paid or payable to any
Acquired Company prior to the Closing with respect to the business, operations,
affairs, or assets and properties of such Acquired Company shall be paid to such
Acquired Company. AmVestors agreed to continue to and will cause the other
Acquired Companies to comply, in all material respects, with all laws applicable
to its business, operations, or affairs. AmVestors agreed to not and will cause
the other Acquired Companies not to incur any liabilities outside of the
ordinary course of their respective businesses and consistent with past
practices.
EXERCISE OF CALL OF AMVESTORS CONVERTIBLE DEBENTURES
AmVestors agreed to cause notices of redemption to be mailed to all
registered holders of 3% convertible debentures due 2003 of AmVestors (the
"AMVESTORS CONVERTIBLE DEBENTURES") issued pursuant to the Indenture dated July
12, 1996, between AmVestors and Bank of New York, as successor trustee (the
"INDENTURE") prior to September 26, 1997, in accordance with applicable
provisions of the Indenture, and shall use its commercially reasonable efforts
to cause the redemption of all outstanding AmVestors Convertible Debentures in
accordance with the applicable provisions of the Indenture (the "REDEMPTION").
On September 24, 1997, AmVestors issued a written notice of redemption of all
the outstanding AmVestors Convertible Debentures on November 14, 1997 (the
"REDEMPTION DATE"), at a redemption price (the "REDEMPTION PRICE") equal to 100%
of their principal amount plus Accrued Current Interest (as defined in the
Indenture). All the outstanding AmVestors Convertible Debentures were converted
into shares of AmVestors Common Stock prior to the close of business on November
7, 1997 at a conversion price of $17.125 per share.
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INDEMNIFICATION
AmerUs has agreed in the Merger Agreement that it will, to the fullest
extent permitted by law, cause the Surviving Corporation to honor, and will
itself honor, all AmVestors' obligations to indemnify each current or former
director and officer of AmVestors or any of its Subsidiaries (each such
indemnified person, an "INDEMNIFIED PARTY" and collectively, the "INDEMNIFIED
PARTIES") for acts or omissions by such Indemnified Parties occurring prior to
the Effective Time to the extent that such obligations of AmVestors exist on the
date of the Merger Agreement, whether pursuant to AmVestors' Certificate of
Incorporation (the "AMVESTORS CHARTER"), By-Laws (the "AMVESTORS BY-LAWS") or
individual indemnity agreements. Any amendment, repeal or other modification to
the AmVestors Charter or the AmVestors By-Laws will not affect the obligations
of AmerUs and shall not adversely affect the rights of Indemnified Parties under
the Merger Agreement, unless such modification is required by law. AmerUs and
AmVestors also agreed that, for a period of six years after the Effective Time
(as defined in the Merger Agreement) (it being understood that AmVestors has
prepaid all premiums for such policies through February 17, 2000), AmerUs shall
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by AmVestors (provided that AmerUs may
substitute therefor policies containing terms with respect to coverage and
amounts identical or more extensive to the coverage and amounts currently
provided by AmVestors' policy) with respect to claims arising from or related to
facts or events which occurred at or prior to the Effective Time; PROVIDED,
HOWEVER, that AmerUs shall not be obligated to make annual premium payments for
such insurance to the extent such premiums exceed 150% of the annual premiums
paid as of the date of the Merger Agreement by AmVestors for such insurance
(such 150% amount, the "MAXIMUM PREMIUM"), and that, to the extent such
insurance coverage cannot be obtained at all, or can only be obtained at an
annual premium in excess of the Maximum Premium, AmerUs shall maintain the most
advantageous policies of directors' and officers' insurance obtainable for an
annual premium equal to the Maximum Premium.
CONDITIONS TO THE MERGER
The respective obligation of AmerUs, AmVestors and Merger Sub to effect the
Merger is subject to the satisfaction or waiver of various conditions,
including: (i) approval of the stockholders of AmVestors and approval of the
shareholders of AmerUs, (ii) the shares of AmerUs Class A Common Stock issuable
to AmVestors' stockholders in the Merger and employees pursuant to the Merger
Agreement shall have been approved for listing on Nasdaq, subject to official
notice of issuance, (iii) the waiting periods (and any extensions thereof)
applicable to the transactions contemplated by the Merger Agreement under the
HSR Act shall have been terminated or shall have expired, (iv) no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, (v) the
Registration Statement (as defined in the Merger Agreement) shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order instituted by the SEC or state
regulatory authorities, and AmerUs shall have received all state securities or
"blue sky" authorizations necessary to issue the AmerUs Class A Common Stock,
(vi) AmVestors, each Acquired Company, AmerUs and each AmerUs subsidiary shall
have obtained or made, as appropriate, all material consents, approvals, orders,
authorizations, registrations, declarations, permits or filings to be obtained
or made in connection with the Merger Agreement and the transactions
contemplated by the Merger Agreement or for the conduct of their businesses as
currently conducted or as expected to be conducted, all of which shall be in
full force and effect, in each case without the abrogation or diminishment of
the permits currently held by AmVestors or the imposition of significant
restrictions upon the transactions contemplated thereby or the conduct of the
business of the Surviving Corporation, (vii) there shall not be instituted,
pending, or threatened, any action, suit, investigation, or other proceeding in,
before, or by any governmental entity or other person (x) challenging the
acquisition by AmerUs or Merger Sub of any shares of AmVestors Common Stock,
seeking to restrain or prohibit the consummation of the Merger or any of the
other transactions contemplated by the Merger Agreement or seeking to obtain any
damages that are material in relation to AmVestors and its subsidiaries taken as
a whole, (y) seeking to prohibit or limit the ownership or operation by
AmVestors, any Acquired Company, AmerUs or any
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AmerUs subsidiary of any material portion of the business or assets of
AmVestors, any Acquired Company, AmerUs or any AmerUs subsidiary or to compel
AmVestors, any Acquired Company, AmerUs or any AmerUs subsidiary to dispose of
or hold separate any material portion of the business or assets of AmVestors,
any Acquired Company, AmerUs or any AmerUs subsidiary, as a result of the
transactions contemplated by the Merger Agreement, or (z) which otherwise is
reasonably likely to have a Material Adverse Effect on AmVestors or on AmerUs.
As used in the Merger Agreement, "MATERIAL ADVERSE EFFECT" shall mean, with
respect to any person, a material adverse effect on (I) the organization,
existence, assets, liabilities, business, sales force, new sales, prospects,
operations, condition (financial or otherwise), or results of operations of such
person, together with any subsidiaries thereof, taken as a whole, or (II) the
ability of such person to perform its material obligations under the Merger
Agreement, provided that the term Material Adverse Effect shall not include any
changes or effects on the organization, existence, assets, liabilities,
business, sales force, new sales, prospects, operations, condition (financial or
otherwise), or results of operations on AmerUs, together with any subsidiaries
thereof, taken as a whole, caused by changes in general economic conditions or
changes generally affecting AmerUs' industry.
The obligations of AmerUs and Merger Sub to effect the Merger are further
subject to the satisfaction or waiver by AmerUs of conditions including that:
(i) the representations and warranties of AmVestors set forth in the Merger
Agreement that are qualified as to materiality shall be true and correct, and
the representations and warranties of AmVestors set forth in the Merger
Agreement that are not so qualified shall be true and correct in all material
respects, in each case as of the date of the Merger Agreement and as of the
Closing Date as though made on and as of the Closing Date, except to the extent
any such representation or warranty expressly relates to an earlier date (in
which case as of such date), (ii) AmVestors shall have performed in all material
respects all obligations required to be performed by it under the Merger
Agreement at or prior to the Closing Date, (iii) AmVestors shall have delivered
to AmerUs a certificate executed by the Secretary of AmVestors certifying as to
AmVestors' authorization to consummate the Merger and as to certain fees
incurred by AmVestors in connection with the Merger, and certificates of
officers and directors of AmVestors that may reasonably be required by counsel
in connection with the delivery of their tax opinions, (iv) AmerUs shall have
received an opinion dated the Closing Date from Skadden, Arps, Slate, Meagher &
Flom LLP, substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion (including facts set
forth in certificates of officers), the Merger will be treated for United States
Federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, (v) there shall not have occurred since the date of the
Merger Agreement any event, change, effect or development which, individually or
in the aggregate, has had or is reasonably likely to have, a Material Adverse
Effect on AmVestors, and (vi) AmVestors shall have delivered to AmerUs specified
certified certificates of good standing from each of specified jurisdictions
with respect to each of the permits issued to an Acquired Company by such
jurisdiction, including insurance permits from the state insurance commission of
Kansas, with respect to American, and of Florida, with respect to FBL.
The obligation of AmVestors to effect the Merger is further subject to the
satisfaction or waiver by AmVestors on or prior to the Closing Date of
conditions including: (i) the representations and warranties of AmerUs and
Merger Sub set forth in the Merger Agreement that are qualified as to
materiality shall be true and correct, and the representations and warranties of
AmerUs and Merger Sub set forth in the Merger Agreement that are not so
qualified shall be true and correct in all material respects, in each case as of
the date of the Merger Agreement and as of the Closing Date as though made on
and as of the Closing Date, except to the extent any such representation or
warranty expressly relates to an earlier date, (ii) AmerUs and Merger Sub shall
have performed in all material respects all obligations required to be performed
by them under the Merger Agreement at or prior to the Closing Date, (iii) AmerUs
shall have delivered to AmVestors a certificate executed by the Secretary of
AmerUs certifying as to AmerUs' authorization to consummate the Merger and
certificates of officers and directors of AmerUs, AmVestors and Merger Sub that
may reasonably be required by counsel in connection with the delivery of their
tax opinions, (iv) AmVestors shall have received an opinion dated the Closing
Date from Bryan Cave LLP, substantially to the effect that, on the basis of
facts, representations and assumptions set forth in such
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opinion (including facts set forth in the certificates of officers), the Merger
will be treated for United States Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and to provide
assurance to stockholders of AmVestors that they will not recognize gain in the
Merger, except to the extent cash is received in exchange for fractional shares,
(v) there shall not have occurred since the date of the Merger Agreement any
event, change, effect or development which, individually or in the aggregate,
has had or is reasonably likely to have, a Material Adverse Effect on AmerUs.
Notwithstanding any other provision of the Merger Agreement, it is understood
and agreed that for all purposes of the Merger Agreement, except as described in
the following sentence, no term, representation, warranty, covenant, agreement
or other provision thereunder shall be deemed to apply to or include Delta or
the effect of the acquisition of Delta on AmerUs. In addition, the Merger
Agreement provides that in the event AmerUs acquires Delta, there shall not have
occurred any event, change, effect or development which, individually or in the
aggregate, has had or is reasonably likely to have, a Material Adverse Effect on
AmerUs.
NO SOLICITATION
Under the Merger Agreement, AmVestors agreed, and agreed to cause each
Acquired Company to, immediately cease and cause to be terminated any existing
activities, discussions, or negotiations by AmVestors, any Acquired Company or
any officer, director or employee of, investment banker, attorney, accountant or
other advisor or representative of, AmVestors or any Acquired Company, with
parties conducted heretofore with respect to any of the foregoing. The Merger
Agreement provides that AmVestors shall not, nor shall AmVestors authorize or
permit any of the Acquired Companies, or any of its or their officers,
directors, employees, representatives or agents, to, directly or indirectly,
encourage, solicit, participate in, initiate or continue discussions or
negotiations with, or provide any information to, any person (other than AmerUs
or Merger Sub) with respect to, or take any action to facilitate any inquiries
or the making of, or enter into any agreement (including any preliminary
agreement) relating to, or approve any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal (as defined below),
provided that, at any time prior to the approval of the Merger Agreement and the
Merger by AmVestors' stockholders at the AmVestors Special Meeting, AmVestors
may furnish information and access, in each case only in response to requests
which were not solicited on or after the date of the Merger Agreement, to any
person pursuant to a customary confidentiality agreement, and may participate in
discussions and negotiate with such person concerning an Acquisition Proposal,
if the AmVestors Board determines in its good faith judgment, following
consultation with outside counsel, that (i) such person shall have submitted a
Competitive Proposal (as defined below) which was not solicited on or after the
date of the Merger Agreement, and (ii) that it is required to do so in order to
comply with its fiduciary duties to stockholders under applicable law. The
Merger Agreement provides that the AmVestors Board shall notify AmerUs orally
(within one business day), and in writing (as promptly as practicable) of all
inquiries and proposals that it may receive relating to any Acquisition Proposal
and the material terms and conditions thereof, that it and any Acquired Company
or any of its or their officers, directors, employees, representatives or agents
may receive relating to any Acquisition Proposal and thereafter keep AmerUs
promptly advised of any material developments with respect thereto.
The Merger Agreement provides that the AmVestors Board shall not withdraw or
modify, or propose to withdraw or modify, its recommendation of the Merger
Agreement and the transactions contemplated hereby or approve or recommend, or
propose to approve or recommend, any Acquisition Proposal, provided that, if the
AmVestors Board determines in its good faith judgment, following consultation
with outside counsel and an independent financial advisor, that (i) such Person
shall have submitted a Superior Proposal (as defined below) which was not
solicited on or after the date of the Merger Agreement, and (ii), that it is
required to do so in order to comply with its fiduciary duties to stockholders
under applicable law, the AmVestors Board may (x) withdraw or modify, or propose
to withdraw or modify, its recommendation of the transactions contemplated by
the Merger Agreement on account of such Superior Proposal or (y) approve or
recommend such Superior Proposal or terminate the Merger
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Agreement (and concurrently with or after such termination, cause AmVestors to
enter into any agreement with respect to such Superior Proposal) but in each
case of the foregoing (x) and (y) only after providing at least five business
days prior written notice to AmerUs (A) advising AmerUs that the AmVestors Board
has received or become aware of a Superior Proposal, (B) specifying the material
terms and conditions of such Superior Proposal, and (C) identifying the person
making the Superior Proposal, and (D) stating that it intends to withdraw its
recommendation or approve or recommend such Superior Proposal.
Such provision of the Merger Agreement does not, however, prohibit the
AmVestors Board from disclosing to AmVestors' stockholders a position permitted
thereby in accordance with Rules 14d-9 and 14e-2 promulgated under the Exchange
Act with respect to any tender offer for shares of capital stock of AmVestors.
An "ACQUISITION PROPOSAL" means any proposal, offer or expression of
interest from any person involving a merger, consolidation or other business
combination with AmVestors or any other Acquired Company or any proposal, offer
or expression of interest to acquire or cause to be acquired in any manner,
directly or indirectly, including, without limitation, through any reinsurance
or coinsurance transaction, all or a significant portion of the business,
assets, or capital stock of AmVestors or any other Acquired Company, other than
the transactions contemplated by the Merger Agreement.
A "SUPERIOR PROPOSAL" means any bona fide Acquisition Proposal from any
person and which is otherwise on terms that the AmVestors Board determines in
its good faith reasonable judgment, following consultation with outside counsel
and an independent financial advisor, to be more favorable to AmVestors'
stockholders than the Merger and for which financing, to the extent required, is
then committed or which, in the good faith judgment of the AmVestors Board,
based upon the advice of its financial advisors, is reasonably capable of being
obtained by such third party on commercially reasonable terms.
A "COMPETITIVE PROPOSAL" means any bona fide Acquisition Proposal from any
Person that the AmVestors Board determines in its good faith reasonable
judgment, could reasonably be expected to lead to a transaction which is
financially superior to the Merger.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, upon notice by the terminating party to the other party:
(a) at any time before the Closing, by mutual written agreement of the
parties; or
(b) at any time by AmVestors if any of the AmerUs' or Merger Sub's
covenants or representations and warranties shall have been breached, or
shall not have been performed or complied with, in any material respect, at
or before the Closing Date and such breach, non-performance, or non-
compliance has not been cured or eliminated within 30 calendar days after
written notice thereof has been given to AmerUs, or if a condition to
AmVestors' obligations thereunder cannot be satisfied prior to the Outside
Date (as defined below);
(c) at any time by AmerUs if any of AmVestors' covenants or
representations and warranties shall have been breached, or shall not have
been performed or complied with, in any material respect, before the Closing
Date and such breach, non-performance, or non-compliance has not been cured
or eliminated within 30 calendar days after written notice thereof has been
given to AmVestors, or if a condition to AmerUs' obligations thereunder
cannot be satisfied prior to the Outside Date;
(d) by AmerUs or AmVestors, if the Merger Agreement and the Merger shall
have failed to receive the requisite approval of (i) the stockholders of
AmVestors at the AmVestors Special Meeting, or (ii) the shareholders of
AmerUs at the AmerUs Special Meeting;
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(e) at any time after June 30, 1998 (the "OUTSIDE DATE") by AmVestors or
AmerUs, if the transactions contemplated by the Merger Agreement have not
been consummated on or before such date, provided, that the Merger Agreement
shall be extended not more than ninety days thereafter if the Merger shall
not have occurred as a result of the failure to receive any governmental
approvals, and such failure to obtain approval is not caused by a breach of
the Merger Agreement (or any representation, warranty, covenant, or
agreement included therein) by the party electing to terminate pursuant to
this clause (e);
(f) by AmVestors in accordance with the provisions described under
"--No Solicitation";
(g) by AmerUs if the AmVestors Board shall have withdrawn or modified
its recommendation of the Merger Agreement or the transactions contemplated
thereby or approves or recommends any Acquisition Proposal; or
(h) by AmVestors in accordance with the Termination for Price.
FEES AND EXPENSES
Except as described below, all fees and expenses, including any transfer
taxes or fees payable to any broker, investment banker or financial advisor,
incurred in connection with the Merger, the Merger Agreement and the
transactions contemplated by the Merger Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated,
except that expenses incurred in connection with SEC filing fees, the printing
and mailing of the Joint Proxy Statement/ Prospectus shall be shared equally by
AmerUs and AmVestors.
In the event the Merger Agreement is terminated by AmVestors in accordance
with the provisions described under "--No Solicitation", or by AmerUs if the
AmVestors Board shall have withdrawn or modified its recommendation of the
Merger Agreement or the transactions contemplated thereby or approves or
recommends any Acquisition Proposal, AmVestors shall pay to AmerUs by wire
transfer of immediately available funds (A) within two business days following
such termination the amount of $10.8 million, plus (B) within two business days
following receipt of a written demand therefor, an amount equal to all
reasonable out-of-pocket expenses incurred by AmerUs in connection with the
Merger Agreement and the transactions contemplated thereby.
In the event the Merger Agreement is terminated (x) by either AmVestors or
AmerUs, if the Merger Agreement and the Merger shall have failed to receive the
requisite approval of the stockholders of AmVestors at the AmVestors Special
Meeting, or (y) by either AmVestors or AmerUs at any time after the Outside Date
if the transactions contemplated by the Merger Agreement have not been
consummated on or before such date (provided in the case of clause (y) that
AmVestors' stockholders shall not have voted upon the approval of the Merger
Agreement at the AmVestors Special Meeting prior to the Outside Date and such
failure to vote was not primarily due to AmerUs' actions or inactions), (i)
AmVestors shall pay to AmerUs by wire transfer of immediately available funds
within two business days following receipt of a written demand therefor, an
amount equal to all reasonable out-of-pocket expenses incurred by AmerUs in
connection with the Merger Agreement and the transactions contemplated thereby
and in addition (ii) if AmVestors, at any time within 24 months following the
date of such termination, approves, enters into an agreement with respect to, or
there is filed or publicly announced, (A) a merger, consolidation or other
business combination involving AmVestors or any other Acquired Company or (B)
any direct or indirect (including through any reinsurance or coinsurance
transaction) acquisition by any Person of all or a significant portion of the
business or assets of AmVestors or any other Acquired Company or of the capital
stock of any Acquired Company, or (C) any transaction which would result in the
direct or indirect acquisition by any person of the power to direct the voting
or disposition of shares of capital stock of AmVestors representing 50% or more
of the total voting power of all outstanding shares of capital stock of
AmVestors, or otherwise resulting in a change in control of AmVestors, AmVestors
shall pay to AmerUs by wire transfer of immediately available funds the amount
of $10.8 million.
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In the event the Merger Agreement is terminated by either AmVestors or
AmerUs if the Merger Agreement and the Merger shall have failed to receive the
requisite approval of the stockholders of AmVestors at the AmVestors Special
Meeting and, prior to the AmVestors Special Meeting, (x) the AmVestors Board
withdrew or modified its recommendation of the Merger Agreement or the
transactions contemplated thereby or approved or recommended any Acquisition
Proposal, and (y) AmerUs had not terminated the Merger Agreement, AmVestors
shall pay to AmerUs by wire transfer of immediately available funds (A) within
two business days following such termination the amount of $10.8 million, plus
(B) within two business days following receipt of a written demand therefor, an
amount equal to all reasonable out-of-pocket expenses incurred by AmerUs in
connection with the Merger Agreement and the transactions contemplated thereby.
AMENDMENT
The Merger Agreement may be amended by the parties at any time before or
after the approval of the Merger by the AmVestors stockholders and approval of
the Stock Issuance by the AmerUs shareholders; PROVIDED, HOWEVER, that after
such approvals are obtained, there shall be made no amendment that by law
requires further approval by such stockholders without the further approval of
such stockholders. The Merger Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
EXTENSION; WAIVER
At any time prior to the Effective Time, the parties may (a) extend the time
for the performance of any of the obligations or other acts of the other
parties, or (b) waive any inaccuracies in the representations and warranties
contained in the Merger Agreement or in any document delivered pursuant to the
Merger Agreement, or (c) waive compliance with any of the covenants or
conditions contained in the Merger Agreement. Any agreement on the part of a
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to the Merger Agreement to assert any of its rights under the Merger Agreement
or otherwise shall not constitute a waiver of such rights.
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AMERUS LIFE HOLDINGS, INC.
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary consolidated financial data below as of or for the six months
ended June 30, 1997 and 1996 and each of the five years ended December 31, 1996
are derived from the consolidated financial statements of AmerUs. The
consolidated financial statements as of or for each of the four years ended
December 31, 1996 have been audited by KPMG Peat Marwick LLP, independent
auditors. The summary consolidated financial data provided below as of or for
the six months ended June 30, 1997 and 1996 and as of or for the year ended
December 31, 1992 are derived from the unaudited consolidated financial
statements of AmerUs. In the opinion of management, the unaudited financial data
presents fairly the consolidated financial statements for the periods presented
in conformity with GAAP.
The foregoing give effect to the AmerUs Reorganization as if it had been
completed prior to the periods presented. In the opinion of management, the
financial information presented for all interim periods reflects all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such data. Results for the six month periods ended June 30, 1997
and 1996 are not necessarily indicative of results that may be expected for any
other interim period or the year as a whole. This data should be read in
conjunction with (i) "ADDITIONAL INFORMATION REGARDING AMERUS-- Management's
Discussion and Analysis of Results of Operations and Financial Condition of
AmerUs," (ii) the audited consolidated financial statements of AmerUs as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, which financial statements have been audited by KPMG
Peat Marwick LLP, independent auditors, together with the related notes and the
report thereon, (iii) the unaudited consolidated financial statements of AmerUs
as of June 30, 1997 and 1996 and for the six-months ended June 30, 1997 and 1996
and (iv) other financial data and the unaudited Pro Forma Condensed Combined
Financial Statements appearing elsewhere in this Joint Proxy
Statement/Prospectus.
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<TABLE>
<CAPTION>
AS OF OR FOR THE SIX
MONTHS ENDED JUNE AS OF OR FOR THE YEAR ENDED DECEMBER 31,(A)
30,
-------------------- -----------------------------------------------------
1997(B) 1996 1996(B) 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Revenues:
Insurance premiums.............................. $ 20.9 $ 123.1 $ 138.5 $ 244.1 $ 237.9 $ 226.4 $ 192.9
Product charges................................. 20.3 29.3 49.3 57.3 56.3 57.4 57.2
Net investment income........................... 99.2 143.6 228.7 285.2 275.7 269.9 273.1
Realized gains (losses) on investments.......... 9.5 64.4 66.0 51.4 (19.9) 15.5 10.1
Other revenues.................................. 0.6 1.3 2.7 5.4 2.4 2.4 0.9
Contribution from the Closed Block (B).......... 13.5 -- 19.9 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total revenues.................................... 164.0 361.7 505.1 643.4 552.4 571.6 534.2
Benefits and expenses:
Total policyowner benefits...................... 83.9 188.1 261.9 374.6 369.9 364.3 334.8
Total expenses.................................. 40.0 58.3 99.9 108.9 111.4 106.0 100.0
Dividends to policyowners....................... 0.2 26.3 26.3 49.4 45.0 45.5 42.1
--------- --------- --------- --------- --------- --------- ---------
Total benefits and expenses....................... 124.1 272.7 388.1 532.9 526.3 515.8 476.9
--------- --------- --------- --------- --------- --------- ---------
Income before income tax expense and equity in
earnings of unconsolidated subsidiary............ 39.9 89.0 117.0 110.5 26.1 55.8 57.3
Income tax expense................................ 11.6 32.8 43.8 41.2 19.4 21.4 18.6
--------- --------- --------- --------- --------- --------- ---------
Income before equity in earnings of unconsolidated
subsidiary....................................... 28.3 56.2 73.2 69.3 6.7 34.4 38.7
Equity in earnings of unconsolidated subsidiary... 0.7 0.3 1.0 -- -- -- --
Cumulative effect of a change in accounting
principle, net of tax............................ -- -- -- -- -- (3.2) --
--------- --------- --------- --------- --------- --------- ---------
Net income........................................ $ 29.0 $ 56.5 $ 74.2 $ 69.3 $ 6.7 $ 31.2 $ 38.7
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings per share (C)............................ $ 1.25 $ 2.44 $ 3.20 $ 2.99 -- -- --
Dividends declared per common share............... $ .10 -- -- -- -- -- --
CONSOLIDATED BALANCE SHEET DATA:
Total invested assets............................. $ 2,877.2 $ 3,824.1 $ 2,901.7 $ 3,965.0 $ 3,491.7 $ 3,639.3 $ 3,274.8
Total assets...................................... 4,450.5 4,271.5 4,384.2 4,371.9 4,036.9 4,030.7 3,707.6
Total liabilities................................. 3,829.5 3,769.0 3,926.7 3,832.0 3,618.6 3,524.8 3,286.4
Company-obligated mandatorily redeemable preferred
securities....................................... 86.0 -- -- -- -- -- --
Total shareholders' equity (D).................... 535.0 502.5 457.5 539.9 418.3 505.9 421.2
OTHER OPERATING DATA:
Adjusted operating income (E)..................... $ 23.8 $ 19.8 $ 37.6 $ 38.5 $ 27.5 $ 24.2 $ 32.1
Adjusted operating income per share............... $ 1.03 $ .86 $ 1.62 $ 1.66 -- -- --
Individual life insurance inforce, net of
reinsurance...................................... $ 25,875 $ 25,218 $ 25,725 $ 25,157 $ 25,282 $ 24,698 $ 23,947
Number of employees............................... 407 405 412 406 457 489 505
STATUTORY DATA:
Statutory premiums and deposits:
Individual life................................. $ 158.7 $ 155.5 $ 312.7 $ 307.1 $ 296.4 $ 286.3 $ 270.2
Annuities (F)................................... 25.4 54.3 81.4 197.1 187.8 90.4 65.2
</TABLE>
- ------------------
(A) The merger of the two predecessor entities of AmerUs, which was consummated
in 1994, has been accounted for as a pooling of interests transaction.
(B) AmerUs formed the Closed Block on June 30, 1996 as a part of the AmerUs
Reorganization. Invested assets allocated to the Closed Block are classified
as Closed Block assets. Revenues and expenses associated with the Closed
Block are shown net as a single line item. Accordingly, the individual
income statement components for the first six months of 1997 are not
comparable with the first six months of 1996, prior to the establishment of
the Closed Block. See "ADDITIONAL INFORMATION REGARDING
AMERUS--Business--The AmerUs Reorganization--Establishment and Operation of
the Closed Block," "--Management's Discussion and Analysis of Results of
Operations and Financial Condition of AmerUs--Results of Operations--Six
Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996," and
"--Management's Discussion and Analysis of Results of Operations and
Financial Condition of AmerUs--Results of Operations--1996 Compared to
1995."
(C) Retroactively reflects the pro forma effect of the issuance of 18.16 million
shares of AmerUs Class A Common Stock and 5.0 million shares of AmerUs Class
B Common Stock at the beginning of the respective periods.
(D) Amounts reported prior to June 30, 1996 reflect policyowners' equity. From
December 31, 1993, results reflect the impact of SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities."
(E) Adjusted operating income adjusts net income for the after-tax effect of
realized gains or losses on investments less that portion of the
amortization of deferred policy acquisition costs on such amounts, the
mutual life insurance equity add-on tax, costs directly related to the
AmerUs Reorganization, and the cumulative effect of accounting changes of
SFAS 106. See "ADDITIONAL INFORMATION REGARDING AMERUS--Management's
Discussion and Analysis of Results of Operations and Financial Condition of
AmerUs."
(F) Effective May 1996, substantially all new sales of individual deferred
annuities are made through the Ameritas Joint Venture. See "SEE ADDITIONAL
INFORMATION REGARDING AMERUS--Business--Ameritas Joint Venture."
66
<PAGE>
AMVESTORS FINANCIAL CORPORATION
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
Set forth below is a summary of selected consolidated historical financial
data with respect to AmVestors for the periods indicated, with the data as of
and for the five years ended December 31, 1996 being derived from AmVestors'
audited consolidated financial statements and the data as of and for the six
months ended June 30, 1996 and 1997 being derived from AmVestors' unaudited
quarterly financial statements. In the opinion of AmVestors' management all
necessary adjustments, consisting only of normal recurring adjustments, have
been made for the fair presentation of the data. The consolidated financial
statements as of December 31, 1996 and 1995 and for each of the three years
ended December 31, 1996 have been audited by Deloitte & Touche LLP, independent
auditors. More comprehensive financial information is included in reports and
other documents filed by AmVestors with the SEC, and the following summary is
qualified in its entirety by reference to such reports and other documents and
all of the financial information (including any related notes) contained
therein. Such reports and other documents may be inspected and copies may be
obtained from the offices of the SEC. See "WHERE YOU CAN FIND MORE INFORMATION."
<TABLE>
<CAPTION>
AS OF OR FOR THE
SIX MONTHS ENDED AS OF OR FOR THE
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT AND OTHER DATA:
Revenue:
Insurance premiums and policy charges........ $ 9.1 $ 6.3 $ 14.3 $ 8.5 $ 6.3 $ 6.6 $ 7.5
Net investment income........................ 103.1 89.2 191.5 156.5 142.0 138.5 141.2
Net investment gains......................... 3.9 2.5 7.9 0.2 0.8 17.0 20.5
Income from disposal of private placement
securities................................. -- -- -- -- -- -- 5.8
Other revenues............................... 1.6 0.7 2.3 1.5 0.6 0.4 0.7
--------- --------- --------- --------- --------- --------- ---------
Total Revenue.................................. 117.7 98.7 216.0 166.7 149.7 162.5 175.7
--------- --------- --------- --------- --------- --------- ---------
Benefits and expenses:
Benefits, claims and interest credited to
policyholders.............................. 76.5 66.8 143.8 118.9 112.3 113.8 128.1
Amortization of deferred cost of policies
produced................................... 8.3 7.4 15.3 12.4 9.0 9.4 16.4
Amortization of deferred cost of policies
purchased.................................. 3.6 2.1 6.5 -- -- -- --
General insurance expenses................... 7.5 5.5 12.6 8.4 7.6 8.8 8.7
Premium and other taxes, licenses and fees... 1.7 1.2 2.9 1.8 1.5 2.7 2.8
--------- --------- --------- --------- --------- --------- ---------
Total benefits and expenses.................... 97.6 83.0 181.1 141.5 130.4 134.7 156.0
--------- --------- --------- --------- --------- --------- ---------
Operating earnings............................. 20.1 15.7 34.9 25.2 19.3 27.8 19.7
Interest expense............................... 2.9 0.7 3.5 0.1 -- 1.0 2.4
--------- --------- --------- --------- --------- --------- ---------
Earnings before income tax expense and
extraordinary item............................ 17.2 15.0 31.4 25.1 19.3 26.8 17.3
Income tax expense............................. 6.0 5.2 10.3 8.5 5.6 8.6 0.1
--------- --------- --------- --------- --------- --------- ---------
Earnings before extraordinary item............. 11.2 9.8 21.1 16.6 13.7 18.2 17.2
Extraordinary item............................. -- (0.1) (0.2) -- -- (0.2) (0.4)
--------- --------- --------- --------- --------- --------- ---------
Net earnings................................... $ 11.2 $ 9.7 $ 20.9 $ 16.6 $ 13.7 $ 18.0 $ 16.8
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings before extraordinary item per share of
common stock:
Primary...................................... $ .81 $ .80 $ 1.65 $ 1.60 $ 1.32 $ 2.62 $ 2.94
Fully diluted................................ .73 .79 1.56 1.60 1.32 2.49 2.62
Earnings per share of common stock:
Primary...................................... $ .81 $ .80 $ 1.63 $ 1.60 $ 1.32 $ 2.59 $ 2.87
Fully diluted................................ .73 .79 1.54 1.60 1.32 2.46 2.56
Dividends per share of common stock............ $ .0525 $ .0975 $ .1425 $ .0750 -- -- --
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
AS OF OR FOR THE
SIX MONTHS ENDED AS OF OR FOR THE
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Operating earnings excluding net investment
gains (losses) and related amortization of
deferred acquisition costs.................... $ 20.3 $ 14.8 $ 32.7 $ 24.4 $ 18.7 $ 15.5 $ 7.9
Net operating earnings excluding net investment
gains (losses) and related amortization of
deferred acquisition costs and income taxes... 13.2 9.7 22.3 16.0 13.1 10.7 4.0
Net operating earnings excluding net investment
gains (losses) and related amortization of
deferred acquisition costs and income taxes
per common share:
Primary.................................... $ .95 $ .80 $ 1.74 $ 1.54 $ 1.26 $ 1.54 $ .68
Fully diluted.............................. .74 .79 1.52 1.53 1.26 1.47 .61
BALANCE SHEET DATA:
Total assets................................... $ 3,438.3 $ 3,210.4 $ 3,345.5 $ 2,476.2 $ 2,260.0 $ 2,114.7 $ 2,090.1
Total debt..................................... 65.0 35.0 65.0 7.0 -- -- 19.9
Stockholders' equity........................... 213.8 180.5 204.4 174.4 104.2 100.3 49.5
Fully diluted book value per share............. 15.87 13.38 14.99 16.43 10.16 9.70 7.50
STATUTORY DATA:
Net statutory premiums......................... $ 273.0 $ 234.3 $ 447.9 $ 416.4 $ 269.4 $ 219.5 $ 169.2
Statutory capital and surplus.................. 138.7 130.2 135.2 98.3 87.5 87.1 74.5
Total AVR/MSVR................................. 40.2 37.6 39.2 26.4 23.6 24.4 17.5
Total IMR...................................... 14.9 13.6 14.4 6.9 10.6 12.0 7.0
</TABLE>
68
<PAGE>
AMERUS LIFE HOLDINGS, INC., DELTA LIFE CORPORATION
AND AMVESTORS FINANCIAL CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
statements give effect to the acquisition of Delta and the Merger of AmerUs and
AmVestors and the issuance of 11.49 million shares of AmerUs Class A Common
Stock as the Merger Consideration (assuming the Merger Consideration is .6724,
the conversion of all AmVestors Convertible Debentures and rollover of all
warrants and options to purchase shares of AmVestors Common Stock) as if the
acquisition of Delta and the Merger had occurred as of June 30, 1997 for the
purposes of the unaudited pro forma condensed consolidated balance sheet and as
of January 1, 1996 for the purposes of the unaudited pro forma condensed
consolidated statements of income for the six months ended June 30, 1997 and the
year ended December 31, 1996. The acquisition of Delta and the Merger are
accounted for under the purchase method of accounting. The unaudited pro forma
condensed consolidated statements of income do not give effect to AmerUs'
anticipated cost savings resulting from the acquisition of Delta or the Merger.
The unaudited pro forma condensed consolidated financial statements are
based on available information and on assumptions management believes are
reasonable and reflect the effects of the transactions described above. Such
unaudited pro forma condensed consolidated financial statements are provided for
informational purposes only and should not be construed to be indicative of
AmerUs' consolidated financial position or results of operations had these
transactions been consummated on the dates assumed and do not in any way
represent a projection or forecast of AmerUs' consolidated financial position or
results of operations for any future date or period. The unaudited pro forma
condensed consolidated financial statements should be read in conjunction with
the notes thereto, the audited consolidated financial statements of AmerUs,
together with the related notes and report thereon, the unaudited consolidated
financial statements of AmerUs included elsewhere in this Joint Proxy
Statement/Prospectus and with the information set forth under "ADDITIONAL
INFORMATION REGARDING AMERUS-- Management's Discussion and Analysis of Results
of Operations and Financial Condition of AmerUs" and "-- Business."
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997
-----------------------------------------------------------------------------------------------------
PRO FORMA PRO FORMA PRO FORMA
FOR THE ADJUSTMENTS FOR THE DELTA
AMERUS DELTA DELTA PRO FORMA DELTA AMVESTORS FOR THE ACQUISITION
HISTORICAL HISTORICAL ADJUSTMENTS(A) ACQUISITION HISTORICAL MERGER(B) AND THE MERGER
----------- ----------- ----------------- ----------- ----------- ------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Invested assets:
Fixed maturities.... $ 2,405.6 $ 1464.7 -- $ 3,870.3 $ 2,723.9 $ -- $ 6,594.2
Equity securities... 63.0 1.3 -- 64.3 40.9 -- 105.2
Short-term
investments....... 5.6 -- -- 5.6 .5 -- 6.1
Investment in
unconsolidated
subsidiary........ 23.1 -- -- 23.1 -- -- 23.1
Mortgage loans...... 230.4 261.8 -- 492.2 10.4 -- 502.6
Real estate......... 4.4 4.8 -- 9.2 -- -- 9.2
Policy loans........ 66.1 36.2 -- 102.3 6.0 -- 108.3
Other investments... 79.0 3.5 -- 82.5 21.9 -- 104.4
----------- ----------- ------- ----------- ----------- ------------- ---------------
Total
investments..... 2,877.2 1,772.3 -- 4,649.5 2,803.6 -- 7,453.1
Cash.................. 7.7 9.6 -- 17.3 86.8 (9.0) (E) 95.1
Accrued investment
income.............. 33.4 12.2 -- 45.6 38.4 -- 84.0
Deferred policy
acquisition costs... 138.5 115.5 (115.5) (F) 138.5 199.4 (199.4) (F) 138.5
Ceded reserves and
claims.............. -- 63.8 -- 63.8 230.4 -- 294.2
Value of business
acquired............ -- -- 132.3(C) 132.3 37.3 186.7(C) 356.3
Other assets.......... 86.3 7.5 (4.4) 89.4 31.0 -- 120.4
Closed Block.......... 1,307.4 -- -- 1,307.4 -- -- 1,307.4
Goodwill.............. -- -- 52.3(D) 52.3 11.4 115.8(D) 179.5
----------- ----------- ------- ----------- ----------- ------------- ---------------
Total assets...... $ 4,450.5 $ 1,980.9 $ 64.7 $ 6,496.1 $ 3,438.3 $ 94.1 $ 10,028.5
----------- ----------- ------- ----------- ----------- ------------- ---------------
----------- ----------- ------- ----------- ----------- ------------- ---------------
</TABLE>
The accompanying notes are an integral part of this
Unaudited Pro Forma Condensed Consolidated Balance Sheet.
69
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
---------------------------------------------------------------------------------- PRO FORMA
PRO FORMA PRO FORMA FOR THE
FOR THE ADJUSTMENTS DELTA
AMERUS DELTA DELTA PRO FORMA DELTA AMVESTORS FOR THE ACQUISITION
HISTORICAL HISTORICAL ADJUSTMENTS(A) ACQUISITION HISTORICAL MERGER(B) AND THE MERGER
----------- ----------- --------------- ----------- ----------- ------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Policyowner reserves
and policyowner
funds............... $ 2,065.8 $ 1,830.0 -- $ 3,895.8 $ 3,132.2 -- $ 7,028.0
Other liabilities..... 118.4 19.4 9.2 147.0 27.3 25.0(G) 199.3
Debt.................. 81.5 24.1 162.9(H) 268.5 65.0 (65.0)(B) 268.5
Closed Block
liabilities......... 1,563.8 -- -- 1,563.8 -- -- 1,563.8
----------- ----------- --------------- ----------- ----------- ------------- ---------------
Total liabilities... 3,829.5 1,873.5 172.1 5,875.1 3,224.5 (40.0) 9,059.6
----------- ----------- --------------- ----------- ----------- ------------- ---------------
Company-obligated
mandatorily redeemable
preferred securities
of subsidiary trust
holding solely Junior
Subordinated
Debentures of AmerUs.. 86.0 -- -- 86.0 -- -- 86.0
----------- ----------- --------------- ----------- ----------- ------------- ---------------
SHAREHOLDERS' EQUITY:
Preferred stock....... -- -- -- -- -- -- --
Common stock.......... 23.2 1.8 (1.8)(A) 23.2 17.0 (5.5)(B) 34.7
Additional paid-in
capital............. 51.4 78.3 (78.3)(A) 51.4 100.3 236.1(B) 387.8
Retained earnings..... 429.4 26.9 (26.9)(A) 429.4 84.4 (84.4)(B) 429.4
Unrealized
appreciation of
available-for-sale
securities.......... 31.0 .4 (.4)(A) 31.0 14.8 (14.8)(B) 31.0
Treasury stock........ -- -- -- -- (.2) .2(B) --
Leveraged employee
stock ownership
trust............... -- -- -- -- (2.5) 2.5(B) --
----------- ----------- --------------- ----------- ----------- ------------- ---------------
Total shareholders'
equity............ 535.0 107.4 (107.4) 535.0 213.8 134.1 882.9
----------- ----------- --------------- ----------- ----------- ------------- ---------------
Total liabilities
and shareholders'
equity............ $ 4,450.5 $ 1,980.9 $ 64.7 $ 6,496.1 $ 3,438.3 $ 94.1 $ 10,028.5
----------- ----------- --------------- ----------- ----------- ------------- ---------------
----------- ----------- --------------- ----------- ----------- ------------- ---------------
</TABLE>
The accompanying notes are an integral part of this
Unaudited Pro Forma Condensed Consolidated Balance Sheet
70
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
---------------------------------------------------------------------------------- PRO FORMA
PRO FORMA PRO FORMA FOR THE
FOR THE ADJUSTMENTS DELTA
AMERUS DELTA DELTA PRO FORMA DELTA AMVESTORS FOR THE ACQUISITION
HISTORICAL HISTORICAL ADJUSTMENTS(A) ACQUISITION HISTORICAL MERGER(B) AND THE MERGER
----------- ----------- --------------- ----------- ----------- ------------- ---------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Premiums and product
charges.............. $ 41.2 $ 3.6 -- $ 44.8 $ 9.1 -- $ 53.9
Net investment income.. 99.2 16.7 -- 115.9 103.1 -- 219.0
Realized gains on
investments.......... 9.5 0.1 -- 9.6 3.9 -- 13.5
Other.................. 0.6 -- -- 0.6 1.6 -- 2.2
Contribution from the
Closed Block......... 13.5 -- -- 13.5 -- -- 13.5
----------- ----------- --------------- ----------- ----------- ------------- ---------------
Total revenues....... 164.0 20.4 -- 184.4 117.7 -- 302.1
----------- ----------- --------------- ----------- ----------- ------------- ---------------
BENEFITS AND EXPENSES:
Total policyowner
benefits............. 83.9 2.3 -- 86.2 76.5 -- 162.7
Total expenses......... 40.0 12.7 5.7 (C )(J 58.4 24.0 6.1 ( )(K 88.5
Dividends to
policyowners......... 0.2 -- -- 0.2 -- -- .2
----------- ----------- --------------- ----------- ----------- ------------- ---------------
Total benefits and
expenses............. 124.1 15.0 5.7 144.8 100.5 6.1 251.4
----------- ----------- --------------- ----------- ----------- ------------- ---------------
Income (loss) before
income tax expense..... 39.9 5.4 (5.7) 39.6 17.2 (6.1) 50.7
Income tax expense
(benefit).............. 11.6 2.0 (1.7) (L) 11.9 6.0 (1.5) (L) 16.4
----------- ----------- --------------- ----------- ----------- ------------- ---------------
Income (loss) before
equity in earnings of
unconsolidated
subsidiary............. 28.3 3.4 (4.0) 27.7 11.2 (4.6) 34.3
Equity in earnings of
unconsolidated
subsidiary............. 0.7 -- -- 0.7 -- -- 0.7
----------- ----------- --------------- ----------- ----------- ------------- ---------------
Net income (loss)........ $ 29.0 $ 3.4 $ (4.0) $ 28.4 $ 11.2 $ (4.6) $ 35.0
----------- ----------- --------------- ----------- ----------- ------------- ---------------
----------- ----------- --------------- ----------- ----------- ------------- ---------------
Net income per share:
Historical............. $ 1.25
-----------
-----------
Pro forma using
exchange ratio of
.6724................ $ .99
---------------
---------------
Pro forma using
exchange ratio of
.7407................ $ .95
---------------
---------------
Shares used in the
calculation of net
income per share:
Historical............. 23,155,989
-----------
-----------
Pro forma using
exchange ratio of
.6724................ 35,305,764(M)
---------------
---------------
Pro forma using
exchange ratio of
.7407................ 36,661,267(M)
---------------
---------------
</TABLE>
The accompanying notes are an integral part of this
Unaudited Pro Forma Condensed Consolidated Statement of Income.
71
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------------------------- PRO FORMA
PRO FORMA PRO FORMA FOR THE
FOR THE ADJUSTMENTS DELTA
AMERUS DELTA DELTA PRO FORMA DELTA AMVESTORS FOR THE ACQUISITION
HISTORICAL HISTORICAL ADJUSTMENTS(A) ACQUISITION HISTORICAL MERGER(B) AND THE MERGER
----------- ----------- --------------- ----------- ----------- ------------- ---------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Premiums and product
charges........... $ 187.8 $ 11.0 -- $ 198.8 $ 14.3 $ -- $ 213.1
Net investment
income............ 228.7 32.2 -- 260.9 191.5 -- 452.4
Realized gains on
investments....... 66.0 0.1 -- 66.1 7.9 -- 74.0
Other............... 2.7 0.6 -- 3.3 2.3 -- 5.6
Contribution from
the Closed Block.. 19.9 -- -- 19.9 -- -- 19.9
----------- ----------- --------------- ----------- ----------- ------------- ---------------
Total revenues...... 505.1 43.9 -- 549.0 216.0 -- 765.0
----------- ----------- --------------- ----------- ----------- ------------- ---------------
BENEFITS AND EXPENSES:
Total policyowner
benefits.......... 261.9 6.9 -- 268.8 143.8 -- 412.6
Total expenses...... 99.9 24.8 10.4 (C )(J 135.1 40.8 17.4 ( )(K 193.3
Dividends to
policyowners...... 26.3 -- 26.3 -- -- 26.3
----------- ----------- --------------- ----------- ----------- ------------- ---------------
Total benefits and
expenses.......... 388.1 31.7 10.4 430.2 184.6 17.4 632.2
----------- ----------- --------------- ----------- ----------- ------------- ---------------
Income (loss) before
income tax expense
and appropriate
items below......... 117.0 12.2 (10.4) 118.8 31.4 (17.4) 132.8
Income tax expense
(benefit)........... 43.8 4.6 (3.1) (L) 45.3 10.3 (4.7) (L) 50.9
----------- ----------- --------------- ----------- ----------- ------------- ---------------
Income (loss) before
equity in earnings
of unconsolidated
subsidiary and
extraordinary
item................ 73.2 7.6 (7.3) 73.5 21.1 (12.7) 81.9
Equity in earnings of
unconsolidated
subsidiary.......... 1.0 -- -- 1.0 -- -- 1.0
----------- ----------- --------------- ----------- ----------- ------------- ---------------
Income (loss) from
continuing
operations.......... $ 74.2 $ 7.6 $ (7.3) $ 74.5 21.1 $ (12.7) $ 82.9
----------- ----------- --------------- ----------- ----------- ------------- ---------------
----------- ----------- --------------- ----------- ----------- ------------- ---------------
Net income per share:
Historical.......... $ 3.20
-----------
-----------
Pro forma using
exchange ratio of
.6724............. $ 2.35
---------------
---------------
Pro forma using
exchange ratio of
.7407............. $ 2.26
---------------
---------------
Shares used in the
calculation of net
income per share:
Historical.......... 23,155,989
-----------
-----------
Pro forma using
exchange ratio of
.6724............. 35,305,764(M)
---------------
---------------
Pro forma using
exchange ratio of
.7407............. 36,661,267(M)
---------------
---------------
</TABLE>
The accompanying notes are an integral part of this
Unaudited Pro Forma Condensed Consolidated Statement of Income.
72
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(A) Giving effect to the acquisition of Delta under purchase accounting, the
total purchase cost of Delta will be allocated to the assets and liabilities
acquired based on their relative fair values as of the date of acquisition,
with any excess of the total purchase cost over the fair value of the assets
acquired less the fair value of the liabilities assumed recorded as
goodwill. The cost allocations, primarily related to value of business
acquired, investments, and goodwill, are based on studies which are not yet
completed. Accordingly, the final allocations may differ from the amounts
reflected herein, due to interest rate fluctuations, operating experience,
and results of operations through the date of closing. Although the final
allocations may differ, the pro forma financial statements reflect
management's best estimate based on currently available information and the
differences between the current and final allocations are not expected to be
material.
<TABLE>
<S> <C>
The allocation of the purchase price is as follows (in millions):
Investments (including cash and short-term investments)........................................... $ 1,781.9
Receivables and other assets...................................................................... 79.1
Value of business acquired........................................................................ 132.3
Goodwill.......................................................................................... 52.3
Policyowner reserves and funds.................................................................... (1,830.0)
Debt.............................................................................................. (24.1)
Other liabilities................................................................................. (28.6)
---------
162.9
Cash Consideration................................................................................ (162.9)
---------
$ --
---------
---------
The historical components of Delta's shareholders' equity have been eliminated in accordance with purchase
accounting.
</TABLE>
(B) Giving effect to the Merger under purchase accounting, the total purchase
cost of AmVestors will be allocated to the assets and liabilities acquired
based on their relative fair values as of the date of acquisition, with any
excess of the total purchase cost over the fair value of the assets acquired
less the fair value of the liabilities assumed recorded as goodwill. The
cost allocations, primarily related to value of business acquired,
investments, and goodwill, are based on studies which are not yet completed.
Accordingly, the final allocations may differ from the amounts reflected
herein, due to interest rate fluctuations, operating experience, and results
of operations through the date of closing. Although the final allocations
may differ, the pro forma financial statements reflect management's best
estimate based on currently available information and the differences
between the current and final allocations are not expected to be material.
It has been assumed that the Average AmerUs Trading Price was $30.275 per
share (which represents the average of the closing prices of AmerUs common
stock the date of the merger announcement, two days preceding and two days
succeeding the announcement), and that therefore the Merger Consideration
was .6724, that the number of AmVestors common stock outstanding was equal
to the number of shares outstanding on June 30, 1997 that the $65 million
outstanding principal amount of AmVestors Convertible Debentures were
converted at $17.125 per share at the beginning of the respective periods
resulting in the issuance of 3,795,620 additional shares of AmVestors Common
Stock and that all options and warrants to acquire 2,756,636 shares of
AmVestors Common Stock valued at their fair market value are rolled over
into options or warrants to acquire shares of AmerUs Class A Common Stock
with identical terms as the AmVestors options or warrants. As a result, the
total number of shares of AmerUs Class A Common Stock issued as merger
consideration was assumed to be 11,491,141.
In the event that the holders of AmVestors' stock options and stock warrants
elect not to rollover and instead elect to receive cash, the impact on pro
forma earnings per share would be less than $.02
73
<PAGE>
per share. The total amount of funds required to cash out the stock options
and the warrants would range from $18.9 million up to $22.6 million for the
exchange ratio of .7407 and .6724, respectively, assuming an AmerUs Class A
Common Stock price per share of $27 and $31.75, respectively.
<TABLE>
<S> <C>
The allocation of the purchase price is as follows (in millions):
Investments (including cash and short-term investments)........................................... $ 2,881.4
Receivables and other assets...................................................................... 299.8
Value of business acquired........................................................................ 223.9
Goodwill.......................................................................................... 127.2
Policyowner reserves and funds.................................................................... (3,132.2)
Other liabilities................................................................................. (32.3)
---------
367.8
Merger consideration:
Issuance of 11,491,141 shares of Class A Common Stock........................................... (347.9)
Obligation accrued for value of stock options................................................... (14.3)
Obligation accrued for value of stock warrants.................................................. (5.6)
---------
Total merger consideration.................................................................... $ (367.8)
---------
---------
The historical components of AmVestor's shareholders' equity have been eliminated in accordance with purchase
accounting. In addition, common stock is adjusted to reflect the shares issued in conjunction with the
merger's exchange of stock amounting to $11.5 million. Additional paid-in capital is also adjusted for the
excess of the merger consideration exchanged over the stated value of the AmerUs Common Stock amounting to
$336.4 million.
AmerUs Group has indicated its intention (depending on, among other things, market conditions and other
factors) to expend up to an aggregate of $35 million to partially offset its dilution from the Stock
Issuance, through purchases of shares of AmVestors Common Stock in public or private transactions prior to
the closing of the Merger and/or through purchases of shares of AmerUs Common Stock in public or private
transactions following the shareholders' meetings. Any such purchases would have no effect on the pro forma
financial statements or on the ownership of AmVestors by AmerUs after the Merger.
</TABLE>
(C) Value of the insurance business acquired reflects the estimated fair value
of the business in force and represents the portion of the cost to acquire
the company that is allocated to the value of the right to receive future
cash flows from the annuity contracts existing as of the assumed date of the
acquisition. Amortization is recognized in proportion to expected future
gross profits over a 20 year period and is based on the average interest
crediting rates which range from 4.1% to 6.0% for 1996 and over the next
five years. The estimated amortization for the next five years is as follows
(in millions):
<TABLE>
<S> <C>
1996.............................................................................. $ 46.5
1997.............................................................................. $ 47.6
1998.............................................................................. $ 51.7
1999.............................................................................. $ 46.2
2000.............................................................................. $ 42.7
2001.............................................................................. $ 34.8
</TABLE>
(D) Represents the excess of the total purchase price over the fair value of the
assets acquired less the fair value of the liabilities assumed.
(E) Represents the transaction costs, primarily investment banking fees paid in
connection with the Merger.
(F) Represents the unamortized balance of deferred policy acquisition costs.
(G) Represents various liabilities assumed in connection with the Merger and the
net impact on the deferred tax liability as a result of the purchase
accounting adjustments as follows (in millions):
<TABLE>
<S> <C>
Eliminate historical deferred income taxes........................................................... $ (82.8)
Establish new purchase accounting deferred income taxes.............................................. 74.9
Establish liability for stock options................................................................ 19.9
Establish liability for employment and severance agreements.......................................... 7.5
Establish liability for stock appreciation rights.................................................... 3.0
Establish liability for guarantee assessments........................................................ 2.5
---------
$ 25.0
---------
---------
</TABLE>
(H) Represents the proceeds of bank borrowings as the source of $162.9 million
used to acquire Delta.
74
<PAGE>
(I) Includes the amortization of goodwill on a straight-line basis over 30
years and the effects of depreciation adjustments related to the disposition
of redundant assets over five year lives (refer to note K for amounts).
(J) Includes the interest expense on the bank borrowings for the acquisition of
Delta based on an estimated rate of 6.5%, which represents the current
actual borrowing rate of AmerUs (refer to note K for amounts).
(K) Represents the reversal of historical interest expense resulting from the
conversion of the subordinated debt.
The following is a summary of the expense pro forma adjustments related to
Delta and AmVestors for the six months ended June 30, 1997, and the year
ended December 31, 1996 (in millions):
<TABLE>
<CAPTION>
DELTA AMVESTORS
------------------------ ------------------------
JUNE 30, DEC 31, JUNE 30, DEC 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Value of business acquired amortization (C)........................ $ 4.9 $ 8.6 $ 19.0 $ 37.9
Historical deferred acquisition costs amortization (C)............. (4.4) (9.0) (11.9) (21.8)
Goodwill amortization (I).......................................... .9 1.8 2.1 4.2
Historical goodwill amortization (I)............................... -- -- (.2) (.3)
Depreciation (I)................................................... (1.0) (1.6) -- --
Interest expense for borrowing (J)................................. 5.3 10.6 -- --
Interest expense for subordinated debt (K)......................... -- -- (2.9) (2.6)
----- ----- ----------- -----------
Total.......................................................... $ 5.7 $ 10.4 $ 6.1 $ 17.4
----- ----- ----------- -----------
----- ----- ----------- -----------
</TABLE>
(L) Represents the income tax effect on the pro forma adjustments at an
effective tax rate of 35%.
(M) Represents application of the treasury stock method to calculate the
weighted-average number of shares outstanding for shares used in the
calculation of net income per share. A reconciliation of historical and pro
forma shares outstanding for pro forma purposes is as follows:
<TABLE>
<CAPTION>
.6724 .7407
---------- ----------
<S> <C> <C>
AmerUs
outstanding common stock.......................................................... 23,155,989 23,155,989
AmVestors*
outstanding common stock.......................................................... 8,938,966 9,846,954
outstanding stock options......................................................... 474,815 601,845
outstanding stock warrants........................................................ 183,819 245,063
subordinated debentures........................................................... 2,552,175 2,811,416
---------- ----------
35,305,764 36,661,267
---------- ----------
---------- ----------
</TABLE>
- --------------
* after conversion using applicable exchange ratio.
FUTURE COST SAVINGS
As AmVestors operations are integrated with the existing operations of
AmerUs, management expects to achieve annual cost savings of approximately $6-8
million (pre-tax) during 1998 and additional savings beginning at the end of the
third quarter from the reduction of overhead expenses and the elimination of
redundant expenses. For instance, during 1998, expenses which can be eliminated
shortly after completing the acquisition include: (i) expenses associated with
the operation and maintenance of an aircraft, (ii) certain executive
compensation and related office expenses, (iii) operating costs of FBL at a
separate location, (iv) costs associated with filings and listings as a result
of being a publicly held entity, (v) duplicative costs of the investment
management department, and (vi) tax, license, and other fees paid to various
governmental agencies. Late in 1998, management expects to begin to consolidate
the administrative and data processing functions in order to achieve greater
operational efficiencies. Although there can be no assurance that these
projected cost savings will fall within the range provided, the expense savings
outlined above represent management's best estimate based on the currently
available information. See "SUMMARY--Forward Looking Information".
75
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
AmerUs at June 30, 1997 on an actual basis and on a pro forma basis as adjusted
to reflect the consummation of the acquisition of Delta and the consummation of
the Merger and related issuance of 11.49 million shares of AmerUs Class A Common
Stock as the Merger Consideration. See "THE MERGER." This table should be read
in conjunction with the Consolidated Financial Statements, including the related
notes and report thereon and the Unaudited Pro Forma Condensed Consolidated
Financial Statements of AmerUs appearing elsewhere in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1997
-------------------------------------------------------------
PRO FORMA PRO FORMA FOR
ADJUSTMENTS FOR THE DELTA
THE DELTA ACQUISITION
HISTORICAL ACQUISITION(A) AND THE MERGER
----------- ----------------- PRO FORMA --------------
ADJUSTMENTS
FOR THE
MERGER(B)
-------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Debt................................................. $ 81.5 $ 187.0 $ -- $ 268.5
----------- ------- ------------- --------------
AmerUs-obligated mandatorily-redeemable Capital
Securities of subsidiary trust holding solely Junior
Subordinated Debentures of AmerUs................... 86.0 -- -- 86.0
----------- ------- ------------- --------------
Equity:
Preferred Stock, no par value, 20,000,000 shares
authorized; no shares issued and outstanding..... -- -- -- --
Class A Common Stock, no par value, 75,000,000
shares authorized; 18,155,989 shares issued and
outstanding historical and 29,647,130 shares pro
forma............................................ 18.2 -- 11.5 29.7
Class B Common Stock, no par value, 50,000,000
shares authorized; 5,000,000 shares issued and
outstanding...................................... 5.0 -- -- 5.0
Additional paid-in capital......................... 51.4 -- 336.4 387.8
Retained earnings.................................. 429.4 -- -- 429.4
Unrealized appreciation of invested assets, net.... 31.0 -- -- 31.0
----------- ------- ------------- --------------
Total equity..................................... 535.0 -- 347.9 882.9
----------- ------- ------------- --------------
Total capitalization................................. $ 702.5 $ 187.0 $ 347.9 $ 1,237.4
----------- ------- ------------- --------------
----------- ------- ------------- --------------
</TABLE>
- ------------------
(A) Represents the effect of the acquisition of Delta as described herein. See
"ADDITIONAL INFORMATION REGARDING AMERUS--Business--Recent
Developments--Delta Life Corporation."
(B) Represents the issuance of AmerUs Class A Common Stock in connection with
the Merger, assuming the Exchange Ratio is 0.6724, conversion of all
AmVestors Convertible Debentures and rollover of all warrants and options to
purchase shares of AmVestors Common Stock.
76
<PAGE>
COMPARATIVE STOCK PRICES
The AmerUs Class A Common Stock is listed and traded on Nasdaq under the
symbol "AMRS." The AmVestors Common Stock is listed and traded on the NYSE under
the symbol "AMV." The following table sets forth, for the periods indicated, the
high and low sales prices per share of AmerUs Class A Common Stock as quoted on
Nasdaq and the high and low sales prices per share of AmVestors Common Stock as
reported on the NYSE Composite Tape, and the quarterly dividends per share
declared during such quarter.
<TABLE>
<CAPTION>
AMERUS AMVESTORS
CLASS A COMMON STOCK (A) COMMON STOCK
--------------------------------- ---------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
--------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter................................... n/a n/a n/a 103/4 91/4 0.0750 (b)
Second Quarter.................................. n/a n/a n/a 115/8 10 none
Third Quarter................................... n/a n/a n/a 127/8 103/4 none
Fourth Quarter.................................. n/a n/a n/a 117/8 107/8 none
1996
First Quarter................................... n/a n/a n/a 131/4 101/4 0.0750(b)
Second Quarter.................................. n/a n/a n/a 161/2 123/4 0.0225
Third Quarter................................... n/a n/a n/a 155/8 133/8 0.0225
Fourth Quarter.................................. n/a n/a n/a 15 127/8 0.0225
1997
First Quarter................................... 24 191/8 none 175/8 143/8 0.0225
Second Quarter.................................. 281/8 211/8 .10 183/4 143/8 0.0300
Third Quarter................................... 351/2 27 .10 25 /16 18 0.0300
Fourth Quarter (through November 11, 1997)...... 333/8 271/2 .10 21 /16 161/2 none
</TABLE>
- --------------
(a) The closing of the initial public offering of AmerUs occurred on February 3,
1997.
(b) Annual dividend for the previous year.
On September 19, 1997, the last trading day ending prior to the public
announcement of the execution of the Merger Agreement, the last reported sales
price of AmerUs Class A Common Stock on Nasdaq was $28 3/4 and the closing price
of AmVestors Common Stock on the NYSE was $24 15/16.
On November 11, 1997, the last trading day prior to the date of this Joint
Proxy Statement/ Prospectus, the last reported sales price of AmerUs Class A
Common Stock as quoted on Nasdaq, was $31 11/16 per share and the closing price
of AmVestors Common Stock as reported on the NYSE composite tape was $20 3/4 per
share. Prior to the Closing Date, AmVestors is permitted under the Merger
Agreement and currently expects to continue to declare and pay the $0.03 per
share quarterly dividend.
The market prices for AmerUs Class A Common Stock and AmVestors Common Stock
are subject to fluctuation and stockholders are urged to obtain current market
quotations. No assurance can be given as to the future prices of or markets for
AmerUs Class A Common Stock or AmVestors Common Stock.
On November 10, 1997, there were approximately 3,800 holders of record of
AmVestors Common Stock and approximately 1,250 holders of record of AmerUs Class
A Common Stock.
77
<PAGE>
DESCRIPTION OF AMERUS CAPITAL STOCK
THE FOLLOWING DESCRIPTION DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO AMERUS' AMENDED AND RESTATED ARTICLES OF
INCORPORATION (THE "AMERUS CHARTER"), THE AMERUS BY-LAWS (THE "AMERUS BY-LAWS")
AND TO CERTAIN PROVISIONS OF THE IOWA BUSINESS CORPORATION ACT (THE "IBCA").
GENERAL
The authorized capital stock of AmerUs consists of 145 million shares, of
which 75 million are shares of AmerUs Class A Common Stock, 50 million are
shares of Class B Common Stock and 20 million are shares of preferred stock
("AMERUS PREFERRED STOCK"). As of the AmerUs Meeting Record Date, there are
18,155,989 shares of AmerUs Class A Common Stock outstanding, 5,000,000 shares
of AmerUs Class B Common Stock outstanding, and no shares of AmerUs Preferred
Stock outstanding. As of the AmerUs Meeting Record Date, AMHC beneficially owns
11,706,511 of the AmerUs Class A Common Stock (approximately 64% of the
outstanding shares) and 5,000,000 of the AmerUs Class B Common Stock (100% of
the outstanding), for an aggregate of approximately 72% of the AmerUs Common
Stock. In addition, 1,400,000 and 150,000 shares of AmerUs Class A Common Stock
are reserved for issuance under options granted or available for grant under the
AmerUs Stock Plan and Director Plan (each as defined below) , respectively, and
5,000,000 shares of AmerUs Class A Common Stock are reserved for issuance upon
conversion of AmerUs Class B Common Stock.
COMMON STOCK
The powers, preferences and rights of the AmerUs Class A Common Stock and
the AmerUs Class B Common Stock and the qualifications, limitations or
restrictions thereof are identical except as otherwise provided by law and
except for provisions described below relating to voting, ownership, conversion,
dividends and relative number of shares outstanding described below.
OWNERSHIP AND NUMBER OF AMERUS CLASS B COMMON STOCK. The AmerUs Class B
Common Stock (or any interest therein) may only be owned by AMHC or a mutual
insurance holding company or intermediate holding company which is expressly
authorized by applicable law to own or have a beneficial interest in the AmerUs
Class B Common Stock (a "PERMITTED CLASS B HOLDER"). The AmerUs Charter provides
that the number of outstanding shares of AmerUs Class A Common Stock (excluding
shares of AmerUs Class A Common Stock owned by AMHC or another Permitted Class B
Holder) shall exceed the number of outstanding shares of AmerUs Class B Common
Stock plus the shares of AmerUs Class A Common Stock owned by AMHC or another
Permitted Class B Holder only as authorized by law and never by a ratio of more
than three to one (the "AMERUS CLASS RATIO").
VOTING. Each share of AmerUs Class A Common Stock entitles its holder to
one vote per share on all matters upon which shareholders are entitled to vote.
Each share of AmerUs Class B Common Stock entitles its holder to one vote per
share on all such matters except that, if on the record date for determining
shares eligible to vote, the number of outstanding shares of AmerUs Class A
Common Stock (excluding shares owned by a Permitted Class B Holder) and any
outstanding shares of AmerUs Preferred Stock having voting rights, if any
(excluding shares owned by a Permitted Class B Holder), equals or exceeds the
number of outstanding shares of AmerUs Class B Common Stock plus the number of
outstanding shares of AmerUs Class A Common Stock owned by a Permitted Class B
Holder, the voting rights for each share of AmerUs Class B Common Stock shall be
equal to the aggregate number of shares of AmerUs Class A Common Stock
(excluding shares owned by a Permitted Class B Holder) and AmerUs Preferred
Stock having voting rights, if any, then outstanding (excluding shares owned by
a Permitted Class B Holder) plus one divided by the number of outstanding shares
of AmerUs Class B Common Stock. Accordingly, even if the number of outstanding
shares of AmerUs Class A Common Stock (excluding shares owned by a Permitted
Class B Holder) exceeds the number of outstanding shares of AmerUs Class B
Stock, the Permitted Class B Holder will always have a majority of the votes.
The AmerUs Charter also generally provides that the shares of AmerUs Class B
Common Stock plus outstanding shares of AmerUs Class A Common Stock owned by a
Permitted Class B Holder
78
<PAGE>
shall at all times carry the right to cast at least 50.1% of the votes of the
outstanding shares of capital stock of AmerUs.
Holders of each class of AmerUs Common Stock generally vote together as a
single class on all matters. However, the holders of AmerUs Class A Common Stock
and the holders of AmerUs Class B Common Stock will vote separately as a class
with respect to (i) amendments to the AmerUs Charter that alter or change the
powers, preferences or special rights of their respective class of stock so as
to affect them adversely, and (ii) certain matters for which class voting is
required under Iowa law, including (x) approval of proposed amendments to AmerUs
Charter that, among other things, would alter the designation, rights,
preferences or limitations of all or part of the shares of their respective
class, increase or decrease the aggregate number of authorized shares of such
class, effect an exchange or reclassification or create a right of exchange of
all or part of the shares of one class into shares of another class, create a
new class of shares or increase the rights, preferences, or number of authorized
shares of any existing class so that it would have rights or preferences with
respect to distribution or to dissolution that are prior, superior, or
substantially equal to, the shares of such class; (y) approval of a proposed
plan of merger or consolidation if such plan contains any provisions which, if
contained in a proposed amendment to the AmerUs Charter, would entitle such
class of shares to vote as a class (with certain limited exceptions for
shareholders of the surviving corporation); and (z) approval of a plan of share
exchange (to be voted upon by each class included in the exchange). In addition,
the provision of the AmerUs Charter relating to the AmerUs Class Ratio may not
be amended without the approval of holders of both a majority of the AmerUs
Common Stock and a majority of the shares of AmerUs Class A Common Stock
(excluding shares held by a Permitted Class B Holder).
The AmerUs Charter does not permit cumulative voting in the election of
directors.
DISTRIBUTIONS. No cash dividends may be declared in any fiscal year on the
AmerUs Class B Common Stock until and unless a cash dividend has been declared
on the AmerUs Class A Common Stock. Any cash dividends will be declared and paid
equally on both classes. The classes of AmerUs Common Stock will rank equally
and have equal rights with respect to distributions, including distributions
upon liquidation of AmerUs. However, in the case of dividends or other
distributions payable on the AmerUs Common Stock in shares of such stock,
including distributions pursuant to stock splits or stock dividends, only AmerUs
Class A Common Stock will be distributed with respect to AmerUs Class A Common
Stock and only AmerUs Class B Common Stock will be distributed with respect to
AmerUs Class B Common Stock. In no event will either class of AmerUs Common
Stock be split, divided or combined unless the other is split, divided or
combined equally.
OTHER. So long as the number of outstanding shares of AmerUs Class A Common
Stock (excluding shares owned by a Permitted Class B Holder) shall exceed the
number of outstanding shares of AmerUs Class B Common Stock plus the outstanding
shares of AmerUs Class A Common Stock owned by AMHC or another Permitted Class B
Holder only as authorized by law and never by a ratio of more than three to one,
the AmerUs Class B Common Stock will be convertible at all times into AmerUs
Class A Common Stock on a share-for-share basis by surrender of certificates to
the transfer agent for AmerUs. Therefore, shareholders who subsequently desire
to sell some or all of their shares of AmerUs Class B Common Stock may convert
those shares into an equal number of shares of AmerUs Class A Common Stock and
sell the shares of AmerUs Class A Common Stock in the public market. AmerUs will
be required to reserve shares of AmerUs Class A Common Stock sufficient for
issuance upon conversion of AmerUs Class B Common Stock.
The AmerUs Charter provides that a Permitted Class B Holder has the
preemptive rights as described in "COMPARISON OF SHAREHOLDER RIGHTS--Preemptive
Rights." The AmerUs Intercompany Agreement also affords the AmerUs Affiliated
Group certain equity purchase rights. See "ADDITIONAL INFORMATION REGARDING
AMERUS--Business--Certain Transactions and Relationships--AmerUs Intercompany
Agreement."
In the event that AMHC (or any successor mutual insurance holding company)
is demutualized and is converted into a stock company pursuant to Iowa law, then
immediately upon such conversion each
79
<PAGE>
share of the AmerUs Class B Common Stock shall automatically be converted into
one share of AmerUs Class A Common Stock. AMHC has advised AmerUs that AMHC has
no present plans to demutualize.
Any conveyance, transfer, assignment, pledge, security interest, lien,
encumbrance or hypothecation or alienation by AMHC or any intermediate holding
company, in or on any of the shares of AmerUs Common Stock which would result in
AMHC not holding the right, directly or indirectly, to cast a majority of the
votes entitled to be cast in respect of all outstanding capital stock of AmerUs
Life shall be deemed void in inverse chronological order from the date of such
transaction to the extent necessary to give AMHC unencumbered direct or indirect
ownership of a majority of such voting shares.
PREFERRED STOCK
The AmerUs Board is authorized, subject to any limitations prescribed by
law, from time to time to issue up to an aggregate of 20 million shares of
AmerUs Preferred Stock in one or more series, each of such series to have such
voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights, and
such qualifications, limitations or restrictions thereof, as shall be determined
by the AmerUs Board in a resolution or resolutions providing for the issue of
such AmerUs Preferred Stock; provided, however, that no AmerUs Preferred Stock
may have more than one vote per share. As a result, any class or series of
AmerUs Preferred Stock could have rights which would adversely affect the rights
of the holders of the AmerUs Class A Common Stock. The issuance of a new series
of AmerUs Preferred Stock, while providing desirable flexibility in connection
with possible acquisitions or other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or discouraging a third
party from acquiring, a majority of the outstanding voting stock of AmerUs.
CAPITAL SECURITIES OF AMERUS CAPITAL I
AmerUs Capital I, a Delaware business trust and a wholly-owned subsidiary of
AmerUs, issued $86 million of Capital Securities in 1997 as part of AmerUs'
financing plan. The assets of the Trust are invested in Junior Subordinated
Debentures of AmerUs, which debt securities have a stated maturity of thirty
years. If AmerUs redeems all or a portion of the Junior Subordinated Debentures,
the Trust must redeem a corresponding amount of the Capital Securities.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The AmerUs Charter provides that no director of AmerUs shall be liable to
AmerUs or its shareholders for monetary damages for any breach of fiduciary duty
as a director, except to the extent otherwise required by the IBCA. This
provision does not prevent shareholders from obtaining injunctive or other
equitable relief against directors nor does it shield directors from liability
under Federal or state securities laws. In addition, the AmerUs Charter provides
that AmerUs shall, to the maximum extent permitted by law, indemnify any person
who incurs any loss by reason of the fact that he is or was or has agreed to be
a director or officer of AmerUs or while a director or officer of AmerUs is or
was serving at the request of AmerUs as a director, officer, partner, trustee,
employee or agent of any corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, subject to
such person having met the standards of conduct required for such
indemnification under Iowa law.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the AmerUs Class A Common Stock is
ChaseMellon Shareholder Services, L.L.C.
AMVESTORS WARRANTS
As of November 10, 1997, AmVestors has issued and outstanding warrants to
acquire up to 896,704 shares of AmVestors Common Stock (the "AMVESTORS
WARRANTS"), including the Public Warrants (which are publicly traded on the
Nasdaq Small Cap Market under the symbol "AMVWW") to acquire up to
80
<PAGE>
716,318 shares of AmVestors Common Stock. Following the Merger and subject to
certain cash-out rights, upon exercise of any AmVestors Warrant, each holder
shall have the right to receive a number of shares of AmerUs Class A Common
Stock equal to the Merger Consideration. If the Merger Consideration were equal
to 0.7407 and no warrants were cashed-out, the AmVestors Warrants would be
convertible into an aggregate of 664,188 shares of AmerUs Class A Common Stock.
If the Merger Consideration were equal to 0.6724 and no warrants were
cashed-out, the AmVestors Warrants would be convertible into an aggregate of
602,943 shares of AmerUs Class A Common Stock. For additional information
concerning the AmVestors Warrants, see "WHERE YOU CAN FIND MORE INFORMATION."
81
<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
THE STATEMENTS SET FORTH UNDER THIS HEADING WITH RESPECT TO THE IBCA, THE
AMERUS CHARTER AND THE AMERUS BY-LAWS, AND THE KANSAS GENERAL CORPORATION CODE
(THE "KGCC"), THE AMVESTORS ARTICLES OF INCORPORATION (THE "AMVESTORS CHARTER")
AND THE AMVESTORS BY-LAWS (THE "AMVESTORS BY-LAWS") ARE BRIEF SUMMARIES THEREOF
AND DO NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY
REFERENCE TO THE RELEVANT PROVISIONS OF THE IBCA, THE AMERUS CHARTER, THE AMERUS
BY-LAWS, THE KGCC, THE AMVESTORS CHARTER AND THE AMVESTORS BY-LAWS, AS
APPROPRIATE.
GENERAL
AmerUs is incorporated under the laws of the State of Iowa. AmVestors is
incorporated under the laws of the State of Kansas. If the Merger is
consummated, the stockholders of AmVestors will become shareholders of AmerUs.
As shareholders of an Iowa corporation, their rights will differ in certain
respects from those of stockholders of a Kansas corporation. In addition, the
rights of stockholders of AmVestors who become shareholders of AmerUs following
the Merger will be governed by the AmerUs Charter and the AmerUs By-Laws rather
than the provisions of the AmVestors Charter and the AmVestors By-Laws.
CAPITAL STOCK
The authorized capital stock of AmerUs consists of 145 million shares, of
which 75 million are shares of AmerUs Class A Common Stock, 50 million are
shares of AmerUs Class B Common Stock and 20 million are shares of AmerUs
Preferred Stock. For further information concerning AmerUs capital stock, see
"DESCRIPTION OF AMERUS CAPITAL STOCK."
The authorized capital stock of AmVestors consists of 27 million shares, of
which 2 million are shares of AmVestors Preferred Stock and 25 million are
shares of AmVestors Common Stock. Each share of AmVestors Common Stock is
entitled to one vote on all matters presented to the stockholders. The holders
of AmVestors Common Stock have cumulative voting rights in the election of
directors. Thus, each holder of AmVestors Common Stock is entitled to the number
of votes equaling the number of shares of AmVestors Common Stock he or she holds
multiplied by the number of directors to be elected, and he or she may cast all
of such votes for a single director or may distribute them among the number of
directors to be voted for, or for any two or more of them.
AMENDMENT OF GOVERNING DOCUMENTS
CERTIFICATES OF INCORPORATION. Under the IBCA, amendments to the articles
of incorporation generally must be recommended by the board of directors and
approved by the shareholders. If the proposed amendment would not create
dissenters' rights with respect to a voting group entitled to vote, for a
proposed amendment to be approved by such voting group, more votes of such group
must be cast in favor of the proposed amendment than against, provided a quorum
is present. If the proposed amendment would create dissenters' rights in one or
more voting groups, the shareholders in such voting groups must approve the
amendment by a majority of the votes entitled to be cast on the amendment. In
either case, the articles of incorporation or a by-law adopted by the
shareholders or the board of directors may require a greater vote. Under the
IBCA, unless otherwise provided, certain specified amendments to the articles of
incorporation may be made by the board of directors (without shareholder
approval). In addition, certain specified amendments affecting the rights of
holders of a class of securities must be approved by vote of holders of shares
of such class entitled to vote thereon, even though they ordinarily would not
have voting rights.
Under the KGCC, except for certain specified matters, an amendment or change
to a corporation's articles of incorporation must be adopted by resolution
declaring its advisability by the board of directors of the corporation,
followed by a vote of the majority of all outstanding shares entitled to vote
thereon at a meeting of stockholders. In addition, certain specified amendments
affecting the rights of holders of a
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class of securities must be approved by vote of the majority of all outstanding
shares of such class entitled to vote thereon, even though they ordinarily would
not have voting rights.
The AmerUs Charter reserves the right to amend any provision contained
therein in the manner prescribed by statute, but it requires the affirmative
vote of at least a majority of all the outstanding shares of AmerUs Class A
Common Stock and AmerUs Class B Common Stock and the affirmative vote of at
least a majority of the outstanding shares of AmerUs Class A Common Stock
(excluding outstanding shares of AmerUs Class A Common Stock owned by any
Permitted Class B Holder) to amend or repeal the provision of the AmerUs Charter
relating to the AmerUs Class Ratio.
Under the AmVestors Charter, any proposal to amend or repeal certain
provisions of the AmVestors Charter including provisions relating to business
combinations (including factors to be considered by the directors when
evaluating any offer of another party to make an acquisition proposal), the size
of the board of directors, removal of directors and indemnification of directors
requires the affirmative vote of not less than two-thirds of the outstanding
shares entitled to vote in the election of directors.
BY-LAWS. Under the IBCA, a corporation's board of directors may amend or
repeal the corporation's by-laws, except to the extent otherwise provided in the
articles of incorporation or the IBCA ,or a by-law adopted by the shareholders,
and except that a by-law adopted or amended by the shareholders which fixes a
greater quorum or voting requirement for shareholders or voting groups of
shareholders than is required by the articles of incorporation may not be
adopted, amended or repealed by the board of directors. A by-law that fixes a
greater quorum or voting requirement for the board of directors may be amended
or repealed (i) if originally adopted by the shareholders, only by the
shareholders, and (ii) if originally adopted by the board of directors, by the
board of directors or the shareholders, except that such by-law, if adopted by
the shareholders, may provide that it may be amended or repealed only by a
specified vote of either the shareholders or the board of directors. A
corporation's shareholders may amend or repeal the corporation's by-laws even
though the by-laws may also be amended or repealed by the board of directors.
Under the KGCC, by-laws may be adopted, amended or repealed by the
stockholders entitled to vote. When provided by the certificate of
incorporation, the board of directors may also adopt, amend or repeal by-laws.
By their terms, the AmerUs By-Laws may be amended or repealed by the AmerUs
Board or by the shareholders of AmerUs, provided, however, that the shareholders
may from time to time specify particular provisions of the AmerUs By-Laws which
shall not be amended or repealed by the AmerUs Board.
The AmVestors By-Laws do not provide for the adoption, amendment or repeal
of the AmVestors By-Laws by the AmVestors Board.
DIRECTORS
NUMBER AND ELECTION; CLASSIFICATION. The AmerUs Charter and AmerUs By-Laws
provide for the classification of the AmerUs Board into three classes. Each
class has a three-year term expiring on the date of the third annual meeting of
stockholders succeeding their election. The AmerUs Charter also provides that
the number of directors shall be fixed from time to time by the AmerUs Board,
but may not consist of less than seven nor more than 21 persons. Currently, the
number of AmerUs directors is ten (with one vacancy). The AmerUs Charter
provides that there shall be no cumulative voting in the election of directors.
The foregoing provisions cannot be altered, amended or repealed without the
affirmative vote of the majority of the holders of the outstanding voting
securities of AmerUs.
The AmVestors Charter and AmVestors By-Laws provide for the classification
of the AmVestors Board into three classes. Each class has a three-year term
expiring on the date of the third annual meeting of stockholders succeeding
their election. The AmVestors By-Laws provide that the number of directors shall
be fixed from time to time by the AmVestors Board, but may not consist of less
than three
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nor more than 13 persons. Currently, the number of AmVestors directors is 11.
The AmVestors By-Laws provide that all directors of AmVestors must be AmVestors
stockholders. The AmVestors By-Laws provide that no person shall be qualified to
serve as a director of AmVestors who is a director, officer or employee of any
life insurance company, or life insurance holding company, unless by a
two-thirds vote the AmVestors Board waives this prohibition for that person. No
director of AmVestors may concurrently be a director, officer or employee of any
life insurance company, or life insurance holding company, unless the AmVestors
Board waives this prohibition for that director of AmVestors. The AmVestors
Charter provides that cumulative voting rights shall be afforded stockholders at
all elections of directors. The foregoing provisions cannot be altered, amended
or repealed without the affirmative vote of two-thirds of the holders of the
outstanding shares of AmVestors Common Stock entitled to vote in the election of
directors, except to increase the number of classes into which the AmVestors
Board is divided.
REMOVAL; VACANCIES. Under the IBCA, any or all directors may be removed,
with or without cause, by the shareholders unless the articles of incorporation
provide that directors may be removed only for cause, except that (i) if
cumulative voting is authorized, a director shall not be removed if the number
of votes sufficient to elect that director under cumulative voting is voted
against the director's removal and (b) if cumulative voting is not authorized, a
director may be removed only if the number of votes cast to remove that director
exceeds the number of votes cast not to remove the director. The AmerUs By-Laws
provide that directors shall be subject to removal, with or without cause, in
the manner prescribed by law. The AmerUs Charter does not provide that directors
may be removed only for cause.
The IBCA provides that, unless the articles of incorporation of a
corporation provide otherwise, vacancies on the board of directors, including
those resulting from an increase in the number of directors, may be filled by a
vote of the board of directors or the shareholders. If the number of directors
then in office is less than a quorum, the vacancies may be filled by a vote of a
majority of directors then in office. If the vacant office was held by a
director elected by a voting group of shareholders, only the holders of shares
of that voting group are entitled to fill the vacancy if it is filled by the
shareholders. A director elected to fill a vacancy shall hold office until the
next meeting of stockholders, and until his successor has been elected and
qualified. The AmerUs Charter and the AmerUs By-Laws provide that any vacancy in
the AmerUs Board may be filled only by a vote of the AmerUs Board, provided a
quorum is present, or by a majority of directors then in office, if less than a
quorum is then in office, or by a sole remaining director. In addition, the
AmerUs Charter provides that if the number of directors is changed, any increase
or decrease shall be apportioned among the three classes by a two-thirds vote of
the directors then in office.
The KGCC provides that any or all directors may be removed, with or without
cause, by the holders of a majority of the shares then entitled to vote at an
election of directors, except that (a) in the case of a corporation whose board
is classified, any or all directors may only be removed for cause by vote of the
stockholders and a director may be removed without cause by a shareholder vote
only if the certificate of incorporation or the by-laws so provide and (b) in
the case of a corporation having cumulative voting for directors, if less than
the entire board is to be removed, no director may be removed without cause if
the votes cast against such director's removal would be sufficient to elect such
director if then cumulatively voted at an election of the entire board of
directors, or, if there be classes of directors, at an election of the class of
directors of which such director is a part. The AmVestors Charter provides that
directors may be removed only for cause by the holders of two-thirds of the
outstanding shares of capital stock of AmVestors entitled to vote in the
election of directors, or only for cause by a majority of the AmVestors Board.
The AmVestors Charter and the AmVestors By-Laws do not provide for the removal
of directors without cause by a stockholder vote.
The KGCC provides that a vacancy on the board of directors shall be filled
as the by-laws of the corporation provide and, in the absence of such provision,
the vacancy shall be filled (i) by a majority of directors then in office or
(ii) whenever the holders of any class or classes of stock or series thereof are
entitled to elect one or more directors by the AmVestors Charter, by a majority
of the directors elected by such class or classes or series thereof then in
office, or by a sole remaining director so elected. The
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AmVestors Charter and the AmVestors By-Laws provide that any vacancies in the
board shall be filled by a majority vote of the directors then in office, even
if less than a quorum. The AmVestors By-Laws provide that a director elected to
fill a vacancy shall hold office until the next election of the class for which
such director shall have been chosen, and until his successor has been elected
and qualified.
FIDUCIARY DUTIES. Under the IBCA, a director must perform his duties as a
director, including his duties as a member of any committee of the board upon
which he may serve, in good faith and with the care which an ordinarily prudent
person in a like position would exercise under similar circumstances and in a
manner the director reasonably believes to be in the best interests of the
corporation. A director shall not be considered to be acting in good faith if he
has knowledge concerning the matter in question that would cause such reliance
to be unwarranted. A person who so performs his duties shall have no liability
by reason of being or having been a director of the corporation.
The KGCC provides that a director, in determining what is in the best
interest of the corporation when considering a tender offer or proposal of
acquisition, merger, consolidation, or similar proposal, shall consider any or
all of the following community interest factors, in addition to consideration of
the effects of any action on stockholders: (a) the effects of the action on the
corporation's employees, suppliers, creditors and customers, (b) the effects of
the action on the communities in which the corporation operates and (c) the
long-term as well as short-term interests of the corporation and its
stockholders, including the possibility that these interests may be best served
by the continued independence of the corporation. The consideration of any or
all of the community interest factors is not a violation of the business
judgment rule or of any duty of the director to the stockholders, or a group of
stockholders, even if the director reasonably determines that a community
interest factor or factors outweigh the financial or other benefits to the
corporation or a stockholder or group of stockholders.
The AmVestors Charter provides that the AmVestors Board, when evaluating any
offer of another party to make an Acquisition Proposal (as defined below),
shall, in connection with the exercise of its judgment in determining what is in
the best interests of AmVestors as a whole, be authorized to give due
consideration to such factors as the AmVestors Board determines to be relevant,
including, without limitation: (i) the interests of AmVestors' stockholders;
(ii) whether the proposed transaction might violate federal or state laws; (iii)
the consideration being offered in the proposed transaction, in relation not
only to the then current market price, but also to certain other factors bearing
on securities prices and the corporation's financial and future prospects; and
(iv) the effects upon employees, suppliers, customers and the communities.
"Acquisition Proposal" means any proposal of any person to (1) make a tender
offer or exchange offer for any equity security of AmVestors; (2) merge or
consolidate with another corporation, or (3) purchase or otherwise acquire all
or substantially all of the properties and assets of AmVestors. This provision
of the AmVestors Charter may not be altered, amended or repealed by the
stockholders except by a vote of two-thirds of the outstanding shares of
AmVestors entitled to vote in the election of directors.
SPECIAL MEETINGS OF SHAREHOLDERS
Special meetings of the AmerUs shareholders may be called at any time by the
AmerUs Board, by the Chairman of the Board or by the Chief Executive Officer of
AmerUs, and shall be called by the AmerUs Board upon the written demand, signed,
dated and delivered to the Secretary of AmerUs, of the holders of at least ten
percent of all the votes entitled to be cast on any issue proposed to be
considered at the meeting.
The AmVestors By-Laws provide that special meetings may be called by the
Chairman of the Board or upon the request of stockholders owning at least fifty
percent of the outstanding stock of AmVestors entitled to vote at such meeting
by the President or the Secretary or the Treasurer.
NOMINATIONS OF DIRECTORS AND BUSINESS PRESENTED AT ANNUAL MEETINGS
The AmerUs By-Laws generally provide that notice of nominations for the
AmerUs Board, other than nominations by the AmerUs Board or a committee thereof,
must be received by AmerUs, together with
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certain other information, not less than 30 days prior to the meeting at which
such directors are to be elected. In the event that less than 40 days' notice or
prior disclosure of the date of the meeting is given, notice by the shareholders
must be received by AmerUs not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs.
The AmerUs By-Laws also generally provide that notice of any business
proposed to be brought before an annual meeting of shareholders other than by or
at the direction of the AmerUs Board or a committee thereof, must be received by
AmerUs, together with certain other information, not less than 30 days prior to
the meeting at which such proposal is to be introduced. In the event less than
40 days' notice or prior public disclosure of the date of the meeting is given,
notice by the shareholder must be received by AmerUs not later than the close of
business on the tenth day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made, whichever first
occurs.
Neither the AmVestors Charter nor the AmVestors By-Laws contain provisions
similar to those described in the two preceding paragraphs.
PREEMPTIVE RIGHTS
Under the IBCA, the shareholders of an Iowa corporation do not have a
preemptive right to acquire the corporation's unissued shares, except to the
extent the articles of incorporation so provide. The AmerUs Charter provides
that so long as AMHC is a mutual insurance holding company within the meaning of
the Iowa Code, AMHC or any Permitted Class B Holder shall have the preemptive
right to purchase unissued shares of voting stock (including, without
limitation, AmerUs Class A Common Stock
and AmerUs Class B Common Stock) or any securities convertible into or
exchangeable for shares of voting stock or any options, warrants or rights to
acquire shares of voting stock ("EQUITY PURCHASE RIGHTS") to the extent required
for AMHC or any Permitted Class B Holder to comply with the provision of the
AmerUs Charter which states that, except as otherwise permitted in such articles
of incorporation, the number of outstanding shares of AmerUs Class A Common
Stock (excluding shares of AmerUs Class A Common Stock owned by a Permitted
Class B Holder) shall exceed the number of outstanding shares of AmerUs Class B
Common Stock plus outstanding shares of AmerUs Class A Common Stock owned by a
Permitted Class B Holder only as authorized by law and never by a ratio of more
than three to one. AmerUs is authorized and empowered to enter into an agreement
with AMHC and/or a Permitted Class B Holder relating to Equity Purchase Rights.
Kansas law does not provide for preemptive rights to acquire a corporation's
unissued stock. However, such right may be expressly granted to the stockholders
in a corporation's articles of incorporation. The AmVestors Charter does not
provide for preemptive rights.
DIVIDENDS AND DISTRIBUTIONS
Under the IBCA, a corporation may make distributions to its shareholders
subject to restriction by the articles of incorporation and subject to the
further limitation that no distribution may be made if, after giving it effect,
(i) the corporation would not be able to pay its debts as they become due in the
usual course of business or (ii) the corporation's total assets would be less
than the sum of its liabilities plus (unless the articles of incorporation
permit otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.
Other than the restrictions imposed by Kansas law, neither the AmVestors
Charter nor the AmVestors By-Laws contain additional restrictions on the
declaration or payment of dividends.
The KGCC provides that the directors of every corporation, subject to any
restrictions contained in its articles of incorporation, may declare and pay
dividends upon the shares of its capital stock either (1) out of its surplus, or
(2) in case there shall be no such surplus, out of its net profits for the
fiscal year in which the dividend is declared or the preceding fiscal year. If
the capital of the corporation shall have
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been diminished by depreciation in the value of its property, or by losses, or
otherwise, to an amount less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets, the directors of such corporation
shall not declare and pay out of such net profits any dividends upon any shares
of any classes of its capital stock until the deficiency in the amount of
capital represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets shall have been repaired.
DISSENTERS' RIGHTS
Under the IBCA, a shareholder is entitled to dissent from, and obtain
payment of the fair value of the shareholder's shares in the event of: (a) the
consummation of a plan of merger if (i) shareholder approval is required for the
merger and the shareholder is entitled to vote thereon or (ii) the corporation
is a subsidiary that is merged with its parent; (b) the consummation of a plan
of share exchange if the shareholder is entitled to vote on the plan; (c) the
consummation of a sale or exchange of all, or substantially all, of the property
of the corporation other than in the usual and regular course of business, if
the shareholder is entitled to vote on the sale or exchange; or (d) an amendment
of the articles of incorporation that materially and adversely affects rights in
respect of a dissenter's shares. A dissenting shareholder is not entitled to
challenge the corporate action creating the shareholder's entitlement to dissent
unless the action is unlawful or fraudulent with respect to the shareholder or
the corporation.
The KGCC provides that a stockholder has the right to dissent from any
merger or consolidation and receive the fair value of the stockholder's stock on
the effective date of the merger or consolidation unless the shares of any class
or series of a class of stock which, at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the meeting of
stockholders at which the agreement of merger or consolidation is to be acted
on, were either (a) registered on a national securities exchange or designated
as a national market system security on an interdealer quotation system by
Nasdaq or (b) held of record by not less than 2,000 stockholders, unless the
articles of incorporation of the corporation issuing such stock shall otherwise
provide. Notwithstanding (a) and (b) above, dissenters' rights are available if
under the terms of a merger or consolidation, such stockholders are required to
accept for such stock anything except (i) stock or stock and cash in lieu of
fractional shares of the corporation surviving or resulting from the merger or
consolidation; (ii) stock or stock and cash in lieu of fractional shares of any
other corporation, which at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of stockholders at
which the agreement of merger or consolidation is to be acted on, were either
registered on a national securities exchange or held of record by not less than
2,000 stockholders or (iii) a combination of stock or stock and cash in lieu of
fractional shares as set forth in (i) and (ii) above.
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INDEMNIFICATION AND LIMITATION OF LIABILITY
For information concerning indemnification for certain individuals
affiliated with AmerUs, by AmerUs and limitation of liability, see "DESCRIPTION
OF AMERUS CAPITAL STOCK."
The AmVestors By-Laws provide that AmVestors may indemnify any person who
was or is a party, or is threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, other than an action by or in the right of the
corporation, by reason of the fact that such person is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, including attorneys' fees, if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation; and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful.
In addition, the AmVestors By-Laws provide that AmVestors may indemnify any
person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director or officer of the corporation, or is or was serving
at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise against
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit, including attorneys' fee, if such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Any indemnification under the above provisions, unless ordered by a court,
shall be made by a determination in accordance with the procedures set forth in
the KGCC.
As permitted under the KGCC, the AmVestors Charter provides that no director
shall be personally liable to AmVestors or any of its stockholders for monetary
damages for breach of duty as a director, provided that such elimination of
liability shall not be applicable (i) for a breach of the director's duty of
loyalty to the corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under the provisions of Section 17-6424 of the KGCC and amendments
thereto or (iv) for any transaction from which the director derived an improper
personal benefit. Section 17-6424 of the KGCC provides joint and several
director liability for the directors under whose administration any willful or
negligent violation of the provisions of the KGCC dealing with (i) the
limitations on the powers of a corporation respecting its own stock, (ii) the
payment of dividends and (iii) the retirement by a corporation of shares of
capital stock of such corporation, occurs.
PROVISIONS APPLICABLE TO BUSINESS COMBINATIONS AND CHANGES IN CONTROL
Under Iowa law and the AmerUs Charter, AMHC must retain directly or
indirectly ownership of shares of AmerUs capital stock which carry the right to
cast a majority of the votes entitled to be cast by all outstanding shares of
AmerUs capital stock unless AMHC elects to demutualize. See "DESCRIPTION OF
AMERUS CAPITAL STOCK." Any merger or acquisition of AmerUs by another entity or
the acquisition or attempted acquisition of more than 10% of the stock of AmerUs
is subject to regulatory approval by the Iowa Commissioner. See "ADDITIONAL
INFORMATION REGARDING AMERUS--Business-- Supervision and Regulation."
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Generally under the KGCC, a merger requires the approval of holders of a
majority of the outstanding stock of each corporation entitled to vote thereon.
However, approval of the stockholders of the surviving corporation is not
required if certain criteria are met, including the requirement that either no
shares of common stock of the surviving corporation and no shares, securities or
obligations convertible into such stock are to be issued or delivered under the
plan of merger, or the authorized unissued shares or the treasury shares of
common stock of the surviving corporation to be issued or delivered under the
plan of merger plus those initially issuable upon conversion of any other
shares, securities or obligations to be issued or delivered under such plan do
not exceed 20% of the shares of common stock of such constituent corporation
outstanding immediately prior to the effective date of the merger.
In addition to any action required by law, the AmVestors Charter contains a
provision that requires the affirmative vote of the holders of at least
two-thirds (2/3) of the then outstanding shares of capital stock of AmVestors
entitled to vote generally in the election of directors as a condition for
Business Combinations (defined below) involving AmVestors and an Interested
Stockholder (defined below). For purposes of this provision of the AmVestors
Charter, "BUSINESS COMBINATION" is defined to mean: (i) any merger or
consolidation involving AmVestors or any of its subsidiaries with or into an
Interested Stockholder (as defined below) or any entity that is or after such
transaction would be an Affiliate (as defined below) of an Interested
Stockholder; (ii) any sale, lease, exchange, pledge, transfer or other
disposition by AmVestors or any of its subsidiaries of more than 25% of the fair
market value of its total assets; (iii) any sale, lease, exchange, transfer or
disposition of more than 25% of the fair market value of the total assets of an
Interested Stockholder to AmVestors or any subsidiary; (iv) the issuance or
transfer by AmVestors or any subsidiary of any securities of AmVestors or any
subsidiary to an Interested Stockholder in exchange for cash, securities or
other properties; (v) any merger or consolidation of an Interested Stockholder
or any Affiliate of any Interested Stockholder with or into AmVestors or any
subsidiary of AmVestors; (vi) any reclassification of securities, or
recapitalization of AmVestors, or any merger or consolidation of AmVestors with
any of its subsidiaries or any other transaction which would have the effect of
increasing the voting power of an Interested Stockholder or any Affiliate of any
Interested Stockholder; (vii) the adoption of any plan or proposal for the
liquidation or dissolution of AmVestors proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested Stockholder; and
(viii) any agreement, contract or other arrangement providing for any of the
transactions described above. For purposes of this provision of the AmVestors
Charter, an "INTERESTED STOCKHOLDER" is defined generally to mean any person who
or which is the beneficial owner of five percent (5%) or more of AmVestors'
voting stock.
The requirement of the affirmative vote of the holders of at least
two-thirds (2/3) of the then outstanding shares of capital stock of AmVestors
entitled to vote generally in the election of directors can be waived in certain
circumstances where: (a) the Business Combination is approved by a majority of
the directors unaffiliated with the Interested Stockholder or (b) the Business
Combination is solely between AmVestors and another corporation 100% of which is
owned either directly or indirectly by AmVestors; or (c) certain minimum price
and procedural requirements are met. For purposes of this provision of the
AmVestors Charter, the term "AFFILIATE" has the same meaning ascribed to such
term in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934.
STATE ANTI-TAKEOVER LAWS
IOWA BUSINESS COMBINATION ACT. AmerUs is subject to Section 490.1109 of the
IBCA, which imposes a three-year moratorium on business combinations between an
Iowa corporation and an "Interested Shareholder" (defined generally as a person
with 15% or more of a corporation's outstanding voting stock). Section 490.1108
of the IBCA provides that in considering acquisition proposals, directors may
consider, in addition to the consideration of the effects of any action on
shareholders, the effects on the company's employees, suppliers, creditors,
customers and the communities in which it operates, as well as the long-term and
short-term interests of the company. Consideration of any or all community
interest factors is not a violation of the business judgment rule, even if the
directors reasonably determine that effects on a community or other factors
outweigh the financial or other benefits to the
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company or a shareholder or group of shareholders. Section 490.624A of the IBCA
also includes authorization of "poison pills" which include, without limitation,
terms and conditions of stock rights or options issued by a corporation that
preclude or limit the exercise, transfer or receipt of stock rights by persons
owning or offering to acquire a specified number or percentage of a
corporation's outstanding shares.
Under Iowa law, no business combination (defined to include mergers, sales
of assets, sales of outstanding stock, and loans) involving AmerUs and an
Interested Shareholder (defined to include any holder of 15% or more of its
voting stock) may be entered into within three years of the time the shareholder
became an interested shareholder unless: (a) the business combination or the
purchase of shares which resulted in the shareholder becoming an interested
shareholder is approved by the AmerUs Board before the shareholder became an
interested shareholder, (b) upon consummation of the transaction which resulted
in the shareholder becoming an interested shareholder, the interested
shareholder owned at least eighty-five percent of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding, for
purposes of determining the number of shares outstanding, those shares owned by
persons who are directors and officers, and by employee stock plans in which
employee participants do not have rights to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offering; or (c) at or after the shareholder became an interested shareholder,
the business combination is approved by the AmerUs Board and approved at an
annual or special meeting of shareholders by two-thirds of the outstanding
voting stock of AmerUs which is not owned by the interested shareholder.
The foregoing provisions of state law could have the effect of delaying,
deferring or preventing a change in control of AmerUs if the AmerUs Board
determines that a change of control is not in the best interests of AmerUs, its
shareholders and other constituencies. In addition, the regulatory restrictions
on the acquisition of securities of AmerUs may also deter attempts to effect, or
prevent the consummation of, a change in control of AmerUs.
KANSAS BUSINESS COMBINATION ACT. AmVestors is subject to Sections 17-12,100
et seq. of the KGCC, which imposes a three-year moratorium on business
combinations between a Kansas corporation and an Interested Stockholder. In
general, the KGCC prevents an Interested Stockholder from engaging in a Business
Combination with a Kansas corporation for three years following the date such
person became an Interested Stockholder. As used in the KGCC, the term "BUSINESS
COMBINATION" includes mergers or consolidations with an Interested Stockholder
and certain other transactions with an Interested Stockholder and certain other
transactions with an Interested Stockholder, including, without
limitation: (i) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition to or with the Interested Stockholder of assets (except
proportionately as a stockholder of the corporation) having an aggregate market
value equal to 10% or more of the aggregate market value of all assets of the
corporation determined on a consolidated basis or the aggregate market value of
all the outstanding stock of the corporation; (ii) any transaction which results
in the issuance or transfer by the corporation or by certain subsidiaries
thereof of stock of the corporation or such subsidiary to the Interested
Stockholder, except pursuant to a transaction which, in general, effects a pro
rata distribution to all stockholders of the Corporation; (iii) any transaction
involving the corporation or certain subsidiaries thereof which has the effect,
directly or indirectly, of increasing the proportionate share of the shares of
any class or series, or securities convertible into shares of the corporation or
any subsidiary which is owned directly or indirectly by the Interested
Stockholders, or (iv) any receipt by the Interested Stockholders of the benefit
(except proportionately as a stockholder of the corporation) of any loans,
advances, guarantees, pledges, or other financial benefits provided by or
through the corporation or certain subsidiaries.
The three-year moratorium may be avoided if: (i) before such person came an
Interested Stockholder, the board of directors approved either the Business
Combination or the transaction in which the Interested Stockholder became an
Interested Stockholder; or (ii) upon consummation of the transaction which
resulted in the stockholder becoming an Interested Stockholder, the stockholder
owned at least
90
<PAGE>
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding shares held by directors who are also officers
of the corporation and by certain employee stock ownership plans); or (iii) on
or following the date on which such person became an Interested Stockholder, the
Business Combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of the
stockholders of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder.
The Business Combination restrictions described above do not apply if, among
other things: (i) the corporation's original articles of incorporation contain a
provision expressly electing not to be governed by this provision; (ii) the
holders of a majority of the voting stock of the corporation approve an
amendment to its articles of incorporation or by-laws expressly electing not to
be governed by this provision (effective twelve (12) months after the
amendment's adoption), which amendment shall not be applicable to any Business
Combination with a person who was an Interested Stockholder at or prior to the
time of the amendment; or (iii) the corporation does not have a class of voting
stock that is (a) listed on a national securities exchange, (b) authorized for
quotation on Nasdaq or a similar quotation system; or (c) held of record by more
than 2,000 stockholders.
This provision of the KGCC also does not apply to certain Business
Combinations with an Interested Stockholder when such combination is proposed
after the public announcement of, and before the consummation or abandonment of,
a merger or consolidation, a sale of 50% or more of the aggregate market value
of the assets of the corporation on a consolidated basis or the aggregate market
value of all outstanding shares of the corporation, or a tender offer for 50% or
more of the outstanding voting shares of the corporation, if the triggering
transaction is with or by a person who either was not an Interested Stockholder
with board of director approval, and if the transaction is approved or not
opposed by a majority of the current directors who were also directors prior to
any person becoming an Interested Stockholder during the previous three years.
The AmVestors Charter does not contain a provision expressly electing not to be
covered by the Business Combinations restrictions of the KGCC, so such
restrictions apply to AmVestors.
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<PAGE>
MANAGEMENT BEFORE AND AFTER THE MERGER
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the current
directors and executive officers of AmerUs and AmerUs Life.
<TABLE>
<CAPTION>
AGE
AS OF
NAME SEPT. 30, 1997 POSITIONS WITH AMERUS, AMERUS LIFE AND DELTA
- ------------------------------- ------------------- -----------------------------------------------------------------
<S> <C> <C>
John R. Albers................. 65 Director of AmerUs
Roger K. Brooks................ 60 Director of AmerUs, AmerUs Life and Delta; Chairman, President
and Chief Executive Officer of AmerUs and Chairman of AmerUs Life
Malcolm Candlish............... 62 Director of AmerUs
Maureen M. Culhane............. 49 Director of AmerUs and AmerUs Life
Thomas F. Gaffney.............. 52 Director of AmerUs
Ilene B. Jacobs................ 50 Director of AmerUs and AmerUs Life
Sam C. Kalainov................ 67 Director of AmerUs and AmerUs Life
John W. Norris, Jr............. 61 Director of AmerUs
Jack C. Pester................. 62 Director of AmerUs
John A. Wing................... 61 Director of AmerUs and AmerUs Life
Thomas C. Godlasky............. 41 Executive Vice President and Chief Investment Officer of AmerUs
and AmerUs Life; Director of AmerUs Life and Delta
Gary R. McPhail................ 50 President and Chief Executive Officer of AmerUs Life; Director of
AmerUs Life and Delta
Michael E. Sproule............. 50 Executive Vice President and Chief Financial Officer of AmerUs
and AmerUs Life; Director of AmerUs Life and Delta
Victor N. Daley................ 54 Senior Vice President and Chief Human Resources Officer of AmerUs
and AmerUs Life
Michael G. Fraizer............. 47 Senior Vice President and Controller/Treasurer of AmerUs and
AmerUs Life
</TABLE>
Set forth below with respect to each of the directors and executive officers
of AmerUs and AmerUs Life is a description of such individual's business
experience, principal occupation and employment during at least the last five
years:
John R. Albers served as a director of American Mutual Life Insurance
Company ("AMERICAN MUTUAL LIFE"), a predecessor entity to AmerUs (which received
its name in 1994 following the merger of the original unaffiliated American
Mutual Life Insurance Company ("OLD AML") into Central Life) from November 1983
to June 1996 and has served as director of AmerUs since its formation in August
1996. Since April 1996 Mr. Albers has served as a director of AMAL. Mr. Albers
is President and Chief Executive Officer of Fairfield Enterprises, Inc., Dallas,
Texas. From August 1988 to April 1995, Mr. Albers was the Chairman, Chief
Executive Officer and President of Dr Pepper/Seven-Up Companies, Dallas, Texas.
From July 1995 to the present, Mr. Albers has served as a director of First
Alert, Inc., Aurora, Illinois. Mr. Albers also serves as a director of AMHC,
AmerUs Group Co., and Alex Pharmaceutical Co., Inc., Minneapolis, Minnesota.
Roger K. Brooks served as a director of American Mutual Life from February
1971 to June 1996 and has served as director of AmerUs since its formation in
August 1996. Mr. Brooks was the Chief Executive Officer of American Mutual Life
from December 1994 to June 1996, and prior thereto was the Chairman and Chief
Executive Officer of American Mutual Life. Since April 1996 Mr. Brooks has
served as a director of AMAL. Mr. Brooks also serves as a director of AMHC,
AmerUs Group Co. and Delta.
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<PAGE>
Maureen M. Culhane has served as a director of AmerUs since April 1997. Ms.
Culhane is Vice President of Finance and Treasurer of Sara Lee Corporation. From
April 1990 to January 1993, Ms. Culhane was a partner at Richards & Tierney and
from May 1985 to February 1990 she was a Vice President, Investment Banking
Division of Goldman, Sachs & Co.
Malcolm Candlish served as a director of American Mutual Life from February
1987 to June 1996 and has served as a director of AmerUs since its formation in
August 1996. From December 1992 to October 1996 Mr. Candlish was Chairman and
Chief Executive Officer of First Alert, Inc., Aurora, Illinois. Since December
1992 Mr. Candlish has been the Chairman and, from May 1996 to October 1996, Mr.
Candlish served as the President of First Alert, Inc. From 1989 to 1992, Mr.
Candlish was the Chairman, President and Chief Executive Officer of Sealy, Inc.,
Cleveland, Ohio. Since 1991 Mr. Candlish has served as a director of The Black &
Decker Corporation, Towson, Maryland. Mr. Candlish also serves as a director of
AMHC and AmerUs Group Co.
Thomas F. Gaffney served as a director of American Mutual Life from November
1983 to June 1996 and has served as a director of AmerUs since its formation in
August 1996. Mr. Gaffney is a Managing Director of Raymond James Capital, Inc.,
St. Petersburg, FL. From 1990 through July 1997, he was a private investor. From
1987 to 1990, Mr. Gaffney was the Chairman of Oxford Investment Group,
Bloomfield Hills, Michigan. Mr. Gaffney also serves as a director of AMHC.
Ilene B. Jacobs has served as a director of AmerUs since February 1997. Ms.
Jacobs is Vice President, Worldwide Human Resources of Digital Equipment
Corporation. From July 1996 to March 1997, she was Vice President, Business
Development of Digital Equipment Corporation and from March 1985 to July 1996,
she was Vice President and Treasurer of Digital Equipment Corporation. Ms.
Jacobs is also a director of Little Switzerland, Inc., St. Thomas, Virgin
Islands and Arkwright Mutual Insurance Co., Waltham, Massachusetts.
Sam C. Kalainov served as a director of American Mutual Life from December
1994 to June 1996 and has served as a director of AmerUs since its formation in
August 1996. Mr. Kalainov was the Chairman of American Mutual Life from December
1994 until June 1996 and Chairman of AmerUs Life from July 1996 until September
1996. From 1972 to 1983, Mr. Kalainov was a director of Old AML. From 1983 to
December 1994, Mr. Kalainov was the Chairman and Chief Executive Officer of Old
AML. Mr. Kalainov was an employee of AmerUs through and including December 31,
1996. Mr. Kalainov also serves as a director of AMHC and AmerUs Group Co.
John W. Norris, Jr. served as a director of American Mutual Life from
November 1974 to June 1996 and has served as a director of AmerUs since its
formation in August 1996. Mr. Norris is Chairman and Chief Executive Officer of
Lennox International, Inc., Dallas, Texas. Mr. Norris also serves as a director
of AMHC and AmerUs Group Co.
Jack C. Pester served as a director of American Mutual Life from December
1994 to June 1996 and has served as a director of AmerUs since its formation in
August 1996. From May 1981 to December 1994, Mr. Pester was a director of Old
AML. Mr. Pester is a Senior Vice President of The Coastal Corporation, Houston,
Texas. Since August 1994 Mr. Pester has also served as a director of KFX, Inc.,
Denver, Colorado. Mr. Pester also serves as a director of AMHC and AmerUs Group
Co.
John A. Wing served as a director of American Mutual Life from May 1991 to
June 1996 and has served as a director of AmerUs since its formation in August
1996. Mr. Wing has been Chairman and Chief Executive Officer of ABN AMRO Chicago
Corporation, Chicago, Illinois, since January 1997. Prior to that time he was
Chairman and Chief Executive Officer of The Chicago Corporation. Mr. Wing is
also a director of The Chicago Board Options Exchange.
Thomas C. Godlasky was Executive Vice President and Chief Investment Officer
of American Mutual Life from January 1995 to June 1996. From February 1988 to
January 1995, he was Manager of the Fixed Income and Derivatives Department of
Providian Corporation, Louisville, Kentucky. Since April 1996, Mr. Godlasky has
served as a director of AVLIC and AIC.
93
<PAGE>
Gary R. McPhail from July 1995 to November 1996 was Executive Vice
President--Marketing and Individual Operations of New York Life Insurance
Company, New York, New York, and from June 1990 to July 1995 was President of
Lincoln National Sales Corporation, Fort Wayne, Indiana. Since May 1997, Mr.
McPhail has served as a director of AMAL, AVLIC and AIC.
Michael E. Sproule was Executive Vice President and Chief Financial Officer
of American Mutual Life from August 1992 to June 1996. From January 1991 through
July 1992, he was Executive Vice President and Chief Financial Officer of ICH
Corporation, Louisville, Kentucky and from January 1988 to December 1990, he was
a Consultant with Tillinghast, New York, New York. Since April 1996, Mr. Sproule
has served as a director of AVLIC and AIC.
Victor N. Daley was Senior Vice President and Chief Human Resources Officer
of American Mutual Life from September 1995 to June 1996. From April 1989 to
September 1995 Mr. Daley was Senior Vice President and Chief Administrative
Officer of Royal Insurance, Charlotte, North Carolina.
Michael G. Fraizer was Senior Vice President and Controller/Treasurer of
American Mutual Life from January 1993 to June 1996. From April 1991 to January
1993, Mr. Fraizer was Senior Vice President and Chief Financial Officer of Iowa
Realty Co., Inc. and from April 1977 to April 1991, he was a Partner with
McGladrey & Pullen, Des Moines, Iowa.
AMERUS BOARD
The business of AmerUs is managed under the direction of AmerUs' Board. The
AmerUs Board is presently composed of ten directors. The AmerUs Board is divided
into three classes. Messrs. Candlish, Kalainov and Norris are in Class I, which
class stood for election at the 1997 annual meeting of stockholders and will
stand for election at the annual meeting of stockholders to be held in 2000.
Messrs. Albers and Gaffney and Ms. Jacobs are in Class II, which class will
stand for election at the annual meeting of stockholders to be held in 1998.
Messrs. Brooks, Pester and Wing and Ms. Culhane are in Class III, which class
will stand for election at the annual meeting of stockholders to be held in
1999.
Consistent with regulations promulgated by the Iowa Commissioner, three of
AmerUs' outside directors (Mr. Wing, Ms. Culhane and Ms. Jacobs) are not
directors of AMHC or any of AMHC's other subsidiaries. In addition, two of
AmerUs' outside directors, Ms. Culhane and Ms. Jacobs, had no previous
affiliation with AmerUs prior to joining AmerUs' Board of Directors in April,
1997 and February, 1997, respectively. At present, all of the members of AmerUs'
Board of Directors are outside directors except Messrs. Brooks and Kalainov.
The AmerUs Board has assigned certain responsibilities to committees. The
Audit Committee recommends the appointment of the independent public
accountants, reviews the scope of the audits recommended by the independent
public accountants, reviews internal audit reports on various aspects of
corporate operations and consults with the independent public accountants on a
periodic basis on matters relating to internal financial controls and
procedures. The Audit Committee is composed of Messrs. Gaffney (Chairman),
Pester and Wing and Ms. Culhane.
The Intercompany Transactions Committee reviews transactions involving
potential conflicts of interest between AmerUs and its affiliates. The
Intercompany Transactions Committee is composed of Mr. Wing, Ms. Culhane and Ms.
Jacobs.
The Board Operations Committee reviews the organization and operation of the
AmerUs Board and recommends nominees for membership on the Board of Directors.
The Board Operations Committee is composed of Messrs. Candlish (Chairman),
Albers and Pester.
The Finance and Strategy Committee reviews the management of AmerUs'
financial resources and the impact of such management on AmerUs' long-term
objectives and plans. The Finance and Strategy Committee is composed of Messrs.
Norris (Chairman), Candlish and Gaffney and Ms. Jacobs.
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<PAGE>
The Human Resources Committee reviews and approves the compensation of
employees above a certain salary level, reviews management proposals relating to
incentive compensation and benefit plans and administers compensation plans
presently in effect. The Human Resources Committee is composed of Messrs. Albers
(Chairman), Candlish and Norris and Ms. Jacobs.
The Investment Committee oversees AmerUs' investments and investment policy.
The Investment Committee is composed of Messrs. Wing (Chairman) and Gaffney and
Ms. Culhane.
The Executive Committee exercises the authority of the AmerUs Board from
time to time and exercises the authority of the AmerUs Board between meetings of
the AmerUs Board. The Executive Committee is composed of Messrs. Brooks
(Chairman), Gaffney and Norris.
COMPENSATION OF DIRECTORS
For their services on the AmerUs Board, non-employee directors are paid
$10,000 per year and $2,000 for each meeting attended. The chairman of each of
the Audit, Board Operations, Finance and Strategy, Investment and Human
Resources Committees receives an additional $2,000 per year. Members of the
Intercompany Transactions Committee receive an additional $16,000 per year for
services on such committee.
Directors are also eligible to participate in AmerUs' Non-Employee Director
Stock Plan (the "DIRECTOR PLAN") which the AmerUs Board approved on September
15, 1996. The Director Plan was approved by AmerUs' sole shareholder and became
effective on December 4, 1996. To date, no awards have been made under the
Director Plan. See "ADDITIONAL INFORMATION REGARDING AMERUS--Executive
Compensation--Compensation Pursuant to Stock Plans of AmerUs."
MANAGEMENT AFTER THE MERGER
AmerUs has requested, and Mr. Ralph W. Laster Jr., Chairman of the Board and
Chief Executive Officer of AmVestors has agreed, to serve as a director of
AmerUs following the Merger. It is expected that Mr. Laster will be nominated to
fill an existing vacancy on the AmerUs Board and that he will be nominated at
the next annual meeting for a two-year term expiring in 2000. Mr. Laster has
served as Chief Executive Officer of AmVestors since January 1988, and as
Chairman of the Board of AmVestors since May 1988 and as a director since 1986.
In addition to his duties as Chairman and Chief Executive Officer of AmVestors,
Mr. Laster has also served as President and Chief Executive Officer of American
since April 1991, as Chief Executive Officer of FBL since April 1996, and as an
executive officer of various other subsidiaries of AmVestors.
Mr. Mark V. Heitz has served as the President and General Counsel of
AmVestors since 1986, and will become President and Chief Executive Officer of
AmVestors. Mr. Heitz also serves as a director of AmVestors, President and
General Counsel of American, and as an executive officer of various other
subsidiaries of AmVestors. See "THE MERGER--Certain Transactions; Interests of
Certain Persons in the Merger."
95
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AMERUS COMMON STOCK
OWNERSHIP BY PRINCIPAL HOLDERS
The following table sets forth the beneficial ownership as of September 3,
1997 of AmerUs Class A Common Stock and AmerUs Class B Common Stock of each
person known by AmerUs to own beneficially more than 5% of each such class:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS CLASS OF STOCK BENEFICIALLY OWNED PERCENT OF CLASS
- --------------------------------------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
AmerUs Group Co.................................... Class A Common 11,706,511 64%
699 Walnut Street
Des Moines, IA 50309
AmerUs Group Co.................................... Class B Common 5,000,000 100%
699 Walnut Street
Des Moines, IA 50309
American Mutual.................................... Class A Common 11,706,511(1) 64%
Holding Company
699 Walnut Street
Des Moines, IA 50309
American Mutual.................................... Class B Common 5,000,000(1) 100%
Holding Company
699 Walnut Street
Des Moines, IA 50309
</TABLE>
- --------------
(1) Indirect beneficial owner due to ownership of 100% of the capital stock of
AmerUs Group Co. AmerUs Group has indicated its intention (depending on,
among other things, market conditions and other factors) to expend up to an
aggregate of $35 million to partially offset its dilution from the Stock
Issuance, through purchases of shares of AmVestors Common Stock in public or
private transactions prior to the closing of the Merger and/or through
purchases of shares of AmerUs Common Stock in public or private transactions
following the shareholders' meetings.
96
<PAGE>
OWNERSHIP BY DIRECTORS AND OFFICERS
The following table sets forth the beneficial ownership of AmerUs' Class A
Common Stock as of September 3, 1997 of each of the directors, the executive
officers named in the Summary Compensation Table and all directors and executive
officers as a group (which includes executive officers not named in the Summary
Compensation Table). No director or executive officer beneficially owned 1% or
more of AmerUs' Class A Common Stock as of such date. The percentage of AmerUs
Class A Common Stock owned by all directors and executive officers as a group as
of such date was 0.4%. No shares of Class B Common Stock were owned by any
director or executive officer of AmerUs as of such date.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- -------------------------------------------------------------------------------------------- ----------
<S> <C>
Roger K. Brooks(1)(3)....................................................................... 17,000
D T Doan(1)(2).............................................................................. 5,000
Thomas C. Godlasky(1)....................................................................... 5,000
Sam C. Kalainov(1)(3)....................................................................... 5,000
Michael E. Sproule(1)....................................................................... 5,000
John R. Albers(1)........................................................................... 20,000
Malcolm Candlish(1)......................................................................... 2,000
Maureen M. Culhane.......................................................................... 500
Thomas F. Gaffney(1)........................................................................ 1,000
Ilene B. Jacobs............................................................................. --
John W. Norris, Jr.(1)...................................................................... --
Jack C. Pester(1)........................................................................... 200
John A. Wing................................................................................ 2,000
Directors and executive officers as a group (16 persons).................................... 77,700
</TABLE>
- --------------
(1) Mr. Brooks, Mr. Doan, Mr. Kalainov, Mr. Albers, Mr. Candlish, Mr. Gaffney,
Mr. Norris and Mr. Pester are directors of AmerUs Group, which owns
11,706,511 shares of AmerUs Class A Common Stock and 5,000,000 shares of
AmerUs Class B Common Stock, and of AMHC, which beneficially owns such
shares through its 100% ownership of the capital stock of AmerUs Group. In
addition, Mr. Brooks is the President and Chief Executive Officer of AmerUs
Group and AMHC, Mr. Doan was Vice Chairman of AmerUs Group and AMHC, Mr.
Godlasky is Executive Vice President and Chief Investment Officer of AmerUs
Group and AMHC, Mr. Kalainov is Chairman of AmerUs Group and AMHC and Mr.
Sproule is Executive Vice President and Chief Financial Officer of AmerUs
Group and AMHC. All of the foregoing persons have disclaimed beneficial
ownership of all shares of AmerUs Common Stock which are beneficially owned
by AmerUs Group or AMHC.
(2) Mr. Doan retired from AmerUs effective April 30, 1997.
(3) Two thousand of the shares reported for Mr. Brooks are owned by his spouse.
All shares reported for Mr. Kalainov are owned by his spouse. Messrs. Brooks
and Kalainov have disclaimed beneficial ownership of all shares owned by
their spouses.
97
<PAGE>
AMVESTORS COMMON STOCK
The following table sets forth information with respect to the beneficial
ownership of AmVestors Common Stock by each person known by AmVestors to be the
beneficial owner of more than five percent (5%) of AmVestors Common Stock and,
as of November 10, 1997, by each present director of AmVestors, by certain
executive officers of AmVestors and by all directors and officers of AmVestors
as a group. Unless otherwise indicated in the notes to this table, the
stockholders listed in the table have sole voting and investment power with
respect to shares beneficially owned by them.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
SHARES OF AMVESTORS COMMON
NAME OF BENEFICIAL OWNER STOCK* PERCENT
- ---------------------------------------------------------------------------- -------------------------- -----------
<S> <C> <C>
Heartland Advisors, Inc..................................................... 882,206(1) 5.1%
790 North Milwaukee Street
Milwaukee, WI 53202
Dimensional Fund Advisors, Inc.............................................. 726,255(2) 4.2%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Janis L. Andersen, Director................................................. 51.444(3) **
Robert G. Billings, Director................................................ 50,527(4) **
Jack H. Brier, Director..................................................... 18,778(5) **
Frank T. Crohn, Chairman of the Board of Financial Benefit and Director of
AmVestors................................................................... 534,696(6) 3.1%
Thomas M. Fogt, Executive Vice President of AmVestors....................... 27,368(7) **
Lynn F. Hammes, Executive Vice President, Secretary & Treasurer of
AmVestors................................................................... 78,715(8) **
Mark V. Heitz, President, General Counsel and Director of AmVestors......... 253,097(9) 1.5%
Ralph W. Laster, Jr., Chairman, Chief Executive Officer and Director of
AmVestors................................................................... 320,630(10) 1.8%
R. Rex Lee, M.D., Director.................................................. 5,584(11) **
Robert R. Lee, II, Director................................................. 23,282(12) **
John F.X. Mannion, Director................................................. 11,092(13) **
Robert T. McElroy, M.D., Director........................................... 68,465(14) **
James V. O'Donnell, Director................................................ 13,000(15) **
Timothy S. Reimer, Chief Investment Officer of AmVestors.................... 172,904(16) 1.0%
Donna J. Rubertone, President and Chief Operating Officer of Financial
Benefit..................................................................... 147,043(17) **
James R. Stanley, Executive Vice President of AmVestors..................... 93,501(18) **
All officers and directors as a group (16 persons).......................... 1,870,136 10.3%
</TABLE>
- --------------
* Directors and Officers have sole voting and investment powers of the shares
shown unless held under options or otherwise indicated below.
** Beneficial ownership of stockholder constitutes less than one percent (1%)
of AmVestors Common Stock.
(1) Pursuant to a Schedule 13G/A dated February 17, 1997, Heartland Advisors,
Inc., a registered investment adviser, is deemed to have beneficial
ownership of 882,226 shares of AmVestors
98
<PAGE>
Common Stock, of which it has sole voting power over 844,906 shares and
sole dispositive power over 882,206 shares.
(2) Pursuant to a Schedule 13G dated February 12, 1997, Dimensional Fund
Advisors Inc. ("DIMENSIONAL"), a registered investment advisor, is deemed
to have beneficial ownership of 726,255 shares of AmVestors Common Stock,
all of which shares are held in portfolios of DFA Investment Dimensions
Group Inc., a registered open-end investment company, or in series of the
DFA Investment Trust Company, a Delaware business trust, or the DFA Group
Trust and DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans, all of which Dimensional Inc. serves as investment
manager. Dimensional disclaims beneficial ownership of all such shares.
Dimensional has sole voting power over 469,948 shares of AmVestors Common
Stock and sole dispositive power over 726,255 shares of AmVestors Common
Stock.
(3) Includes 33,000 shares which may be acquired upon the exercise of options
which are currently exercisable.
(4) Includes 45,500 shares which may be acquired upon the exercise of options
which are currently exercisable.
(5) Includes 1,600 shares owned by Brier Development Company, Inc. Mr. Brier is
the president and sole shareholder of Brier Development Company, Inc. Also
includes 12,000 shares which may be acquired upon the exercise of options
which are currently exercisable.
(6) Includes 18,724 shares owned by Mr. Crohn's spouse and warrants owned by
Mr. Crohn's spouse to acquire an additional 4,566 shares. Mr. Crohn
disclaims any beneficial interest in these shares and warrants. Includes
35,703 shares and 8,733 warrants allocated and held in trust under
AmVestors' ESOP. Includes 155,328 shares which may be acquired upon the
exercise of options and warrants which are currently exercisable, in
addition to the warrants held by Mr. Crohn's spouse. Mr. Crohn also holds
an option for an additional 18,600 shares (not included in the table) which
will become exercisable upon the Closing of the Merger.
(7) Includes 716 shares owned by the Thomas M. Fogt Revocable Trust and 716
shares owned by the Janice A. Fogt Revocable Trust. Mr. Fogt serves as the
co-trustee of both trusts. Also includes 2,170 shares allocated and held in
trust under AmVestors' ESOP and 12,722 shares which may be acquired upon
exercise of options which are currently exercisable. Mr. Fogt also holds
options for an additional 36,064 shares (not included in the table) which
will become exercisable upon the Closing of the Merger.
(8) Includes 6,783 shares allocated and held in trust under AmVestors' ESOP.
Also includes 64,432 shares which may be acquired upon the exercise of
options which are currently exercisable. Mr. Hammes also holds options for
an additional 40,568 shares (not included in the table) which will become
exercisable upon the Closing of the Merger.
(9) Includes 10,499 shares allocated and held in trust under AmVestors' ESOP.
Also includes 176,702 shares which may be acquired upon the exercise of
options which are currently exercisable. Mr. Heitz also holds options for
an additional 23,298 shares (not included in the table) which will become
exercisable upon the Closing of the Merger.
(10) Includes 12,169 shares allocated and held in trust under AmVestors' ESOP.
Also includes 226,702 shares which may be acquired upon exercise of
options which are currently exercisable. Mr. Laster also holds options for
an additional 23,298 shares (not included in the table) which will become
exercisable upon the Closing of the Merger.
(11) Includes 584 shares allocated and held in trust under AmVestors' ESOP. On
October 22, 1997, Dr. Lee sold certain shares beneficially owned by him to
AmerUs Group. See "The Merger--Certain Transactions; Interests of Certain
Persons in the Merger."
(12) Includes 18,000 shares which may be acquired upon the exercise of options
which are currently exercisable.
(13) Includes 6,998 shares which may be acquired upon the exercise of options
and warrants which are currently exercisable. Mr. Mannion is Chairman of
the Board and Chief Executive Officer of Unity
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Mutual Life Insurance Company. As of March 18, 1997, Unity Mutual owned
9,634 shares and warrants to acquire an additional 12,658 shares. Mr.
Mannion disclaims any beneficial interest in the shares owned by Unity
Mutual.
(14) Includes 1,340 shares owned by Dr. McElroy's spouse. Also includes 19,500
shares which may be acquired upon exercise of options which are currently
exercisable.
(15) Includes 12,000 shares which may be acquired upon the exercise of options
which are currently exercisable.
(16) Includes 7,545 shares allocated and held in trust under AmVestors' ESOP.
Also includes 131,702 shares which may be acquired upon the exercise of
options which are currently exercisable. Mr. Reimer also holds options for
an additional 23,298 shares (not included in the table) which will become
exercisable upon the Closing of the Merger.
(17) Includes 28,344 shares allocated and held in trust under AmVestors' ESOP.
Includes 13,114 shares which may be acquired upon the exercise of warrants
which are currently exercisable and 79,400 shares which may be acquired
upon exercise of options which are currently exercisable. Ms. Rubertone
holds an option for an additional 25,600 shares (not included in the
table) which will become exercisable upon the Closing of the Merger.
(18) Includes 11,799 shares allocated and held in trust under AmVestors' ESOP.
Also includes 81,702 shares which may be acquired upon exercise of options
which are currently exercisable. Mr. Stanley holds options for an
additional 23,298 shares (not included in the table) which will become
exercisable upon the Closing of the Merger.
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AMERUS OWNERSHIP STRUCTURE AFTER THE MERGER
The following chart illustrates the general organization of AmerUs
immediately following completion of the Merger, assuming the Merger
Consideration is 0.6724 shares of AmerUs Class A Common Stock and all warrants
and options to purchase AmVestors Common Stock are rolled over into warrants and
options to purchase shares of AmerUs Class A Common Stock. The percentages shown
do not include shares of AmerUs Class A Common Stock which may be issued upon
exercise of warrants and options following the Merger. In addition, the
percentage of AmerUs Common Stock owned by AmerUs Group would be increased if,
as expected, AmerUs Group acquires additional shares of AmVestors Common Stock
prior to completion of the Merger.
AmerUs has two classes of common stock. In the Merger, AmVestor stockholders
would receive AmerUs Class A common stock, the same class held by other public
shareholders. AMHC beneficially owns all outstanding shares of AmerUs Class B
common stock. Under the AmerUs Charter, shares of AmerUs Class B common stock
carry with them the right to cast a number of votes generally intended to ensure
that AMHC has the right to cast at least 50.1% of the votes entitled to be cast
with respect to capital stock of AmerUs. See "DESCRIPTION OF AMERUS CAPITAL
STOCK." See "ADDITIONAL INFORMATION REGARDING AMERUS--Business--Certain
Transactions and Relationships" for information concerning the relationship
between AMHC, AmerUs Group and AmerUs.
[GRAPH]
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ADDITIONAL INFORMATION REGARDING AMERUS
BUSINESS
GENERAL. AmerUs is a holding company engaged through its subsidiaries in
the business of marketing, underwriting and distributing a broad range of
individual life insurance and annuity products to individuals and businesses in
49 states and the District of Columbia. AmerUs' primary product offerings
consist of whole life, universal life and term life insurance policies and fixed
annuities. In addition, through a joint venture arrangement (the "AMERITAS JOINT
Venture"), AmerUs Life's distribution systems market fixed annuities issued by
AVLIC and sell AVLIC's variable life insurance and variable annuity products.
Based on published comparisons and rankings of life insurance and annuity
products, AmerUs believes that its products have a long history of being
competitive within the industry.
AmerUs was formed in 1996 in connection with the creation of AMHC, the first
mutual insurance holding company in the United States. AMHC owns 100% of AmerUs
Group, AmerUs' controlling shareholder. AmerUs' subsidiary, AmerUs Life, was
originally incorporated in 1896 as a mutual insurance company under the name
Central Life Assurance Society of the United States. Its name was changed to
American Mutual Life Insurance Company in 1994 following the merger of Old AML
into Central Life. On June 30, 1996, American Mutual Life Insurance Company was
converted into a stock life insurance company pursuant to the AmerUs
Reorganization Plan (as defined below) and its name was changed to AmerUs Life
Insurance Company. As of June 30, 1997, AmerUs Life had approximately 424,000
life insurance policies and annuity contracts outstanding and individual life
insurance in force, net of reinsurance, of approximately $25.9 billion. As of
June 30, 1997, AmerUs had total assets of $4.5 billion and total shareholders'
equity of $535 million. On February 3, 1997, AmerUs received $56.7 million in
gross proceeds from a subscription offering and initial public offering of
shares of its AmerUs Class A Common Stock.
On October 23, 1997 AmerUs acquired Delta. Delta specializes in the sale of
individual single and flexible premium deferred annuities, primarily in the
southeastern, western, southwestern and midwestern regions of the United States.
Sales are made primarily through a network of over 3,400 independent agents.
Delta's strategy is to target the conservative saver by offering conservative
asset management and an innovative product design. Approximately 55% of Delta's
1996 direct collected premiums were derived from retirement-oriented
tax-qualified annuities. Delta Life is licensed in the District of Columbia and
in all states except New York. For a discussion of the business, products and
distribution systems of Delta, see "--Recent Developments--Acquisition of Delta
Life Corporation."
AmerUs' target markets are individuals in the middle and upper income
brackets and small businesses. Its geographic focus is national in scope (except
for New York, in which AmerUs is not licensed to do business), and it primarily
serves suburban and rural areas. AmerUs Life distributes its products primarily
through a combination of career general agency and personal producing general
agency ("PPGA") distribution systems, as well as a network of independent
brokers. The career general agency system consists of a network of 36 career
general agencies, with approximately 540 career agents. The PPGA system is
comprised of approximately 450 PPGAs, with approximately 1,050 agents. Variable
life insurance products and the fixed and variable annuities offered by the
Ameritas Joint Venture are marketed through AmerUs Life's distribution systems
and the distribution systems of Ameritas and AVLIC, which consist of
approximately 200 agents and 450 independent broker-dealers (with approximately
8,300 registered representatives), respectively.
The pricing of AmerUs' products is generally determined by reference to
actuarial calculations and statistical assumptions principally relating to
mortality, persistency, investment yield assumptions, estimates of expenses and
management's judgment as to market and competitive conditions. The premiums and
deposits received, together with assumed investment earnings, are designed to
cover policy benefits, expenses and policyowner dividends plus return a profit
to AmerUs. These profits arise from the margin between mortality charges and
insurance benefits paid, the margin between actual investment results and the
investment income credited to policies (either directly or through dividends to
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policyowners) and the margin between expense charges and actual expenses. The
level of profits also depends on persistency because business acquisition costs,
particularly agent commissions, are recovered over the life of the policy.
Dividends and interest credited on policies (including policies included in the
Closed Block) may vary from time to time reflecting changes in investment,
mortality, persistency, expenses and other factors. Interest rate fluctuations
have an effect on investment income and may have an impact on policyowner
behavior. Increased lapses in policies may be experienced if AmerUs does not
maintain interest rates and dividend scales that are competitive with other
products in the marketplace.
BUSINESS STRATEGY. AmerUs' business strategy to achieve earnings growth and
increase share-holder value is focused on managing certain operating
fundamentals where AmerUs' results have historically compared favorably to the
industry. AmerUs intends to utilize these operating strengths to differentiate
its products by maintaining its position and reputation as a low-cost producer
that provides high-value products to its life insurance and annuity customers,
while also providing superior service to both agents and customers. AmerUs
believes it is well positioned to compete effectively based upon a number of
strengths including its strong operating performance, customer-driven product
offerings, productive and diversified distribution systems, sophisticated
asset/liability management capabilities and a customer service orientation. In
addition, AmerUs may continue to seek new business opportunities through
mergers, acquisitions and strategic alliances.
THE AMERUS REORGANIZATION.
Description of the AmerUs Reorganization. On October 27, 1995, the Board of
Directors of American Mutual Life adopted the plan of reorganization (the
"AMERUS REORGANIZATION PLAN"), pursuant to which AMHC was formed as a mutual
insurance holding company and American Mutual Life was converted into a stock
life insurance company and its name was changed to AmerUs Life Insurance
Company.
As part of the AmerUs Reorganization, all of the shares of capital stock of
AmerUs Life were issued to AMHC. Subsequently, AMHC contributed all of its
shares of capital stock of AmerUs Life to AmerUs Group, which contributed such
shares to AmerUs, AmerUs Group's then wholly-owned subsidiary. Under this
structure, AmerUs is an intermediate holding company, with AmerUs Group as its
direct controlling shareholder and AmerUs Life as its wholly-owned subsidiary.
Under Iowa law, AMHC is required to retain direct or indirect ownership and
control of shares which carry the right to cast a majority of the votes entitled
to be cast by holders of the outstanding capital stock of AmerUs Life.
American Mutual Life was the first company to obtain approval under the Iowa
mutual holding company statute to form a mutual insurance holding company.
AmerUs understands that the states of California, Florida, Kansas, Louisiana,
Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oregon, Pennsylvania, Rhode
Island, Texas and Vermont, and the District of Columbia, have adopted laws
authorizing the formation of mutual insurance holding companies.
Background and Reasons for the AmerUs Reorganization. Recognizing the
capital-raising difficulties faced by mutual insurers and the present
competitive state of the insurance industry, the Iowa legislature in 1995
amended Iowa's insurance law to permit mutual insurance companies incorporated
in Iowa to reorganize into a mutual insurance holding company structure.
As a mutual life insurance company, American Mutual Life had no ability to
issue shares of capital stock and consequently had no access to market sources
of equity capital and limited ability to increase its surplus and fund future
growth while maintaining the financial strength necessary to assure policyowners
that their obligations will be met. The AmerUs Reorganization positioned AmerUs
to obtain access to equity capital by effecting equity offerings as necessary
and appropriate to satisfy its capital requirements.
The AmerUs Reorganization was also intended to facilitate potential mergers,
acquisitions and strategic alliances by creating a more flexible corporate
structure. Among other things, the AmerUs Reorganization positioned AmerUs to
issue stock to consummate acquisitions.
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The Iowa legislation permits AMHC to demutualize, a process which would
cause AMHC to convert from mutual to stock form and become publicly owned by
shareholders. Pursuant to AmerUs' Charter, upon a demutualization all of AmerUs'
shares of outstanding AmerUs Class B Common Stock will automatically convert
into shares of AmerUs Class A Common Stock. See "DESCRIPTION OF AMERUS CAPITAL
STOCK." AMHC has advised AmerUs that AMHC has no present plans to demutualize.
Establishment and Operation of the Closed Block. In connection with the
AmerUs Reorganization, the Closed Block was established. Insurance policies
which had a dividend scale in effect as of June 30, 1996 were included in the
Closed Block. The Closed Block was designed to provide reasonable assurance to
policyowners included therein that, after the AmerUs Reorganization, assets will
be available to maintain the dividend scales and interest credits in effect
prior to the AmerUs Reorganization if the experience underlying such scales and
credits continues. The establishment of the Closed Block did not alter,
diminish, reduce or in any other way adversely affect these policyowners'
contractual rights.
The Closed Block was established on June 30, 1996. Pursuant to the AmerUs
Reorganization Plan, assets were allocated to the Closed Block at June 30, 1996
in an amount which AmerUs expects to produce cash flows which, together with
anticipated revenues from the Closed Block Business, are expected to be
sufficient to support the Closed Block Business, including provision for payment
of claims, taxes and certain other expenses and for the continuation of dividend
scales and interest credits in effect prior to the Amerus Reorganization if the
experience underlying such scales and credits continues or for appropriate
adjustments in such scales and credits if the experience changes. The assets,
including the revenue therefrom, allocated to the Closed Block will accrue
solely to the benefit of policyowners included in the Closed Block Business
until such time as the Closed Block is no longer in effect. To the extent that
over time cash flows from the assets allocated to the Closed Block and other
experience relating to the Closed Block are, in the aggregate, more or less
favorable than assumed in establishing the Closed Block, total dividends and
interest credits paid to Closed Block policyowners in the future may be greater
than or less than the total dividends and interest credits that would have been
paid to these policyowners if the dividend scales and interest credits in effect
prior to the AmerUs Reorganization had been continued. Dividends and interest
credits on policies included in the Closed Block, as in the past, will be
declared at the discretion of AmerUs Life's Board of Directors and may vary from
time to time (reflecting changes in investment, mortality, persistency and other
experience factors). AmerUs Life will not be required to support the payment of
dividends and interest credits on Closed Block policies from its general funds
above certain guaranteed levels, although it could choose to provide such
support if it were deemed to be in the best interests of AmerUs Life's
shareholders.
AmerUs Life will continue to pay guaranteed benefits under all policies,
including the policies included in the Closed Block, in accordance with their
terms. If the assets allocated to the Closed Block, the investment cash flows
from those assets and the revenues from the policies included in the Closed
Block including investment income thereon prove to be insufficient to pay the
benefits guaranteed under the policies included in the Closed Block, AmerUs Life
will be required to make such payments from its general funds. AmerUs Life bears
the costs of operating and managing the Closed Block and, accordingly, such
costs were not funded as part of the assets allocated to the Closed Block. Any
increase in such costs in the future would be borne by AmerUs Life. Since the
Closed Block has been funded to provide for payment of guaranteed benefits as
well as future dividends, it should not be necessary to use other general funds
to pay guaranteed benefits unless the Closed Block Business experiences
substantial adverse deviations in investment, mortality, persistency or other
experience factors. While AmerUs Life will use its best efforts to support the
policies included in the Closed Block with the assets allocated to the Closed
Block, these assets will be subject to the same liabilities (with the same
priority in liquidation) as assets outside the Closed Block.
The Closed Block will continue in effect until either (i) the last policy in
the Closed Block is no longer in force or (ii) the Closed Block is dissolved.
The AmerUs Reorganization Plan provides that the Closed Block may not be
dissolved without the approval of the Iowa Commissioner, which approval could
only be obtained if dissolution were demonstrated not to be adverse to the
interests of the policyowners whose policies make up the Closed Block. If the
Closed Block is dissolved, the assets associated with
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the Closed Block will become part of AmerUs Life's general funds. If the Closed
Block is not dissolved, the expected life of the Closed Block is in excess of 75
years.
Closed Block Assets and Liabilities. At June 30, 1997, the Closed Block had
assets of $1,307.4 million and liabilities of $1,563.8 million. The excess of
Closed Block Liabilities over Closed Block Assets represents the expected future
after-tax contributions (before certain other expense charges, which were not
funded in the Closed Block) from the Closed Block which may be recognized in
income over the period the policies in the Closed Block remain in force.
If the actual contribution from the Closed Block in any given period equals
or exceeds the expected contribution for such period as determined at the
establishment of the Closed Block, only the expected contribution would be
recognized in income from continuing operations for that period. Any excess of
the actual contribution over the expected contribution is recognized in income
from continuing operations to the extent that the aggregate expected
contribution for all prior periods exceeded the aggregate actual contribution.
Any remaining excess of actual contribution over expected contributions would be
accrued in the Closed Block as a liability for future policyowners' dividends.
This accrual for future dividends effectively limits the actual Closed Block
contribution recognized in income from continuing operations to the Closed Block
contribution expected to emerge from operation of the Closed Block as determined
as of the date of establishment of the Closed Block.
If the actual contribution from the Closed Block in any given period is less
than the expected contribution for that period, because changes in dividends
scales are inadequate to offset the negative performance in relation to the
expected performance, the contribution inuring to shareholders of AmerUs Life
will be reduced. If a liability for policyowners' dividends had been previously
established in the Closed Block because the actual contribution to the relevant
date had exceeded the expected contribution to such date, such liability would
be reduced (but not below zero) in any periods in which the actual contribution
for that period is less than the expected contribution for such period.
AMERITAS JOINT VENTURE. Ameritas Life Insurance Corp. ("AMERITAS") is a
Nebraska mutual life insurance company which has been in existence for more than
100 years. Ameritas is licensed to conduct business in the District of Columbia
and in all states except New York, and had approximately 200 agents as of June
30, 1997. On a statutory basis, Ameritas had $1.8 billion in assets, $8.1
billion of insurance in force and $285.2 million in policyowners' surplus as of
June 30, 1997. Ameritas currently is rated "AA" (Excellent) by Standard & Poor's
and "A+" (Superior) by A.M. Best.
AmerUs participates in the Ameritas Joint Venture through AmerUs Life's 34%
ownership interest in AMAL Corporation, a Nebraska corporation ("AMAL"). AMAL's
operations are conducted through AVLIC and Ameritas Investment Corp., a
registered broker-dealer ("AIC"), its two wholly-owned subsidiaries, which have
been in business since 1983. AVLIC is licensed to conduct business in 46 states
and the District of Columbia and currently markets its products and those of AIC
through approximately 450 independent broker-dealers (with approximately 8,300
registered representatives) and the Ameritas distribution system. AIC is a
registered broker/dealer which is licensed to do business in 49 states. As of
June 30, 1997, AMAL had total consolidated assets of $1,324.7 million and total
consolidated stockholders' equity of $68.0 million on a GAAP basis. AVLIC had
$3.4 billion of insurance in force and $44.8 million in surplus as of June 30,
1997, on a statutory basis.
AmerUs Life contributed $20.4 million in cash and substantially all of its
new fixed annuity production, as well as other consideration, for its interest
in AMAL. Under the terms of the Joint Venture Agreement, AmerUs Life has an
option to purchase an additional 5% to 15% of AMAL (the "OPTION") if certain
premium growth targets are met. The AMAL Option is exercisable in three
portions, each of which would permit AmerUs Life to acquire the number of
newly-authorized shares that would increase its equity ownership by 5%. Each
portion of the AMAL Option is exercisable at specified exercise prices set forth
in the Joint Venture Agreement.
Management of the Ameritas Joint Venture is shared between AmerUs Life and
Ameritas. Each has equal membership on the board of directors of AMAL, AVLIC and
AIC.
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The Joint Venture Agreement provides that certain conditions may trigger
buy-sell provisions of the Joint Venture Agreement in the event of certain
disputes between the parties. For example, if at any time during the
continuation of the Ameritas Joint Venture a dispute arises between the parties,
the Joint Venture Agreement sets forth a mechanism for the resolution of the
dispute by informal means, including mediation. In certain specified
circumstances, in the event a major dispute remains unresolved, certain buy-sell
provisions of the Joint Venture Agreement can be triggered. Further, each party
may make and/ or enter into acquisitions, divestitures, mergers, consolidations,
or other transactions affecting its corporate structure. However, if any such
transaction involves or constitutes a "change of control" with respect to
Ameritas or AmerUs Life, then the other party shall have the right to trigger
the buy-sell provisions of the Joint Venture Agreement. A "change of control" is
deemed to have occurred if a majority of the board of directors of an entity or
an ultimate parent shall consist of individuals who were not directors of such
entity prior to such transaction or who were not nominated for board membership
by such directors.
AmerUs and Ameritas each have guaranteed the obligations of AVLIC. The
guarantee of each party is joint and several, and will remain in effect until
certain financial conditions are met.
PRODUCTS. AmerUs offers a diverse line of individual life insurance
products which are tailored to its markets and distributed primarily through its
career general agency and PPGA distribution systems. In addition, AmerUs
recently acquired Delta, through which it now offers additional annuity products
through an extensive network of independent agents. AmerUs also is a party to
the Ameritas Joint Venture, which offers fixed and variable annuity and variable
life insurance products. As a result of superior operating fundamentals,
including mortality, persistency, operating expenses and investment yield,
AmerUs has had a long history of providing high-value, low-cost products to its
customers, while operating profitably. Moreover, AmerUs continuously reviews and
updates its product portfolio in order to continue offering a broad range of
products at competitive performance levels.
Individual Life Insurance and Fixed Annuity Products of AmerUs
Life. Traditional life insurance has accounted for approximately 70% of AmerUs
Life's total individual life insurance premiums for the last three years and
universal life insurance has accounted for approximately 30% of its total
individual life insurance premiums for the same time period. In addition, AmerUs
Life has historically offered a broad line of fixed annuity products.
The following table sets forth information regarding AmerUs Life's sales
activity by product:
SALES ACTIVITY BY PRODUCT
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Individual life insurance:
Participating whole life.......................... $ 8,603 $ 8,948 $ 18,253 $ 20,857 $ 21,319
Universal life.................................... 3,666 3,494 7,533 8,047 5,698
Term life......................................... 1,756 1,369 2,565 2,717 3,154
--------- --------- --------- ----------- -----------
Total life insurance (A)........................ $ 14,025 $ 13,811 $ 28,351 $ 31,621 $ 30,171
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Individual annuities (B)(C)......................... $ 21,305 $ 49,537 $ 72,797 $ 191,474 $ 180,459
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
- --------------
(A) Direct first year annualized premiums.
(B) Direct first year and single collected premiums.
(C) Effective May 1996, substantially all new sales of individual deferred
annuities are made through the Ameritas Joint Venture. Including production
from AmerUs Life's distribution systems through the Ameritas Joint Venture,
annuity sales through June 30, 1997 increased 25.9% from the first six
months of 1996. See "--Ameritas Joint Venture."
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Traditional Life Insurance Products. AmerUs Life's traditional life
insurance products have a long history of being highly competitive within the
industry. AmerUs Life is the only participant in the industry to have had its
participating whole life insurance products ranked among the top ten in annual
surveys prepared by A.M. Best for each of the years 1976 through 1995. AmerUs
Life ranked 14th and 10th for the 10- and 20-year measures, respectively, for
1996, and ranked 12th and 9th for the 10- and 20-year measures, respectively,
for 1997. (Source: Best's Review, Rankings of 10- and 20-year Interest Adjusted
Surrender Cost Index, 1976-1997). Management believes that such surveys provide
a gauge for measuring product performance based upon operating fundamentals,
including mortality, persistency, operating expenses and investment yield, and
that the consistent high rankings of AmerUs Life's traditional life insurance
products in such surveys reflect AmerUs Life's status within the industry as a
provider of high-value products to its customers.
AmerUs Life's traditional life insurance products include participating
whole life and term life insurance products. Participating whole life insurance
is designed to provide benefits for the life of the insured. This product
generally provides for level premiums and a level death benefit and requires
payments in excess of the mortality cost in earlier years to offset increasing
mortality costs in later years. AmerUs Life also offers a second to die whole
life insurance product which insures two lives and provides benefits upon the
death of the second insured. AmerUs Life targets its second to die products
primarily to potential customers seeking to achieve estate planning goals.
AmerUs Life also offers a portfolio of term life insurance policies that
provide life insurance protection for a specific time period (which generally
can be renewed at an increased premium). Such policies are mortality-based and
offer no cash accumulation feature.
Since 1989, AmerUs Life has offered a flexible life insurance product, which
is a combination of permanent participating whole life insurance, increasing
paid-up additions and decreasing term insurance coverage. In 1994, AmerUs Life
began offering an enhanced version of this product. These products give
policyowners additional flexibility in designing an appropriate combination of
permanent and term life insurance coverages to meet their specific needs at
varying premium levels.
For the six months ended June 30, 1997, sales of participating whole life
and term life insurance products represented 61% and 13%, respectively, of first
year annualized premiums for all individual life insurance products.
Universal Life Insurance Products. AmerUs Life offers universal life
insurance products, pursuant to which an insurance account is maintained for
each insurance policy. Premiums, net of specified expenses, are credited to the
account, as is interest, generally at a rate determined from time to time by
AmerUs Life. Specific charges are made against the account for the cost of
insurance protection and for AmerUs Life's expenses. The universal life form
allows for flexibility as to the amount and timing of premium payments and for
the level of death benefits provided.
AmerUs Life has maintained consistently competitive universal life products.
Based on annual surveys by A.M. Best measuring account and cash values of
universal life products, AmerUs Life's products have consistently ranked in the
top half of all companies included in the survey with respect to account values
and has ranked in the top quarter of all companies included in the survey with
respect to cash values. (Source: Best's Review, Rankings of 5-year Account and
Cash Values, 1991-1997; Rankings of 10-year Account and Cash Values, 1993-1997,
with 1993 the initial year of the survey of 10-year values).
AmerUs Life's universal life insurance products provide benefits for the
life of the insured. Within limits established by AmerUs Life and state
regulations, policyowners may vary the premiums and the amount of the policy's
death benefit as long as there are sufficient policy funds available to cover
all policy charges for the coming period. Interest is credited to the policy at
a rate determined from time to time by AmerUs Life. The weighted average
crediting rate for AmerUs Life's universal life insurance liabilities was 6.27%
for the year ended December 31, 1996 and 6.24% for the six months ended June 30,
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1997. For the six months ended June 30, 1997, sales of universal life insurance
products represented 26% of first year annualized premiums for all individual
life insurance products.
Fixed Annuity Products. Historically, AmerUs Life has offered a broad
portfolio of fixed annuity products. Annuities provide for the payment of
periodic benefits for a specified time period. Benefits may commence immediately
or may be deferred to a future date. Fixed annuities generally are backed by a
general investment account and credited with a rate of return that is
periodically reset.
AmerUs Life's fixed annuity products are also highly competitive within the
industry. AmerUs Life's single premium deferred annuity products were ranked
among the industry leaders in annual surveys by A.M. Best for 1991 through 1996
measuring account and cash values of single premium deferred annuity products of
participants in the industry. (Source: Best's Review, Rankings of 5- and 10-year
Account Values and 5- and 10-year Cash Values, 1991-1996).
From September 1993 until the commencement of the Ameritas Joint Venture in
1996, the majority of AmerUs Life's fixed annuity sales consisted of its
Advantage Series of deferred annuities. The Advantage Series consists of three
products comprised of two book value annuities, which are fixed annuities, and
one market value adjusted annuity, which is a fixed annuity with a market
adjustment feature. Both book value annuities have a first year interest rate
guarantee. One of the book value annuities also provides a bonus interest rate
for the first year. The market value adjusted annuity has a first year interest
rate guarantee and also provides a bonus interest rate for the first year. In
1996, the Advantage Series accounted for over $59 million in premiums, which
represented approximately 82% of AmerUs Life's total fixed annuity production
for the year.
Delta Products. Delta Life specializes in the sale of individual life and
flexible premium deferred annuities. Delta Life also markets two single premium
equity index annuity products that are based either on the S&P
500-Registered Trademark- or an international index created by Delta Life from
stock market indexes from France, Germany, Japan, Switzerland and the United
Kingdom. See "--Recent Developments--Acquisition Of Delta Life
Corporation--Products."
Ameritas Joint Venture Products. On April 1, 1996, AmerUs commenced the
Ameritas Joint Venture with Ameritas, through which AmerUs Life's distribution
systems offer AVLIC's fixed annuity products and AVLIC's variable life insurance
and annuity products. The fixed annuities currently offered by the Ameritas
Joint Venture are substantially similar to AmerUs' Advantage Series products.
AmerUs' investment in the Ameritas Joint Venture affords AmerUs access to a line
of existing variable life insurance and variable annuity products while
providing a lower-cost entry into an established business, thereby eliminating
significant start-up costs and allowing for immediate potential earnings. See
"-- Ameritas Joint Venture."
The Ameritas Joint Venture offers, through AVLIC, flexible premium and
single premium variable universal life insurance products and variable
annuities. Variable products provide for allocation of funds to a general
account or to one or more separate accounts under which the owner bears the
investment risk. Through AVLIC's fund managers, which include Fidelity
Management and Research Company, Fred Alger Management, Inc. and Massachusetts
Financial Services Company, owners of variable annuities and life insurance
policies are able to choose from a range of investment funds offered by each
manager. In the future, AVLIC may also sell low load life insurance products,
which have a lower commission rate, and may acquire other companies or business
lines in appropriate circumstances.
Under the terms of the Joint Venture Agreement governing the Ameritas Joint
Venture, AmerUs and Ameritas will write a substantial portion of their new
single and flexible premium deferred fixed annuities and variable annuities and
variable life insurance through the Ameritas Joint Venture. AmerUs has retained
the right to continue to issue replacement business to its fixed annuity
customers in existence prior to the effective date of the Joint Venture
Agreement.
The variable life insurance products and the fixed and variable annuities
offered by the Ameritas Joint Venture are distributed through AmerUs' career
general agency and PPGA distribution systems, as
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well as through the distribution systems of Ameritas and AVLIC. See "--Ameritas
Joint Venture" and "--Certain Transactions and Relationships."
In response to customer demand, AmerUs Life developed an equity index
annuity which it began offering through the Ameritas Joint Venture in the fourth
quarter of 1996. AmerUs Life retained the right to issue this type of contract
to its customers in existence prior to the effective date of the Joint Venture
Agreement and through certain other distribution systems. An equity index
annuity provides a guaranteed cash value independent of the equity markets. In
addition, the credited rate is linked to an external equity index, such as the
S&P 500-Registered Trademark- stock index excluding dividends.
Sponsored Products. AmerUs also derives fee income from the sale of various
sponsored products through its career general agency and PPGA distribution
systems under co-marketing arrangements with leading insurance providers for
such products. Such sponsored products include individual long-term disability
and group life, health and dental insurance products.
The following table sets forth AmerUs Life's collected premiums for the
periods indicated:
COLLECTED PREMIUMS BY PRODUCT
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
-------------------------- ----------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Direct individual life premiums collected:
Traditional life:
First year & single....................... $ 35,841 $ 34,427 $ 70,621 $ 70,786 $ 71,830
Renewal................................... 83,703 81,721 162,168 153,299 143,048
------------ ------------ ------------ ------------ ------------
Total................................... 119,544 116,148 232,789 224,085 214,878
Universal Life:
First year & single....................... 6,992 7,549 14,667 15,451 10,224
Renewal................................... 37,585 38,446 75,632 77,151 80,338
------------ ------------ ------------ ------------ ------------
Total................................... 44,577 45,995 90,299 92,602 90,562
Total direct life........................... 164,121 162,143 323,088 316,687 305,440
Reinsurance assumed......................... 814 757 1,425 1,337 1,114
Reinsurance ceded........................... (4,926) (6,580) (12,974) (13,795) (13,477)
------------ ------------ ------------ ------------ ------------
Total individual life, net of reinsurance... 160,009 156,320 311,539 304,229 293,077
Direct annuity premiums collected:
Individual (A)............................ 25,611 54,568 81,942 197,959 189,097
Group..................................... -- 50 50 (665) 2,580
------------ ------------ ------------ ------------ ------------
Total annuities............................. 25,611 54,618 81,992 197,294 191,677
Reinsurance ceded........................... (281) (345) (544) (853) (1,123)
------------ ------------ ------------ ------------ ------------
Total annuities, net of reinsurance......... 25,330 54,273 81,448 196,441 190,554
Total group life, net of reinsurance (B).... (10) 1,544 2,182 6,634 10,436
Total accident & health, net of reinsurance
(C)....................................... 129 102 211 264 387
------------ ------------ ------------ ------------ ------------
Total collected premiums, net of
reinsurance............................... $ 185,458 $ 212,239 $ 395,380 $ 507,568 $ 494,454
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
- --------------
(A) Effective May 1996, substantially all new sales of individual deferred
annuities are made through the Ameritas Joint Venture. See "--Ameritas Joint
Venture."
(B) AmerUs sold substantially all of its group life business as of July 1, 1996
and is no longer actively marketing this line of business.
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(C) AmerUs sold substantially all of its accident and health business in 1991
and is no longer actively marketing this line of business.
The following table sets forth information regarding AmerUs Life's life
insurance and annuities in force for each date presented:
LIFE INSURANCE AND ANNUITIES IN FORCE
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
------------------------------ ----------------------------------------------
1997 1996 1996 1995 1994
-------------- -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Individual life insurance:
Traditional
Number of policies..................... 252,101 257,664 255,441 261,224 259,229
GAAP life reserves..................... $ 1,256,654 $ 1,165,165 $ 1,207,656 $ 1,120,799 $ 1,033,909
Face amounts........................... $ 17,113,000 $ 16,636,000 $ 16,882,000 $ 16,600,000 $ 15,871,000
Universal life
Number of policies..................... 118,720 120,231 120,277 121,619 124,225
GAAP life reserves..................... $ 836,351 $ 802,964 $ 820,250 $ 784,363 $ 740,638
Face amounts........................... $ 12,125,000 $ 12,306,000 $ 12,206,000 $ 12,211,000 $ 12,631,000
Total individual life
Number of policies..................... 370,821 377,895 375,718 382,843 383,454
GAAP life reserves..................... $ 2,093,005 $ 1,968,129 $ 2,027,906 $ 1,905,162 $ 1,774,547
Face amounts........................... $ 29,238,000 $ 28,942,000 $ 29,088,000 $ 28,811,000 $ 28,502,000
Annuities (A):
Number of policies..................... 52,654 56,650 56,467 56,054 52,616
GAAP reserves.......................... $ 1,119,222 $ 1,256,230 $ 1,192,915 $ 1,327,176 $ 1,337,395
Group life insurance (B):
Number of lives........................ 30,235 33,119 29,801 32,724 29,592
Face amounts........................... $ 870,000 $ 872,000 $ 815,000 $ 829,000 $ 741,000
</TABLE>
- ----------------
(A) Effective May 1996, substantially all new sales of individual deferred
annuities are made through the Ameritas Joint Venture, which sales are not
reflected in the above table. See "--Ameritas Joint Venture."
(B) AmerUs Life sold substantially all of its group life business as of July 1,
1996 and is no longer actively marketing this line of business.
AmerUs Life's traditional life insurance products include participating
whole life and term life insurance products. The reduction in the number of
traditional life insurance policies reflected in the above table is attributable
to policy surrenders, policy terminations or expirations, and consolidations of
one or more outstanding policies into new policies. While AmerUs Life has
experienced a decrease in the number of traditional life policies, the size of
the policies outstanding has increased and the amount of premiums collected has
also increased. For universal life products, AmerUs Life has experienced a
reduction in both the number of policies and face amounts in force. Such
reductions in universal life policies in force are attributable to similar
termination activities as with the traditional life products. For universal life
products, AmerUs Life has not experienced growth in the average policy size in
force in recent years as significant as has been experienced for traditional
life due to the more recent introduction in the 1980's of universal life
policies. Therefore, the reduction in number of policies has resulted in a
reduction in the amount of insurance in force. The reduction in the amount of
annuity business in force is primarily attributable to the transfer of new
annuity production to the Ameritas Joint Venture in May 1996. AmerUs' investment
in the Ameritas Joint Venture is carried on the equity method of accounting.
AmerUs Life has experienced higher persistency for its life insurance
products (i.e., lower lapse rates) than industry averages. Persistency is
measured in terms of renewal premiums. While AmerUs Life has generally
experienced a decrease in the number of policies outstanding over the last
several years, the size of policies outstanding has increased and the amount of
premiums collected has increased.
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Such increased premium levels are in large part due to AmerUs Life's favorable
persistency. The ability to achieve higher persistency also results in lower
unit costs. The following table illustrates lapse rates on individual life
insurance products for AmerUs Life and for stock and mutual life insurance
companies for the years ended December 31, 1992 through 1996:
INDIVIDUAL LIFE INSURANCE LAPSE RATIOS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Mutual life companies (A)..................................... 7.5% 7.4% 7.4% 9.8% 8.6%
Stock life companies (A)...................................... 8.3 9.3 8.8 9.8 9.9
Total life insurance industry (A)........................... 8.0 8.6 8.3 9.8 9.4
AmerUs Life................................................... 7.2 7.2 7.1 6.9 6.9
</TABLE>
- --------------
(A) Source: A.M. Best individual life lapse ratios (median values) as measured
by face amount of life insurance.
DISTRIBUTION. AmerUs Life markets its insurance products on a national
basis primarily through a career general agency system, a PPGA system,
independent insurance brokers and certain of AmerUs' affiliates. AmerUs Life
employs nine regional vice presidents who are responsible for supervising the
career general agencies and/or PPGA agents within their assigned geographic
regions.
The table below illustrates sales activity of AmerUs Life's principal
distribution sources for the six months ended June 30, 1997 and the year ended
December 31, 1996. Amounts shown for traditional and universal life insurance
reflect direct first year annualized premiums. Amounts shown for annuities
reflect direct first year and single collected premiums.
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SALES ACTIVITY BY DISTRIBUTION SOURCE
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
------------------- ---------------------
(IN THOUSANDS)
<S> <C> <C>
Career General Agency System:
Traditional life insurance.......................................... $ 6,908 $ 13,481
Universal life insurance............................................ 2,830 5,897
Individual annuity (A).............................................. 17,526 52,865
-------- ----------
Subtotal.......................................................... 27,264 72,243
PPGA System:
Traditional life insurance.......................................... 3,448 7,295
Universal life insurance............................................ 657 1,545
Individual annuity (A).............................................. 2,919 16,015
-------- ----------
Subtotal.......................................................... 7,024 24,855
Sales through Affiliates:
Traditional life insurance.......................................... 3 42
Universal life insurance............................................ 179 91
Individual annuity (A).............................................. 860 3,917
-------- ----------
Subtotal.......................................................... 1,042 4,050
Total Sales:
Traditional life insurance.......................................... 10,359 20,818
Universal life insurance............................................ 3,666 7,533
Individual annuity (A).............................................. 21,305 72,797
-------- ----------
Total (A)......................................................... $ 35,330 $ 101,148
-------- ----------
-------- ----------
</TABLE>
- --------------
(A) Effective May 1996, substantially all new sales of individual deferred
annuities are made through the Ameritas Joint Venture. See "--Ameritas Joint
Venture."
Career General Agency System and Brokers. Under the career general agency
system, AmerUs Life enters into a contractual arrangement with the career
general agent for the sale of insurance products by the career agents and
brokers assigned to the career general agent's agency. The career general agents
are primarily compensated by receiving a percentage of the first year
commissions paid to career agents and brokers in the career general agent's
agency and by renewal commissions on premiums subsequently collected on that
business.
The career general agents are independent contractors and are generally
responsible for the expenses of operating their agencies, including office and
overhead expenses and the recruiting, selection, contracting, training and
development of career agents and brokers in their agency. Currently, AmerUs Life
has 36 career general agencies in 24 states, through which approximately 540
career agents sell AmerUs Life's products. While career agents in the career
general agency system are non-exclusive, AmerUs Life believes most agents use
AmerUs Life's products for a majority of their new business of the type of
products offered by AmerUs Life. No single career general agency accounts for
more than 10% of the total first year commissions paid by AmerUs Life.
Career agents are also independent contractors and are primarily compensated
by commissions on first year and renewal premiums collected on business written
by them. In addition, career agents can earn bonus commissions, graded by
production and persistency on their business.
AmerUs Life believes the quality of the agents in its career general agency
system is competitive with that of other life insurance companies. AmerUs Life's
retention of its career general agency sales force has historically been above
the average retention rates of other companies in the industry. AmerUs
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Life attributes its success in attracting and retaining qualified agents to the
high quality of its products, its marketing support and administrative services
and its competitive compensation structure. AmerUs Life also provides career
general agents with various screening tools which enable the general agents to
screen career agent applicants to eliminate those who may not be qualified.
AmerUs Life also sells its products through a network of approximately 1,750
insurance brokers in all jurisdictions in which AmerUs Life is licensed to sell
insurance. Brokers are independent contractors who sell a variety of insurance
products issued by various companies. Brokers operate through the career general
agency system but are compensated under a commission structure which is separate
from those used for career agents and in the PPGA system.
Personal Producing General Agency System. Under the PPGA system, AmerUs
Life contracts primarily with individuals who are experienced individual agents
or head a small group of experienced individual agents. These individuals are
independent contractors and are responsible for all of their own expenses. These
individuals often sell products for other insurance companies, and may offer
selected products of AmerUs Life rather than AmerUs Life's full line of
insurance products.
PPGAs are compensated by commissions on first year and renewal premiums
collected on business written by themselves and the agents in their units. In
addition to a base commission, PPGAs may earn bonus commissions on their
business, graded by production and persistency.
Distributions Through Affiliates. AmerUs Life also sells its products
through certain of its affiliated companies. AmerUs Life has arrangements with
AmerUs Investments, Inc. ("AmerUs Investments"), a wholly-owned subsidiary of
AmerUs Bank, to market products of AmerUs Life. AmerUs Life has entered into an
agreement with AmerUs Investments pursuant to which AmerUs Life and AVLIC pay
AmerUs Investments fees in the form of commissions in exchange for generating
sales of such products. Persons selling AmerUs Life's products under this
arrangement are employees of AmerUs Investments and are paid a regular salary in
addition to being eligible for commissions under a commission structure (which
is distinct from the structure used under AmerUs Life's career general agency
and PPGA systems). See "--Agreements Involving Real Estate--Sale of Insurance
Policies."
AVLIC has a separate arrangement with AmerUs Investments pursuant to which
AmerUs Investments sells variable and fixed annuities and variable life
insurance products.
Marketing Support Services. AmerUs Life also supports its distribution
systems with a trained staff of marketing and other professionals who provide
the career general agency and PPGA systems with a wide range of services in
support of the sale of AmerUs Life's products. In addition to providing
information about the products offered by AmerUs Life, these professionals are
able to offer detailed advice on business insurance, financial and estate
planning and other advanced underwriting services.
AmerUs Life also provides its agents in both the career general agency and
PPGA systems with insurance industry information support services and computer
technology. For example, an advanced illustration and sales presentation
computer software package is provided to agents to assist them in their selling
efforts. In addition, AmerUs Life's agents use computer technology to
individualize marketing and product use information at the point of sale to
better service policyowners and potential policyowners. AmerUs Life supports
these systems with in-house computer professionals to assist agents with
software and systems questions relating to its computer-assisted marketing
tools.
AmerUs Life conducts an intensive annual educational conference as part of
its continuing efforts to educate and train agents and to market AmerUs Life's
products. The conference is generally well-attended by AmerUs Life's agents and
other interested persons who are not affiliated with AmerUs Life.
Distribution System of Delta. Delta Life's annuity products are sold
through independent agents who are supervised by regional directors with
specified geographic supervisory responsibilities. The regional directors are
primarily responsible for recruiting agents and servicing those agents in an
effort to promote Delta Life's products. The regional directors' marketing
support activities include informational mailings, seminars, and case
consultations all of which are designed to educate agents about
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annuities in general and Delta Life in particular. Regional directors are paid
an override commission on the business produced by agents within their
territory. There are currently nine regional directors covering the
southeastern, western, southwestern and midwestern regions of the United States.
The regional directors are responsible for the over 3,400 licensed,
independent agents, who may also sell insurance products of other companies. Of
these agents, approximately 900 have written new business for Delta Life for the
first six months of 1997. No single agent was responsible for more than 1.2% of
Delta Life's 1996 annuity premiums. No significant amount of business is
produced by stock brokerage firms, banks or large national insurance brokerage
agencies.
INSURANCE UNDERWRITING. AmerUs Life follows detailed, uniform underwriting
practices and procedures in its insurance business which are designed to assess
risks before issuing coverage to qualified applicants. AmerUs Life has
professional underwriters who evaluate policy applications on the basis of
information provided by applicants and others. As demonstrated by the following
table, AmerUs Life's underwriting standards produced mortality results which are
generally more favorable than the assumptions used in its product pricing, which
are based upon industry guidelines:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ratio of actual incurred mortality to
pricing mortality (A)(B)....................................... 80.3% 91.9% 92.0% 91.3% 90.8%
</TABLE>
- --------------
(A) Results illustrated for 1992-1993 are for Central Life only. The 1992-1993
results for Old AML are unavailable. Management believes that the 1992-1993
mortality experience for Old AML would not materially change the statistics
reported for 1992-1993.
(B) Pricing mortality is established at a level below the 1975-1980 Basic Table,
an experience mortality table widely used in the industry as a basis of
mortality.
Management also believes that its actual mortality results compare favorably
to those of others in the industry. AmerUs Life believes that its favorable
mortality results are attributable to, among other things, the geographic
location of its customer base in rural and suburban areas (as opposed to urban
areas), the higher-income profile of its customer base and its consistent
application of appropriate underwriting criteria to the processing of new
customer applications. Actual incurred mortality for 1996 was very favorable
compared to pricing, but is not necessarily indicative of future mortality
results.
RESERVES. In accordance with applicable insurance regulations, AmerUs
records as liabilities in its statutory financial statements actuarially
determined reserves that are calculated to meet future obligations of AmerUs' in
force life insurance and annuity contracts. The reserves are based on
actuarially recognized methods using prescribed morbidity and mortality tables
and interest rates. Reserves include unearned premiums, premium deposits, claims
that have been reported but are not yet paid, claims that have been incurred but
have not been reported, and claims in the process of settlement. AmerUs'
reserves comply with state insurance department statutory requirements.
The liability for future policy benefits reflected in the AmerUs
Consolidated Financial Statements for traditional life insurance is computed
using a net level method, utilizing the guaranteed interest and mortality rates
used in calculating cash surrender values as described in the contracts. Benefit
reserves for traditional limited-payment life insurance policies include the
deferred portion of the premiums received during the premium-paying period.
Deferred premiums are recognized as income over the life of the policies. Policy
benefit claims are charged to expense in the period that the claims are
incurred. All insurance-related benefits, losses and expenses are reported net
of reinsurance.
Future policy benefit reserves for universal life insurance and investment
products are computed under a retrospective deposit method and represent policy
account balances before applicable surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the period in
excess of related policy account balances.
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REINSURANCE. In accordance with industry practices, AmerUs reinsures
portions of its life insurance and disability income exposure, generally with
unaffiliated insurance companies under traditional indemnity reinsurance
agreements. Reinsurance arrangements entered into with unaffiliated insurance
companies are in accordance with standard reinsurance practices within the
industry. As of December 31, 1996, AmerUs Life had reinsurance arrangements in
place for life insurance having a face amount of approximately $4.2 billion with
21 unaffiliated reinsurers. All of the companies with which AmerUs Life had life
reinsurance arrangements as of such date were rated "A-" or better by A.M. Best.
AmerUs Life's largest life reinsurance relationship as of December 31, 1996 was
with RGA Reinsurance Company with life reinsurance in the face amount of
approximately $1.4 billion. As of December 31, 1996, AmerUs Life's top five
reinsurers (by face amount reinsured) constituted approximately 80% of the total
face amount reinsured by AmerUs Life as of such date. Of the top five
reinsurers, four were rated "A+" and the other was rated "A++" by A.M. Best as
of December 31, 1996.
AmerUs enters into indemnity reinsurance arrangements to assist in
diversifying its risks and to limit the maximum loss on risks that exceed
AmerUs' policy retention limits. AmerUs Life's present maximum retention limit
for life insurance policies is $1,000,000 per life insured. Indemnity
reinsurance does not fully discharge AmerUs' obligation to pay claims on the
reinsured business. AmerUs as the ceding insurer remains responsible for policy
claims to the extent the reinsurer fails to pay such claims. AmerUs annually
monitors the creditworthiness of its primary reinsurers, and has experienced no
material reinsurance recoverability problems in recent years.
INVESTMENT PORTFOLIO
General. AmerUs maintains a diversified portfolio of investments which is
supervised by an experienced in-house staff of investment professionals. AmerUs
employs sophisticated asset management techniques in order to achieve
competitive yields, while maintaining risk at acceptable levels. The asset
portfolio is segmented by liability type, with tailored investment strategies
for specific product lines. Investment policies and significant individual
investments are subject to approval by the AmerUs Board. Management regularly
monitors individual assets and asset groups, in addition to monitoring the
overall asset mix. In addition, the Investment Committee reviews investment
guidelines and monitors internal controls.
Investment Strategy. AmerUs' investment philosophy is to employ an
integrated asset/liability management approach with separate investment
portfolios for specific product lines, such as traditional life, universal life
and annuities, to generate attractive risk-adjusted returns on capital.
Essential to this philosophy is coordinating investments in the investment
portfolio with product strategies, focusing on risk-adjusted returns and
identifying and evaluating associated business risks.
AmerUs' asset/liability management approach utilizes separate investment
portfolios for specific product lines, such as traditional life, universal life
and annuities. Investment policies and strategies have been established based on
the specific characteristics of each product line. The portfolio investment
policies and strategies establish asset duration, quality and other guidelines.
AmerUs utilizes analytical systems to establish an optimal asset mix for each
line of business. AmerUs seeks to manage the asset/ liability mismatch and the
associated interest rate risk through active management of the investment
portfolio. Financial, actuarial, investment, product development and product
marketing professionals work together throughout the product development,
introduction and management phases to jointly develop and implement product
features, initial and renewal crediting strategies, and investment strategies
based on extensive modeling of a variety of factors under a number of interest
rate scenarios.
In force reserves and the assets allocated to each segment are modeled to
analyze projected cash flows under a variety of economic scenarios. The result
of this modeling is used to modify asset allocation, investment portfolio
duration and convexity and renewal crediting strategies. AmerUs invests in
collateralized mortgage obligations ("CMOS") as part of its basic portfolio
strategy, but uses other types of derivatives only as a hedge against the
effects of interest rate fluctuations or to synthetically alter the investment
characteristics of specific assets. Currently, AmerUs utilizes derivatives to
support three
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specific targeted strategies. The first strategy involves the conversion of
floating rate assets to synthetic fixed rate assets to achieve a greater
risk-adjusted return. Secondly, AmerUs uses derivatives to help protect AmerUs
against disintermediation risk in the event of a general rise in interest rates.
Finally, AmerUs uses derivative products to assist in the management of duration
mismatch of AmerUs' assets and liabilities.
AmerUs seeks to manage the relationship between risk and expected return to
maintain a prudent balance between the two. Like others in the industry, AmerUs
is exposed to various potential sources of investment risk including: credit
risk relating to the uncertainty attached to the timing and amount of principal
and interest payments, interest rate risk relating to the economic effects of
changing interest rates, real estate risk relating to changes in property value
due to local economic and demographic conditions, and liquidity risk relating to
holding assets for which there is no active secondary market. AmerUs manages
credit risk principally by careful analysis of the creditworthiness of each
issuer, diversification of its holdings and prudent asset allocation. It manages
interest rate risk through sophisticated asset/liability management techniques,
including the selective use of derivative instruments. It manages real estate
risk principally by geographic and demographic diversification, careful periodic
monitoring of local economic and other conditions and by limiting loan to value
rates to acceptable levels. AmerUs manages liquidity risk principally by asset
allocation and by maintaining various credit facilities and a portfolio of
public, investment grade securities in an amount not less than 50% of the total
invested assets.
The objective of AmerUs' mortgage backed securities ("MBS") investments is
to provide incremental return, while maintaining reasonable liquidity and cash
flow stability. Each MBS is evaluated to determine its interest rate sensitivity
and average life variability. In general, AmerUs seeks investments which provide
improved cash flow stability through either implicit or explicit prepayment
protection. Investments with implicit prepayment protection can take the form of
pass-throughs or CMOs backed by seasoned pools of loans which have already had
ample opportunity to refinance but have failed to do so. Explicit prepayment
protection can take the form of prepayment lockouts, yield maintenance
provisions or prepayment penalties, which are common features of multifamily
MBS, commercial MBS and FHA-insured project loans. At June 30, 1997, AmerUs' MBS
investment portfolio composition was approximately 16% fixed rate pass-throughs
backed by seasoned loan pools, 19% floating rate pass-throughs and 65% CMOs with
some form of explicit prepayment protection. AmerUs has established specific
investment guidelines for the management of MBS. As a general policy, AmerUs
does not invest in interest-only and principal-only or other similar leveraged
derivative mortgage instruments.
AmerUs has improved the quality of its investment portfolio in recent years
in a number of respects. AmerUs has reduced real estate-related assets (defined
as real estate loans and real estate equity investments) as a percentage of
total invested assets from previous levels. Real estate related assets, which
totaled 19.2% of invested assets as of December 31, 1993, were reduced to 14.5%
of invested assets as of December 31, 1994, to 10.2% of total invested assets as
of December 31, 1995, to 5.8% of total invested assets as of December 31, 1996
and June 30, 1997. AmerUs' problem loan ratio (defined as aggregate delinquent,
in process of foreclosure and restructured mortgage loans) also decreased from
21.3% as of December 31, 1994 to 9.4% as of December 31, 1995, to 3.5% as of
December 31, 1996 and to 3.4% as of June 30, 1997.
AmerUs in recent years has also reduced its exposure to higher risk fixed
maturity securities and common stock. AmerUs' percentage of higher risk fixed
maturity assets (defined as assets categorized in NAIC designations 3-6) was
approximately 5.3% of total invested assets as of June 30, 1997, as compared to
5.3 % as of December 31, 1996, 5.3% as of December 31, 1995 and 6.9% as of
December 31, 1994. In addition, AmerUs decreased its common stock holdings to
0.8% of total invested assets as of June 30, 1997, down from 0.9% as of December
31, 1996, 2.1% as of December 31, 1995 and 3.7% as of December 31, 1994.
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Investment Monitoring and Valuation. As part of AmerUs' investment
management process, it regularly monitors its invested assets. Fixed maturity
securities are reviewed upon receipt of the obligor's financial statements,
generally on a quarterly basis, for financial performance and historical
compliance with financial covenants. Generally, AmerUs reviews its commercial
mortgage loan and equity real estate portfolios on a monthly basis and
identifies all commercial mortgage loans and equity real estate which cause
management to conclude that such loans or investments require increased
management attention due to payment delinquencies. Detailed property analyses
and property valuations are performed annually for each commercial mortgage
loan. AmerUs generally requires borrowers to submit their financial statements
for annual review.
AmerUs has policies and procedures which management believes value invested
assets fairly and consistently. As a result of the implementation of SFAS 115 as
of December 31, 1993, certain fixed maturity securities are classified as
available-for-sale, and therefore are carried at fair value in AmerUs'
Consolidated Financial Statements. Public and private fixed maturity securities
are carried principally at fair value, which is based on quoted market prices or
dealer quotes. If a quoted market price is unavailable, fair value is estimated
using values obtained from independent pricing services. In the case of private
placements, if quotes are unavailable the price is estimated by discounting
expected future cash flows using a current market rate applicable to the yield,
credit quality and maturity of the investments.
Equity securities are carried principally at fair value, based on quoted
market prices. To value performing fixed interest rate mortgage loans, the
estimated net cash flows to maturity are discounted to derive an estimated
market value. The discount rate used is based on the individual loan's remaining
weighted average life and a basis point spread over the United States Treasury
yield curve at the date of valuation. Performing variable rate commercial loans
and residential loans are valued at par. Restructured, foreclosed or delinquent
loans, as well as loans to affiliates, are valued primarily at the lower of the
estimated net cash flows to maturity discounted at a market rate of interest, or
the current outstanding principal balance. Equity real estate is carried at
depreciated cost, or amortized cost for capital leases, less valuation
allowances. Equity real estate acquired in satisfaction of debt is valued at the
lower of cost or estimated fair value at the date of acquisition and is
periodically revalued. Valuation allowances for other than temporary impairments
in value are netted against the asset categories to which they apply, and
additions to valuation allowances are included in total investment results.
Invested Assets. AmerUs maintains a diversified portfolio of investments,
including public and private fixed maturity securities, commercial mortgage
loans and equity real estate. AmerUs' objective is to maintain a high-quality,
diversified fixed maturity securities portfolio that produces a yield and total
return that supports the various product line liabilities and AmerUs' earnings
goals.
In connection with the AmerUs Reorganization Plan, the Closed Block was
formalized to give certain policy holders additional assurances as to the
dividend policies of AmerUs as a result of establishing the Closed Block on June
30, 1996, AmerUs allocated certain assets from its investment portfolio to the
Closed Block. See "--The AmerUs Reorganization." The following table summarizes
consolidated invested assets by asset category as of June 30, 1997 and as of
December 31, 1996 and 1995, and sets forth the allocation of such assets between
the Closed Block and the general account. The remaining information in this
Joint Proxy Statement/Prospectus relating to AmerUs' investment portfolio
presents information about the investment portfolio on a combined basis
(including invested assets in both the Closed Block and the general account).
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CONSOLIDATED INVESTED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
JUNE 30, 1997 1996
----------------------------------------------- -------------------------------------------------
CARRYING CARRYING CARRYING CARRYING 1995
VALUE-- VALUE-- COMBINED VALUE-- VALUE-- COMBINED -----------
CLOSED GENERAL CARRYING CLOSED GENERAL CARRYING CARRYING
BLOCK ACCOUNT VALUE % OF TOTAL BLOCK ACCOUNT VALUE % OF TOTAL VALUE
--------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturity
securities:
Public......... $ 789.8 $ 2,239.6 $ 3,029.4 75.5% $ 730.4 $ 2,263.4 $ 2,993.8 75.4% $ 2,717.7
Private........ 160.8 166.0 326.8 8.2 170.9 151.4 322.3 8.1 424.4
--------- ----------- ----------- ---------- ----------- ----------- ----------- ----- -----------
Subtotal..... 950.6 2,405.6 3,356.2 83.7 901.3 2,414.8 3,316.1 83.5 3,142.1
Equity
securities...... -- 63.0 63.0 1.6 -- 64.0 64.0 1.6 109.7
Investment in
unconsolidated
subsidiary...... -- 23.1 23.1 0.5 -- 20.8 20.8 0.5 --
Mortgage loans... -- 230.4 230.4 5.7 -- 225.8 225.8 5.7 353.6
Policy loans..... 169.0 66.1 235.1 5.9 166.8 65.2 232.0 5.8 220.0
Real estate:
Investments.... -- 4.4 4.4 0.1 -- 4.6 4.6 0.1 20.2
Foreclosures... -- -- -- -- -- -- -- -- 31.9
--------- ----------- ----------- ---------- ----------- ----------- ----------- ----- -----------
Subtotal..... -- 4.4 4.4 0.1 -- 4.6 4.6 0.1 52.1
Other invested
assets.......... -- 79.0 79.0 2.0 -- 93.2 93.2 2.4 48.1
Short-term
investments..... 14.0 5.6 19.6 0.5 3.1 13.3 16.4 0.4 39.4
--------- ----------- ----------- ---------- ----------- ----------- ----------- ----- -----------
Total invested
assets.......... $1,133.65 $ 2,877.2 $ 4,010.8 100.0% $ 1,071.2 $ 2,901.7 $ 3,972.9 100.0% $ 3,965.0
--------- ----------- ----------- ---------- ----------- ----------- ----------- ----- -----------
--------- ----------- ----------- ---------- ----------- ----------- ----------- ----- -----------
<CAPTION>
% OF TOTAL
----------
<S> <C>
Fixed maturity
securities:
Public......... 68.5%
Private........ 10.7
-----
Subtotal..... 79.2
Equity
securities...... 2.8
Investment in
unconsolidated
subsidiary...... --
Mortgage loans... 8.9
Policy loans..... 5.6
Real estate:
Investments.... 0.5
Foreclosures... 0.8
-----
Subtotal..... 1.3
Other invested
assets.......... 1.2
Short-term
investments..... 1.0
-----
Total invested
assets.......... 100.0%
-----
-----
</TABLE>
Fixed Maturity Securities. The fixed maturity securities portfolio consists
primarily of investment grade corporate fixed maturity securities, high-quality
MBS and United States government and agency obligations. As of June 30, 1997,
fixed maturity securities were $3,356.2 million, or 83.7% of the carrying value
of invested assets with public and private fixed maturity securities
constituting $3,029.4 million, or 75.5%, and $326.8 million, or 8.2%, of total
invested assets, respectively.
The following table summarizes the composition of the fixed maturity
securities by category as of June 30, 1997, December 31, 1996 and December 31,
1995:
COMPOSITION OF FIXED MATURITY SECURITIES
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------ ------------------------ ------------------------
CARRYING CARRYING CARRYING
VALUE % OF TOTAL VALUE % OF TOTAL VALUE % OF TOTAL
---------- ------------ ---------- ------------ ---------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
U.S. government/agencies............... $ 21.6 0.6% $ 46.2 1.4% $ 67.2 2.1%
State and political subdivisions....... -- -- -- -- 1.7 0.1
Foreign governments.................... 26.5 0.8 26.7 0.8 22.4 0.7
Corporate.............................. 1,982.5 59.1 1,938.4 58.4 2,131.8 67.8
Redeemable preferred stocks............ 71.2 2.1 73.2 2.2 -- --
MBS:
U.S. government/agencies........... 660.2 19.7 681.9 20.6 686.8 21.9
Non-government/agencies............ 594.2 17.7 549.7 16.6 232.2 7.4
---------- ----- ---------- ----- ---------- -----
Subtotal-MBS....................... 1,254.4 37.4 1,231.6 37.2 919.0 29.3
---------- ----- ---------- ----- ---------- -----
Total.................................. $ 3,356.2 100.0% $ 3,316.1 100.0% $ 3,142.1 100.0%
---------- ----- ---------- ----- ---------- -----
---------- ----- ---------- ----- ---------- -----
</TABLE>
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<PAGE>
The following table summarizes fixed maturity securities by remaining
maturity as of June 30, 1997:
REMAINING MATURITY OF FIXED MATURITY SECURITIES
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
CARRYING
VALUE % OF TOTAL
---------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Due:
In one year or less (1997)...................................... $ 20.1 0.6%
One to five years (1998-2002)................................... 485.3 14.5%
Five to 10 years (2003-2007).................................... 846.5 25.2%
10 to 20 years (2008-2017)...................................... 322.9 9.6%
Over 20 years (2018 and after).................................. 427.0 12.7%
---------- -----
Subtotal...................................................... 2,101.8 62.6
MBS............................................................. 1,254.4 37.4
---------- -----
Total....................................................... $ 3,356.2 100.0%
---------- -----
---------- -----
</TABLE>
AmerUs' portfolio of investment grade fixed maturity securities is
diversified by number and type of issuer. As of June 30, 1997, investment grade
fixed maturity securities included the securities of over 685 issuers, with
1,045 different issues of securities. No issuer represents more than 0.6% of
investment grade fixed maturity securities.
Below-investment grade fixed maturity securities as of June 30, 1997
included the securities of 47 issuers representing 5.3% of total invested
assets, with the largest being a $10.5 million investment.
As of June 30, 1997, 78.3% of total invested assets were investment grade
fixed maturity securities. The following table sets forth the credit quality, by
NAIC designation and Standard & Poor's rating equivalents, of fixed maturity
securities as of June 30, 1997:
FIXED MATURITY SECURITIES BY NAIC DESIGNATION
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------------------------------------------
PUBLIC PRIVATE TOTAL
----------------------- ------------------------ -----------------------
NAIC STANDARD & POOR'S CARRYING CARRYING CARRYING
DESIGNATION EQUIVALENT DESIGNATION VALUE % OF TOTAL VALUE % OF TOTAL VALUE % OF TOTAL
- ------------ ------------------------------ ---------- ----------- ----------- ----------- ---------- -----------
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C> <C> <C> <C>
1 A- or Higher.................. $ 2,043.9 67.5% $ 89.2 27.3% $ 2,133.1 63.6%
2 BBB- to BBB+.................. 804.8 26.6 204.1 62.5 1,008.9 30.0
---------- ----- ----------- ----- ---------- -----
Total investment grade........ 2,848.7 94.1 293.3 89.8 3,142.0 93.6
---------- ----- ----------- ----- ---------- -----
3 BB to BB+..................... 131.5 4.3 28.6 8.8 160.1 4.8
4 B............................. 49.2 1.6 4.3 1.3 53.5 1.6
5 CCC or lower.................. 0.0 0.0 0.0 0.0 0.0 0.0
6 In or near default............ 0.0 0.0 .6 .1 .6 0.0
---------- ----- ----------- ----- ---------- -----
Total below investment
grade........................ 180.7 5.9 33.5 10.2 214.2 6.4
---------- ----- ----------- ----- ---------- -----
Total......................... $ 3,029.4 100.0% $ 326.8 100.0% $ 3,356.2 100.0%
---------- ----- ----------- ----- ---------- -----
---------- ----- ----------- ----- ---------- -----
</TABLE>
MBS comprise a core position within AmerUs' fixed maturity securities
investments. MBS investments include residential, commercial MBS, home equity
loans (including home equity loans purchased from one of AmerUs' affiliates, see
"--Agreements Involving Real Estate--Purchase of Loans and Securitization"),
manufactured housing, FHA Title I and CMBS. Residential mortgage pass-throughs
and CMOs total $879.2 million or 21.9% of total invested assets. As of June 30,
1997, MBS were
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<PAGE>
$1,254.4 million or 31.3%, of total invested assets of which $660.2 million, or
52.6% of MBS were guaranteed by the United States government or an agency of the
United States government. Other MBS were $594.2 million, or 47.4%, of MBS as of
June 30, 1997. Management believes that the quality of assets in the MBS
portfolio is generally high, with 81.6% of such assets representing agency
backed or "AAA" rated securities.
AmerUs uses interest rate swaps and caps to reduce its exposure to changes
in interest rates and to manage duration mismatches. Although AmerUs is subject
to the risk that counterparties will fail to perform, credit standings of
counterparties are monitored regularly. AmerUs' policy is to contract only with
counterparties that are rated "AA" or higher; accordingly, it is expected that
counterparties will be able to satisfy their obligations under such contracts.
AmerUs is also subject to the risk associated with changes in the value of
contracts. However, such adverse changes in value generally are offset by
changes in the value of the items being hedged. The notional principal amounts
of the swaps and caps, which represent the extent of AmerUs' involvement in such
contracts but not the risk of loss, at June 30, 1997 amounted to $980.2 million.
The swaps had a carrying value and a fair value which amounted to a net
receivable position of $4.8 million at June 30, 1997. The carrying value and
fair value of interest rate caps, options and swaptions amounted to $8.0 million
and $5.3 million, respectively, and are reflected as "other investments" on
AmerUs' consolidated financial statements as of June 30, 1997. The net amount
payable or receivable from interest rate swaps and caps is accrued as an
adjustment to interest income.
Mortgage Loans. As of June 30, 1997, mortgage loans in the investment
portfolio were $230.4 million, or 5.7% of the aggregate carrying value of
invested assets. Of the June 30, 1997 amount, commercial mortgage loans were
86.9%, and residential mortgage loans were 13.1%.
In the last several years, AmerUs has significantly reduced its mortgage
loan investments as a percentage of its invested assets through sales of certain
mortgage loan assets, decreased originations of new loans and write-downs of
delinquent loans. As of December 31, 1993, mortgage loans totaled $652.2
million, or 17.9% of invested assets. By December 31, 1996, such investments
totaled $225.8 million, or 5.7% of invested assets and by June 30, 1997 such
investments totaled $230.4 million, or 5.7% of invested assets. Commercial
mortgage loans consist primarily of fixed-rate mortgage loans on complete
properties. As of June 30, 1997, AmerUs held 128 individual commercial mortgage
loans having an average interest rate, maturity and balance of 9.3%, 77 months
and $1.7 million, respectively.
Substantially all of the new commercial mortgage loans were originated by
AmerUs through mortgage loan correspondents with whom AmerUs had an ongoing
relationship at the time such mortgage loans were originated. AmerUs is not
originating new commercial mortgage loans although it is renewing existing loans
in its portfolio in selected cases. AmerUs annually estimates the current
loan-to-value ratios of its commercial mortgage loans based on an analysis of
the operating statements of each mortgaged property.
As of June 30, 1997, only $1.9 million, or 0.8%, of AmerUs' loan portfolio
(as measured by principal balance) was classified as delinquent or in
foreclosure. As of the same date, only $6.2 million, or 2.6%, of AmerUs' loan
portfolio (as measured by principal balance) was classified as restructured. For
the first six months of 1997, AmerUs had no foreclosures.
In November 1994, in a transaction approved by the Iowa Commissioner, AmerUs
securitized a pool of 89 fixed rate commercial/multifamily mortgage loans with a
then outstanding aggregate principal balance of approximately $158 million.
AmerUs sold these mortgage loans to a trust. Several classes of
Commercial/Multifamily Mortgage Pass-Through Certificates, Series 1994-1
representing undivided beneficial ownership interests in the trust were then
issued and sold in a private placement. AmerUs retained a residual interest in
the trust which had a carrying value as of June 30, 1997 of $3.5 million. The
primary purpose of this securitization was to convert the mortgage loans into
cash, which could then be reinvested, and fixed maturity securities so as to
enhance AmerUs' liquidity, overall investment quality and long-term economic
value.
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<PAGE>
AmerUs from time to time purchases home equity loans and residential
mortgage loans originated by certain of its affiliates. See "--Agreements
Involving Real Estate--Purchases of Loans and Securitization."
Equity Real Estate. In recent years AmerUs has significantly reduced its
equity real estate portfolio. As of June 30, 1997, investment real estate
consisted of two properties located in two states. The carrying value of
investment real estate as of June 30, 1997 was $4.4 million. As of June 30,
1997, AmerUs' rental properties were 100% occupied by third parties or by
AmerUs.
Other. AmerUs held $235.1 million of policy loans on individual insurance
products as of June 30, 1997. Of these policy loans, 69.5% were on traditional
life policies and 30.5% were on universal life policies and annuities. Policy
loans are permitted to the extent of a policy's contractual limits and are fully
collateralized by policy cash values. Loan rates range from 4% to 9%.
As of June 30, 1997, AmerUs held equity securities of $63.0 million ($31.1
million in preferred stock). The largest holding of equity securities had a
carrying value of $28.1 million as of June 30, 1997.
AmerUs held $98.6 million of other invested assets (including short-term
investments) on June 30, 1997. Other invested assets included various joint
venture investments and financial instruments.
RATINGS. The following are the ratings as of the date of the Joint Proxy
Statement/Prospectus for the various insurance companies of AmerUs and
AmVestors:
<TABLE>
<CAPTION>
COMPANY RATING SERVICE RATING TYPE RATING
- -------------------------------------------- ---------------------- --------------------- --------------------
<S> <C> <C> <C>
AmerUs Life................................. Duff & Phelps claims-paying AA- (very high)
AmerUs Life................................. Standard & Poor's claims-paying A (good)
AmerUs Life................................. A. M. Best financial condition A (excellent)
AmerUs Life................................. Moody's financial strength A2 (good)
Financial Benefit Life*..................... A. M. Best financial condition B+ (very good)
Financial Benefit Life*..................... Standard & Poor's claims-paying BBBq (adequate)
American Investors Life*.................... Duff & Phelps claims-paying A (high)
American Investors Life*.................... A. M. Best financial condition A- (excellent)
Delta Life.................................. Duff & Phelps claims-paying A+ (high)
Delta Life.................................. A. M. Best financial condition A (excellent)
</TABLE>
- --------------
* Subsidiary of AmVestors
Following announcement of the Merger, certain of the rating agencies issued
statements regarding their ratings. Duff & Phelps reaffirmed its AA-(very high)
claims-paying ability rating of AmerUs Life. Duff & Phelps said it views the
Merger as having long term positive implications. Standard & Poor's has placed
its claims-paying rating of AmerUs Life on Credit Watch with negative
implications. Standard & Poor's stated that its action results from several
operational uncertainties. A.M. Best reaffirmed the A (excellent) rating of
AmerUs Life stating that expanded economies of scale for new business systems
and product support systems should enable it to improve earnings. Following
announcement of the acquisition of Delta, Moody's indicated that AmerUs Life,
rated A2 (good) for financial strength, was under review for possible downgrade.
Moody's has not issued any further statement with respect to AmerUs Life's
financial strength rating since announcement of the Merger.
Also following the announcement of the Merger, Duff & Phelps placed the A
(high) claims-paying ability rating of American Investors Life on "rating watch
up," reflecting potential benefits of the Merger. A. M. Best affirmed its
ratings for American Investors Life and Financial Benefit Life. Moody's placed
the Ba3 (questionable) subordinated debt rating of AmVestors on review for
possible upgrade.
Also following the announcement of the Merger, A. M. Best reaffirmed the A-
(excellent) rating for American Investors Life and the B+ (very good) rating for
Financial Benefit Life.
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<PAGE>
COMPETITION. AmerUs operates in a highly competitive industry. Numerous
life insurance companies and other entities, including banks and other financial
institutions, compete with AmerUs, many of which have greater financial and
other resources as compared to AmerUs. AmerUs believes that the principal
competitive factors in the sale of insurance products are product features,
price, commission structure, perceived stability of the insurer, claims-paying
ratings, value-added service and name recognition. Many other companies are
capable of competing for sales in AmerUs' target markets (including companies
that do not presently compete in such markets). AmerUs' ability to compete for
sales is dependent upon its ability to address the competitive factors described
above.
In addition to competing for sales, AmerUs competes for qualified agents and
brokers to distribute its products. Strong competition exists among insurance
companies for agents and brokers with demonstrated ability. Management believes
that the bases of competition for the services of such agents and brokers are
commission structure, support services, prior relationships and the strength of
an insurer's products. Although AmerUs believes that it has good relationships
with its agents and brokers, its ability to compete will depend on its continued
ability to attract and retain qualified persons.
FEDERAL INCOME TAX CONSIDERATIONS. Certain of the life insurance products
and annuities marketed and issued by AmerUs and the Ameritas Joint Venture enjoy
income tax advantages as compared to other savings investments, such as
certificates of deposit and taxable bonds. One important tax advantage is the
deferral of income taxation on any increases in the contract values during the
accumulation phase of the life insurance and annuities in contrast to the
current taxation of all earnings on many other savings and investment products.
In the event that the federal income tax laws are changed so that accumulated
earnings on these life insurance policies and annuities do not enjoy the tax
deferral described above, or so that additional savings and investment products
achieve similar tax deferral status, or so that tax rates are significantly
lower so that the policyowner's or annuitant's ability to defer income tax on
policy or annuity earnings is no longer a significant factor for the
policyowner, consumer demand for the affected products could decline materially.
From time to time, Congress has considered proposals to revise or eliminate this
tax deferral. There is no such proposal currently pending in Congress, nor has
the current administration announced any consideration of any such proposal. If
legislation were enacted to eliminate the tax advantages of life insurance
policies and annuities, such a change could have an adverse effect on the
ability of AmerUs to sell those products.
EMPLOYEES. As of June 30, 1997, AmerUs had 407 full-time employees. None of
AmerUs' employees are covered by a collective bargaining agreement and AmerUs
believes that its relations with employees are satisfactory.
Certain employees of AmerUs also provide services to other affiliated
entities, including affiliates not directly owned by AmerUs. See "--Certain
Transactions and Relationships."
SUBSIDIARIES. AmerUs was formed in August, 1996 in connection with the
AmerUs Reorganization. See "The AmerUs Reorganization ." AmerUs' principal
subsidiaries are AmerUs Life and Delta. In addition, AmerUs Life currently owns
a 34% interest in AMAL Corporation, through whose wholly-owned subsidiaries the
Ameritas Joint Venture operates. See "--Ameritas Joint Venture." Delta's
principal subsidiary is Delta Life.
LEGAL PROCEEDINGS. AmerUs Life is a defendant in a class action lawsuit,
COZAD V. AMERICAN MUTUAL LIFE INSURANCE COMPANY, which was brought on August 31,
1995 in the District Court for Travis County, Texas. The complaint, which seeks
unspecified damages, was filed by former policyowners on behalf of themselves
and all similarly situated persons who purchased certain individual life
insurance policies which were underwritten and sold by AmerUs Life within Texas
and which were allegedly based upon uniform sales presentations and policy
illustrations from and after 1980. AmerUs Life has denied the allegations
contained in such complaint.
Following a court-initiated mediation process, AmerUs and the plaintiffs
have entered into a nationwide class settlement of certain market conduct issues
for a substantial block of its policies. On
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<PAGE>
September 16, 1997, the court entered an order approving the certification of
the class and the fairness of the settlement.
Due to the potential that a settlement may be reached in this case, AmerUs
incurred a significant charge to income in 1996. Based upon its current
estimates of the range of loss at between five and eight million dollars, AmerUs
has established a reserve of five million dollars. The eventual costs of the
settlement cannot be precisely determined at this time, and may be more or less
than the amount of the range.
A class action lawsuit, BHAT V. AMERUS LIFE INSURANCE COMPANY, was also
filed in December 1996 in the United States District Court for the Northern
District of California. The complaint alleges that AmerUs Life breached the
terms of certain life and annuity policies, and breached certain other duties
owed to policyowners, when it allegedly passed an increase in its corporate
income taxes (known as the deferred acquisition cost, or DAC, tax) through to
owners of those policies. The complaint also includes RICO allegations. The
plaintiff, an insured under a universal life policy issued by Central Life,
seeks unspecified actual and punitive damages and injunctive relief on behalf of
himself and all policyowners of AmerUs Life with universal life, term and
"blended" life insurance policies and annuities. AmerUs Life denies the
allegations contained in the complaint, including the existence of a legitimate
class. The litigation is in the discovery stage and is being vigorously defended
by AmerUs Life. A hearing on certification of the class has not yet been
scheduled. At this time, AmerUs cannot determine the ultimate outcome of this
litigation or the amount of potential liability, if any.
Despite AmerUs' vigorous defense of these class action lawsuits and its
denial of any wrongdoing, there can be no assurance that the outcome of such
lawsuits will not have a material adverse effect on the life insurance industry
generally or on AmerUs. See "RISK FACTORS--Risks of Class Action Litigation."
In the ordinary course of business, AmerUs and its subsidiaries are also
engaged in certain other litigation, none of which management believes is
material.
PROPERTIES. AmerUs' principal business operations are conducted from two
locations. AmerUs' executive offices are located at 699 Walnut Street, Des
Moines, Iowa. AmerUs Life's executive offices are located at 699 Walnut Street,
Des Moines, Iowa. AmerUs and AmerUs Life both lease offices from an affiliate,
AmerUs Properties, Inc. See "--Certain Transactions and Relationships."
Delta leases its executive offices, which are located at 530 Oak Street,
Memphis, Tennessee.
SUPERVISION AND REGULATION. AmerUs is indirectly owned by AMHC, a mutual
insurance holding company. A mutual insurance holding company is subject to
regulation at a level substantially equal to that of an Iowa domestic insurance
company, and is governed by statutory and regulatory requirements which are
identical to, or which parallel, the regulatory requirements imposed upon Iowa
domestic insurance companies. The Iowa Commissioner has jurisdiction over an
intermediate holding company, such as AmerUs, as if it were a mutual insurance
holding company.
AMHC and AmerUs are each subject to the Iowa Insurer Supervision,
Rehabilitation and Liquidation Act, Iowa Code Chapter 507C. In addition, AMHC
and AmerUs are subject to the provisions of the Iowa Insurance Holding Company
Systems Act in the same manner and substantially to the same extent as domestic
insurance companies. In addition, the assets of AMHC and AmerUs are available to
satisfy claims of policyowners of AmerUs Life, in the same manner as a domestic
insurance company in the event the Iowa Commissioner initiates a proceeding
under Chapter 507C.
AMHC and AmerUs may not merge with or be acquired by another entity without
approval of the Iowa Commissioner. In addition, in the case of a merger or
consolidation, separate approval by the Iowa Attorney General is required. The
statutory provisions applicable to the demutualization of a domestic mutual life
insurance company are applicable to the demutualization of a mutual insurance
holding company. In addition, no person may acquire or make an offer to acquire
voting stock in AmerUs if such acquisition would result in such person's
obtaining control over AmerUs. Generally, any person who,
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<PAGE>
directly or indirectly, owns, controls, holds with the power to vote, or holds
proxies representing 10% or more of AmerUs' voting securities (consisting of
both AmerUs Class A Common Stock and AmerUs Class B Common Stock) is deemed to
have control.
Under rules adopted by the Iowa Commissioner, AMHC is required to provide to
the Iowa Division of Insurance an annual report containing historical and
prospective information, including financial statements, an investment plan
covering all assets, any intention it has of borrowing money and information
regarding any "closed block" formed as part of the AmerUs Reorganization.
In addition to rules establishing the terms and conditions pursuant to which
the Iowa Commissioner will approve the sale of stock of an intermediate
insurance holding company or a subsidiary stock insurance company resulting from
the AmerUs Reorganization pursuant to Iowa law, the Iowa Commissioner has
adopted rules that also limit the activities and affiliations that are
permissible for mutual insurance holding companies. Under such rules, among
other things, (i) at least 50 percent of the GAAP net worth of the mutual
insurance holding company must be invested in insurance company subsidiaries;
(ii) a mutual insurance holding company may not pay any policy credit, dividend
or other distribution to any policyowner member unless such payment has been
approved by the Iowa Commissioner; and (iii) at any time a mutual holding
company acquires or plans to acquire more than 50 percent of a stock insurance
company, a mutual insurance holding company must submit to the Iowa Commissioner
a plan describing any membership interests of policyowners.
The Iowa Commissioner also has issued rules which require prior approval by
the Iowa Commissioner of the issuance of stock by AmerUs. Under such rules,
AmerUs is required to give notice to the Iowa Commissioner prior to any public
or private common stock offering.
Shares of the capital stock of AmerUs Life which carry the right to cast a
majority of the votes entitled to be cast by all of the outstanding shares of
AmerUs Life are required by Iowa law to at all times be owned, directly or
indirectly, by AMHC and may not be conveyed, transferred, assigned, pledged,
subjected to a security interest or lien, encumbered, or otherwise hypothecated
or alienated by AMHC or any intermediate holding company. Any conveyance,
transfer, assignment, pledge, security interest, lien, encumbrance or
hypothecation or alienation by AMHC, or any intermediate holding company, in or
on such shares shall be deemed void in inverse chronological order of the date
of such transaction to the extent necessary to give the mutual insurance holding
company unencumbered direct or indirect ownership of shares representing a
majority of the votes entitled to be cast by all of the outstanding shares of
AmerUs Life.
Regulation of Life Insurance Subsidiaries. AmerUs relies primarily on
dividends and interest income from AmerUs Life and Delta to make any dividend
payments to its shareholders. The ability of AmerUs Life to pay dividends to
AmerUs 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 or permitted by the insurance regulatory authorities of the
State of Iowa. In addition, under the Iowa Insurance Holding Company Systems
Act, AmerUs Life may not pay an "extraordinary" dividend without prior notice to
and approval by the Iowa Commissioner. An "extraordinary" dividend is defined
under the Iowa Holding Company Systems Act 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 12 months exceeds the
greater of (i) 10% of policyowners' 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
the December 31 of the preceding year. Iowa law gives the Iowa Commissioner
broad discretion to disapprove requests for dividends in excess of these limits.
Based on this limitation and 1996 statutory results, and absent the AmerUs
Reorganization, AmerUs Life would have been able to pay approximately $34
million in dividends to AmerUs in 1997 without obtaining the Iowa Commissioner's
approval. However, as a result of the AmerUs Reorganization AmerUs Life is not
able to pay any additional dividends until December 1997 without the prior
approval of the Iowa Commissioner. Thus far in 1997, AmerUs Life has requested
and received approval
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for the payment of $10 million in dividends. See "RISK FACTORS--Holding Company
Structure; Limitations on Dividends." The payment of dividends by Delta is
regulated under Tennessee law, which has statutory limitations similar to
Iowa's. Based on these limitations and 1996 statutory results, Delta could pay
$8.7 million in dividends in 1997.
AmerUs' life insurance subsidiaries are subject to regulation and
supervision by the states in which they transact business. State insurance laws
generally establish supervisory agencies with broad administrative and
supervisory powers related to granting and revoking licenses, transacting
business, establishing guaranty fund associations, licensing agents, approving
policy forms, regulating premium rates for some lines of business, establishing
reserve requirements, prescribing the form and content of required financial
statements and reports, determining the reasonableness and adequacy of statutory
capital and surplus, and regulating the type and amount of investments
permitted.
Every state in which AmerUs' life insurance subsidiaries are licensed
administers a guaranty fund, which provides for assessments of licensed insurers
for the protection of policyowners of insolvent insurance companies. There has
been an increase in the number of insurance companies that are under supervision
which has resulted in an increase in the amount of assessments to cover losses
to policyowners of such companies. Assessments can be partially recovered
through a reduction in future premium taxes in some states. In these situations,
the assessments are generally capitalized and amortized against future
reductions in premium taxes. Management cannot reasonably predict the amount of
such future assessments, if any.
Ethical sales practices and compliance with applicable laws and regulations
relevant to the life insurance industry have been a continuing focus of AmerUs'
support efforts. AmerUs has a continuing education program focusing on ethical
practices which is being provided to all agents. A program is currently being
implemented to further formalize AmerUs' current practices and standards in the
compliance and market conduct areas.
Recently, the insurance regulatory framework has been placed under increased
scrutiny by various states, the federal government and the NAIC. Various states
have considered or enacted legislation which changes, and in many cases
increases, the state's authority to regulate insurance companies. Although
legislation has been under consideration for several years in Congress which, if
enacted, would result in the federal government assuming some role in the
regulation of insurance companies, management does not expect the current
Congress to enact federal insurance regulation. The NAIC, in conjunction with
state regulators, has been reviewing existing insurance laws and regulations.
The NAIC recently approved and recommended to the states for adoption and
implementation several regulatory initiatives designed to reduce the risk of
insurance company insolvencies. Through the NAIC accreditation program, these
recommendations for state legislation have taken on an increased significance.
Two such initiatives which have been adopted by the NAIC are risk-based capital
standards ("RBC") and a model investment law.
The RBC standards for life insurance companies were adopted by the NAIC in
1992 and require insurance companies to calculate and report for statutory basis
financial statements information under a risk-based capital formula. The formula
is embodied in the NAIC Model Act, which has been adopted by many states,
including Iowa. RBC requirements are intended to allow insurance regulators to
identify at an early stage inadequately capitalized insurance companies based
upon the types and mixtures of risks inherent in such companies' operations. The
formula includes components for asset risk, liability risk, interest rate
exposure and other factors. As of June 30, 1997, AmerUs Life's and Delta Life's
RBC levels were 800% and 529%, respectively, of the authorized control level RBC
thresholds.
The RBC requirements are intended to be used by insurance regulators as an
early warning tool to identify deteriorating or weakly capitalized companies for
the purpose of initiating regulatory actions. They are not designed as a ranking
mechanism for adequately capitalized companies. In addition, the formula defines
a new minimum capital standard which supplements the low, fixed minimum capital
and surplus requirements previously implemented on a state-by-state basis.
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The NAIC RBC requirements categorize insurance companies according to the
extent to which they meet or exceed certain RBC thresholds. The law requires
increasing degrees of regulatory oversight and intervention based on the level
of an insurance company's authorized control level RBC as its RBC declines.
These degrees of regulatory action are triggered by the RBC level of an
insurance company as follows: (i) a "Company Action Level Event" (requiring the
insurance company to inform and obtain approval from the Director of a
comprehensive financial plan for increasing its RBC), which would occur if,
among other things, an insurance company's RBC falls below 200% of its
authorized control level RBC, or if an insurance company's RBC falls below 250%
of its authorized control level RBC and has a negative trend; (ii) a "Regulatory
Action Level Event" (resulting in, in addition to the requirement of a financial
plan, regulatory actions including examination of an insurance company's assets,
liabilities and operations followed by an order specifying such corrective
actions as the Director determines to be appropriate), which would occur if,
among other things, an insurance company's RBC falls below 150% of its
authorized control level RBC; (iii) an "Authorized Control Level Event"
(resulting in, in addition to the regulatory actions above, such actions as are
necessary to cause an insurance company to be placed under regulatory control in
a rehabilitation or liquidation proceeding if deemed to be in the best interests
of policyowners, creditors and the public), which would occur if, among other
things, an insurance company's RBC falls below 100% of its authorized control
level RBC; and (iv) a "Mandatory Control Level Event" (resulting in, on a
mandatory basis, such actions as are necessary to cause an insurance company to
be placed under regulatory control in a rehabilitation or liquidation
proceeding), which would occur if, among other things, an insurance company's
RBC falls below 70% of its authorized control level RBC.
Approximately once every three to five years, as part of their routine
regulatory oversight process, state insurance departments conduct detailed
examinations of the books, records and accounts of insurance companies domiciled
in their states. Such examinations are generally conducted in cooperation with
the departments of two or three other states, under guidelines promulgated by
the NAIC. AmerUs Life was last examined by the Iowa Commissioner as of December
31, 1993. No material issues were raised by the Iowa Commissioner in such
examination. However, AmerUs has been notified that the Iowa Commissioner will
commence an examination of AmerUs Life for the years 1994, 1995 and 1996, which
examination is scheduled to begin in late 1997. The last examination of Delta by
the Tennessee Insurance Commissioner occurred in 1993. No material issues were
raised by the Tennessee Commissioner in such examination.
The NAIC has recently adopted model legislation to govern insurance company
investments. In addition, draft alternative model legislation is also under
discussion at the NAIC level. However, implementation of any investment model
law into state law is not anticipated in the foreseeable future. Management
believes that if the recently adopted model law or the current alternative
discussion draft were adopted without modification it would not have a material
impact on AmerUs.
Certain of AmerUs' insurance and annuity products are innovative and
relatively new. The regulatory framework at the state and federal level
applicable to such products is evolving and has not fully developed. The
developing regulatory framework could affect the design of such products and
AmerUs' ability to sell certain products. For example, on August 20, 1997, the
SEC issued a concept release in which the SEC has requested information and
comments about the structure of equity index insurance products, the manner in
which they are marketed and the federal securities law issues raised by equity
index insurance products. Although the release does not set forth any proposed
rules or new SEC policy with respect to such matters, it is possible that,
following receipt of comments, the SEC may propose new regulations or policies
with respect to equity index insurance products which may affect the marketing
of such products or impose requirements that some or all of such products be
registered with the SEC.
CERTAIN TRANSACTIONS AND RELATIONSHIPS. THE FOLLOWING SUMMARIES OF THE
INTERCOMPANY AGREEMENT AND OTHER AGREEMENTS IDENTIFIED DO NOT PURPORT TO BE
COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH AGREEMENTS. AS
USED HEREIN, "AMERUS AFFILIATED GROUP" MEANS AMHC AND ITS DIRECT AND INDIRECT
SUBSIDIARIES NOW OR HEREAFTER EXISTING, OTHER THAN AMERUS AND ITS SUBSIDIARIES,
AND "AMERUS
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CONTROL GROUP" MEANS, COLLECTIVELY, AMHC AND AMERUS GROUP. CAPITALIZED TERMS
USED BUT NOT DEFINED HEREIN HAVE THE MEANINGS GIVEN TO THEM IN SUCH AGREEMENTS.
AmerUs Life is a wholly-owned direct subsidiary of AmerUs. AmerUs is a
direct subsidiary of AmerUs Group, which in turn is a wholly-owned direct
subsidiary of AMHC. As a result of such ownership, AMHC, AmerUs Group, the other
subsidiaries of AmerUs Group and AmerUs and its subsidiaries, including AmerUs
Life, have a variety of relationships, certain of which are summarized below.
Management believes that the terms of the agreements described herein are on a
basis no less favorable than could be obtained from unaffiliated third parties.
OWNERSHIP OF VOTING INTERESTS OF AMERUS. As a result of the AmerUs
Reorganization of AmerUs and its affiliates into a mutual insurance holding
company structure, AMHC is required by Iowa law to own, directly or indirectly
through one or more intermediate holding companies, shares of capital stock of
AmerUs Life which carry the right to cast a majority of the votes entitled to be
cast by all of the outstanding shares of the capital stock at a shareholders'
meeting of AmerUs Life. See "--Supervision and Regulation." In compliance with
this requirement, all of the issued and outstanding shares of AmerUs Class B
Common Stock are owned by AmerUs Group, a wholly-owned subsidiary of AMHC.
AmerUs Group also owns a substantial number of shares of AmerUs Class A Common
Stock. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT--AmerUs Common Stock." Additionally, AmerUs' Charter provides that no
shares of its Class B Common Stock may be owned by any person other than AMHC, a
subsidiary of AMHC or another mutual insurance holding company or intermediate
holding company as expressly authorized by Iowa law or by the Iowa Commissioner.
Any proposed amendments to such provisions of the AmerUs Charter are subject to
approval by the Iowa Commissioner and the Iowa Attorney General. See
"DESCRIPTION OF AMERUS CAPITAL STOCK."
AMHC'S POLICY WITH RESPECT TO CORPORATE OPPORTUNITIES. AmerUs has been
advised that AMHC has adopted a general policy with respect to certain corporate
opportunities presented to AMHC. The implementation of such policy in any
situation is expressly subject to any applicable regulatory, tax, contractual or
legal restrictions as well as issues as to feasibility. Pursuant to such policy,
so long as AMHC directly or indirectly owns at least 50.1% of the voting power
of the outstanding common stock of AmerUs (the "VOTING CONTROL PERIOD"), AMHC
intends to first offer to AmerUs any corporate opportunity relating to the
acquisition of any stock life insurance company or any company (other than a
mutual insurance holding company) primarily engaged in owning a stock life
insurance company. During the Voting Control Period, AMHC also intends to first
offer to AmerUs any corporate opportunity primarily relating to a joint venture,
partnership, or similar affiliation in the life insurance or annuity industry.
During the Voting Control Period, in the event that AMHC merges with a mutual
insurance holding company owning a stock life insurance company or a mutual
insurance company is reorganized pursuant to Chapter 521A of the Iowa Code into
a stock life insurance company subsidiary of AMHC, AMHC intends, if the other
party to the transaction agrees, to offer AmerUs the corporate opportunity to
combine such acquired company with AmerUs or a subsidiary thereof in exchange
for appropriate consideration.
Any combination would be on terms which are approved by a majority of the
independent directors of AMHC and AmerUs and set forth in a written agreement
between the parties. However, neither AMHC nor AmerUs is obligated to take any
action which is not consistent with their respective fiduciary duties or
applicable contractual, regulatory, tax or legal requirements. Moreover, the
results of negotiations with parties interested in a potential transaction or
other factors, such as feasibility or a desire to maintain the separate
identities and assets of two insurers, may result in AMHC not presenting a
potential transaction to AmerUs or a company acquired by AMHC not being combined
with AmerUs or a subsidiary thereof.
Under AMHC's policy, a corporate opportunity is considered to be a business
opportunity in the life insurance and annuity business known to AMHC which
AmerUs is legally and financially able to undertake, is of practical advantage
to AmerUs and is one in which AmerUs has an interest or a reasonable expectancy.
If AmerUs does not choose to pursue a corporate opportunity within a reasonable
period after such opportunity is first presented to it, AMHC would not intend to
afford AmerUs any further opportunity with respect to such potential
transaction.
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AMERUS INTERCOMPANY AGREEMENT. AMHC, AmerUs Group and AmerUs have entered
into an Amended and Restated Intercompany Agreement dated as of December 1, 1996
(the "AMERUS INTERCOMPANY AGREEMENT"), certain provisions of which are
summarized below.
LICENSE TO USE THE AMERUS NAME AND CERTAIN TRADEMARKS. Pursuant to the
AmerUs Intercompany Agreement, AmerUs Group and certain members of the AmerUs
Affiliated Group have granted to AmerUs and certain of its subsidiaries, a
non-exclusive, revocable license to use the AmerUs name and certain trademarks
(collectively, the "TRADEMARKS") solely in connection with AmerUs' life
insurance business and activities related to such life insurance business. The
AmerUs Intercompany Agreement provides, among other things, that subject to
AmerUs Group's ability to revoke the license in the circumstances described
below and subject to regulatory approval, within a specified time from the date
on which the AmerUs Control Group ceases to control more than 50% of the
combined voting power of the outstanding Common Stock (the "LICENSE TRIGGER
DATE"), if AmerUs' name or any of its subsidiaries' names at such time includes
the "AmerUs" name, AmerUs and such subsidiaries will be required to change their
names and will be required to discontinue the use of certain related marks.
Following the License Trigger Date, AmerUs and its subsidiaries will continue to
have the right to use the AmerUs name in connection with the identification of
insurance products for an initial five-year period with an option to renew for
an additional five years, for which AmerUs will pay a nominal annual fee to
AmerUs Group until such time as AmerUs and its subsidiaries completely
discontinue use of the "AmerUs" name. In addition, the AmerUs Intercompany
Agreement provides that AmerUs and its subsidiaries will not, without the prior
written consent of AmerUs Group, take any action with respect to (i) any
litigation or proceeding involving the Trademarks, (ii) any change in AmerUs'
names, logos and other identifications that might reasonably be expected to
affect the Trademarks or (iii) any advertising campaigns or strate-gies that use
the Trademarks or that refer to any member of the AmerUs Affiliated Group.
AmerUs Group has the right to revoke the license under certain circumstances
relating to advertising, promotion or use of the Trademarks in a manner contrary
to AmerUs Group guidelines. In addition, AmerUs Group can revoke any of AmerUs'
subsidiaries' use of the license if there is a change of control of any such
subsidiary of AmerUs that is licensed to use the Trademarks. A revocation by
AmerUs Group of the license to use the Trademarks could have a material adverse
effect on AmerUs' ability to conduct its business.
INDEMNIFICATION. The AmerUs Intercompany Agreement provides that AmerUs will
indemnify each member of the AmerUs Affiliated Group and each of their
respective officers, directors, employees and agents (collectively, the
"INDEMNITEES") against losses based on, arising out of or resulting from (i) the
use of the Trademarks by AmerUs or its subsidiaries, (ii) the ownership or the
operation of the assets or properties, and the operation or conduct of the
business of AmerUs or its subsidiaries, (iii) any other activities of AmerUs or
its subsidiaries, (iv) any other acts or omissions by AmerUs or its subsidiaries
arising out of performance of the AmerUs Intercompany Agreement and certain
other agreements, (v) any guaranty, keep well, net worth or financial condition
maintenance agreement of or by any member of the AmerUs Affiliated Group
provided to any parties with respect to any actual or contingent obligation of
AmerUs or its subsidiaries, (vi) any breach by AmerUs of the AmerUs Intercompany
Agreement, and (vii) certain other matters. In addition, AmerUs has agreed to
indemnify the Indemnitees against certain civil liabilities, including
liabilities under the Securities Act, relating to misstatements in or omissions
from the Registration Statement of which this Joint Proxy Statement/Prospectus
forms a part and any other registration statement that AmerUs files under the
Securities Act (other than misstatements or omissions made in reliance on
information relating to and furnished by any member of the AmerUs Affiliated
Group for use in the preparation thereof, against which AMHC has agreed to
indemnify AmerUs). AMHC has also agreed to indemnify AmerUs and its subsidiaries
and each of their respective officers, directors, employees and agents against
losses based on, arising out of or resulting from (i) any breach by the AmerUs
Affiliated Group of the AmerUs Intercompany Agreement, (ii) the ownership or the
operation of the assets or properties, and the operation or conduct of the
business of any member of the AmerUs Affiliated Group, (iii) certain third party
claims relating to the Trademarks and (iv) certain other specifically identified
matters.
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AMHC CONSENT TO CERTAIN EVENTS. The AmerUs Intercompany Agreement provides
that until the date on which the members of the AmerUs Control Group cease to
control at least 50.1% of the combined voting power of the outstanding AmerUs
Common Stock of AmerUs (the "TRIGGER DATE"), the prior written consent of AMHC
will be required for: (i) any consolidation or merger of AmerUs or any of its
subsidiaries with any person (other than certain transactions involving wholly
owned subsidiaries); (ii) any sale, lease, exchange or other disposition or any
acquisition by AmerUs or any of its subsidiaries (other than transactions to
which AmerUs and its wholly owned subsidiaries are the only parties), or any
series of related dispositions or acquisitions, involving consideration in
excess of $20 million; (iii) any change in the authorized capital stock of
AmerUs or the creation of any class or series of capital stock of AmerUs, (iv)
any issuance by AmerUs or any subsidiary of AmerUs of any equity securities or
equity derivative securities, except (a) up to three million shares of Common
Stock pursuant to employee and director stock option, profit sharing and other
benefit plans of AmerUs and its subsidiaries, (b) the issuance of Preferred
Stock which is not convertible or exchangeable into Common Stock and which only
has voting rights required by law, (c) the issuance of shares of capital stock
of a wholly owned subsidiary of AmerUs and (d) pursuant to the Transactions
(defined as AmerUs' February 1997 initial public offering and any corporate
AmerUs Reorganization or transaction undertaken in connection with the initial
public offering to which AmerUs or any of its subsidiaries is a party); (v) the
dissolution of AmerUs; (vi) transactions or a series of related transactions
with affiliates of AmerUs (other than members of the AmerUs Affiliated Group)
involving consideration in excess of $10 million, other than (a) the
Transactions, (b) transactions on terms substantially the same as or more
favorable to AmerUs than those that would be available from an unaffiliated
third party and (c) transactions between or among any of AmerUs and its wholly
owned subsidiaries; and (vii) any corporate action by AmerUs which would cause
AmerUs or AmerUs Life to violate the requirements of Section 521A.14 of the Iowa
Insurance Code (relating to mutual insurance holding companies).
AmerUs has sought and received the consent of AMHC to the Merger and the
Stock Issuance.
REGISTRATION RIGHTS. AmerUs has granted to the AmerUs Control Group certain
demand and "piggyback" registration rights with respect to shares of AmerUs
Common Stock owned by it. The AmerUs Control Group has the right to request up
to two demand registrations in each calendar year. The AmerUs Control Group also
has the right, which it may exercise at any time and from time to time, to
include the shares of Common Stock held by it in certain other registrations of
common equity securities of AmerUs initiated by AmerUs on its own behalf or on
behalf of any shareholder of AmerUs. Such registration rights are transferable
by the AmerUs Control Group provided that such transferee is (i) a member of the
AmerUs Control Group or (ii) in the case of AmerUs Class A Common Stock only, an
institutional accredited investor (as defined under Rule 501(a) promulgated
under the Securities Act) permitted to acquire such registrable shares under
applicable law. AmerUs has agreed to pay all costs and expenses in connection
with each such registration, except underwriting discounts, commissions and
legal fees of the AmerUs Control Group applicable to the shares of Common Stock
sold by the AmerUs Control Group. The AmerUs Intercompany Agreement contains
customary terms and provisions with respect to, among other things, registration
procedures and certain rights to indemnification granted by parties thereunder
in connection with the registration of AmerUs Common Stock on behalf of the
AmerUs Control Group.
EQUITY PURCHASE RIGHTS. AmerUs has agreed that, to the extent permitted by
Nasdaq so long as AmerUs is listed on Nasdaq, and so long as the AmerUs Control
Group controls at least 50.1% of the combined voting power of the outstanding
Common Stock of AmerUs, the AmerUs Control Group may purchase its pro rata share
(based on its then current percentage equity interest in AmerUs) of any voting
equity security issued by AmerUs (excluding any such securities offered in
connection with any merger, acquisition, exchange offer, employee and director
stock option or other benefit plans, dividend reinvestment plans and other
offerings other than for cash).
CERTAIN BUSINESS RELATIONSHIPS. AmerUs has agreed that all distribution
arrangements in effect as of September 15, 1996 pursuant to which members of the
AmerUs Affiliated Group distribute insurance products of AmerUs or its
subsidiaries shall continue until the Trigger Date.
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MANAGEMENT SERVICES. Until the Trigger Date, AmerUs has agreed to provide
to the AmerUs Affiliated Group certain management and administrative services,
including: (i) general management services, (ii) assistance in matters relating
to operations, strategy and business planning and (iii) as requested, furnish
reports to the board of directors of AMHC or AmerUs Group with respect to
aspects of the business and affairs of the AmerUs Affiliated Group. In
connection with such services AmerUs will be subject to the exclusive authority
of the board of directors of AMHC or the AmerUs Affiliated Group member for
which such services are performed. AmerUs Group will pay AmerUs $2.0 million in
consideration for such services in 1997.
TAX ALLOCATION AGREEMENT. AmerUs and AMHC have entered into an agreement
relating to the allocation of federal and state income tax liabilities (the "TAX
ALLOCATION AGREEMENT"). Under the Tax Allocation Agreement, AmerUs will be
responsible for all income tax liabilities that are attributable to the net
income of AmerUs and its subsidiaries under applicable federal and state tax
laws. AmerUs will have no responsibility for income tax liabilities attributable
to AMHC and its wholly-owned subsidiaries under such laws, including any
liabilities that may have arisen while such subsidiaries were wholly-owned
subsidiaries of AmerUs Life. If and to the extent that losses of AMHC and its
wholly-owned subsidiaries are applied to reduce the federal or state income
taxes attributable to the net income of AmerUs, AmerUs will be required to make
a payment to AMHC equal to such tax reduction. Conversely, if and to the extent
that losses of AmerUs are applied to reduce the federal or state income tax
liability attributable to the net income of AMHC and its wholly-owned
subsidiaries for any year, AMHC will be required to make a payment to AmerUs
equal to such tax reduction. It is not anticipated that the federal or state
income tax liability of AmerUs or its subsidiaries will be determined on a
consolidated or combined basis with that of AMHC or any of its wholly-owned
subsidiaries for any period after the Merger.
AGREEMENTS INVOLVING REAL ESTATE. AmerUs Life has entered into asset and
property management contracts with API. Pursuant to such agreements, API
provides asset and property management services to AmerUs Life with respect to
certain real estate owned by AmerUs Life. The total expenses incurred by AmerUs
Life pursuant to such agreements equaled approximately $1,108,000 and $33,000
for the year ended December 31, 1996 and the six months ended June 30, 1997,
respectively.
Total rental income earned by AmerUs under all agreements with members of
the AmerUs Affiliated Group was approximately $474,000 for the year ended
December 31, 1996 and none for the six months ended June 30, 1997.
AmerUs entered into lease agreements with API in December 1996 because the
facilities occupied by AmerUs as its executive and home offices were transferred
to API as part of the AmerUs Reorganization. The lease agreements require
monthly payments of $143,000 on a net basis for a period of 5 years. In
addition, AmerUs leases additional space on a monthly basis. Total rent paid
under these agreements was $143,000 and $943,000 for the year ended December 31,
1996 and the six months ended June 30, 1997, respectively.
AmerUs Life paid rentals to AmerUs Bank of $24,000 for the year ended
December 31, 1996, under the terms of a lease agreement which expired in 1996.
AmerUs Life has entered into various limited partnership and joint venture
agreements in which API or an affiliate serves as general partner. AmerUs Life
contributed portions of its joint venture interests to API and sold several of
these partnership interests to newly formed partnerships in which API has an
interest. Total proceeds from these sales were $1,638,000 and $10,979,000 in the
year ended December 31, 1996 and in the six months ended June 30, 1997,
respectively. After such sales, AmerUs Life purchased a 9.75% limited
partnership interest in one of the newly formed partnerships for $2,160,000. In
addition, AmerUs Life agreed to make loans to the newly formed partnerships in
the aggregate amount of up to $20,000,000 of which none was outstanding as of
June 30, 1997.
AmerUs Life has also entered into agreements with various partnerships in
which API has an interest pursuant to which AmerUs Life is obligated to make
future capital contributions to such partnerships in an amount of up to
$4,643,000.
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As of June 30, 1997, AmerUs Life had a total investment of $9,052,000 in
various partnerships and joint ventures in which API had an interest.
LOAN SERVICING AGREEMENTS. AmerUs Life has entered into various loan
servicing agreements with various members of the AmerUs Affiliated Group. The
total expenses incurred by AmerUs Life for such services was approximately
$1,420,000 and $186,000 for the year ended December 31, 1996 and the six months
ended June 30, 1997, respectively.
AmerUs Life has also entered into various loan servicing agreements with
AmerUs Bank. Pursuant to such agreements, AmerUs Life services certain
nonresidential mortgage loans on behalf of AmerUs Bank. The total revenues
earned by AmerUs Life for such services were approximately $28,000 and $13,000
for the year ended December 31, 1996 and the six months ended June 30, 1997,
respectively.
OTHER SERVICE AGREEMENTS. AmerUs and AmerUs Life have entered into various
miscellaneous services agreements with members of the AmerUs Affiliated Group.
Pursuant to such agreements, AmerUs and AmerUs Life provide certain
communications, tax, law department, accounting department, internal audit,
administrative and data processing services to such other parties to the
agreements, as requested. The aggregate revenues earned for services performed
by AmerUs and AmerUs Life in accordance with such agreements were approximately
$7,119,000 and $2,961,000 for the year ended December 31, 1996 and the six
months ended June 30, 1997, respectively.
PURCHASE OF LOANS AND SECURITIZATION. AmerUs Life entered into a purchase
agreement with AmerUs Bank, dated as of June 28, 1996, pursuant to which AmerUs
Life acquired an HEL Asset-Backed Class A Note (the "NOTE") and Class R
Certificate Series 1996-1 (the "CERTIFICATE"). The Note had a face amount of
$43,715,845 and pays interest at the rate of 8.35% per annum. The Certificate
has a face amount of $3,039,069 and pays interest at the rate of 16.81% per
annum. The Note and Certificate are backed by the assets of the AB Home Equity
Loan Trust (the "AB TRUST"), which consist of approximately $47 million of
second mortgage loans. Pursuant to a Pooling and Servicing Agreement, dated as
of June 28, 1996 (the "Pooling and Servicing Agreement"), between AmerUs Bank
and Boatmen's Trust Company ("BOATMEN'S"), and a Transfer Agreement, dated as of
June 28, 1996, between AmerUs Bank and Boatmen's, as trustee of the AB Trust,
the AB Trust acquired such loans from AmerUs Bank, and paid a purchase price of
$46,754,914. Under the Pooling and Servicing Agreement AmerUs Bank acts as the
servicer of the loans and receives a servicing fee equivalent to the amount of
all interest collected on the loans in excess of 8.9%.
AmerUs Life entered into a master agreement of purchase and sale with AmerUs
Bank, dated as of March 5, 1997, whereby the terms under which AmerUs Life would
purchase home equity mortgage loans from AmerUs Bank was established. AmerUs
Life records the purchase of such loans at their purchase price which represents
fair market value, which may be different from AmerUs Bank's carrying value.
AmerUs would accordingly recognize gain or loss on such transactions. To date,
AmerUs Life has acquired loans with aggregate principal balances at the time of
sale of $98,476,213. Most of the acquired loans were sold by AmerUs Life on
October 24, 1997, to Bank of New York, as Trustee of the AmerUs Home Equity Loan
Trust 1997-1 (the "TRUST") in a $125 million offering of home equity loans. Of
the $125 million, $30,947,779 was set aside under the Pooling and Servicing
Agreement to be used by AmerUs Life to acquire additional home equity mortgage
loans for inclusion in the Trust. AmerUs Life services the loans in the Trust
and AmerUs Bank acts as a subservicer of the loans and receives a pass-through
of the servicing fee of 50 basis points of the outstanding principal balances of
the loans.
AmerUs Life entered into a purchase agreement with AmerUs Mortgage dated
March 1, 1997, whereby AmerUs Life has committed to purchase up to $200 million
principal amount of first mortgage loans originated by AmerUs Mortgage. The
commitment expires on December 31, 1997, and is terminable by either party upon
sixty days' notice. As of October 31, 1997, AmerUs Life has purchased 58
mortgage loans pursuant to such commitment for a total purchase price of
$8,453,000.
SALE OF INSURANCE POLICIES. AmerUs Life has entered into an agreement,
dated January 1, 1995, with AmerUs Investments, Inc. ("AMERUS INVESTMENTS"), a
wholly-owned subsidiary of AmerUs Bank, to
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market products of AmerUs Life. Pursuant to this agreement, AmerUs Life pays
AmerUs Investments fees in the form of commissions in exchange for generating
sales of such products. Total commissions paid to AmerUs Investments were
$521,000 and $683,000 for the year ended December 31, 1996 and six months ended
June 30, 1997, respectively.
AmerUs has also entered into certain Affiliated Agent Contracts with
employees of AmerUs Investments (the "AFFILIATED AGENTS") to solicit, sell and
service AmerUs Life insurance products and has also entered into a Servicing
Agreement, dated March 1, 1992, with AmerUs Investments pursuant to which AmerUs
Investments agreed to service the business sold by any Affiliated Agent and
otherwise supervise its employees who are Affiliated Agents.
CAPITAL CONTRIBUTION. During 1996, AmerUs Life made a capital contribution
to or for the benefit of certain of its subsidiaries in connection with the
AmerUs Reorganization. The capital contribution consisted of cash and other
property having an approximate net carrying value of $79 million. After making
such capital contribution, AmerUs Life caused certain of its non-life insurance
subsidiaries to be distributed to AmerUs Group, effectively separating AMHC's
non-life insurance businesses from the life insurance businesses owned by
AmerUs.
From time to time AmerUs Life has made capital contributions to Lartnec
Investment Co. ("LARTNEC"). Lartnec had previously been a subsidiary of AmerUs
Life, and AmerUs Financial Services, Inc. ("AFS") had previously been a
subsidiary of Lartnec. During 1996, AFS was merged into Lartnec and Lartnec was
then merged upstream into AmerUs Life, after which the distribution of the non-
life insurance subsidiaries to AmerUs Group was effected. During 1996, AmerUs
Life made capital contributions to Lartnec in the approximate total amount of
$4,463,000 prior to Lartnec's liquidation.
LOANS AND CREDIT SUPPORT TO THE AMERUS AFFILIATED GROUP. AmerUs Life has
provided financing to members of the AmerUs Affiliated Group or their affiliates
for various purposes. The outstanding balance of all such financings was $62
million and $58 million as of December 31, 1996 and June 30, 1997, respectively.
AmerUs Life recorded interest income of $5.0 million and $2.6 million for the
year ended December 31, 1996 and the six months ended June 30, 1997,
respectively. All such loans were made on terms which were intended to
approximate arms' length transactions.
AmerUs Life pledged investment securities as collateral for indebtedness of
the AmerUs Affiliated Group. Approximately $62.0 million was outstanding under
the facility at December 31, 1996. The value of the collateral pledged was
approximately $88.0 million as of December 31, 1996. No collateral was pledged
as of June 30, 1997 for indebtedness of the AmerUs Affiliated Group.
In addition, AmerUs Life guaranteed various borrowings of members of the
AmerUs Affiliated Group with outstanding balances of approximately $7.1 million
and $7.0 million at December 31, 1996 and June 30, 1997, respectively.
AmerUs Life has outstanding loan commitments to various partnerships in
which API has an interest. At June 30, 1997, the outstanding loan commitments
were approximately $15,000,000.
RESTRICTIONS UNDER AMERUS GROUP FINANCING__In January 1997, AmerUs Group
entered into a revolving credit facility with a syndicate of lenders secured by
a pledge of certain of the outstanding capital stock held by AmerUs Group in its
direct and indirect subsidiaries, including AmerUs and AmerUs Life. As of
October 31, 1997, AmerUs Group had not made any borrowings under the credit
facility and there were no outstanding loan amounts under that facility. The
credit facility provides for typical events of default and covenants with
respect to the conduct of the business of AmerUs Group and its subsidiaries and
requires the maintenance of various financial levels and ratios. Among other
covenants, AmerUs Group is required to ensure that (a) AmerUs maintains certain
specified financial ratios with respect to minimum consolidated net worth,
adjusted capital and surplus, cash flow to fixed charges, and leverage, (b)
AmerUs Life, Delta Life and any other material life insurance subsidiary
maintain a specified ratio of risk-based capital, and (c) AmerUs Life maintains
a rating by A.M. Best of "A-" or better (provided that no event of default will
occur under the credit facility until the earlier to occur of AmerUs Life's
rating falling below "B++" or 12 months after AmerUs Life's rating falling below
"A-").
132
<PAGE>
SECURITY ARRANGEMENTS FOR BANK CREDIT FACILITY. In connection with the Bank
Credit Facility (as defined below), AmerUs has pledged to the lenders
approximately 49.9% of the common stock of AmerUs Life owned by AmerUs and a $50
million 9% surplus note payable to AmerUs by AmerUs Life.
TRANSACTIONS WITH AFFILIATES OF DIRECTORS. John A. Wing, a director of
AmerUs, is Chairman and Chief Executive Officer of ABN AMRO Chicago Corporation.
ABN AMRO Chicago Corporation has from time to time performed investment banking
services for AmerUs, including assisting AmerUs with its subscription offering
and serving as co-manager of AmerUs' initial public offering of its AmerUs Class
A Common Stock. The total amount of fees paid by AmerUs to ABN AMRO Chicago
Corporation with respect to such services was $50,000 and $1,043,298 during 1996
and 1997, respectively. Additionally, ABN AMRO is a co-manager of the Bank
Credit Facility.
RECENT DEVELOPMENTS--ACQUISITION OF DELTA LIFE CORPORATION
General. On October 23, 1997, AmerUs acquired all of the outstanding
capital stock of Delta for $162.9 million in cash. The principal asset of Delta
is its wholly-owned subsidiary, Delta Life and Annuity Company ("DELTA LIFE"), a
Tennessee domiciled life insurance company formed in 1955. Delta Life
specializes in the sale of individual single and flexible premium deferred
annuities, primarily in the southeastern, western, southwestern and midwestern
regions of the United States. Such sales are made primarily through a network of
over 3,400 independent agents. Approximately 55% of Delta Life's 1996 direct
collected premiums were derived from retirement-oriented tax-qualified
annuities. Delta Life is licensed in the District of Columbia and in all states
except New York.
Delta Life's strategy is to structure its fixed annuity products to appeal
to the conservative retirement saver who is seeking principal preservation and
consistency of earnings. Most of Delta Life's products are innovative in that
they incorporate a fixed contractual management fee. In addition to offering a
lifetime guaranteed minimum interest crediting rate and an annual guaranteed
interest crediting rate, these annuities also require the crediting of the
interest rate earned on the assets supporting the respective policies after
deducting the contractual management fee. Over 70% of policyowners' assets are
invested in securities issued, secured or guaranteed by the U.S. Government,
government agencies or instrumentalities.
AmerUs believes that the acquisition of Delta is an important step in
implementing AmerUs' growth strategy. With this acquisition, AmerUs increases
its presence in the rapidly growing asset accumulation business, gains access to
Delta's extensive marketing capabilities, significantly expands distribution
capacity and gives AmerUs additional scale with the opportunity for improved
operational efficiencies and substantial expense reductions.
Delta Life's operations complement a number of the operating fundamentals of
AmerUs. By integrating the operations of Delta Life with those of AmerUs Life,
management expects to substantially reduce the unit costs of both AmerUs Life's
and Delta Life's general insurance expenses and investment expenses by spreading
fixed costs over a larger revenue base. Delta Life's distribution system of
independent agents continues AmerUs' efforts to increase capacity and diversify
distribution channels. To the extent that Delta Life has built sales in the
south and southeast, this provides geographic diversification in areas where
AmerUs Life has not concentrated its sales activities in the past. At the same
time, the product strategy of Delta Life expands AmerUs' offering of competitive
products that meet the demands of customers.
133
<PAGE>
Summary Consolidated Financial and Operating Data. Below is summary
consolidated financial and operating data for Delta as of or for the six months
ended June 30, 1997 and 1996 and as of or for each of the three years ended
December 31, 1996.
<TABLE>
<CAPTION>
AS OF OR FOR THE SIX
AS OF OR FOR THE YEAR ENDED
MONTHS ENDED JUNE 30, DECEMBER 31,
---------------------- ----------------------------------
1997(A) 1996 1996(A) 1995 1994
---------- ---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Revenues:
Insurance premiums and other revenues............ $ 3.6 $ 6.4 $ 11.6 $ 10.8 $ 8.3
Net investment income............................ 16.7 15.9 32.2 27.5 22.4
Realized gains (losses) on investments........... 0.1 -- 0.1 0.1 0.1
---------- ---------- ---------- ---------- ----------
Total revenues..................................... 20.4 22.3 43.9 38.4 30.8
Benefits and expenses:
Total policyowner benefits....................... 2.3 4.3 6.9 6.8 5.5
Total expenses................................... 12.7 11.4 24.8 23.3 15.6
---------- ---------- ---------- ---------- ----------
Total benefits and expenses........................ 15.0 15.7 31.7 30.1 21.1
---------- ---------- ---------- ---------- ----------
Income before income tax expense................... 5.4 6.6 12.2 8.3 9.7
Income tax expense................................. 2.0 2.4 4.6 3.1 3.5
---------- ---------- ---------- ---------- ----------
Net income......................................... $ 3.4 $ 4.2 $ 7.6 $ 5.2 $ 6.2
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
CONSOLIDATED BALANCE SHEET DATA:
Total invested assets.............................. $ 1,772.3 $ 1,751.2 $ 1,736.0 $ 1,682.2 $ 1,424.3
Total assets....................................... 1,980.9 1,895.4 1,926.2 1,815.9 1,544.6
Debt............................................... 24.1 18.7 22.7 20.4 29.0
Total liabilities.................................. 1,873.5 1,793.3 1,821.2 1,722.6 1,479.2
Total stockholders' equity (B)..................... 107.4 102.1 105.0 93.3 65.4
OTHER OPERATING DATA:
Number of employees................................ 130 155 145 148 117
STATUTORY DATA:
Statutory premiums and deposits:
Annuities........................................ $ 97.6 $ 109.4 $ 232.1 $ 320.4 $ 295.4
</TABLE>
- --------------
(A) On October 31, 1996, Delta disposed of one of its wholly-owned operating
subsidiaries, Shelby Life Insurance Company. Shelby Life's condensed income
statement data for the six months ended June 30, 1996 and the year ended
December 31, 1996 is as follows:
134
<PAGE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR
ENDED JUNE 30, 1996 ENDED DECEMBER 31, 1996
--------------------- -----------------------
(IN MILLIONS)
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Insurance premiums and other revenues..................... $ 2.0 $ 3.4
Net investment income..................................... 1.5 2.4
--- ---
Total revenues.......................................... $ 3.5 $ 5.8
Benefits and expenses:
Total policyowner benefits................................ 1.1 1.7
Total expenses............................................ 1.1 1.7
--- ---
Total benefits and expenses............................. 2.2 3.4
--- ---
Income before income tax expense............................ 1.3 2.4
Income tax expense.......................................... 0.5 0.9
--- ---
Net income.................................................. $ 0.8 $ 1.5
--- ---
--- ---
</TABLE>
- --------------
(B) In 1995 Delta issued additional common stock for $20 million.
Products. Delta Life's product offerings differ from those of most of its
competitors in two ways. First, Delta Life offers an interest rate crediting
strategy on almost all of its single and flexible premium deferred annuities
that credits the policy with a return based upon the interest rate it earns on
assets supporting the respective policies less a contractually stated management
fee. In addition, these policies offer a lifetime guaranteed minimum interest
crediting rate and an annual guaranteed interest crediting rate. Second, Delta
Life's investment policy mandates that no less than 70% of policyowners' assets
be invested in securities issued, secured or guaranteed by the U.S. Government,
government agencies or instrumentalities. The balance of these funds is invested
primarily in investment grade corporate bonds and commercial mortgages.
In 1996, Delta Life introduced and commenced marketing two single premium
equity index annuity products that are based either on Standard & Poor's 500
Composite Stock Price Index ("S&P 500-Registered Trademark-") or an
international index created by Delta Life from stock market indexes from France,
Germany, Japan, Switzerland and the United Kingdom. These products receive the
benefit of 100% of any increase in the selected index less a contractually
stated management fee. This benefit is determined as follows: On each policy
anniversary, a new S&P 500-Registered Trademark- value is locked in. If this
value is higher than any other prior anniversary value, an annual effective
interest rate is calculated for the seven year term using the S&P
500-Registered Trademark- values at the commencement of the policy and on the
last anniversary. The contractual annual management fee is subtracted and the
resulting net rate is used to calculate the value of the policy at the end of
the seven year term. If a higher S&P 500-Registered Trademark- value occurs on a
later policy anniversary, then this calculation is repeated using the higher S&P
500-Registered Trademark- value. The policyowner is guaranteed to receive at
least 110% of the original premium at the end of the seven year term of the
policy, assuming no withdrawals.
135
<PAGE>
The following table sets forth information regarding Delta Life's sales
activity by product:
DIRECT FIRST YEAR AND SINGLE COLLECTED PREMIUMS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
---------------------- -------------------------------------
1997 1996 1996 1995 1994
--------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deferred fixed annuity........................... $ 56,528 $ 61,827 $ 147,917 $ 270,337 $ 263,023
Equity index annuity............................. 33,989 42,901 98,612 -- --
Immediate annuity................................ 3,115 4,490 8,037 6,675 4,697
--------- ----------- ----------- ----------- -----------
$ 93,632 $ 109,218 $ 254,566 $ 277,012 $ 267,720
--------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- -----------
</TABLE>
The following table sets forth information regarding Delta Life's annuities
in force for each date presented:
ANNUITIES IN FORCE
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
---------------------------- -------------------------------------------
1997 1996 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deferred fixed annuities
Number of policies.................. 46,396 48,950 47,061 47,075 42,484
GAAP reserves....................... $ 1,634,343 $ 1,574,389 $ 1,611,219 $ 1,536,911 $ 1,287,143
Equity index annuities
Number of policies.................. 4,390 1,598 3,226 -- --
GAAP reserves....................... $ 133,477 $ 23,843 $ 99,612 $ -- $ --
Immediate annuities
Number of policies.................. 1,329 1,210 1,267 1,120 960
GAAP reserves....................... $ 45,794 $ 41,425 $ 43,469 $ 35,323 $ 26,993
</TABLE>
136
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF AMERUS
THE FOLLOWING ANALYSIS OF THE CONSOLIDATED RESULTS OF OPERATIONS AND
FINANCIAL CONDITION OF AMERUS SHOULD BE READ IN CONJUNCTION WITH THE AMERUS
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA AND THE CONSOLIDATED FINANCIAL
STATEMENTS OF AMERUS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS.
OVERVIEW. AmerUs is a holding company engaged through its subsidiaries in
the business of marketing, underwriting and distributing a broad range of
individual life insurance and annuity products to individuals and businesses in
49 states and the District of Columbia. AmerUs' primary product offerings
consist of whole life, universal life and term life insurance policies and fixed
annuities. Since April 1, 1996 AmerUs has been a party to the Ameritas Joint
Venture with Ameritas Life Insurance Corp., through which it markets fixed
annuities and sells variable annuities and variable life insurance products. See
"--Business--Products" and "--Business--Ameritas Joint Venture."
In accordance with GAAP, universal life insurance premiums and annuity
deposits received are reflected as increases in liabilities for policyowner
account balances and not as revenues. Revenues reported for universal life and
annuity products consist of policy charges for the cost of insurance,
administration charges and surrender charges assessed against policyowner
account balances. Surrender benefits paid relating to universal life insurance
policies and annuity products are reflected as decreases in liabilities for
policyowner account balances and not as expenses. Amounts for interest credited
to universal life and annuity policyowner account balances and benefit claims in
excess of policyowner account balances are reported as expenses in the financial
statements. AmerUs receives investment income earned from the funds deposited
into account balances by universal life and annuity policyowners, the majority
of which is passed through to such policyowners in the form of interest
credited.
Premium revenues reported for traditional life insurance products are
recognized as revenues when due. Future policy benefits and policy acquisition
costs are recognized as expenses over the life of the policy by means of a
provision for future policy benefits and amortization of deferred policy
acquisition costs.
The costs related to acquiring new business, including certain costs of
issuing policies and certain other variable selling expenses (principally
commissions), defined as deferred policy acquisition costs, are capitalized and
amortized as an expense in proportion to expected profits or margins from such
policies. This amortization is adjusted when current or estimated future gross
profits or margins on the underlying policies vary from previous estimates. For
example, the amortization of deferred policy acquisition costs is accelerated
when policy terminations are higher than originally estimated or when
investments supporting the policies are sold at a gain prior to their
anticipated maturity. Death and other policyowner benefits reflect exposure to
mortality risk and fluctuate from period to period based on the level of claims
incurred within insurance retention limits. The profitability of AmerUs is
primarily affected by expense levels, interest spread results (i.e., the excess
of investment earnings over the interest credited to policyowners) and
fluctuations in mortality, persistency and other policyowner benefits. AmerUs
has the ability to mitigate adverse experience through adjustments to credited
interest rates, policyowner dividends or cost of insurance charges.
ADJUSTED OPERATING INCOME. The following table reflects net income
adjusted to eliminate certain items (net of applicable income taxes) which
management believes are not necessarily indicative of overall operating trends,
including net realized gains or losses on investments. Different items are
likely to occur in each period presented and others may have different opinions
as to which items may
137
<PAGE>
warrant adjustment. The adjusted operating income shown below does not
constitute net income computed in accordance with GAAP.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income........................................ $ 29,022 $ 56,461 $ 74,173 $ 69,348 $ 6,667 $ 31,209 $ 38,753
Net realized (gains) losses on
investments (A).................................. (5,188) (41,534) (42,552) (32,244) 11,223 (10,187) (6,646)
Equity add-on tax (B)............................. -- 4,480 4,480 -- 9,585 -- --
Reorganization costs (C).......................... -- 438 1,522 1,426 -- -- --
Adoption of SFAS 106 (D).......................... -- -- -- -- -- 3,214 --
--------- --------- --------- --------- --------- --------- ---------
Adjusted operating income......................... $ 23,834 $ 19,845 $ 37,623 $ 38,530 $ 27,475 $ 24,236 $ 32,107
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Adjusted operating income per share............... $ 1.03 $ .86 $ 1.62 $ 1.66 -- -- --
</TABLE>
- ------------------
(A) Represents realized gains or losses on investments less that portion of the
amortization of deferred policy acquisition costs adjusted for income taxes
on such amounts. Realized gains may vary widely between periods. Such
amounts are determined by management's timing of individual transactions and
do not necessarily correspond to the underlying operating trends.
(B) Represents the mutual life insurance company equity add-on tax, which is
applicable only to mutual life insurance companies and which AmerUs believes
will not be applicable to AmerUs after June 30, 1996 due to AmerUs Life's
conversion into a stock company.
(C) Represents costs directly related to the AmerUs Reorganization consisting
primarily of printing, postage, legal and consulting costs. All of the 1995
costs were incurred in the second half of 1995. These costs were not of a
continuing nature and were not expected to have any effect on future
operations.
(D) As of January 1, 1993, AmerUs adopted SFAS 106, pursuant to which the cost
of certain post-retirement benefits must be recognized on an accrual basis
as employees perform services to earn such benefits. AmerUs' transition
obligation as of January 1, 1993 amounted to approximately $3.2 million, net
of income tax benefits, and was recorded as a cumulative effect adjustment
to net income.
THE CLOSED BLOCK. In connection with the AmerUs Reorganization, the
Closed Block was established. Insurance policies which had a dividend scale in
effect as of June 30, 1996 were included in the Closed Block. The Closed Block
was designed to provide reasonable assurance to owners of insurance policies
included therein that, after the AmerUs Reorganization, assets would be
available to maintain the dividend scales and interest credits in effect prior
to the AmerUs Reorganization if the experience underlying such scales and
credits continues. See "RISK FACTORS--Risks Relating to the Closed Block" and
"--Business--The AmerUs Reorganization."
The contribution to the operating income of AmerUs from the Closed Block is
reported as a single line item in the income statement. Accordingly, premiums,
product charges, investment income, realized gains (losses) on investments,
policyowner benefits and dividends attributable to the Closed Block, less
certain minor expenses including amortization of deferred policy acquisition
costs, are shown as a net number under the caption the "Contribution from the
Closed Block." This results in material reductions in the respective line items
in the income statement while having no effect on net income. The expenses
associated with the administration of the policies included in the Closed Block
and the renewal commissions on these policies are not charged against the
Contribution from the Closed Block, but rather are grouped with underwriting,
acquisition and insurance expenses. Also, all assets allocated to the Closed
Block are grouped together and shown as a separate item entitled "Closed Block
Assets." Likewise, all liabilities attributable to the Closed Block are combined
and disclosed as the "Closed Block Liabilities."
138
<PAGE>
AMERUS RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
COMBINED RESULTS OF OPERATIONS. Since the operating results from the Closed
Block for the six months ended June 30, 1997 are reported on one line of the
income statement, "Contribution from the Closed Block," the individual income
statement components for the first six months of 1997 are not fully comparable
with those for the first six months of 1996, prior to the establishment of the
Closed Block. Management believes that the presentation of the results of
operations for the six months ended June 30, 1997 on a combined basis as if the
Closed Block had not been formed facilitates comparability with the results of
operations for the six months ended June 30, 1996. Accordingly, the combined
presentation set forth below includes certain revenues and expenses associated
with the policies included in the Closed Block. Such presentation does not,
however, affect AmerUs' reported net income.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997
-------------------------------------
CLOSED
AS REPORTED BLOCK COMBINED
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Insurance premiums....................................................... $ 20,928 $ 104,994 $ 125,922
Product charges.......................................................... 20,287 10,007 30,294
Net investment income.................................................... 99,226 54,278 153,504
Realized gains (losses) on investments................................... 9,523 (989) 8,534
Other revenues........................................................... 630 -- 630
Contribution from the Closed Block....................................... 13,410 (13,410) --
----------- ----------- -----------
Total revenues........................................................... 164,004 154,880 318,884
Benefits and expenses:
Policyowner benefits..................................................... 83,875 108,382 192,257
Underwriting, acquisition and insurance expenses......................... 29,029 2,821 31,850
Amortization of deferred policy acquisition costs........................ 10,973 14,111 25,084
Dividends to policyowners................................................ 173 29,566 29,739
----------- ----------- -----------
Total benefits and expenses.............................................. 124,050 154,880 278,930
Income before income tax expense and equity in earnings of unconsolidated
subsidiary................................................................ 39,954 -- 39,954
Income tax expense......................................................... 11,586 -- 11,586
----------- ----------- -----------
Income before equity in earnings of unconsolidated subsidiary.............. 28,368 -- 28,368
Equity in earnings of unconsolidated subsidiary............................ 654 -- 654
----------- ----------- -----------
Net income................................................................. $ 29,022 $ -- $ 29,022
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
139
<PAGE>
A summary of AmerUs' combined revenues, including revenues associated with
the Closed Block, follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
------------------------
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Insurance premiums
Traditional life insurance premiums......................................... $ 117,459 $ 113,347
Immediate annuity and supplementary contract premiums....................... 8,395 8,097
Other premiums.............................................................. 68 1,619
----------- -----------
Total insurance premiums.................................................. 125,922 123,063
Universal life product charges................................................ 29,886 28,841
Annuity product charges....................................................... 408 431
----------- -----------
Total product charges..................................................... 30,294 29,272
Net investment income......................................................... 153,504 143,589
Realized gains (losses) on investments........................................ 8,534 64,409
Other revenues................................................................ 630 1,329
----------- -----------
Total revenues............................................................ $ 318,884 $ 361,662
----------- -----------
----------- -----------
</TABLE>
Individual life and annuity premiums and product charges increased $5.4
million, or 3.6%, for the six months ended June 30, 1997 from the same period in
1996. Traditional life insurance premiums increased $4.1 million for the six
months as a result of continued growth in renewal premiums. Immediate annuity
deposits and supplementary contract premiums were $0.3 million higher for the
six months ended June 30, 1997 compared to the same period in 1996. The increase
was primarily the result of higher supplementary contract premiums. Other
premiums were lower in 1997 for the six month period primarily due to the sale
of AmerUs' remaining group life operation in the third quarter of 1996.
Universal life product charges increased $1.0 million for the six months
ended June 30, 1997 compared to the same period in 1996. The increased product
charges in 1997 were primarily due to increased cost of insurance charges as a
result of the normal aging of the block of business.
Net investment income increased $9.9 million for the six months ended June
30, 1997 from the same period in 1996. Average invested assets for the first
half of 1997 increased $152.3 million (excluding market value adjustments) over
the same period in 1996, and the effective yield on average invested assets
(excluding market value adjustments) increased from 7.69% for the first six
months of 1996 to 7.88% for the same period in 1997. Included in the six months
1997 net investment income was $2.6 million from other invested assets and $2.4
million from the sale of certain investment partnership interests.
Realized gains on investments decreased $55.9 million for the six months
ended June 30, 1997 from the same period in 1996. Included in the six month
amounts for 1996 were approximately $52.4 million of gains from the sale of
common stock as a result of the liquidation of AmerUs' equity portfolio, with
approximately $51.5 million of the gains occurring during the first quarter of
1996.
140
<PAGE>
A summary of AmerUs' combined policyowner benefits, including policyowner
benefits associated with the Closed Block, follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
------------------------
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Traditional life insurance
Death benefits.................................................... $ 20,973 $ 19,664
Change in liability for future policy benefits and other policy
benefits........................................................ 83,967 79,764
----------- -----------
Total traditional life insurance benefits....................... 104,940 99,428
Universal life insurance
Death benefits in excess of cash value............................ 14,886 11,705
Interest credited to policyowner account balances................. 22,612 21,031
Other policy benefits............................................. 1,622 1,758
----------- -----------
Total universal life insurance benefits......................... 39,120 34,494
Annuities
Interest credited to deferred annuity account balances............ 30,525 35,712
Other annuity benefits............................................ 17,236 16,234
----------- -----------
Total annuity benefits.......................................... 47,761 51,946
Miscellaneous benefits.............................................. 436 2,195
----------- -----------
Total policyowner benefits...................................... $ 192,257 $ 188,063
----------- -----------
----------- -----------
</TABLE>
Total policyowner benefits increased $4.2 million for the six months ended
June 30, 1997 from the same period in 1996. Traditional life insurance benefits
increased $5.5 million for the six month period primarily due to the growth and
aging of the business inforce and increased death benefits as a result of
slightly higher mortality. Universal life insurance benefits increased $4.6
million for the six months ended June 30, 1997 from the same period in 1996
primarily as a result of increased death benefits due to higher mortality.
Interest credited to universal life policyowner account balances increased
$1.6 million for the six months ended June 30, 1997 from the same period in
1996. While the weighted average crediting rate for AmerUs' universal life
liabilities decreased 12 basis points from 6.36% for the first six months of
1996 to 6.24% for the first six months of 1997, AmerUs' average liabilities
increased $34.6 million over the same period, resulting in the increased
credited amounts during the first six months of 1997.
Annuity benefits decreased $4.2 million for the six months ended June 30,
1997 from the same period in 1996 primarily due to reduced interest credited to
policyowner account balances. The decrease in interest credited amounts in 1997
compared to 1996 amounted to $5.2 million for the six months ended June 30. The
weighted average crediting rate for AmerUs' individual deferred annuity
liabilities decreased 13 basis points to 5.38% for the first six months of 1997
compared to 5.51% for the first six months of 1996. AmerUs' average deferred
annuity liabilities decreased $125.7 million from the first six months of 1996
to the first six months of 1997, also contributing to the decrease in interest
credited amounts in 1997. The increase in other annuity benefits in 1997 was
primarily the result of higher supplemental contract premiums.
Miscellaneous benefits were lower in 1997 for the six month period primarily
due to the sale of AmerUs' remaining group life operation in the third quarter
of 1996.
141
<PAGE>
A summary of AmerUs' combined expenses, including expenses associated with
the Closed Block, follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Commission expense, net of deferrals........................................ $ 4,081 $ 4,503
Other underwriting, acquisition and insurance expenses, net of deferrals.... 27,769 24,612
Amortization of deferred policy acquisition costs........................... 25,084 29,157
--------- ---------
Total expenses.......................................................... $ 56,934 $ 58,272
--------- ---------
--------- ---------
</TABLE>
Commission expense, net of deferrals was $4.1 million for the six months
ended June 30, 1997, decreasing $0.4 million from the same period a year ago
primarily due to lower sales of products for which commissions are not
capitalized. Other underwriting, acquisition and insurance expenses, net of
deferrals, increased $3.2 million for the six months ended June 30, 1997, from
the same period in 1996. The increase in expenses in 1997 for the six month
period is primarily due to interest expense on capital securities issued by
AmerUs and interest expense on the revolving line of credit. This added expense
was largely offset by investment of the borrowed funds which contributed to the
growth in invested assets and the higher investment earnings.
The amortization of deferred policy acquisition costs decreased $4.1 million
for the six months ended June 30, 1997, from the same period in 1996. Deferred
policy acquisition costs are generally amortized in proportion to gross margins,
including realized capital gains. Higher death benefits and lower realized
capital gains in the first six months of 1997, compared to the first six months
of 1996, contributed to lower gross margins in 1997 on products for which
deferred costs are amortized, resulting in the lower amortization during the
first six months of 1997.
Dividends to policyowners increased $3.4 million for the six months ended
June 30, 1997 from the same period in 1996. The increase in the dividends for
the six month period was the result of the growth and aging of the inforce
policies and the establishment of a deferred dividend liability for the Closed
Block, as actual gross profits on such policies through June 30, 1997, exceeded
expected profits. Traditional life reserves grew 7.9% from June 30, 1996, to
$1.26 billion at June 30, 1997. The weighted average interest rate used in the
dividend formula for these policies was 7.18% during the first six months of
1997 compared to 7.17% during the same period of 1996.
Income before income tax expense and equity in earnings of unconsolidated
subsidiary decreased $49.1 million for the six months ended June 30, 1997 to
$39.9 million compared to $89.0 million for the same period for 1996, due
primarily to lower realized gains on investments in 1997.
Income tax expense decreased $21.2 million for the six months ended June 30,
1997 from the same period in 1996 primarily as a result of the lower pre-tax
income due to the lower realized gains on investments, and as a result of the
$4.5 million provision for the equity add-on tax in the first half of 1996.
Net income decreased $27.5 million for the six months ended June 30, 1997
from the same period in 1996. The reduced net income for the six month period
resulted primarily from lower realized gains on investments.
1996 Compared to 1995
COMBINED RESULTS OF OPERATIONS. Since the operating results from the Closed
Block for the six months ended December 1996 are reported on one line of the
income statement, "Contribution from the Closed Block," individual income
statement components for 1996 are not fully comparable with those for 1995 and
1994, prior to the establishment of the Closed Block. Management believes that
the presentation of the results of operations for 1996 on a combined basis as if
the Closed Block had not been formed facilitates comparability with the results
of operations for 1995 and 1994. Accordingly, the
142
<PAGE>
combined presentation set forth below includes certain revenues and expenses
associated with policies included in the Closed Block. Such presentation does
not, however, affect AmerUs' reported net income.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------
AS REPORTED CLOSED BLOCK COMBINED
------------ ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Insurance premiums.................................................. $ 138,476 $ 108,315 $ 246,791
Product charges..................................................... 49,347 9,324 58,671
Net investment income............................................... 228,625 56,329 284,954
Realized gains (losses) on investments.............................. 65,983 481 66,464
Other revenues...................................................... 2,711 -- 2,711
Contribution from the Closed Block.................................. 19,909 (19,909) --
------------ ------------- -----------
Total revenues.................................................... 505,051 154,540 659,591
Benefits and expenses
Policyowner benefits................................................ 261,869 103,951 365,820
Underwriting, acquisition and insurance expenses.................... 59,710 2,969 62,679
Amortization of deferred policy acquisition costs................... 40,160 18,412 58,572
Dividends to policyowners........................................... 26,324 29,208 55,532
------------ ------------- -----------
Total benefits and expenses....................................... 388,063 154,540 542,603
Income before income tax expense and equity in earnings of
unconsolidated subsidiary............................................ 116,988 -- 116,988
Income tax expense.................................................... 43,859 -- 43,859
------------ ------------- -----------
Income before equity in earnings of unconsolidated subsidiary......... 73,129 -- 73,129
Equity in earnings of unconsolidated subsidiary....................... $ 1,044 $ -- $ 1,044
------------ ------------- -----------
Net Income........................................................ $ 74,173 $ -- $ 74,173
------------ ------------- -----------
------------ ------------- -----------
</TABLE>
A summary of AmerUs' combined revenues, including revenues associated with
the Closed Block, follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Insurance premiums
Traditional life insurance premiums................................................... $ 228,986 $ 219,732
Immediate annuity and supplementary contract premiums................................. 16,082 17,659
Other premiums........................................................................ 1,723 6,696
----------- -----------
Total insurance premiums............................................................ 246,791 244,087
Universal life product charges.......................................................... 57,834 56,763
Annuity product charges................................................................. 837 607
----------- -----------
Total product charges............................................................... 58,671 57,370
Net investment income................................................................... 284,954 285,244
Realized gains (losses) on investments.................................................. 66,464 51,387
Other revenues.......................................................................... 2,711 5,390
----------- -----------
Total revenues...................................................................... $ 659,591 $ 643,478
----------- -----------
----------- -----------
</TABLE>
Individual life and annuity premiums and product charges increased $9.0
million to $303.8 million, or 3.1%, from $294.8 million in 1995. Insurance
premiums increased $2.7 million to $246.8 million in 1996 compared to $244.1
million in 1995. Traditional life insurance premiums increased $9.3 million in
143
<PAGE>
1996. While there have been modest decreases in new traditional life insurance
production over the past two years, continued growth in renewal premiums has
produced the increase in traditional life insurance premiums in 1996. Immediate
annuity deposits and supplementary contract premiums were $1.6 million lower in
1996 compared to 1995 due to reduced immediate annuity sales. Other premiums
decreased significantly in 1996 primarily due to AmerUs' exit from several group
life and long-term disability reinsurance pools in the second half of 1995 and
the sale of AmerUs' remaining group life operation in the third quarter of 1996.
Universal life product charges increased slightly in 1996 primarily due to
increased cost of insurance charges as a result of the normal aging of that
block of business.
Net investment income decreased by $0.3 million to $284.9 million in 1996
compared to $285.2 million in 1995. The decrease in net investment income in
1996 was attributable to an increase in average invested assets more than offset
by declines in the effective yields on average invested assets. Average invested
assets (excluding market value adjustments) increased by $171.8 million to
$3,790.1 million in 1996, compared to $3,618.3 million in 1995. The increase in
average invested assets in 1996 was largely attributable to the investment of
the $175.0 million proceeds from bank borrowings late during the year. The
effective yield on average invested assets (excluding market value adjustments)
decreased to 7.52% in 1996 from 7.88% in 1995. The decrease in effective yield
in 1996 was primarily due to lower bond yields and the timing of the investment
of the proceeds from the bank borrowing.
Realized gains on investments were $66.4 million in 1996 compared to gains
of $51.4 million in 1995. The increase in gains of $15.0 million in 1996
resulted primarily from increased sales of common stock in the investment
portfolio. The sale of common stock in 1996 was a direct result of AmerUs'
decision to reduce the level of equity securities as a percentage of its
investment portfolio on a long-term basis. Proceeds from these sales were
invested primarily in fixed maturity securities.
Other revenues decreased $2.7 million in 1996 to $2.7 million compared to
$5.4 million in 1995. Other revenues in 1995 included a gain of $3.1 million
which resulted from the curtailment of AmerUs' defined benefit pension plans
effective December 31, 1995. Effective January 1, 1996, such defined benefit
pension plans were replaced with a defined contribution savings retirement plan.
A summary of AmerUs' combined policyowner benefits, including policyowner
benefits associated with the Closed Block, follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Traditional life insurance
Death benefits........................................................................ $ 32,251 $ 32,196
Change in liability for future policy benefits and other policy benefits.............. 160,036 152,742
----------- -----------
Total traditional life insurance benefits........................................... 192,287 184,938
Universal life insurance
Death benefits in excess of cash value................................................ 23,871 20,802
Interest credited to policyowner account balances..................................... 43,203 41,532
Other policy benefits................................................................. 3,026 5,218
----------- -----------
Total universal life insurance benefits............................................. 70,100 67,552
Annuities
Interest credited to deferred annuity account balances................................ 66,254 78,120
Other annuity benefits................................................................ 34,334 35,582
----------- -----------
Total annuity benefits.............................................................. 100,588 113,702
Miscellaneous benefits.................................................................. 2,845 8,428
----------- -----------
Total policyowner benefits.......................................................... $ 365,820 $ 374,620
----------- -----------
----------- -----------
</TABLE>
144
<PAGE>
Total policyowner benefits were $365.8 million in 1996 compared to $374.6
million in 1995. Traditional life insurance benefits increased by $7.3 million
in 1996 primarily due to the growth in the amount of such business inforce.
Universal life insurance benefits increased by $2.5 million in 1996. The
increased benefits in 1996 were due to increased death benefits due to higher
mortality and increased interest credited to policyowner account balances. While
the weighted average crediting rate for AmerUs' universal life liabilities
decreased 19 basis points to 6.27% in 1996 from 6.46% in 1995, AmerUs' average
liabilities increased $39.8 million from 1995 to 1996, resulting in the
increased credited amounts in 1996.
Annuity benefits decreased $13.1 million in 1996 to $100.6 million compared
to $113.7 million in 1995. Such benefits decreased in 1996 primarily due to
reduced interest credited to policyowner account balances. The weighted average
crediting rate for AmerUs' individual deferred annuity liabilities decreased 80
basis points to 5.36% in 1996 compared to 6.16% in 1995 and AmerUs' average
deferred annuity liabilities decreased $71.0 million from 1995 to 1996, also
contributing to the lower interest credited amounts in 1996.
Miscellaneous benefits decreased significantly in 1996 primarily due to
AmerUs' exit from several group life and long-term disability reinsurance pools
in the second half of 1995 and the sale of AmerUs' remaining group life
operation in the third quarter of 1996.
A summary of AmerUs' combined expenses, including expenses associated with
the Closed Block, follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Commission expense, net of deferrals.................................................... $ 7,892 $ 10,448
Other underwriting, acquisition and insurance expenses, net of deferrals................ 54,787 48,207
Amortization of deferred policy acquisition costs....................................... 58,572 50,239
----------- -----------
Total expenses...................................................................... $ 121,251 $ 108,894
----------- -----------
----------- -----------
</TABLE>
Commission expense, net of deferrals, decreased $2.5 million to $7.9 million
in 1996 compared to $10.4 million in 1995. The reduction in 1996 was primarily
due to a decrease in gross commission expense as a result of lower life
insurance sales in 1996 and the transfer of new annuity sales to the Ameritas
Joint Venture in May 1996. Other underwriting, acquisition and insurance
expenses, net of deferrals, increased by $6.6 million, or 13.7%, to $54.8
million in 1996. The increase in expenses during 1996 was due to increased costs
related to the AmerUs Reorganization of $0.1 million, the formation of the
Ameritas Joint Venture of $0.4 million, and expenses related to changing the
name of the life company to AmerUs Life of $0.7 million; higher premium taxes of
$1.1 million due to a one-time adjustment to the amortization of the guaranty
association asset and an increased accrual for estimated future assessments; and
increased settlements and associated legal fees of $4.7 million. 1996
settlements and legal fees included the establishment of a $5.0 million reserve
in connection with certain pending class action litigation.
The amortization of deferred policy acquisition costs increased by $8.3
million in 1996. Since deferred policy acquisition costs are primarily amortized
in proportion to gross margins, the increases in amortization in 1996 are
primarily due to higher gross margins including increased realized capital
gains.
Dividends to policyowners increased by $6.1 million, or 12.3%, to $55.5
million in 1996 compared to $49.4 million in 1995. The increase in dividends was
primarily the result of the growth and aging of inforce business. Traditional
life reserves grew 7.7% from the end of 1995 to the end of 1996, or to $1.21
billion. The weighted average dividend rate credited to these policies was 7.17%
in 1996 compared to 7.14% in 1995.
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<PAGE>
Income before income tax expense and equity in earnings of unconsolidated
subsidiary increased by $6.5 million to $117.0 million in 1996 compared to
$110.5 million in 1995. The increase in 1996 resulted primarily from the
increase in realized gains on investments.
Income tax expense increased $2.6 million in 1996 to $43.8 million compared
to $41.2 million in 1995. The increased 1996 income taxes were the result of the
higher pre-tax income due primarily to the increased realized gains on
investments and a $4.5 million provision for the equity add-on tax in the first
half of 1996, partially offset by $2.7 million of low-income housing tax
credits. The equity add-on tax is applicable only to mutual life insurance
companies and AmerUs believes such tax will not be applicable to AmerUs after
June 30, 1996 due to AmerUs Life's conversion into a stock company.
Net income increased by $4.9 million in 1996 to $74.2 million compared to
$69.3 million in 1995. The increased net income in 1996 resulted largely from
the higher pre-tax income due primarily to the increased realized gains on
investments.
1995 Compared to 1994
A summary of AmerUs' revenues follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Insurance premiums
Traditional life insurance premiums................................................... $ 219,732 $ 209,447
Immediate annuity and supplementary contract premiums................................. 17,659 16,680
Other premiums........................................................................ 6,696 11,785
----------- -----------
Total insurance premiums............................................................ 244,087 237,912
Universal life product charges.......................................................... 56,763 55,815
Annuity product charges................................................................. 607 547
----------- -----------
Total product charges............................................................... 57,370 56,362
Net investment income................................................................... 285,244 275,691
Realized gains (losses) on investments.................................................. 51,387 (19,930)
Other revenues.......................................................................... 5,390 2,391
----------- -----------
Total revenues...................................................................... $ 643,478 $ 552,426
----------- -----------
----------- -----------
</TABLE>
Individual life and annuity premiums and product charges increased $12.3
million to $294.8 million, or 4.4%, from $282.5 million in 1994. Insurance
premiums increased $6.2 million to $244.1 million in 1995 compared to $237.9
million in 1994. Traditional life insurance premiums increased $10.3 million
primarily as a result of continued growth in renewal premiums. Immediate annuity
deposits and supplementary contract premiums were $1.0 million greater in 1995
than 1994 due to increased immediate annuity sales. Other premiums were $5.1
million lower in 1995 than in 1994 primarily due to AmerUs' exit from several
group life and long-term disability reinsurance pools in 1995, as part of
management's continuing review of insurance products' profitability.
Universal life product charges were $0.9 million higher in 1995 compared to
1994 primarily due to increased cost of insurance charges as a result of the
normal aging of that block of business.
Net investment income increased by $9.5 million, or 3.5%, to $285.2 million
in 1995 as compared to $275.7 million in 1994. The increase was attributable to
an increase in average invested assets partially offset by a decline in the
effective yield on average invested assets. Average invested assets (excluding
market value adjustments) increased by $156.1 million in 1995 to $3,618.3
million compared to $3,462.2 million in 1994. The effective yield on average
invested assets (excluding market value adjustments) decreased from 7.96% in
1994 to 7.88% in 1995 reflecting a reduction in interest income on both bonds
and commercial mortgages as a result of lower market interest rates on new
investments.
Realized gains on investments were $51.4 million in 1995 compared to
realized losses of $19.9 million in 1994. The increase of $71.3 million in 1995
resulted primarily from the combination of increased
146
<PAGE>
gains of $32.5 million over 1994 amounts from the sale of common stock and a
gain of $9.4 million in 1995 compared to a loss of $25.5 million in 1994 from
sales of fixed maturity securities. Of the losses incurred in 1994, $21.1
million were incurred in connection with sales of fixed maturity securities
which resulted from a planned investment strategy that maximized the after-tax
proceeds from the sale of selected fixed maturity securities. The sales of
common stock in 1995 were a direct result of AmerUs' decision to reduce the
level of equity securities as a percentage of its investment portfolio on a
long-term basis. Proceeds from these sales were invested primarily in fixed
maturity securities.
Other revenues increased in 1995 by $3.0 million from 1994 levels, primarily
due to a gain of $3.1 million which resulted from the curtailment of AmerUs'
defined benefit pension plans, effective December 31, 1995. See Note 7 to the
Consolidated Financial Statements of AmerUs.
A summary of AmerUs' policyowner benefits follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Traditional life insurance
Death benefits........................................................................ $ 32,196 $ 30,044
Change in liability for future policy benefits and other policy benefits.............. 152,742 149,283
----------- -----------
Total traditional life insurance benefits........................................... 184,938 179,327
Universal life insurance................................................................
Death benefits in excess of cash value................................................ 20,802 20,418
Interest credited to policyowner account balances..................................... 41,532 38,647
Other policy benefits................................................................. 5,218 5,432
----------- -----------
Total universal life insurance benefits............................................. 67,552 64,497
Annuities
Interest credited to deferred annuity account balances................................ 78,120 77,980
Other annuity benefits................................................................ 35,582 34,918
----------- -----------
Total annuity benefits.............................................................. 113,702 112,898
Miscellaneous benefits.................................................................. 8,428 13,174
----------- -----------
Total policyowner benefits.......................................................... $ 374,620 $ 369,896
----------- -----------
----------- -----------
</TABLE>
Total policyowner benefits increased $4.7 million from 1994 to $374.6
million in 1995. Traditional life benefits increased $5.6 million due to
increased mortality costs and increased liabilities for future policy benefits,
in each case primarily associated with the growth in the amount of such business
inforce. Universal life benefits increased $3.1 million primarily due to
increased interest credited to policyowner account balances. The weighted
average crediting rate for AmerUs' universal life liabilities increased two
basis points from 6.44% in 1994 to 6.46% in 1995, and AmerUs' average
liabilities increased $41.9 million, or 5.8%, from 1994 to 1995, resulting in
the increased credited amounts in 1995.
Annuity benefits increased $0.8 million in 1995 to $113.7 million compared
to $112.9 million in 1994. Such benefits increased due to increased interest
credited to policyowner account balances and increased other annuity benefits.
While the weighted average crediting rate for AmerUs' individual deferred
annuity liabilities decreased 25 basis points to 6.16% in 1995 compared to 6.41%
in 1994, AmerUs' average liabilities increased $32.1 million, or 2.5%, from 1994
to 1995, resulting in the increased interest credited amounts in 1995. The
increased other annuity benefits were the result of continued growth in the
immediate annuity and supplementary contract business inforce.
The decrease in miscellaneous benefits of $4.8 million to $8.4 million in
1995 compared to $13.2 million in 1994 was primarily the result of AmerUs' exit
from several group life and long-term disability reinsurance pools in 1995.
147
<PAGE>
A summary of AmerUs' expenses follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Commission expense, net of deferrals.................................................... $ 10,448 $ 9,451
Other underwriting, acquisition and insurance expenses, net of deferrals................ 48,207 59,153
Amortization of deferred policy acquisition costs....................................... 50,239 42,756
----------- -----------
Total expenses...................................................................... $ 108,894 $ 111,360
----------- -----------
----------- -----------
</TABLE>
Commission expense, net of deferrals, increased $1.0 million, or 10.5%, in
1995 to $10.4 million, primarily as a result of the integration of the product
lines of Central Life and Old AML and an increase in gross commissions of $3.0
million as a result of increased annuity sales in 1995. Other underwriting,
acquisition and insurance expenses, net of deferrals, decreased in 1995 by $10.9
million, or 18.5%, to $48.2 million. 1995 was the first year of the consolidated
operations of Central Life and Old AML. As a result of the combination,
approximately $7.8 million of cost reductions were realized in 1995 from 1994
combined levels, excluding the merger-related expenses described below. These
reductions in 1995 were partially offset by increased legal and settlement costs
of $1.1 million, higher incentive compensation of $1.0 million and $2.2 million
of expenses related to the investigation and review of alternative capital
structures, including implementing the AmerUs Reorganization. Included in 1994
expenses were approximately $10.0 million of expenses related to the merger of
Central Life and Old AML compared to $2.2 million of merger-related costs in
1995.
The amortization of deferred policy acquisition costs increased by $7.4
million to $50.2 million in 1995 compared to $42.8 million in 1994. The increase
in amortization in 1995 was primarily due to higher realized gains and gross
margins in 1995 than in 1994.
Dividends to policyowners increased by $4.4 million, or 9.8%, to $49.4
million in 1995 compared to $45.0 million in 1994. The growth in dividends was
primarily the result of the growth and aging of the inforce policies.
Traditional life reserves grew 8.4% from 1994 to $1.12 billion in 1995. The
weighted average dividend rate credited to these policies was 7.14% for 1995 and
1994.
Income before income tax expense and equity in earnings of unconsolidated
subsidiary increased by $84.4 million, or 323%, to $110.5 million in 1995
compared to $26.1 million in 1994. The increase resulted primarily from the $9.5
million increase in net investment income, net realized gains on investments of
$51.4 million in 1995 as compared to net realized losses on investments of $19.9
million in 1994, and reduced expenses, partially offset by higher dividends to
policyowners.
Income tax expense increased by $21.8 million to $41.2 million in 1995 as
compared to $19.4 million in 1994. The increased 1995 income taxes were the
result of the higher pre-tax income discussed above. The effective income tax
rate for 1995 was 37.3% and for 1994 was 74.5%. In 1994, American Mutual Life
was subject to the equity add-on tax which resulted in an additional $9.6
million of current income tax expense. The effective income tax rate for 1994,
adjusted to remove the equity add-on tax, would have been 37.8%. The 1995 equity
add-on tax was zero.
Net income increased by $62.6 million in 1995 to $69.3 million from $6.7
million in 1994. This increase resulted from the increases in pre-tax income
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
AmerUs. AmerUs' cash flows from operations consist of dividends from
subsidiaries, if declared and paid, interest income on loans and advances to its
subsidiaries (including a surplus note issued to AmerUs by AmerUs Life),
investment income on assets held by AmerUs and fees which AmerUs charges AmerUs
Group, AmerUs Life, Delta and certain other of its affiliates for management
services, offset by the expenses incurred for debt service, salaries and other
expenses.
148
<PAGE>
AmerUs intends to rely primarily on dividends and interest income from
AmerUs Life and Delta in order to make dividend payments to its shareholders.
The payment of dividends by AmerUs Life to AmerUs is regulated under Iowa law.
Under Iowa law, AmerUs Life may pay dividends only from the earned surplus
arising from its business and must receive the prior approval of the Iowa
Commissioner to pay a dividend if such dividend would exceed certain statutory
limitations. The current statutory limitation is the greater of (i) 10% of
AmerUs Life's capital and surplus as of the preceding year end or (ii) the net
gain from operations for the previous calendar year. Iowa law gives the Iowa
Commissioner broad discretion to disapprove requests for dividends in excess of
these limits. Based on this limitation and 1996 statutory results, and absent
the AmerUs Reorganization, AmerUs Life would have been able to pay approximately
$34 million in dividends without obtaining the Iowa Commissioner's approval.
However, as a result of the AmerUs Reorganization, AmerUs Life is not able to
pay dividends to AmerUs until December 1997 without the prior approval of the
Iowa Commissioner. Thus far in 1997, AmerUs Life has requested and received
approval to pay $10 million of dividends. See "--Business--Supervision and
Regulation." It is AmerUs Life's intention to seek regulatory approval to pay
additional dividends to AmerUs during 1997. The payment of dividends by Delta to
AmerUs is regulated under Tennessee law, which has statutory limitations similar
to Iowa's. Based on these limitations and 1996 statutory results, Delta could
pay $8.7 million in dividends in 1997. Management believes that AmerUs will have
adequate access to capital through the public equity and debt markets and the
Bank Credit Facility to meet presently anticipated capital requirements.
On October 23, 1997, AmerUs entered into a $250 million revolving credit
facility with a syndicate of lenders (the "BANK CREDIT FACILITY") to be used to
replace its existing revolving credit facility, to finance the acquisition of
Delta, to finance permitted mergers and acquisitions and to finance other
general corporate purposes. The Bank Credit Facility is secured by a pledge of
approximately 49.9% of the outstanding common stock of AmerUs Life, 100% of the
outstanding common stock of Delta and a $50 million 9% surplus note payable to
AmerUs by AmerUs Life. As of October 31, 1997, there was an outstanding loan
balance of $235.1 million under the facility. The Bank Credit Facility provides
for typical events of default and covenants with respect to the conduct of the
business of AmerUs and its subsidiaries and requires the maintenance of various
financial levels and ratios. Among other covenants, AmerUs (a) cannot have a
leverage ratio greater than 0.35:1.0 or an interest coverage ratio less than
2.5:1.0, (b) is prohibited from paying cash dividends on its common stock in
excess of an amount equal to 3% of its consolidated net worth as of the last day
of the preceding fiscal year, and (c) must cause certain of its subsidiaries
including AmerUs and Delta Life to maintain certain ratings from A.M. Best and
certain levels of adjusted capital and surplus and risk-based capital.
AmerUs may also be affected by the restrictions under the existing credit
agreement of AmerUs Group described above (see "--Business--Certain Transactions
and Relationships--Restrictions under AmerUs Group Financing").
Following consummation of the Merger, AmerUs management currently expects
AmerUs to issue approximately $200 million in debt securities. It is currently
anticipated that the proceeds would be used to pay down indebtedness under the
Bank Credit Facility and the amount available under the facility would be
reduced to $150 million.
AmerUs may from time to time review other potential acquisition
opportunities. AmerUs anticipates that funding for any such acquisition may be
provided from available cash resources or from debt or equity financing. In the
future AmerUs anticipates that its liquidity and capital needs will be met
through interest and dividends from its life insurance subsidiaries, accessing
the public equity and debt markets depending upon market conditions, or
alternatively from bank financing.
Life Insurance Subsidiaries. The cash inflows of AmerUs' life insurance
subsidiaries consist primarily of premium income, deposits to policyowner
account balances, income from investments, sales, maturities and calls of
investments and repayments of investment principal. Cash outflows are primarily
related to withdrawals of policyowner account balances, investment purchases,
payment of policy acquisition costs, payment of policyowner benefits, income
taxes and current operating expenses. Life
149
<PAGE>
insurance companies generally produce a positive cash flow from operations, as
measured by the amount by which cash inflows are adequate to meet benefit
obligations to policyowners 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.
Management anticipates that funds to meet its short-term and long-term
capital expenditures, cash dividends to shareholders 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-backed securities
and its insurance products, will be adequate to meet the anticipated short-term
cash obligations of AmerUs' life insurance subsidiaries.
AmerUs generated cash flows from operating activities of $106.3 million,
$147.6 million, $189.1 million and $172.4 million for the six months ended June
30, 1997 and for the years ended December 31, 1996, 1995 and 1994, respectively.
Excess operating cash flows were primarily used to increase AmerUs' fixed
maturity investment portfolio consistent with the long-term investment objective
of AmerUs to reduce the level of equity investments and mortgages as a
percentage of its investment portfolio.
Delta generated cash flows (deficits) from operating activities of $5.6
million, $7.9 million, $(5.8) million and $1.3 million for the six months ended
June 30, 1997 and for the years ended December 31, 1996, 1995 and 1994,
respectively. Excess operating cash flows were primarily used to increase
Delta's fixed maturity investment portfolio.
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 product and annuity. AmerUs continuously monitors benefits and
surrenders to provide projections of future cash requirements. As part of this
monitoring process, AmerUs performs cash flow testing of its assets and
liabilities under various scenarios to evaluate the adequacy of reserves. In
developing its investment strategy, AmerUs establishes 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-backed securities, are believed adequate to meet anticipated short-term
and long-term benefit and expense payment obligations. There can be no assurance
that future experience regarding benefits and surrenders will be similar to
historic experience since withdrawal and surrender levels are influenced by such
factors as the interest rate environment and the claims-paying and financial
strength ratings of AmerUs' life insurance subsidiaries. See "RISK
FACTORS--Future Policy Benefits Exposure" and "--Interest Rate Fluctuations;
Risk of Impact on Forced Liquidation of Investment Portfolio."
AmerUs takes into account asset-liability management considerations.
Contract terms for AmerUs' interest-sensitive products include surrender and
withdrawal provisions which mitigate the risk of losses due to early
withdrawals. These provisions generally do one or more of the following: limit
the amount of penalty-free withdrawals, limit the circumstances under which
withdrawals are permitted, or assess a surrender charge or market value
adjustment relating to the underlying assets. The following table summarizes
statutory liabilities for interest-sensitive life products and annuities by
their contractual withdrawal provisions at June 30, 1997 (dollars in millions):
<TABLE>
<S> <C> <C>
Not subject to discretionary withdrawal..................... $ 209
Subject to discretionary withdrawal with adjustments:
Specified surrender charges (A)........................... 901
Market value adjustments.................................. 386
---------
Subtotal................................................ 1,287
---------
Subject to discretionary withdrawal without adjustments..... 586
---------
Total................................................... $ 2,082
---------
---------
</TABLE>
- --------------
(A) Includes $318 million of statutory liabilities with a contractual surrender
charge of less than five percent of the account balance.
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Through its membership in the Federal Home Loan Bank of Des Moines, AmerUs
Life is eligible to borrow on a line of credit available to provide it
additional liquidity. The line of credit, the amount of which is re-set
annually, is based on the amount of capital stock of the Federal Home Loan Bank
of Des Moines owned by AmerUs Life, which supported a borrowing capacity of
$33.4 million as of June 30, 1997. Interest is payable at a current rate at the
time of any advance. As of June 30, 1997, AmerUs Life had a $25 million open
secured line of credit against which $19.9 million had been borrowed.
AmerUs' life insurance subsidiaries may also obtain liquidity through sales
of investments or borrowings collateralized by their investment portfolios.
AmerUs' investment portfolio as of June 30, 1997 had a carrying value of $4.0
billion, including Closed Block investments. As of June 30, 1997, fixed maturity
securities were $3.4 billion, or 83.7% of invested assets, with public and
private fixed maturity securities constituting $3.0 billion, or 75.5%, and
$326.8 million, or 8.2%, of total fixed maturity securities, respectively. See
"--Business--Investment Portfolio." Delta's investment portfolio as of June 30,
1997 had a carrying value of $1.8 billion.
At June 30, 1997, the statutory surplus of AmerUs Life and Delta Life was
approximately $295 million and $88.5 million, respectively. AmerUs believes that
these levels of statutory capital are more than adequate as each life insurance
subsidiary's risk-based capital is significantly in excess of required levels.
See "--Business--Supervision and Regulation--Regulation of Life Insurance
Subsidiaries."
In the future, in addition to their cash flows from operations and borrowing
capacity, the life insurance subsidiaries would anticipate obtaining their
required capital from AmerUs as AmerUs will have access to the public debt and
equity markets.
EFFECTS OF INFLATION AND INTEREST RATE CHANGES. AmerUs does not believe
that inflation has had a material effect on its consolidated results of
operations.
Interest rate changes may have temporary effects on the sale and
profitability of the annuities and life insurance products offered by AmerUs.
For example, if interest rates rise, competing investments (such as annuities or
life insurance products offered by AmerUs' competitors, certificates of deposit,
mutual funds, and similar instruments) may become more attractive to potential
purchasers of AmerUs' products until AmerUs increases the interest rate credited
to owners of its annuities and life insurance products. In contrast, as interest
rates fall, AmerUs attempts to adjust its credited rates to compensate for the
corresponding decline in reinvestment rates. AmerUs monitors interest rates and
sells annuities and life insurance policies that permit flexible responses to
interest rate changes as part of AmerUs' management of interest spreads.
However, the profitability of AmerUs' products is not based solely upon interest
rate spreads but also on persistency, mortality and expenses.
AmerUs manages its investment portfolio in part to reduce its exposure to
interest rate fluctuations. In general, the market value of AmerUs' fixed
maturity portfolio increases or decreases in an inverse relationship with
fluctuations in interest rates, and AmerUs' net investment income increases or
decreases in a direct relationship with interest rate changes.
Although all of its assets support all of its liabilities, AmerUs has
developed an asset/liability management approach with separate investment
portfolios for major product lines such as traditional life, universal life and
annuities. Investment policies and strategies have been established based on the
specific characteristics of each product line. The portfolio investment policies
and strategies establish asset duration, quality and other guidelines. AmerUs
utilizes analytical systems to establish an optimal asset mix for each line of
business. AmerUs seeks to manage the asset/liability mismatch and the associated
interest rate risk through active management of the investment portfolio.
Financial, actuarial, investment, product development and product marketing
professionals work together throughout the product development, introduction and
management phases to jointly develop and implement product features, initial and
renewal crediting strategies, and investment strategies based on extensive
modeling of a variety of factors under a number of interest rate scenarios.
Inforce reserves and the assets allocated to each segment are modeled on a
regular basis to analyze projected cash flows under a variety of economic
scenarios. The result of this modeling is used
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to modify asset allocation, investment portfolio duration and convexity and
renewal crediting strategies. AmerUs does invest in collateralized mortgage
obligations as part of its basic portfolio strategy, but uses other types of
derivatives only as a hedge against the effects of interest rate fluctuations or
to synthetically alter the investment characteristics of specific assets. For a
further discussion and disclosure of the nature and extent of AmerUs' use of
derivatives, see Note 13 to the Consolidated Financial Statements of AmerUs.
FEDERAL INCOME TAX MATTERS. Until February 3, 1997, AmerUs and its
subsidiaries filed as part of a consolidated United States federal income tax
return with AMHC and its subsidiaries. For the short tax year beginning February
4, 1997, AmerUs and its subsidiaries will not file as part of a consolidated
United States federal income tax return with AMHC. Further, AmerUs and its
subsidiaries (including AmerUs Life and Delta) would not be eligible to file a
consolidated life/non-life United States federal income tax return until January
1, 2003, subject to the other requirements of federal income tax law relating to
consolidation.
EMERGING ACCOUNTING MATTERS.
SFAS Nos. 125 and 127. In June 1996, the FASB issued Statement No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." SFAS No. 125 provides consistent accounting standards for
securitizations and other transfers of assets, determines when financial assets
or liabilities should be considered sold or settled and removed from the balance
sheet, and determines when related revenues and expenses should be recognized.
FASB Statement No. 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996. In
December 1996, the FASB issued Statement No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125, an Amendment of FASB
Statement No. 125." SFAS No. 127 defers the provisions of SFAS No. 125 for one
year related to repurchase agreements, dollar-rolls, securities lending, and
similar transactions. SFAS No. 125 and 127 are applicable to AmerUs. However,
management believes they will have no material effect on AmerUs' consolidated
financial statements.
SFAS No. 128. In February 1997, the FASB issued Statement No. 128,
"Earnings Per Share." SFAS No. 128 specifies the computation, presentation, and
disclosure requirements for earnings per share for entities with publicly held
common stock. Basic earnings per share is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the dilution
that would occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. SFAS No. 128 is effective
for interim and annual periods ending after December 15, 1997. All prior period
earnings per share data presented will be restated for the provisions of SFAS
No. 128.
SFAS No. 129. In February 1997, the FASB issued Statement No. 129,
"Disclosure of Information about Capital Structure." SFAS No. 129 requires
disclosures about capital structures, including pertinent rights and privileges
of various securities outstanding; the number of shares issued upon conversion,
exercise, or satisfaction of required conditions during the most recent fiscal
period; the aggregate liquidation preference in involuntary liquidation for
preferred stock or other senior stock; the aggregate per-share amounts at which
preferred stock may be called or is subject to redemption; and the amount of
redemption requirements for all issues of capital stock that are redeemable at
fixed or determinable prices on fixed or determinable dates in each of the five
years following the latest balance sheet presented. SFAS No. 129 is effective
for financial statements for periods ending after December 15, 1997. The
provisions of SFAS No. 129 are of a reporting nature and are not expected to
have an impact on the financial position or results of operations of AmerUs.
SFAS No. 130. In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components: revenues, expenses, gains,
and losses. All items that are required to be recognized under accounting
standards as components of comprehensive income, consisting of changes in equity
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of a business enterprise during a period from transactions and other events and
circumstances from nonowner sources, are to be reported in a financial statement
that is displayed with the same prominence as other financial statements. SFAS
No. 130 is effective for financial statements beginning after December 15, 1997.
The provisions of SFAS No. 130 are of a reporting nature and are not expected to
have an impact on the financial position or results of operations of AmerUs.
SFAS No. 131. In June 1997, the FASB issued Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the way that public businesses report information
about operating segments in financial statements. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and assess performance. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. The provisions of SFAS No. 131 are of a
reporting nature and are not expected to have an impact on the financial
position or results of operations of AmerUs.
Statutory Accounting Codification. The NAIC currently is in the process of
codifying statutory accounting practices, the result of which is expected to
constitute the only source of "prescribed" statutory accounting practices.
Accordingly, that project, which is not expected to be effective before the end
of 1999, will likely change certain statutory accounting practices. The
codification may result in changes to the permitted or prescribed accounting
practices that AmerUs' insurance subsidiaries use to prepare their
statutory-basis financial statements.
YEAR 2000 COMPLIANCE. As the year 2000 approaches, an important business
issue has emerged regarding how existing application software programs and
operating systems can accommodate the date value "2000." Many existing
application software products were designed to only accommodate a two digit date
position which represents the year (E.G., the number "95" is stored on the
system and represents the year 1995). As a result, the year 1999 (i.e., "99") is
the maximum date value many systems will be able to accurately process. AmerUs
has formed a year 2000 working group to address potential problems posed by this
development to assure that AmerUs is prepared for the year 2000. Management does
not anticipate that AmerUs will incur significant operating expenses or be
required to invest heavily in computer system improvements to address the year
2000 issues. However, if modifications and conversions to deal with year 2000
issues are not completed on a timely basis or are not fully effective, such
issues may have a material adverse effect on the operations of AmerUs. All costs
associated with year 2000 modifications and conversions will be expensed as
incurred.
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EXECUTIVE COMPENSATION
EXECUTIVE OFFICER COMPENSATION. None of the officers listed below received
any compensation during 1995 or 1996 from AmerUs. All compensation received,
earned or accrued by such officers has been from AmerUs Life.
The following Summary Compensation Table sets forth certain information
concerning compensation for services rendered in all capacities awarded or paid
by AmerUs (including compensation paid by AmerUs Life) to its Chief Executive
Officer and the four other most highly compensated executive officers of AmerUs
as of its most recently completed fiscal year (collectively, the "NAMED
EXECUTIVE OFFICERS") during the fiscal years ended December 31, 1996 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------
---------------------- LTIP ALL OTHER
SALARY BONUS(A) PAYOUTS(B) COMPENSATION(C)
NAME AND PRINCIPAL POSITION FISCAL YEAR $ $ $ $
- ------------------------------------------ --------------- --------- ----------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Roger K. Brooks 1996 455,000 415,000 290,400 90,446
Chairman, President and Chief Executive 1995 440,000 300,000 352,000 --
Officer of AmerUs and Chairman of AmerUs
Life
D T Doan (D) 1996 287,500 125,000 113,400 39,859
Former Vice Chairman of AmerUs and 1995 275,000 132,500 137,600 --
Former President of AmerUs Life
Thomas C. Godlasky 1996 262,500 110,000 103,070 26,202
Executive Vice President and Chief 1995 239,600 -- 125,000 204,000(E)
Investment Officer of AmerUs and AmerUs
Life
Michael E. Sproule 1996 262,500 200,000 103,070 24,921
Executive Vice President and Chief 1995 250,000 200,000 125,000 --
Financial Officer of AmerUs and AmerUs
Life
Sam C. Kalainov 1996 455,000 215,000 290,400 33,604
Former Chairman (F) 1995 440,000 300,000 352,000 --
</TABLE>
- ------------------
(A) In general, bonuses paid pursuant to the Management Incentive Plan. Bonuses
indicated were earned in 1995 and 1996 and were payable in 1996 and 1997,
respectively. In addition to bonuses paid under the Management Incentive
Plan, Mr. Brooks and Mr. Sproule received one-time discretionary bonuses for
1996 of $200,000 and $100,000, respectively.
(B) Long term incentive compensation pursuant to the Performance Share Plan (the
"LTIP"). LTIP payouts indicated were earned in 1995 and 1996 and were
payable in 1996 and 1997, respectively.
(C) Amounts shown as "Other Compensation" for 1996 are comprised of the items
set forth in the table below. Except for Mr. Godlasky, de minimis benefits
and perquisites were paid in 1995.
<TABLE>
<CAPTION>
SUPPLEMENTAL EXECUTIVE
QUALIFIED PLAN RETIREMENT PLAN
------------------------------------------- ----------------------------
401(K) INTERIM INTERIM
MATCHING BASIC BENEFIT BASIC BENEFIT
CONTRIBUTION CONTRIBUTION SUPPLEMENT CONTRIBUTION SUPPLEMENT
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Roger K. Brooks $ 7,500 $ 6,000 $ 13,065 $ 20,104 $ 43,777
D T Doan 7,500 6,000 5,145 11,421 9,793
Thomas G. Godlasky 7,500 6,000 12,702
Michael E. Sproule 7,500 6,000 11,421
Sam C. Kalainov 7,500 6,000 20,104
</TABLE>
(D) Mr. Doan retired from AmerUs effective April 30, 1997.
(E) The amount shown reflects payment of a $204,000 sign-on bonus of which a
pro-rata portion is repayable in the event of termination during the initial
36 months of employment.
(F) Mr. Kalainov served as Chairman of AmerUs Life until September 1996 and
remained an employee of AmerUs through December 31, 1996. In August 1996,
Mr. Kalainov became Chairman of AMHC and AmerUs Group.
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COMPENSATION PURSUANT TO STOCK PLANS OF AMERUS
STOCK INCENTIVE PLAN. On September 15, 1996, AmerUs' Board adopted the
AmerUs Life Holdings, Inc. Stock Incentive Plan (the "STOCK PLAN"). The AmerUs
Stock Plan was approved by AmerUs' sole shareholder and became effective on
December 4, 1996. The purpose of the Stock Plan is to enable AmerUs to attract
and retain employees who will contribute to AmerUs' long-term success by
enabling such employees to participate in the long-term success and growth of
AmerUs through an equity interest in AmerUs.
The AmerUs Stock Plan provides for the grant of options (including incentive
stock options and non-qualified stock options), stock appreciation rights and
restricted stock awards.
The summary of the AmerUs Stock Plan which appears below is qualified in its
entirety by reference to the full text of such Plan.
TYPES OF AWARDS. The AmerUs Stock Plan provides for the grant of any or all
of the following types of awards: (1) stock options, including incentive stock
options and non-qualified stock options; (2) stock appreciation rights; and (3)
restricted stock. Awards may be granted in combination as determined by the
Human Resources Committees of the AmerUs Board (the "COMMITTEE").
TERM. The AmerUs Stock Plan will terminate ten years after its effective
date (the "TERMINATION DATE"). No awards shall be granted pursuant to the AmerUs
Stock Plan after the Termination Date, but awards granted prior thereto may
extend beyond such time. The AmerUs Board may terminate the AmerUs Stock Plan
prior to the Termination Date; however, termination of the AmerUs Stock Plan
will not affect awards made prior to termination.
ELIGIBILITY. Officers and other key and high potential employees of AmerUs,
its affiliates and its subsidiaries (but excluding members of the Committee and
any person who serves only as a director) who are responsible for or contribute
to the management, growth and/or profitability of the business of AmerUs are
eligible to be granted stock options, stock appreciation rights, or restricted
stock awards. The options and participants under the AmerUs Stock Plan are
selected from time to time by the Committee, in its sole discretion, from among
those eligible, and the Committee determines, in its sole discretion, the number
of shares covered by each award or grant.
SHARES SUBJECT TO THE STOCK PLAN. The total number of shares of AmerUs
Class A Common Stock reserved and available for distribution under the AmerUs
Stock Plan is 1.4 million. Such shares may consist, in whole or in part, of
authorized and unissued shares or treasury shares. If any shares of AmerUs Class
A Common Stock that have been optioned cease to be subject to option, or if any
shares subject to Restricted Stock Award granted thereunder are forfeited or
such awards otherwise terminate, such shares shall again be available for
distribution in connection with future awards under the AmerUs Stock Plan. The
maximum total number of shares subject to awards which may be granted under the
AmerUs Stock Plan in any one year is 700,000, and the maximum number of shares
subject to awards which may be granted under the Stock Plan to any individual in
any one year is 230,000 (in both cases, subject to appropriate adjustments to
reflect changes in the capitalization of AmerUs).
STOCK OPTIONS. The Committee is authorized to determine the terms and
conditions of all option grants, subject to the limitations that the option
price per share may not be less than the fair market value of a share of AmerUs'
common stock on the date of grant and the term of an option may not be longer
than ten (10) years. Payment of the option price may be made in any manner
specified by the Committee (which may include cash or common stock of AmerUs, or
by "cashless exercise").
STOCK APPRECIATION RIGHTS ("SARS"). The Committee is authorized to grant
SARs in tandem with options under the AmerUs Stock Plan. A SAR can be exercised
only to the extent the option with respect to which it is granted is not
exercised, and is subject to the same terms and conditions as the option to
which it relates. Upon exercise of a SAR, the holder will be entitled to
receive, for each share with respect to which the SAR is exercised, an amount
(the "APPRECIATION") equal to the difference between the option
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price of the related option and the fair market value of a share of common stock
of AmerUs on the date of exercise of the SAR. The appreciation will be payable
in cash or AmerUs Class A Common Stock, at the discretion of the Committee.
RESTRICTED STOCK. The Committee is authorized to award restricted stock
under the AmerUs Stock Plan subject to the terms and conditions as the Committee
may determine. The Committee has the authority to determine the number of shares
of restricted stock to be awarded, the price, if any, to be paid by the
recipient of the restricted stock, and the date or dates on which the restricted
stock will vest. The vesting of restricted stock may be conditioned upon the
completion of a specific period of service with AmerUs, upon the attainment of
specified performance goals, or upon such other criteria as the Committee may
determine. The AmerUs Stock Plan gives the Committee discretion to make loans to
the recipients for the purchase price of restricted stock and to accelerate the
vesting of restricted stock on a case by case basis at any time.
FEDERAL INCOME TAX ASPECTS UNDER THE AMERUS STOCK PLAN. The following is a
brief summary of the federal income tax consequences of awards made under the
AmerUs Stock Plan. This summary does not describe state, local or foreign tax
consequences. The information contained in this section is based on present law
and regulations, which are subject to be changed prospectively or retroactively.
The optionee will recognize no taxable income upon the grant or exercise of
an Incentive Stock Option (as defined under the AmerUs Stock Plan), and AmerUs
will not be entitled to any deduction. Upon a disposition of the shares after
the later of two years from the date of grant and one year from the date of
exercise, the participant will recognize long-term capital gain or loss equal to
the difference, if any, between the amount realized and the exercise price. The
excess, if any, of the fair market value of the shares of AmerUs Class A Common
Stock on the date of exercise of the Incentive Stock Option over the exercise
price may be subject to alternative minimum tax. In such circumstances, no
deduction will be allowed to AmerUs for federal income tax purposes.
If AmerUs Class A Common Stock acquired upon the exercise of an Incentive
Stock Option is disposed of prior to the expiration of the holding periods
described above, (i) the optionee will recognize ordinary compensation income in
the taxable year of disposition in an amount equal to the excess, if any, of the
lesser of the fair market value of the shares on the date of exercise and the
amount realized on the disposition of the shares, over the exercise price paid
for such shares; and (ii) AmerUs will be entitled to a corresponding deduction.
With respect to Non-Qualified Options (as defined under the AmerUs Stock
Plan) (i) upon grant of the option, the optionee will recognize no income; and
(ii) upon exercise of the option, the optionee will recognize ordinary
compensation income in an amount equal to the excess, if any, of the fair market
value of the shares on the date of exercise over the exercise price, and AmerUs
will be entitled to a corresponding deduction. On the disposition of the shares,
the optionee will recognize gain or loss equal to the amount realized and the
sum of the exercise price and the ordinary compensation income realized. Such
gain or loss will be treated as either short-term or long-term capital gain or
loss, depending upon the length of time that the optionee has held the shares.
An optionee recognizes no taxable income upon the grant of a SAR, and AmerUs
is not entitled to a deduction. An optionee will recognize ordinary income, and
AmerUs will be entitled to a deduction, at the time of exercise equal to the
cash or fair market value of common stock payable upon such exercise.
The grant of Restricted Stock (as defined under the AmerUs Stock Plan) under
the AmerUs Stock Plan will not result in income for the grantee or in a
deduction for AmerUs, assuming the shares transferred are subject to a
"substantial risk of forfeiture" as intended by AmerUs. If there are no such
restrictions, the grantee would recognize ordinary income upon receipt of
shares. Dividends paid to the grantee while the stock remains subject to
restriction will be treated as compensation for federal income tax purposes. At
the time the restrictions lapse, the grantee will recognize ordinary income, and
AmerUs will be entitled to a deduction measured by the fair market value of the
shares at the time of lapse.
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However, an optionee may elect to recognize income measured by the fair market
value of the shares at the time of grant and AmerUs will be entitled to a
corresponding deduction.
Awards paid to certain executive officers may be subject to the limitations
under Section 162(m) of the Code that prohibit the deduction of certain
compensation paid in excess of $1,000,000 in any taxable year. The application
of such section to awards made under plans adopted and approved prior to the
time at which a company's stock becomes publicly traded is not clear. AmerUs
believes that compensation payable pursuant to options granted under the AmerUs
Stock Plan should not be limited as to deductibility by reason of Section 162(m)
and that compensation payable in respect of other awards may fail to be
deductible for federal income tax purposes unless such awards qualify for
certain exemptive relief that may be available for grants made prior to the
first meeting of shareholders of AmerUs at which directors are elected in 1999.
On July 28, 1997, the Committee made grants of Non-Qualified Options under
the AmerUs Stock Plan to purchase AmerUs Class A Common Stock to the Named
Executive Officers as follows: Mr. Brooks (165,000 shares), Mr. Godlasky (60,000
shares), Mr. Sproule (60,000 shares) and Mr. Kalainov (165,000 shares). Mr. Doan
retired prior to July 28, 1997 and therefore did not receive options. On the
same date as the grants to the Named Executive Officers, Non-Qualified Options
for the purchase of 214,000 shares were made to 31 other employees of AmerUs.
All of the options granted have a per share exercise price equal to $27.875 and
expire on July 28, 2007.
NON-EMPLOYEE DIRECTOR STOCK PLAN. On September 15, 1996, AmerUs' Board
adopted the AmerUs Life Non-Employee Director Stock Plan (the "DIRECTOR PLAN").
The Director Plan was approved by AmerUs' sole shareholder and became effective
on December 4, 1996. The purpose of the Director Plan is to provide stock-based
compensation to eligible Directors of AmerUs in order to encourage a high level
of Director performance and to provide Directors with a proprietary interest in
AmerUs' success.
The Director Plan provides for grants of restricted shares of AmerUs Class A
Common Stock ("RESTRICTED SHARES") and for the grant of options to purchase
shares of AmerUs Class A Common Stock. To date, no Restricted Shares or options
have been granted.
The Director Plan is administered by the Committee. The total number of
shares of AmerUs Class A Common Stock reserved and available for distribution
under the Director Plan is 150,000. Such shares may consist, in whole or in
part, of authorized and unissued shares or treasury shares.
Each Non-Employee Director of AmerUs is eligible to participate in the
Director Plan. A "Non-Employee Director" for this purpose means Directors who
are not officers for purposes of Section 16 of the Exchange Act or otherwise
employed, or a consultant to, AmerUs or any of its affiliates, and who is an
outside director under Section 1.162-27(e)(3) of the regulations promulgated
under the Code.
STOCK OPTIONS. Beginning January 1, 1998, options for 2,500 shares of
AmerUs Class A Common Stock will be granted to each Non-Employee Director
automatically on the first day of each calendar year in which the AmerUs Class A
Common Stock is publicly traded on Nasdaq. Options granted under the Director
Plan shall be evidenced by a written agreement in such form as the Committee
shall from time to time approve. The option price per share of AmerUs Class A
Common Stock purchasable under an option shall be 100% of the fair market value
of the AmerUs Class A Common Stock on the date of the grant of the option. Each
option shall be exercisable for a term of ten (10) years from the date such
option is granted. Options will not become exercisable until the expiration of
twelve (12) months from the date of the grant of the option.
RESTRICTED STOCK AWARDS. Each Non-Employee Director may elect, pursuant to
a written irrevocable election, to receive Restricted Stock in lieu of part or
all of such Non-Employee Director's director fees. The number of shares of
Restricted Stock granted to a Non-Employee Director pursuant to such election
shall be equal to the dollar amount of director fees which the Non-Employee
Director has
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elected not to receive, divided by seventy-five percent (75%) of the fair market
value of the AmerUs Class A Common Stock as of the date of payment.
Generally, a Non-Employee Director will not be permitted to sell, transfer,
pledge or assign shares of Restricted Stock awarded under the Director Plan for
a period of one (1) year following the effective date of the Restricted Stock
Agreement pursuant to which such shares of Restricted Stock are awarded.
FEDERAL INCOME TAX ASPECTS UNDER THE DIRECTOR PLAN. Federal income tax
consequences of options and Restricted Stock granted under the Director Plan are
the same as those described with respect to Non-Qualified Options and Restricted
Stock under the AmerUs Stock Plan.
COMPENSATION PURSUANT TO PLANS OF AMERUS
MANAGEMENT INCENTIVE PLAN. AmerUs sponsors a Management Incentive Plan
("MIP") for officers and key management employees of AmerUs and its
subsidiaries. On an annual basis, AmerUs establishes various and distinct goals
for its executives and key managers. Goals generally relate to objectives such
as increased revenue, expense levels and earnings. Attainment of individual and
AmerUs goals can generate payment of cash bonuses ranging from 15% to 70% of an
executive's base salary. Payment of these annual incentives is approved by the
AmerUs Board and made in a separate lump-sum on or before the end of February of
the ensuing year.
LONG-TERM INCENTIVE COMPENSATION PLAN. AmerUs established a long-term
incentive compensation Performance Share Plan effective January 1, 1995 (the
"LTIP"). Under the LTIP, the Committee of the AmerUs Board has the authority to
grant Performance Shares to eligible employees on such dates as the Committee
shall determine. Performance Shares which were granted to Named Executive
Officers during 1996 are shown in the following table:
LONG-TERM INCENTIVE PLANS--AWARDS
FOR FISCAL YEAR 1996
<TABLE>
<CAPTION>
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
OTHER PERIOD NON-STOCK PRICE-BASED PLANS
NUMBER OF UNTIL -----------------------------------
SHARES, UNITS OR MATURATION OR THRESHOLD TARGET MAXIMUM
OTHER RIGHTS(#) PAYOUT ($) ($) ($)
----------------- --------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Roger K. Brooks........................... 3,520 1/96-12/98 176,000 352,000 704,000
D T Doan.................................. 1,375 1/96-12/98 46,000 92,000 183,000
Thomas C. Godlasky........................ 1,250 1/96-12/98 62,500 125,000 250,000
Michael E. Sproule........................ 1,250 1/96-12/98 62,500 125,000 250,000
Sam C. Kalainov........................... 3,520 1/96-12/98 176,000 352,000 704,000
</TABLE>
SAVINGS AND PROFIT SHARING PLANS. Each of the Named Executive Officers
participates in the All AmerUs Savings & Retirement Plan, formerly called the
All AmerUs Savings & Retirement Plan for Employees of American Mutual Life (the
"SAVINGS & RETIREMENT PLAN"), a profit sharing plan containing a qualified cash
or deferred arrangement, the All AmerUs Supplemental Executive Retirement Plan
(the "SUPPLEMENTAL PLAN") and the All AmerUs Excess Benefit Plan (the "EXCESS
PLAN"). Each of the Named Executive Officers also has a frozen benefit under
either the American Mutual Life Insurance Company Employees' Pension Plan (the
"AML EMPLOYEES' FROZEN PENSION PLAN") or the American Mutual Life Insurance
(formerly Central Life Assurance) Company Pension Plan (the "AML (FORMERLY
CENTRAL LIFE) FROZEN PENSION PLAN")(the AML Employees' Frozen Pension Plan and
the AML (formerly Central Life) Frozen Pension Plan are hereinafter sometimes
collectively referred to as the "FROZEN PENSION PLANS"). Certain of the Named
Executive Officers additionally have a frozen benefit under the American Mutual
Life Insurance Company Supplemental Executive Retirement Plan (the "AML FROZEN
SERP").
Prior to December 31, 1995, AmerUs maintained three separate defined
contribution plans for eligible employees (collectively the "AMERUS FORMER
SAVINGS PLANS"). Contributions under the AmerUs Former Savings Plans ceased as
of December 31, 1995 and, effective January 1, 1996, the AmerUs
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<PAGE>
Former Savings Plans were merged into the Savings & Retirement Plan. AmerUs
amended the Savings & Retirement Plan, effective February 3, 1997, to allow
other affiliates to adopt the plan. AmerUs, and such entities which adopt the
Savings & Retirement Plan are hereinafter referred to as "Employers".
The Savings & Retirement Plan is intended to be qualified under Section
401(a) of the Code and is administered by the AmerUs Benefit and Pension
Committee (the "BENEFITS COMMITTEE"), whose members are appointed by the AmerUs
Board. The Benefits Committee is responsible for interpreting the provisions of
the Savings & Retirement Plan, making certain amendments thereto and adopting
rules and regulations reasonably necessary or advisable to implement and
administer the AmerUs Stock Plan.
The Savings & Retirement Plan allows for elective employee pretax
contributions, a core and matching contributions made by the Employers,
discretionary profit-sharing contributions and an individually-determined
interim benefit supplement, if applicable. Employee pretax contributions are
governed by Code Section 401(k). Participants may elect to make pretax
contributions to the Savings & Retirement Plan that are at least 1% and not more
than 15% of the participant's compensation. The Benefits Committee may reduce,
suspend or refund the contribution of a "highly compensated participant" (as
defined in the Savings & Retirement Plan) in order to ensure compliance with the
nondiscrimination tests set forth in the Savings & Retirement Plan.
The Employers contribute 4% of each eligible participating employee's
compensation as of the end of a plan year in accordance with the provisions of
the Savings & Retirement Plan ("CORE CONTRIBUTIONS"). In addition, the Employers
make matching contributions of 125% of each employee's pretax contributions not
in excess of 4% of an employee's compensation ("MATCHING CONTRIBUTIONS").
FROZEN PENSION PLANS. Prior to January 1, 1996, American Mutual Life
maintained the Frozen Pension Plans, which were qualified under Section 401(a)
of the Code. Participants in the Frozen Pensions Plans ceased accruing benefits
under such plans as of December 31, 1995 and the Frozen Pension Plans were
merged into the surviving American Mutual Life Insurance Company Pension Plan
(the "SURVIVING AML PENSION PLAN"). Retirement benefits under the predecessor
AML Employees' Frozen Pension Plan were based primarily on an employee's years
of service, and compensation during the highest five consecutive plan years of
employment out of the last ten years of service, as of December 31, 1995;
retirement benefits under the predecessor AML (formerly Central Life) Frozen
Pension Plan were based primarily on an employee's years of service and career
compensation as of December 31, 1995. All employees' frozen accrued benefits as
of December 31, 1995 are fully vested.
Prior to January 1, 1996, American Mutual Life also maintained the AML
Frozen SERP and the Central Life Frozen SERP, which were similar in operation to
the Supplemental Plan currently in effect. Participants in these plans ceased
accruing benefits under these plans as of December 31, 1995.
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<PAGE>
The following table sets forth the frozen accrued monthly benefits payable
as a straight life annuity to each of the Named Executive Officers under the
Surviving AML Pension Plan, including the AML Frozen SERP and the Central Life
Frozen SERP, assuming retirement at age 65 (current normal retirement age):
PENSION TABLE
FROZEN ACCRUED BENEFITS UNDER THE
SURVIVING AML PENSION PLAN INCLUDING THE FROZEN SERP
<TABLE>
<CAPTION>
NAME MONTHLY BENEFITS(1)
- ----------------------------------------------------------------------------------- -------------------
<S> <C>
Roger K. Brooks.................................................................... $ --
D T Doan........................................................................... --
Thomas C. Godlasky................................................................. --
Michael E. Sproule................................................................. --
Sam C. Kalainov.................................................................... 37,788(2)
</TABLE>
- --------------
(1) Messrs. Brooks, Doan, Godlasky and Sproule have received an actuarially
determined lump sum distribution of their accrued benefits under such plans.
(2) Included in this amount is $15,411 in monthly benefits due under the terms
of an Employment Agreement, dated February 1, 1995, between American Mutual
Life and Sam C. Kalainov. See "--Employment Agreement."
SUPPLEMENTAL PLAN
AmerUs adopted, effective January 1, 1996, the Supplemental Executive
Retirement Plan (the "SUPPLEMENTAL PLAN"). Certain employees whose benefits
under the Savings & Retirement Plan are limited by the provisions of Section
401(a)(17) of the Code and for whom compensation is deferred (including the
Named Executive Officers), are eligible to participate in such plan. The
Supplemental Plan is not intended to meet the qualification requirements of
Section 401 of the Code, and no cash or funds shall be set aside or otherwise
segregated for the payment of benefits under such plan until such time as
benefits are actually paid.
EXCESS PLAN
AmerUs also adopted, effective January 1, 1996, the Excess Plan. Employees
whose benefits under the Savings & Retirement Plan are limited by Section 415 of
the Code are eligible to participate in such plan. The Excess Plan is not
intended to meet the qualification requirements of Section 401 of the Code, and
no cash or funds shall be set aside or otherwise segregated for the payment of
benefits under such plan until such time as benefits are actually paid.
EMPLOYMENT AGREEMENT
AmerUs Life entered into an employment agreement (the "EMPLOYMENT
AGREEMENT") with Mr. Kalainov, dated February 1, 1995, under which he served as
the Chairman of the AmerUs Life Board and Chairman of AmerUs Life's Charitable
Foundation. The term of the Employment Agreement was to continue until May 15,
2000, but could expire earlier if Mr. Brooks ceased to perform the duties of
Chief Executive Officer of AmerUs Life. If Mr. Kalainov's service as Chairman
were terminated prior to May 15, 2000, AmerUs Life was required to execute a
consulting contract with him pursuant to which, among other things, AmerUs Life
was obligated to pay the difference between the benefits Mr. Kalainov received
under AmerUs Life's pension plans and the sum of his base salary plus incentive
compensation for the preceding 12 months. The Employment Agreement provided that
Mr. Kalainov would serve as Chairman of the Foundation until May 15, 2000.
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<PAGE>
Pursuant to the Employment Agreement, Mr. Kalainov received the annual
salary and incentive compensation described in the Summary Compensation Table.
Mr. Kalainov participated in AmerUs Life's employee benefit plans and was also
entitled to certain perquisites and other incidental expenses.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS. The AmerUs Charter
provides that AmerUs shall indemnify its directors to the fullest extent
possible under the IBCA. The AmerUs By-Laws extend the same indemnity to its
officers. The AmerUs Charter provides that no director shall be liable to AmerUs
or its shareholders for monetary damages for breach of the individual's
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to AmerUs or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for any transaction in which the director derived an
improper personal benefit, or (iv) under the IBCA provisions relating to
improper distributions. AmerUs has also entered into indemnification agreements
with its directors and executive officers with respect to liabilities arising
out of certain matters, including matters arising under the Securities Act.
GLOSSARY
The following Glossary includes definitions of certain insurance and other
defined terms used in "-- Business" and "--Management's Discussion and Analysis
of Results of Operations and Financial Condition of AmerUs".
<TABLE>
<S> <C>
ACQUISITION COSTS............................ Costs including commissions, policy issue and
underwriting costs, and other costs incurred
to acquire or renew traditional life
insurance, universal life insurance and
annuity products.
AFFILIATE.................................... With respect to any person, any other Person
which directly or indirectly controls, is
controlled by or is under common control with
such Person.
A. M. BEST................................... A. M. Best Company, Inc. A. M. Best financial
condition ratings are opinions of an
insurance company's financial strength,
operating performance and ability to meet its
obligations to policyowners. Such ratings are
based upon a comprehensive review of a
company's financial performance, which is
supplemented by certain data, including
responses to A. M. Best's questionnaires,
quarterly NAIC filings, state insurance
department examination reports, loss reserve
reports, annual reports and reports filed
with state insurance departments. A. M. Best
undertakes a quantitative evaluation based on
profitability, leverage and liquidity and a
qualitative evaluation based upon the
composition of a company's book of business
or spread of risk, the amount,
appropriateness and soundness of reinsurance,
the quality, diversification and estimated
market value of its assets, the adequacy of
its loss reserves and policyowners' surplus
and the experience and competence of its
</TABLE>
161
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<TABLE>
<S> <C>
management. A.M. Best Company, Inc. uses the
following rating scale:
</TABLE>
<TABLE>
<S> <C> <C>
A++ and A+ Superior
A and A- Excellent
B++ and B+ Very Good
B and B- Adequate
C++ and C+ Fair
C and C- Marginal
D Very Vulnerable
E Under State Supervision
F In Liquidation
</TABLE>
<TABLE>
<S> <C>
ANNUALIZED PREMIUM........................... The expected premium payment for a 12-month
period for each policy, excluding single
premium policies. Actual premium payments may
be higher or lower than annualized premiums.
ANNUITY...................................... A contract that pays a periodic income
benefit for the life of a person (the
annuitant), the lives of two or more persons
or a specific period of time.
ASSET VALUATION RESERVE OR AVR............... The asset valuation reserve adopted by the
NAIC in December 1991 to replace the MSVR.
AVR appears as a liability on a life
insurer's statutory financial statements
beginning with the insurer's statutory
financial statements for 1992. AVR
establishes statutory reserves for debt
securities, preferred stocks, common stock,
mortgage loans, equity real estate and joint
ventures and other invested assets. AVR
generally captures all realized and
unrealized gains and losses on such assets,
other than those resulting from changes in
interest rates. AVR has no effect on
financial statements prepared in conformity
with GAAP.
CAREER GENERAL AGENTS........................ Individuals who are in charge of an insurance
agency. They are independent contractors, who
are responsible for recruiting, training and
developing new agents in addition to
supervising experienced agents in their
agency; however, they may personally sell new
business. Career General Agents are paid
based on the business produced by their
agency and are also paid allowances to cover
their agency expenses and additional amounts
to compensate them for recruiting, training
and developing new agents.
CAREER GENERAL AGENCY SYSTEM................. The network of career general agencies
through which AmerUs distributes its
insurance and annuity products.
CEDING....................................... The reinsuring of all or a portion of an
insurer's risk with another insurer.
CLOSED BLOCK................................. The closed block of participating business to
be established, as of June 30, 1996, by
AmerUs Life for the exclusive benefit of the
policies included therein.
CLOSED BLOCK BUSINESS........................ The policies within the classes specified in
the Plan (which policy classes constitute all
of the classes of individual traditional life
insurance policies and
</TABLE>
162
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<TABLE>
<S> <C>
all universal life insurance policies for
which AmerUs Life had a dividend scale in
effect prior to the AmerUs Reorganization),
but only to the extent such policies are
inforce on June 30, 1996.
CONVEXITY.................................... A measure of the shape of the price/yield
curve. Convexity explains the difference
between the prices estimated by standard
duration and the actual market prices of a
security resulting from a change in
market-required yield.
COST OF INSURANCE............................ The mortality charges assessed against
universal life insurance policies.
CREDITING RATES.............................. Interest rates applied to life insurance
policies and annuity contracts, whether
contractually guaranteed or currently
declared for a specified period.
DEFERRED FIXED ANNUITY....................... A fixed annuity that has a deferred or
accumulation period from the time of premium
payment(s) to the payout of a periodic income
benefit.
DIFFERENTIAL EARNINGS AMOUNT................. The amount of additional income which is
imputed to a mutual life insurance company
under Section 809 of the Internal Revenue
Code based on a comparison of the current
one-year average of mutual life insurance
company earnings rates with an adjusted
average of stock life insurance company
earnings rates for the previous three years.
The tax resulting from this additional income
is referred to as the "equity add-on tax."
DIVIDEND SCALE............................... The actuarial formula used by life insurance
companies to determine amounts payable as
dividends on participating policies based on
experience factors relating to, among other
things, investment results, mortality, lapse
rates, expenses and policy loan interest and
utilization rates.
DUFF & PHELPS................................ Duff & Phelps Credit Rating Co. Duff &
Phelp's claims-paying ability ratings are
opinions of an operating insurance company's
future ability to pay its policy and contract
obligations in a timely fashion. Duff &
Phelps claims-paying ability ratings are
based on certain qualitative and quantitative
factors including, among other factors, the
economic fundamentals of the company's
principal lines of business, the company's
competitive position and asset and liability
</TABLE>
163
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<TABLE>
<S> <C>
management practices. Duff & Phelps Credit
Rating Co. uses the following rating scale:
</TABLE>
<TABLE>
<S> <C> <C>
AAA Highest claims-paying
ability
AA+, AA and AA- Very high claims-paying
ability
A+, A and A- High claims-paying
ability
BBB+, BBB Adequate claims-paying
and BBB- ability
BB+, BB and BB- Uncertain claims-paying
ability
B+, B and B- Possessing risk that
policyowners and
contractholders will
not be paid when due
CCC+, CCC and Substantial risk that
CCC- policyowners and
contractholders will
not be paid when due
DD Company is under order
of liquidation
</TABLE>
<TABLE>
<S> <C>
EQUITY ADD-ON TAX (OR DIFFERENTIAL EARNINGS
TAX)........................................ The tax resulting from the differential
earnings amount, which is the amount of
additional income imputed to a mutual life
insurance company under Section 809 of the
Internal Revenue Code based on a comparison
of the current one-year average of mutual
life insurance company earnings rates with an
adjusted average of stock life insurance
company earnings rates from the previous
three years.
FIRST YEAR ANNUALIZED PREMIUMS............... The expected premium payment for the first
policy year for each policy, excluding single
premium policies. Actual premium payments may
be higher or lower than first year annualized
premiums. This is a common insurance industry
measurement of sales achievement.
FIXED ANNUITY................................ Contract that guarantees that a specific sum
of money will be paid in the future, usually
as monthly income, to an annuitant. The
dollar amount paid to the annuitant will not
fluctuate regardless of adverse changes in
the insurance company's mortality experience,
investment return and expenses.
GAAP......................................... United States generally accepted accounting
principles for life insurance companies.
GENERAL ACCOUNT.............................. All investment accounts maintained by an
insurer, other than the separate accounts.
IMR.......................................... The interest maintenance reserve adopted by
the NAIC in December 1991. IMR appears as a
liability on a life insurer's statutory
financial statements beginning with the
insurer's statutory financial statements for
1992 and applies to all types of fixed income
investments (bonds, preferred stock,
</TABLE>
164
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<TABLE>
<S> <C>
mortgage-backed securities and mortgage
loans). IMR captures the net gains or losses
arising from changes in the overall level of
interest rates which are realized upon the
sale of such investments, and IMR amortizes
these net realized gains into income over the
remaining life of each investment sold. IMR
has no effect on financial statements
prepared in conformity with GAAP.
INFORCE...................................... A life insurance policy or annuity contract
that has not expired.
INTEREST-SENSITIVE PRODUCTS.................. Insurance and annuity products for which
interest in excess of guaranteed levels is
credited to the policy.
MEMBER....................................... A person having rights or interests arising
under AMHC's articles of incorporation or
otherwise by law in respect of each insurance
policy or annuity contract of AmerUs Life,
including, but not limited to, any right to
vote.
MOODY'S...................................... Moody's Investors Service, Inc. Moody's
financial strength ratings are opinions of an
operating insurance company's ability to
discharge senior policyowner claims and
obligations pursuant to its insurance
policies. Moody's financial strength ratings
are based on information provided by the
company and federal and state regulators.
Moody's Investors Service, Inc. uses the
following rating scale:
</TABLE>
<TABLE>
<S> <C> <C>
Aaa Exceptional
Aa1, Aa2 and Aa3 Excellent
A1, A2 and A3 Good
Baa1, Baa2 and Adequate
Baa3
Ba1, Ba2 and Ba3 Questionable
B1, B2 and B3 Poor
Caa Very poor
Ca Extremely poor
C Lowest
</TABLE>
<TABLE>
<S> <C>
MORBIDITY.................................... The relative incidence of disability or
sickness due to disease or physical
impairment.
MORTALITY.................................... The relative incidence of death of life
insureds or annuitants.
MSVR......................................... Mandatory securities valuation reserve
required prior to 1992 statutory financial
statements by state insurance regulatory
authorities. MSVR was established as a
liability on a life insurer's statutory
financial statements and was intended to
absorb realized and unrealized gains and
losses sustained from time to time on a
portion of an insurer's general account debt
securities and preferred stock portfolios.
MSVR had no effect on financial statements
prepared in conformity with GAAP. The MSVR
was replaced by the AVR and IMR effective
with respect to an insurer's statutory
financial statements for 1992.
</TABLE>
165
<PAGE>
<TABLE>
<S> <C>
NAIC......................................... The National Association of Insurance
Commissioners, an association of the chief
insurance supervisory officials of each
state, territory and insular possession of
the United States.
NET LEVEL METHOD............................. Reserve method used for traditional life
insurance. Such method defines the reserve as
the excess of the present value of future
guaranteed benefits over the present value of
future net premiums.
PARTICIPATING WHOLE LIFE POLICIES OR Whole life policies or insurance under which
PARTICIPATING WHOLE LIFE INSURANCE.......... the owner thereof is eligible to share in the
earnings of the insurer through dividends.
PERSISTENCY.................................. The percentage of life insurance policies or
annuity contracts remaining in force from
period to period.
PERSONAL PRODUCING GENERAL AGENTS OR PPGAS... Independent agents who sell products directly
to the consumer and write business directly
with insurance companies and who are
compensated primarily for personal
production.
PPGA SYSTEM.................................. The network of PPGAs through which AmerUs
distributes its insurance and annuity
products.
PLAN......................................... The Plan of Reorganization of American Mutual
Life, including all schedules and exhibits
thereto, pursuant to which American Mutual
Life reorganized into a mutual insurance
holding company structure, as such Plan may
be amended from time to time.
POLICY....................................... Generally, a life insurance policy
(including, without limitation, a pure
endowment contract) or annuity contract
issued by AmerUs.
PREMIUM...................................... Payments and considerations received on
insurance policies and annuity contracts
issued or reinsured by an insurance company.
Under GAAP, premiums on universal life and
deferred annuity contracts are not accounted
for as revenues.
REINSURANCE.................................. The practice whereby one party, called the
reinsurer or assuming company, in
consideration of a premium paid to such
party, agrees to indemnify another party,
called the ceding company or primary insurer,
for risks underwritten by the ceding company.
Reinsurance provides a primary insurer with
three major benefits: it reduces net
liability on individual risks; it helps to
protect against catastrophic losses; and it
helps to maintain acceptable surplus and
reserve ratios. Reinsurance provides a
primary insurer with additional underwriting
capacity in that the primary insurer can
accept larger risks and can expand the volume
of business it writes without increasing its
capital base. The ceding company remains
liable on its obligations under the policies
reinsured if the reinsurer fails to pay
claims on a reinsured policy.
RESERVES..................................... Liabilities established by insurers to
reflect the estimated discounted present
value of costs of
</TABLE>
166
<PAGE>
<TABLE>
<S> <C>
claims, payments or contract liabilities and
the related expenses that the insurer will
ultimately be required to pay in respect of
insurance or annuities it has written.
RISK-BASED CAPITAL REQUIREMENTS OR RBC....... Regulatory and rating agency targeted surplus
based on the relationship of statutory
surplus, with certain adjustments, to the sum
of stated percentages of each element of a
specified list of company risk exposures.
SFAS......................................... Statement of Financial Accounting Standards.
SECOND TO DIE WHOLE LIFE INSURANCE........... A whole life policy in which two persons are
named as insureds. The death benefit is paid
upon the death of the second to die of the
two insureds.
SEPARATE ACCOUNTS............................ Investment accounts maintained by an insurer
to which funds have been allocated for
certain policies under provisions of relevant
state law. The investments in each separate
account are maintained separately from those
in other separate accounts and the general
account. The investment results of the
separate account assets are passed through
directly to the separate account
policyowners, so that an insurer derives
management and other fees from, but bears no
investment risk on, these assets, except the
risk on a small number of products that
returns on separate assets will not meet the
relatively low minimum rate guaranteed on
these products.
STANDARD & POOR'S............................ Standard & Poor's Ratings Group. Standard &
Poor's claims-paying ability ratings are
opinions of an operating insurance company's
financial ability to meet its obligations
under its insurance policies. Standard &
Poor's claims-paying ability ratings are
based on current information provided by the
subject insurance company and other reliable
sources. Standard & Poor's Rating Group uses
the following rating scale:
</TABLE>
<TABLE>
<S> <C> <C>
AAA Superior
AA+, AA and AA- Excellent financial
security
A+, A and A- Good financial security
BBB+, BBB Adequate
and BBB-
BB+, Bb and BB- Financial security may
be adequate
B+, B and B- Vulnerable
CCC Extremely vulnerable
R Regulatory actions
BBBq, Bbq and Bq Qualified solvency
ratings
</TABLE>
<TABLE>
<S> <C>
STATUTORY ACCOUNTING PRACTICES............... Accounting practices prescribed or permitted
by the Iowa Department of Insurance.
STATUTORY RESERVES........................... Monetary amounts established by state
insurance law that an insurer must have
available to provide for future obligations
with respect to all policies. Statutory
reserves are liabilities on the balance
</TABLE>
167
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<S> <C>
sheet of financial statements prepared in
conformity with Statutory Accounting
Practices.
STATUTORY SURPLUS............................ The excess of statutory admitted assets over
statutory liabilities as shown on an
insurer's statutory financial statements.
SUPPLEMENTARY CONTRACT....................... An agreement by an insurer to retain the lump
sum payable under an insurance policy and to
make payments in accordance with the
settlement option chosen.
SURRENDERS AND WITHDRAWALS................... Relinquishment of life insurance policies and
annuity contracts for their entire net cash
surrender values and withdrawals of a portion
of such values.
TERM LIFE INSURANCE.......................... Insurance protection during a certain number
of years but expiring without policy cash
value if the insured survives the stated
period.
TRADITIONAL LIFE INSURANCE................... Consists of whole life insurance and term
life insurance.
UNDERWRITING................................. The insurer's process of examining, accepting
or rejecting insurance risks, and classifying
those accepted, in order to charge the
appropriate premium for each accepted risk.
UNEARNED PREMIUM............................. The portion of an insurance premium paid
other than that which has paid for the
insurance protection already provided on a
policy.
UNIVERSAL LIFE INSURANCE..................... A form of life insurance where an insurance
account is maintained for each insurance
policy. Premiums, net of specified expenses,
are credited to the account, as is interest,
generally at a rate determined from time to
time by the insurer. Specific charges are
made against the account for the cost of
insurance protection and for the insurer's
expenses. The universal life form allows
considerable flexibility as to the amount and
timing of premium payments and for the level
of death benefits provided.
VARIABLE ANNUITY............................. Annuity in which premium payments are used to
purchase accumulation units. The value of a
unit fluctuates in accordance with the
investment experience of a separate account;
variable annuity contracts typically include
a general account guaranteed interest
investment option. At the time of the payment
of benefits to the annuitant, the annuitant
can generally elect from a number of payment
options which provide either fixed or
variable benefit payments.
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168
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WHOLE LIFE INSURANCE OR WHOLE LIFE Insurance that may be kept inforce for a
POLICIES.................................... person's entire life by paying one or more
premiums. It is paid for in one of three
different ways: (i) ordinary life insurance
(premiums are payable as long as the insured
lives), (ii) limited payment life insurance
(premiums are payable over a specified number
of years), and (iii) single premium life
insurance (a lump sum amount paid at the
inception of the policy). The insurance
policy pays a benefit (contractual amount
adjusted for items such as policy loans and
dividends, if any) at the death of the
insured. Whole life insurance also builds up
cash values.
</TABLE>
REGISTRATION OF SECURITIES
AmerUs has filed a registration statement on Form S-4 (the "REGISTRATION
STATEMENT") (of which this Joint Proxy Statement/Prospectus is a part) with the
SEC pursuant to the Securities Act, relating to shares of AmerUs Class A Common
Stock that are proposed to be issued (x) pursuant to the Merger to the holders
of AmVestors Common Stock, (y) pursuant to the exercise of the Public Warrants,
(z) pursuant to the exercise of outstanding AmVestors Options and certain other
warrants to be assumed by AmerUs pursuant to the Merger.
EXPERTS
FINANCIAL STATEMENTS
The consolidated financial statements and related schedules of AmVestors
incorporated in this Joint Proxy Statement/Prospectus by reference to the
AmVestors Annual Report on Form 10-K for the year ended December 31, 1996 have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance on the report of Deloitte & Touche LLP, given on the authority as
experts in accounting and auditing.
Representatives of Deloitte & Touche LLP are expected to be present at the
AmVestors Special Meeting, where they will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
The consolidated financial statements of AmerUs as of December 31, 1996 and
1995, and for each of the years in the three-year period ended December 31,
1996, have been included in this Joint Proxy Statement/Prospectus in reliance
upon the reports of KPMG Peat Marwick LLP, independent auditors, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
AmerUs Special Meeting, where they will have the opportunity to make a statement
if they desire to do so and will be available to respond to appropriate
questions.
LEGAL MATTERS
The validity of the AmerUs Class A Common Stock to be issued hereunder will
be passed upon by Joseph K. Haggerty, Esq., general counsel to AmerUs. As of the
date hereof, Mr. Haggerty owns 3,000 shares of AmerUs Class A Common Stock and
has outstanding options to purchase 2,000 additional shares of AmerUs Class A
Common Stock. Mr. Haggerty is a Senior Vice President of AmerUs.
Skadden, Arps, Slate, Meagher, & Flom LLP, counsel to AmerUs, and Bryan
Cave, LLP, counsel to AmVestors, will deliver opinions concerning certain
federal income tax consequences of the Merger.
169
<PAGE>
STOCKHOLDER PROPOSALS
Any AmerUs shareholder who wishes to submit a proposal for presentation to
the 1998 Annual Meeting of Shareholders must submit the proposal to AmerUs, 699
Walnut Street, Des Moines, Iowa 50309, Attention: Secretary, not later than
December 2, 1997, for inclusion, if appropriate, in AmerUs' proxy statement and
the form of proxy relating to the 1998 Annual Meeting.
Any AmVestors stockholder who wishes to submit a proposal for presentation
to the 1998 Annual Meeting of Stockholders must submit the proposal to
AmVestors, 555 South Kansas Avenue, Topeka, Kansas 66603, Attention: General
Counsel, not later than December 2, 1997, for inclusion, if appropriate, in the
AmVestors proxy statement and the form of proxy relative to such 1998 Annual
Meeting of Stockholders. If the Merger is consummated, such meeting will not be
held.
WHERE YOU CAN FIND MORE INFORMATION
AmerUs and AmVestors file annual, quarterly and special reports, proxy
statements and other information with the SEC. Shareholders may read and copy
any reports, statements or other information that the companies file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
about the public reference rooms. The companies' public filings are also
available from commercial document retrieval services and at the Internet web
site maintained by the SEC at http://www.sec.gov.
AmerUs has filed a Registration Statement to register with the SEC the
shares of AmerUs Class A common stock to be issued to shareholders in the
Merger. This Joint Proxy Statement/Prospectus is a part of that Registration
Statement and constitutes a prospectus of AmerUs, as well as a proxy statement
of AmerUs for the AmerUs Special Meeting and a proxy statement of AmVestors for
the AmVestors Special Meeting.
As allowed by SEC rules, this Joint Proxy Statement/Prospectus does not
contain all the information that shareholders can find in the AmerUs
Registration Statement or the exhibits to the AmerUs Registration Statement.
The SEC allows AmVestors to "incorporate by reference" information into this
Joint Proxy Statement/Prospectus, which means that it can disclose important
information to shareholders by referring them to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this Joint Proxy Statement/Prospectus, except for any information
superseded by information contained directly in the Joint Proxy
Statement/Prospectus. This Joint Proxy Statement/ Prospectus incorporates by
references the documents set forth below that AmVestors has previously filed
with the SEC. These documents contain important information about AmVestors and
its financial condition.
<TABLE>
<CAPTION>
AMVESTORS SEC FILINGS (FILE NO. 0-15330) PERIOD
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Annual Report on Form 10-K.............................. Year ended December 31, 1996
Quarterly Report on Form 10-Q........................... Quarter ended March 31, 1997
Quarterly Report on Form 10-Q/A......................... Quarter ended June 30, 1997
Current Reports on Form 8-K............................. Filed August 15, 1997 and October 3, 1997
</TABLE>
Additional documents that AmVestors may file with the SEC between the date
of this Joint Proxy Statement/Prospectus and the date of the AmVestors Special
Meeting are also incorporated by reference. These include periodic reports, such
as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as well as proxy statements.
AmerUs has supplied all information contained in this Joint Proxy
Statement/Prospectus relating to AmerUs, and AmVestors has supplied all
information contained or incorporated by reference relating to AmVestors.
Stockholders may have received some of the documents incorporated by
reference. Copies of any of these documents may be obtained from AmVestors or
the SEC or the SEC's Internet web site described above. Documents incorporated
by reference are available from AmVestors without charge, excluding all exhibits
unless AmVestors has specifically incorporated by reference an exhibit in this
Joint
170
<PAGE>
Proxy Statement/Prospectus, by requesting them in writing or by telephone from
AmVestors at the following address:
AmVestors Financial Corporation
555 South Kansas Avenue
Topeka, Kansas 66603
Attention: Mr. Mark V. Heitz
Telephone: (785)232-6945
Please request documents by December 11, 1997 to ensure receipt before such
meeting.
SHAREHOLDERS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED
BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE THEIR SHARES AT
THE SPECIAL MEETINGS. NO ONE HAS BEEN AUTHORIZED TO PROVIDE ANY INFORMATION THAT
IS DIFFERENT FROM WHAT IS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED NOVEMBER 12, 1997. SHAREHOLDERS
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THE JOINT PROXY STATEMENT/
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND NEITHER THE
MAILING OF THIS JOINT PROXY STATEMENT/PROSPECTUS TO SHAREHOLDERS NOR THE
ISSUANCE OF AMERUS CLASS A COMMON STOCK IN THE MERGER WILL CREATE ANY
IMPLICATION TO THE CONTRARY.
By Order of the Board of Directors,
AMERUS LIFE HOLDINGS, INC.
James A. Smallenberger
Secretary
By Order of the Board of Directors,
AMVESTORS FINANCIAL CORPORATION
Lynn F. Hammes
Secretary
171
<PAGE>
AMERUS LIFE HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------------------
<S> <C>
Independent Auditors' Report............................................................... F-2
Consolidated Balance Sheets as of June 30, 1997 (unaudited) and December 31, 1996 and
1995...................................................................................... F-3
Consolidated Statements of Income for the six months ended June 30, 1997 (unaudited) and
June 30, 1996 (unaudited) and the years ended December 31, 1996, 1995 and 1994............ F-4
Consolidated Statements of Stockholders' Equity for the six months ended June 30, 1997
(unaudited) and the years ended December 31, 1996, 1995 and 1994.......................... F-5
Consolidated Statements of Cash Flows for the six months ended June 30, 1997 (unaudited)
and June 30, 1996 (unaudited) and the years ended December 31, 1996, 1995 and 1994........ F-6 through F-7
Notes to Consolidated Financial Statements................................................. F-8 through F-37
</TABLE>
Separate financial statements of subsidiaries not consolidated and 50% or
less owned persons accounted for by the equity method have been omitted because
they do not individually constitute a significant subsidiary.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
AmerUs Life Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of AmerUs Life
Holdings, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AmerUs Life
Holdings, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, the Company
implemented the provisions of the Statement of Financial Accounting Standards
(SFAS) No. 120, "Accounting and Reporting by Mutual Life Insurance Enterprises
and by Insurance Enterprises for Certain Long-Duration Participating Contracts."
Also, as discussed in note 1, the Company restated its consolidated financial
statements to reflect the spin-off of a wholly owned subsidiary in 1996, which
resulted in a change in the subsidiaries comprising the consolidated financial
statements.
KPMG Peat Marwick LLP
Des Moines, Iowa
February 10, 1997
F-2
<PAGE>
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
JUNE 30, ---------- ----------
1997
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Investments (notes 2 and 5):
Securities available-for-sale at fair value:
Fixed maturity securities.............................................. $2,405,580 $2,414,807 $3,142,096
Equity securities...................................................... 63,008 64,033 109,675
Short-term investments................................................. 5,632 13,288 39,353
Investment in unconsolidated subsidiary.................................. 23,131 20,809 --
Mortgage loans on real estate (notes 3 and 5)............................ 230,368 225,743 353,597
Real estate.............................................................. 4,417 4,561 52,199
Policy loans............................................................. 66,064 65,183 220,044
Other investments........................................................ 78,960 93,228 48,064
------------ ---------- ----------
Total investments.................................................... 2,877,160 2,901,652 3,965,028
Cash....................................................................... 7,752 1,814 4,620
Accrued investment income.................................................. 33,442 30,792 49,226
Premiums and fees receivable............................................... 3,195 1,489 6,908
Reinsurance receivables.................................................... 1,964 1,329 1,392
Deferred policy acquisition costs (note 4)................................. 138,455 120,481 267,711
Deferred income taxes...................................................... 6,043 -- --
Property and equipment (less accumulated depreciation 1997--$13,095; 1996--
$11,775; 1995--$19,229)................................................... 3,874 4,393 13,502
Other assets............................................................... 71,230 52,111 63,559
Closed block assets........................................................ 1,307,386 1,270,168 --
------------ ---------- ----------
Total assets......................................................... $4,450,501 $4,384,229 $4,371,946
------------ ---------- ----------
------------ ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policy reserves and policyowner funds:
Future life and annuity policy benefits................................ $1,999,838 $2,053,740 $3,435,505
Policyowner funds...................................................... 66,004 55,369 56,474
------------ ---------- ----------
2,065,842 2,109,109 3,491,979
Accrued expenses......................................................... 17,056 14,227 11,100
Dividends payable to policyowners........................................ 970 -- 129,558
Policy and contract claims............................................... 5,412 7,039 16,617
Income taxes payable..................................................... 29,365 25,182 18,760
Deferred income taxes (note 6)........................................... -- 1,337 48,623
Other liabilities........................................................ 65,532 64,173 78,939
Debt (note 5)............................................................ 81,548 188,381 36,461
Closed block liabilities................................................. 1,563,790 1,517,271 --
------------ ---------- ----------
Total liabilities.................................................... 3,829,515 3,926,719 3,832,037
------------ ---------- ----------
Company obligated manditorily redeemable preferred capital securities of
subsidiary trust holding solely junior subordinated debentures of the
Company................................................................... 86,000 -- --
Stockholders' equity (note 11):
Preferred stock, no par value, 20,000,000 shares authorized, none
issued................................................................. -- -- --
Common stock, Class A, no par value, 75,000,000 shares authorized;
18,155,989 shares issued and outstanding in 1997; 14,500,000 shares
issued and outstanding in 1996......................................... 18,156 14,500 --
Common stock, Class B, no par value, 50,000,000 shares authorized;
5,000,000 shares issued and outstanding in 1997 and 1996............... 5,000 5,000 --
Unrealized appreciation of available-for-sale securities (note 2)........ 31,043 35,300 108,714
Additional paid in capital............................................... 51,371 -- --
Retained earnings........................................................ 429,416 402,710 431,195
------------ ---------- ----------
Total stockholders' equity........................................... 534,986 457,510 539,909
------------ ---------- ----------
Commitments and contingencies (note 10)
Total liabilities and stockholders' equity........................... $4,450,501 $4,384,229 $4,371,946
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, -------------------------------------------
------------------------------ 1996 1995 1994
1996 -------------- -------------- -----------
--------------
1997 (UNAUDITED)
--------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Insurance premiums................. $ 20,928 $ 123,063 $ 138,476 $ 244,087 $ 237,912
Universal life and annuity product
charges.......................... 20,287 29,272 49,347 57,370 56,362
Net investment income (note 2)..... 99,226 143,589 228,625 285,244 275,691
Realized gains (losses) on
investments (note 2)............. 9,523 64,409 65,983 51,387 (19,930)
Other.............................. 630 1,329 2,711 5,390 2,391
Contribution from the Closed Block
(note 1)......................... 13,410 -- 19,909 -- --
-------------- -------------- -------------- -------------- -----------
164,004 361,662 505,051 643,478 552,426
-------------- -------------- -------------- -------------- -----------
Benefits and expenses:
Policyowner benefits................. 83,875 188,063 261,869 374,620 369,896
Underwriting, acquisition, and
insurance expenses................. 29,029 29,115 59,710 58,655 68,604
Amortization of deferred policy
acquisition costs (note 4)......... 10,973 29,157 40,160 50,239 42,756
Dividends to policyowners............ 173 26,324 26,324 49,414 45,039
-------------- -------------- -------------- -------------- -----------
124,050 272,659 388,063 532,928 526,295
-------------- -------------- -------------- -------------- -----------
Income before income tax expense and
equity in unconsolidated
subsidiary......................... 39,954 89,003 116,988 110,550 26,131
Income tax expense (note 6).......... 11,586 32,841 43,859 41,202 19,464
-------------- -------------- -------------- -------------- -----------
Income before equity in earnings of
unconsolidated subsidiary.......... 28,368 56,162 73,129 69,348 6,667
Equity in earnings of unconsolidated
subsidiary......................... 654 299 1,044 -- --
-------------- -------------- -------------- -------------- -----------
Net income........................... $ 29,022 $ 56,461 $ 74,173 $ 69,348 $ 6,667
-------------- -------------- -------------- -------------- -----------
-------------- -------------- -------------- -------------- -----------
Net income per common share.......... $ 1.25 $ 2.44 $ 3.20 $ 2.99 --
-------------- -------------- -------------- -------------- -----------
-------------- -------------- -------------- -------------- -----------
Weighted average common shares
outstanding........................ 23,155,989 23,155,989 23,155,989 23,155,989 --
-------------- -------------- -------------- -------------- -----------
-------------- -------------- -------------- -------------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996, 1995, AND 194
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION) OF TOTAL
COMMON STOCK AVAILABLE-FOR-SALE ADDITIONAL STOCK-
---------------------- SECURITIES (NOTE RETAINED PAID-IN HOLDERS'
CLASS A CLASS B 2) EARNINGS CAPITAL EQUITY
--------- ----------- ----------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993......... $ -- $ -- $ 104,581 $ 401,298 -- $ 505,879
Net income......................... -- -- -- 6,667 -- 6,667
Net unrealized depreciation........ -- -- (89,261) -- -- (89,261)
Dividend to American Mutual Holding
Company (notes 8 and 11)......... -- -- -- (4,962) -- (4,962)
--------- ----------- ----------------- ---------- ----------- ----------
Balance at December 31, 1994......... -- -- 15,320 403,003 -- 418,323
Net income......................... -- -- -- 69,348 -- 69,348
Net unrealized appreciation........ -- -- 93,394 -- -- 93,394
Dividend to American Mutual Holding
Company (notes 8 and 11)......... -- -- -- (41,156) -- (41,156)
--------- ----------- ----------------- ---------- ----------- ----------
Balance at December 31, 1995......... -- -- 108,714 431,195 -- 539,909
Net income......................... -- -- -- 74,173 -- 74,173
Net unrealized depreciation........ -- -- (73,414) -- -- (73,414)
Dividend to American Mutual Holding
Company (notes 8 and 11)......... -- -- -- (4,158) -- (4,158)
Capital Contributions to Affiliates
(note 8)......................... -- -- -- (79,000) -- (79,000)
Issuance of common stock........... 14,500 5,000 -- (19,500) -- --
--------- ----------- ----------------- ---------- ----------- ----------
Balance at December 31, 1996......... 14,500 5,000 35,300 402,710 -- 457,510
Net income (unaudited)............. -- -- -- 29,022 -- 29,022
Net unrealized depreciation
(unaudited)...................... -- -- (4,257) -- -- (4,257)
Issuance of common stock
(unaudited)...................... 3,656 -- -- -- 51,371 55,027
Dividends to stockholders
(unaudited)...................... -- -- -- (2,316) -- (2,316)
--------- ----------- ----------------- ---------- ----------- ----------
Balance at June 30, 1997
(unaudited)........................ $ 18,156 $ 5,000 $ 31,043 $ 429,416 $ 51,371 $ 534,986
--------- ----------- ----------------- ---------- ----------- ----------
--------- ----------- ----------------- ---------- ----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
SIX MONTHS ENDED JUNE 30, ---------- --------- ---------
--------------------------
1997
------------ 1996
(UNAUDITED) ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 29,022 $ 56,461 $ 74,173 $ 69,348 $ 6,667
Adjustments to reconcile net income to net cash
provided by operating activities:
Policyowner assessments on universal life and
annuity products............................. (20,287) (29,272) (49,347) (57,370) (56,362)
Interest credited to policyowner account
balances..................................... 53,137 60,090 109,457 123,360 120,075
Realized investment (gains) losses............. (9,523) (64,409) (65,983) (51,387) 19,930
Change in:
Accrued investment income.................... (2,650) 3,616 8,033 1,485 (1,250)
Reinsurance ceded receivables................ (635) 225 (6,708) (223) 666
Deferred policy acquisition costs............ (12,195) 3,795 (12,235) (7,491) (11,682)
Liabilities for future policy benefits....... (16,381) 30,636 16,504 94,856 94,862
Policy and contract claims and other
policyowner funds.......................... (1,627) (3,789) (9,578) 6,814 (2,828)
Income taxes:
Current.................................... 4,183 14,865 6,422 3,298 6,727
Deferred................................... (5,718) (5,009) (7,181) (3,105) 2,602
Other, net..................................... 20,347 (15,014) 15,127 9,538 (7,057)
Change in Closed Block assets and liabilities,
net.......................................... 68,656 -- 68,870 -- --
------------ ------------ ---------- --------- ---------
Net cash provided by operating activities...... 106,329 52,195 147,554 189,123 172,350
------------ ------------ ---------- --------- ---------
Cash flows from investing activities:
Purchase of fixed maturities available for
sale........................................... (620,969) (765,036) (1,423,268) (887,971) (886,236)
Maturities, calls, and principal reductions of
fixed maturities available for sale............ 538,801 686,987 1,362,115 595,879 591,965
Purchase of equity securities.................... (23,042) (66,921) (280,215) (117,345) (69,813)
Proceeds from sale of equity securities.......... 26,706 84,982 363,358 178,115 48,117
Proceeds from repayment and sale of mortgage
loans.......................................... 26,174 62,248 119,061 112,484 234,722
Purchase of mortgage loans....................... (30,653) -- (46,532) (37,328) (78,830)
Purchase of real estate and other invested
assets......................................... (7,661) -- (59,119) (28,490) (31,515)
Proceeds from sale of real estate and other
invested assets................................ 22,331 7,240 26,023 31,484 18,806
Change in policy loans, net...................... (882) (5,675) (6,630) (10,532) (12,364)
Tax on capital gains............................. (3) 1 (22,255) (16,524) 5,136
Other assets, net................................ 39,271 16,145 (73,735) 44,855 45,150
Change in Closed Block investments, net.......... (41,758) -- (69,550) -- --
Initial establishment of the Closed Block........ -- -- (22,925) -- --
------------ ------------ ---------- --------- ---------
Net cash (used in) provided by investing
activities................................... (71,685) 19,971 (133,672) (135,373) (134,862)
------------ ------------ ---------- --------- ---------
</TABLE>
F-6
<PAGE>
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---------- --------- ---------
SIX MONTHS ENDED JUNE 30,
--------------------------
1997
------------ 1996
------------
(UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Deposits to policyowner account balances......... 63,191 91,918 156,420 272,431 260,172
Withdrawals from policyowner account balances.... (123,775) (167,569) (293,521) (302,291) (208,313)
Change in debt, net.............................. (106,833) (7,162) 160,642 (1,496) (71,708)
Change in checks drawn in excess of bank
balances....................................... -- 10,590 -- -- --
Dividends to American Mutual Holding Company..... -- (4,563) (4,158) (41,156) (4,962)
Initial public offering.......................... 55,027 -- -- -- --
Dividends to shareholders........................ (2,316) -- -- -- --
Issuance of company-obligated manditorily
redeemable capital securities.................. 86,000 -- -- -- --
Capital Contribution to Affiliates............... -- -- (36,071) -- --
------------ ------------ ---------- --------- ---------
Net cash used in financing activities............ (28,706) (76,786) (16,688) (72,512) (24,811)
------------ ------------ ---------- --------- ---------
Net increase (decrease) in cash.................. 5,938 (4,620) (2,806) (18,762) 12,677
Cash at beginning of period........................ 1,814 4,620 4,620 23,382 10,705
------------ ------------ ---------- --------- ---------
Cash at end of period.............................. $ 7,752 $ -- $ 1,814 $ 4,620 $ 23,382
------------ ------------ ---------- --------- ---------
------------ ------------ ---------- --------- ---------
Supplemental disclosure of cash activities:
Interest paid.................................... $ 2,919 $ 929 $ 2,224 $ 2,356 $ 5,394
------------ ------------ ---------- --------- ---------
------------ ------------ ---------- --------- ---------
Income taxes paid................................ $ 22,235 $ 35,000 $ 45,417 $ 51,900 $ 14,630
------------ ------------ ---------- --------- ---------
------------ ------------ ---------- --------- ---------
Supplemental disclosure of non-cash investing and
financing activities:
Issuance of Class A and Class B Common Stock
related to the Reorganization as a
reclassification of retained earnings.......... $ -- $ -- $ 19,500 $ -- $ --
Capital Contribution to Affiliates:
Net transfer of invested assets:
Fixed maturities............................. -- -- $ 3,550 -- --
Real estate.................................. -- -- 38,432 -- --
Mortgage Loans............................... -- -- 9,309 -- --
Equity Securities............................ -- -- 802 -- --
Debt assumed from affiliates................. -- -- (9,164) -- --
------------ ------------ ---------- --------- ---------
Total non-cash items contributed................. -- -- 42,929 -- --
Cash contributed................................. -- -- 36,071 -- --
------------ ------------ ---------- --------- ---------
$ -- $ -- $ 79,000 $ -- $ --
------------ ------------ ---------- --------- ---------
------------ ------------ ---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
AmerUs Life Holdings, Inc.'s (the Company) operations consist primarily of
marketing, underwriting, and distributing life insurance, annuities, and related
products to individuals throughout the United States. The Company's products are
sold through a career general agency system and a personal producing general
agency system. The life insurance and annuity operations are the Company's only
business segment.
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
The Company was formed on August 1, 1996 in conjunction with a plan of
reorganization (the Reorganization) of the former American Mutual Life Insurance
Company (American Mutual Life). Pursuant to the Reorganization which became
effective on June 30, 1996 (the Effective Date), American Mutual Life was
converted to a mutual insurance holding company structure whereby American
Mutual Holding Company (AMHC), a mutual insurance holding company, was formed.
Additionally, American Mutual Life was converted to a stock life insurance
company and renamed AmerUs Life Insurance Company (AmerUs Life). All of the
initial shares of capital stock of AmerUs Life were issued to AMHC.
On August 1, 1996, AMHC contributed all of its shares of capital stock of
AmerUs Life to AmerUs Group Co. (AmerUs Group). On the same date, the Company
was formed, and all of its shares of capital stock were issued to AmerUs Group.
Prior to the distribution (Distribution) by AmerUs Life of its Non-Life
Insurance Subsidiaries (as defined below), AmerUs Life made a capital
contribution of cash and other property (Capital Contribution) to or for the
benefit of AmerUs Properties, Inc., AmerUs Bank and Iowa Realty Co., Inc., and
each of their respective subsidiaries (Non-Life Insurance Subsidiaries). The net
assets contributed in the Capital Contribution had an aggregate carrying value
of approximately $79 million as of the date of contribution. Following the
Capital Contribution, a series of transactions was undertaken by the Company and
its affiliates. AmerUs Life effected the Distribution, pursuant to which it
distributed the Non-Life Insurance Subsidiaries to AmerUs Group. Immediately
after the Distribution, AmerUs Group contributed all of its shares of common
stock in AmerUs Life to the Company. Under this structure, the Company is an
intermediate holding company, with AmerUs Group as its direct parent company and
AmerUs Life as its wholly-owned subsidiary. Under Iowa law, AMHC is required to
retain direct or indirect ownership and control of shares representing a
majority of the vote of the outstanding capital stock of the Company.
Immediately following the Distribution, the Company entered into a bank credit
facility pursuant to which it borrowed $100 million in term debt and $75 million
under a revolving line of credit (Bank Credit Facility). The Company used the
proceeds from such borrowings to make a $125 million capital contribution to
AmerUs Life and to purchase a $50 million surplus note from AmerUs Life.
The effect of the Distribution was to decrease (increase) net income by
$6,292,000, $10,539,000, ($101,000) in the years ended December 31, 1996, 1995,
and 1994, respectively, such amounts representing the net income (loss) of
Lartnec Investment Co., a former subsidiary of AmerUs Life, and its subsidiaries
(collectively, Lartnec).
As a result of the Reorganization, AMHC indirectly owned, through AmerUs
Group, 14,500,000 shares of Class A Common Stock and 5,000,000 shares of Class B
Common Stock of the Company. The Class B Common Stock must be held, directly or
indirectly, by AMHC. The Class B Common Stock is generally convertible on a
share-for-share basis for Class A Common Stock. Each share of Class A and Class
B Common Stock entitles its holder to one vote per share; however, the voting
rights are adjusted if the number of Class A shares exceed the number of Class B
shares such that the holders of Class B shares will always have a majority of
the votes. AMHC must directly or indirectly control a majority of the voting
shares of AmerUs Life. In addition, as long as the members of AMHC own directly
or indirectly at
F-8
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
least 50.1 percent of the voting power of the outstanding voting stock, AMHC is
entitled to equity purchase rights which provide for the Company to notify AMHC
in writing of a proposed sale of voting stock or any options, warrants, or
rights to acquire voting stock. AMHC has the right to purchase the same
proportionate number of shares being offered for sale as AMHC owns of the total
shares at the time of the registration.
In February 1997, AmerUs Group sold 2,793,489 shares of Class A common stock
to the public and the Company issued 3,655,989 shares of Class A common stock in
its initial public offering for gross proceeds of $56.7 million. As a result,
AmerUs Group's ownership of the Company was reduced to 72.15%.
The accompanying consolidated financial statements include only the accounts
and operations, after intercompany eliminations, of AmerUs Life Holdings, Inc.
and its wholly owned subsidiaries, principally, AmerUs Life Insurance Company
and American Vanguard Life Insurance Company (American Vanguard Life). The
consolidated financial statements do not include the results of operations or
financial position of the Non-Life Insurance Subsidiaries.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CLOSED BLOCK
The Reorganization contained an arrangement, known as a closed block (the
Closed Block), to provide for dividends on policies that were inforce on the
Effective Date and were within the classes of individual policies for which the
Company had a dividend scale in effect at the time of the Reorganization. The
Closed Block was designed to give reasonable assurance to owners of affected
policies that assets will be available to support such policies, including
maintaining dividend scales in effect at the time of the Reorganization, if the
experience underlying such scales continues. The assets, including revenue
therefrom, allocated to the Closed Block will accrue solely to the benefit of
the owners of policies included in the block until the block is no longer in
effect. The Company will not be required to support the payment of dividends
except those contractually guaranteed on Closed Block policies from its general
funds.
The financial information of the Closed Block, while prepared on a GAAP
basis, reflects its contractual provisions and not its actual results of
operations and financial position. Many expenses related to the Closed Block
operations are charged to operations outside of the Closed Block; accordingly,
the contribution from the Closed Block does not represent the actual
profitability of the Closed Block operations. Operating costs and expenses
outside of the Closed Block are, therefore, disproportionate to the business
outside of the Closed Block.
F-9
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Summarized financial information of the Closed Block as of December 31, 1996
and from July 1, 1996 to December 31, 1996, is as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
CLOSED BLOCK
-------------
<S> <C>
ASSETS:
Fixed maturity securities, at fair value (amortized cost of $883,351).............................. $ 901,261
Short-term investments, at fair value.............................................................. 3,126
Policy loans....................................................................................... 166,827
Cash............................................................................................... 3
Accrued Investment Income.......................................................................... 10,798
Premiums and fees receivable....................................................................... 4,998
Deferred policy acquisition costs.................................................................. 175,235
Other assets....................................................................................... 7,920
-------------
$ 1,270,168
-------------
-------------
LIABILITIES:
Future life and annuity policy benefits............................................................ $ 1,363,073
Policyowner funds.................................................................................. 7,602
Accrued expenses................................................................................... 2,969
Dividends payable to policyowners.................................................................. 132,661
Policy and contract claims......................................................................... 4,765
Other liabilities.................................................................................. 6,201
-------------
$ 1,517,271
-------------
-------------
REVENUES AND EXPENSES:
Insurance premiums................................................................................. $ 108,315
Universal life and annuity product charges......................................................... 9,324
Net investment income.............................................................................. 56,329
Realized gains on investments...................................................................... 481
Policyowner benefits............................................................................... (103,951)
Underwriting, acquisition, and insurance expenses.................................................. (2,969)
Amortization of deferred policy acquisition costs.................................................. (18,412)
Dividends to policyowners.......................................................................... (29,208)
-------------
Contribution from the Closed Block before income taxes......................................... $ 19,909
-------------
-------------
</TABLE>
BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company and its
wholly owned subsidiaries have been prepared in conformity with GAAP which, as
to the insurance company subsidiaries, differ from statutory accounting
practices prescribed or permitted by regulatory authorities.
The insurance company subsidiaries adopted SFAS 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for
Certain Long-Duration Participating Contracts", in 1995. SFAS 120 permits stock
life insurance companies to apply the provisions of the American Institute of
Certified Public Accountant's Statement of Position 95-1, "Accounting for
Certain Insurance Activities of Mutual Life Insurance Enterprises," to
participating life insurance contracts that meet the conditions in SFAS 120. The
accompanying consolidated financial statements have been restated for the
effects of implementing SFAS 120.
F-10
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL INFORMATION
The consolidated financial statements as of June 30, 1997, and for the
six-month periods ended June 30, 1997 and 1996, and related disclosures in these
notes have not been audited. The interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information 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 unless
noted otherwise herein) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended June 30, 1997, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. (See Note 16).
INVESTMENTS
Investments in fixed maturity and equity securities that are to be held for
indefinite periods of time are reported as securities available for sale.
Securities available for sale are reported in the accompanying consolidated
financial statements at fair value. Any valuation changes resulting from changes
in the fair value of these securities are reflected as a component of
stockholders' equity. These unrealized gains or losses in stockholders' equity
are reported net of taxes and adjustments to deferred policy acquisition costs.
Premiums and discounts on fixed maturity securities are amortized or
accreted over the life of the related security as an adjustment to yield using
the effective interest method. Realized gains and losses are included in
earnings and are determined using the specific identification method. The
carrying value of investments is reduced to its estimated realizable value if a
decline in fair value is considered other than temporary with such reduction
charged to earnings.
Mortgage loans on real estate and other long-term investments are stated at
cost less amortized discounts and allowances for possible losses. Policy loans
are stated at their aggregate unpaid balances. Real estate acquired by
foreclosure is stated at the lower of cost or fair value less estimated costs to
sell.
Investments in real estate and mortgage loans on real estate are considered
impaired when the Company determines that collection of all amounts due under
the contractual terms is doubtful or carrying values exceed the fair value of
underlying collateral. The Company adjusts real estate and mortgage loans on
real estate to their estimated net realizable value at the point at which it
determines an impairment is other than temporary. Interest income on impaired
mortgage loans is recognized when cash is received. In addition, the Company has
established a valuation allowance for mortgage loans on real estate and other
invested assets. Valuation allowances for other than temporary impairments in
value are netted against the asset categories to which they apply, and additions
to valuation allowances are included in total investment results.
Investment in unconsolidated subsidiary is carried on an equity basis
consisting of the cost of the original investment and the Company's allocable
share of net earnings, unrealized gains and losses on available-for-sales
securities, and return of capital.
INTEREST RATE SWAPS, CAPS AND SWAPTIONS
The Company uses interest rate swaps, caps, and swaptions as part of its
overall interest rate risk management strategy for certain life insurance and
annuity products. The book values of the interest rate swaps, caps, and
swaptions are amortized over the remaining lives of the hedged investments as
adjustments to investment income. Certain agreements hedge assets which are
carried at fair value; accordingly, such underlying hedged investments are also
carried at fair value. Any unamortized gains or losses are recognized when the
underlying investments are sold.
F-11
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interest rate swap contracts are used to convert the interest rate
characteristics (fixed or variable) of certain investments to match those of the
related insurance liabilities that the investments are supporting. The net
interest effect of such swap transactions is reported as an adjustment of
interest income as incurred.
Interest rate caps are used to limit the effects of changing interest rates
on yields of variable rate or short-term assets or liabilities. The initial cost
of any such agreement is amortized to investment income over the life of the
agreement. Periodic payments that are receivable as a result of the agreements
are accrued as an adjustment of investment income.
Swaption agreements are used in conjunction with interest rate caps to
protect against rising rates. Swaption agreements involve the right to enter
into a swap transaction at a pre-specified price. The initial cost of a swaption
agreement is amortized to investment income over the life of the agreement.
POLICY ACQUISITION COSTS
Certain commissions, policy issue and underwriting costs, and other variable
costs incurred to acquire or renew traditional life insurance, universal life
insurance, and annuity products have been deferred. The amortization method of
deferred policy acquisition costs for traditional life insurance products is
different, dependent upon whether the contract is participating or
non-participating. Participating contracts are those which are expected to pay
dividends to policyowners in proportion to their relative contribution to the
Company's surplus. Deferred policy acquisition costs for participating
traditional life insurance are being amortized over the life of the policies
generally in proportion to the present value of estimated gross margins.
Non-participating traditional life insurance deferred policy acquisition costs
are being amortized over the premium-paying period of the related policies in
proportion to the ratio of annual premium revenues to total anticipated premium
revenues using assumptions consistent with those used in computing policy
benefit reserves. For universal life insurance and annuity products, deferred
policy acquisition costs are being amortized generally in proportion to the
present value of estimated gross margins from surrender charges and investment,
mortality, and expense margins. The amortization for participating traditional
life, universal life, and annuity products is adjusted retrospectively when
current or estimated future gross profits or margins on the underlying policies
vary from previous estimates. Deferred policy acquisition costs are adjusted for
the impact on estimated gross profits of net unrealized gains and losses on
securities.
RECOGNITION OF REVENUES
Premiums for traditional life insurance products (including those products
with fixed and guaranteed premiums and benefits and which consist principally of
whole life insurance policies and certain annuities with life contingencies) are
recognized as revenues when due. For limited payment life insurance policies,
premiums are recorded as income when due with any excess profit deferred and
recognized over the expected lives of the contracts. Amounts received as
payments for universal life insurance policies and for annuity products
(including deferred annuities and annuities without life contingencies) are not
recorded as premium revenue. Revenues for such contracts consist of policy
charges for the cost of insurance, policy administration charges, and surrender
charges assessed against policyowner account balances during the period. All
insurance-related revenue is reported net of reinsurance ceded.
FUTURE POLICY BENEFITS
The liability for future policy benefits for traditional life insurance is
computed using the net level method, utilizing the guaranteed interest and
mortality rates used in calculating cash surrender values as described in the
contracts. Reserve interest assumptions range from 2.00 percent to 7.25 percent.
The weighted average assumed interest rate for all traditional life policy
reserves was 4.23 percent in 1996,
F-12
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
4.20 percent in 1995 and 4.10 percent in 1994. Policy benefit claims are charged
to expense in the period that the claims are incurred. All insurance-related
benefits, losses, and expenses are reported net of reinsurance ceded.
Future policy benefit reserves for universal life insurance and annuity
products are computed under a retrospective deposit method and represent policy
account balances before applicable surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the period in
excess of related policy account balances. The weighted average interest
crediting rate for universal life products was 6.27 percent in 1996, 6.46
percent in 1995 and 6.44 percent in 1994. The weighted average interest
crediting rate for annuity products was 5.36 percent in 1996, 6.16 percent in
1995 and 6.41 percent in 1994.
PARTICIPATING POLICIES
Participating policies entitle the policyowners to receive dividends based
on actual interest, mortality, morbidity, and expense experience for the related
policies. These dividends are distributed to the policyowners through an annual
dividend using current dividend scales which are approved by the board of
directors. Nearly 100 percent of traditional life policies are currently paying
dividends and traditional life policies represent 67 percent of the Company's
individual life policies inforce.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and is depreciated principally
under the straight-line method.
GUARANTY FUND ASSESSMENTS
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyowners and claimants in the event of insolvency of
other life insurance companies. As of December 31, 1996, the Company has accrued
for the gross amount of guaranty fund assessments for known insolvencies net of
estimated recoveries of premium tax offsets.
BENEFIT PLAN COSTS
The Company recognizes pension costs for its defined benefit plans in
accordance with SFAS 87, "Employers' Accounting for Pensions." Pension costs are
funded according to regulations provided under the Internal Revenue Code.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Under SFAS 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," the cost of postretirement benefits must be recognized on an
accrual basis as employees perform services to earn the benefits. The Company
adopted SFAS 106 as of January 1, 1993. Prior to 1993, the cost of retiree
health care and life insurance benefits was recognized as an expense when paid.
INCOME TAXES
The Company and its subsidiaries, with the exception of American Vanguard
Life, file a consolidated federal income tax return with the Non-Life Insurance
Subsidiaries. The separate return method is used to compute the Company's
provision for federal income taxes. Deferred income tax assets and liabilities
are determined based on differences among the financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and laws.
EMERGING ACCOUNTING MATTER
In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
125 provides consistent accounting
F-13
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
standards for securitizations and other transfers of financial assets,
determines when financial assets (liabilities) should be considered sold
(settled) and removed from the balance sheet, and determines when related
revenues and expenses should be recognized. FASB Statement No. 125 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. This statement will be applicable
to the Company, however, management believes that it will have no material
effect on the Company's consolidated financial statements.
BUSINESS RISKS
The Company operates in a business environment which is subject to various
risks and uncertainties. Such risks and uncertainties include interest rate
risk, legal and regulatory changes, and default risk.
Interest rate risk is the potential for interest rates to change, which can
cause fluctuations in the value of investments. To the extent that fluctuations
in interest rates cause the duration of assets and liabilities to differ, the
Company may have to sell assets prior to their maturity and realize losses.
Interest rate exposure for the investment portfolio is managed through
asset/liability management techniques which attempt to match the duration of the
assets with the estimated duration of the liabilities. The Company also utilizes
derivative investment contracts to manage interest rate risk.
The potential also exists for changes in the legal or regulatory environment
in which the Company operates, which can create additional costs and expenses
not anticipated by the Company in pricing its products. In other words,
regulatory initiatives or new legal theories may create costs for the Company
beyond those recorded in the financial statements. The Company mitigates this
risk by operating in a geographically diverse area, which reduces its exposure
to any single jurisdiction, closely monitoring the regulatory environment to
anticipate changes, and by using underwriting practices which identify and
minimize the potential adverse impact of this risk.
Default risk is the risk that issuers of securities owned by the Company may
default or that other parties, including reinsurers, may not be able to pay
amounts due the Company. The Company minimizes this risk by adhering to a
conservative investment strategy, holding a well diversified portfolio of assets
to minimize concentrations, maintaining sound reinsurance and credit and
collection policies, and providing allowances or reserves for any amounts deemed
uncollectible.
EARNINGS PER COMMON SHARE
Earnings per share have been computed on a pro forma basis by giving
retroactive effect to the issuance of 18.16 million shares of Class A common
stock and 5 million shares of Class B common stock as if all such shares had
been issued at the beginning of the respective periods and by giving retroactive
effect to the Capital Contribution.
F-14
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) INVESTMENTS
The Company's investments are classified as available-for-sale securities
and are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-sale securities at
December 31, 1996:
Fixed maturity securities:
Corporate bonds.................. $ 1,391,421 $ 60,164 $ 4,915 $ 1,446,670
U.S. government bonds............ 41,270 222 109 41,383
Foreign government bonds......... 20,114 1,638 78 21,674
Mortgage-backed bonds............ 819,264 22,751 2,054 839,961
Redeemable preferred stock....... 63,806 1,418 105 65,119
------------- ----------- ----------- -------------
$ 2,335,875 $ 86,193 $ 7,261 $ 2,414,807
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
Equity securities.................. $ 60,247 $ 3,832 $ 46 $ 64,033
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
Short-term investments............. $ 13,288 $ -- $ -- $ 13,288
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-sale securities at
December 31, 1995:
Fixed maturity securities:
Corporate bonds.................. $ 1,977,567 $ 160,486 $ 6,208 $ 2,131,845
U.S. government bonds............ 65,513 1,652 -- 67,165
Foreign government bonds......... 20,149 2,267 -- 22,416
Mortgage-backed bonds............ 886,470 33,837 1,323 918,984
State and municipal bonds........ 1,550 136 -- 1,686
------------- ----------- ----------- -------------
$ 2,951,249 $ 198,378 $ 7,531 $ 3,142,096
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
Equity securities.................. $ 52,869 $ 57,380 $ 574 $ 109,675
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
Short-term investments............. $ 39,276 $ 77 $ -- $ 39,353
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
F-15
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of investments in fixed maturity
securities at December 31, 1996, are summarized by stated maturity as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
----------------------------
AMORTIZED
COST FAIR VALUE
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Maturity:
Due in 1997................................................... $ -- $ --
Due in 1998 - 2002............................................ 322,422 335,656
Due in 2003 - 2007............................................ 680,096 709,488
Due after 2007................................................ 514,093 529,702
Mortgage-backed securities...................................... 819,264 839,961
------------- -------------
$ 2,335,875 $ 2,414,807
------------- -------------
------------- -------------
</TABLE>
The foregoing data is based on the stated maturities of the securities.
Actual maturities will differ for some securities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
The ratings of the Company's fixed maturity securities at December 31, 1996,
using Standard & Poor's rating service, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Treasuries and AAA............................................. $ 857,274
<S> <C>
AA............................................................. 61,530
A.............................................................. 573,959
BBB............................................................ 696,776
BB............................................................. 186,243
Less than BB................................................... 39,025
----------
$2,414,807
----------
----------
</TABLE>
The Company's investment in non-income producing fixed maturity securities
and real estate was $.9 million as of December 31, 1996.
Major categories of investment income are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities.............................. $ 195,073 $ 231,208 $ 206,346
Equity securities...................................... 2,993 6,311 7,821
Mortgage loans on real estate.......................... 26,254 33,738 55,181
Real estate............................................ 6,891 9,729 9,907
Policy loans........................................... 9,426 14,043 12,745
Other.................................................. 600 5,211 2,329
----------- ----------- -----------
Gross investment income............................ 241,237 300,240 294,329
Investment expenses.................................... 12,612 14,996 18,638
----------- ----------- -----------
Net investment income.............................. $ 228,625 $ 285,244 $ 275,691
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Investment expenses include depreciation on real estate of $2.0 million,
$2.9 million and $2.0 million in the years ended December 31, 1996, 1995, and
1994, respectively.
F-16
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) INVESTMENTS (CONTINUED)
Realized gains and losses on investments and provisions for losses are
summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities:
Gross realized gains................................. $ 21,088 $ 18,652 $ 10,879
Gross realized losses................................ (13,331) (9,240) (36,423)
Equity securities:
Gross realized gains................................. 55,646 45,419 14,746
Gross realized losses................................ (451) (3,634) (5,181)
Other investments........................................ (998) 812 (2,744)
Net provision for (losses)recoveries-mortgage loans on
real estate............................................. 4,029 (622) (1,207)
---------- --------- ----------
$ 65,983 $ 51,387 $ (19,930)
---------- --------- ----------
---------- --------- ----------
</TABLE>
The unrealized appreciation (depreciation) on invested assets available for
sale is reported as a separate component of stockholder's equity, reduced by
adjustments to deferred acquisition costs and a provision for deferred income
taxes.
A summary of the components of the net unrealized appreciation
(depreciation) on invested assets carried at fair value is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1995 1994
---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Unrealized appreciation (depreciation):
Fixed maturity securities............................. $ 78,932 $ 190,847 $ (97,217)
Equity securities..................................... 3,786 56,806 65,778
Short-term investments................................ -- 77 --
Other investments..................................... 3,263 6,335 (2,277)
Closed Block investments.............................. 18,002 -- --
Deferred policy acquisition costs....................... (51,476) (88,039) 56,102
Deferred income taxes................................... (17,207) (57,312) (7,066)
---------- ----------- ----------
$ 35,300 $ 108,714 $ 15,320
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
The change in unrealized appreciation (depreciation) on fixed maturity
securities was ($112) million, $288 million and ($251) million for the years
ended December 31, 1996, 1995 and 1994, respectively; the corresponding amounts
for equity securities were ($53) million, ($9) million and ($21) million.
At December 31, 1996, investments in fixed maturity securities with a
carrying amount of $2.1 million were on deposit with state insurance departments
to satisfy regulatory requirements.
No investment in any person or its affiliates exceeded 10 percent of
stockholders' equity at December 31, 1996.
(3) MORTGAGE LOANS ON REAL ESTATE
Mortgage loans on real estate consist almost entirely of commercial mortgage
loan investments, substantially all of which are made on a full recourse basis
and consist primarily of fixed-rate first
F-17
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) MORTGAGE LOANS ON REAL ESTATE (CONTINUED)
mortgages on completed properties. The following table sets forth additions,
reductions from payments, and other charges and foreclosures related to the
mortgage loan portfolio (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Commercial loans:
Beginning balance................................................. $ 379,414 $ 504,034
Additions....................................................... 21,760 39,933
Payments and miscellaneous charges.............................. (113,764) (146,496)
Sales........................................................... (47,234) --
Foreclosed properties........................................... (6,174) (18,057)
----------- -----------
Ending balance.................................................... 234,002 379,414
Residential and other mortgage loans................................ 3,363 4,250
Valuation allowance................................................. (11,622) (30,067)
----------- -----------
Total mortgage loans............................................ $ 225,743 $ 353,597
----------- -----------
----------- -----------
</TABLE>
The Company manages its credit risk associated with these loans by
diversifying its mortgage portfolio by property type and geographic location and
by seeking favorable loan to value ratios on secured properties. The portfolio
credit risk for mortgage loans was concentrated in the following geographic
regions (dollar amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1996 1995
------------------------ ------------------------
NUMBER AMOUNT NUMBER AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Commercial:
California................................... 20 $ 39,824 31 $ 69,946
Colorado..................................... 8 11,937 11 15,449
Florida...................................... 4 15,375 6 21,964
Iowa......................................... 48 66,808 56 95,837
Kansas....................................... 11 20,934 14 29,249
Texas........................................ 6 21,521 9 28,053
Washington................................... 4 10,658 8 15,172
Other........................................ 42 46,945 77 103,744
Residential.................................... 69 3,363 95 4,250
Valuation allowance............................ -- (11,622) -- (30,067)
--- ----------- --- -----------
212 $ 225,743 307 $ 353,597
--- ----------- --- -----------
--- ----------- --- -----------
</TABLE>
At December 31, 1996, the Company's investment in mortgage loans included
$25.1 million in loans that are considered to be impaired, for which the related
allowance for credit losses is $2.2 million. The average recorded investment in
impaired loans during the year ended December 31, 1996, was $51.2 million. For
the year ended December 31, 1996, the Company recorded $2.2 million in interest
income on those impaired loans.
No mortgage loan on any one individual property exceeded $14 million at
December 31, 1996.
F-18
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) MORTGAGE LOANS ON REAL ESTATE (CONTINUED)
Provisions for losses are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year............................ $ 30,067 $ 65,549 $ 80,220
Provisions for losses--mortgage loans................... (4,029) 622 1,207
Provision on mortgages sold/transferred to real
estate................................................. (14,416) (36,104) (15,878)
---------- ---------- ----------
Net decrease for year................................. (18,445) (35,482) (14,671)
---------- ---------- ----------
Balance at end of year.................................. $ 11,622 $ 30,067 $ 65,549
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
(4) DEFERRED POLICY ACQUISITION COSTS
A summary of the policy acquisition costs deferred and amortized are as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year........................ $ 355,750 $ 348,259 $ 336,577
Deferred Policy acquisition costs associated with
Closed Block policies at formation of Closed
Block.............................................. (193,647) -- --
Policy acquisition costs deferred................... 50,014 57,730 54,438
Policy acquisition costs amortized.................. (40,160) (50,239) (42,756)
------------ ------------ ------------
171,957 355,750 348,259
Unrealized (gain) loss on available-for-sale
securities......................................... (51,476) (88,039) 56,102
------------ ------------ ------------
Balance at end of year.............................. $ 120,481 $ 267,711 $ 404,361
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The components of the deferred policy acquisition costs are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Universal life insurance and annuity products.......... $ 156,578 $ 203,949 $ 197,256
Participating traditional life insurance............... 13,419 131,602 131,500
Non-participating traditional life insurance........... 1,960 20,199 19,503
----------- ----------- -----------
$ 171,957 $ 355,750 $ 348,259
Unrealized (gain) loss on available-for-sale
securities............................................ (51,476) (88,039) 56,102
----------- ----------- -----------
$ 120,481 $ 267,711 $ 404,361
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Commissions represent approximately 85 percent of policy acquisition costs
deferred.
F-19
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
----------- ---------
<S> <C> <C>
The Iowa Housing Finance Authority variable rate demand Multi-Family
Housing Bond Series 1985-A.......................................... $ - $ 8,813
Federal Home Loan Bank community investment long-term advances with a
weighted average interest rate of 6.26% at December 31, 1996
maturing at various dates through July 2010 (A)..................... 13,381 11,765
Class A certificate holders of 1988-1 REMIC.......................... -- 15,883
Bank Credit Facility (B):
Term loan bearing interest at 6.50%................................ 100,000 --
Revolving credit loan bearing interest at 6.475%................... 75,000 --
----------- ---------
$ 188,381 $ 36,461
----------- ---------
----------- ---------
</TABLE>
- --------------
(A) The Company has multiple credit arrangements with the Federal Home Loan Bank
(FHLB). In addition to the long-term advances disclosed above, the Company
has a $25 million open secured line of credit and periodically, the Company
borrows amounts under repurchase agreements, of which no amount was
outstanding under either type of facility at December 31, 1996. The carrying
value of the securities pledged to the FHLB under all agreements was $27.2
million at December 31, 1996.
(B) The Bank Credit Facility consists of both a term loan and a revolving credit
loan. The term loan agreement provides for a mandatory prepayment of $50
million from the proceeds of a common or preferred offering and regular
semi-annual payments of $5 million commencing in June 1997. The revolving
credit loan provides for a maximum borrowing of $75 million with the balance
maturing in December 2001. The interest rate for both loans is variable,
however, the Company may elect to fix the rate for periods from 30 days to
six months. The Bank Credit Facility contains various financial and
operating covenants which among other things limit future indebtedness and
restrict the amount of future dividend payments. In addition, the Company
has pledged 49.9% of the stock of AmerUs Life and a $50 million note payable
to the Company by AmerUs Life.
Maturities of long-term debt are as follows for each of the five years
ending December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Year ending December 31:
1997.......................................................................... $ 60,230
1998.......................................................................... 10,245
1999.......................................................................... 10,262
2000.......................................................................... 10,279
2001.......................................................................... 85,297
Thereafter.................................................................... 12,068
--------------
$ 188,381
--------------
--------------
</TABLE>
Interest paid totaled $2.2 million, $2.4 million, and $5.4 million in the
years ended December 31, 1996, 1995, and 1994, respectively.
F-20
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) FEDERAL INCOME TAXES
Comprehensive federal income tax expense is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense on:
Operations.............................................. $ 43,859 $ 41,202 $ 19,464
Unrealized holding gains (losses) on
available-for-sale securities......................... (40,105) 50,246 48,063
---------- --------- ---------
$ 3,754 $ 91,448 $ 67,527
---------- --------- ---------
---------- --------- ---------
</TABLE>
The effective income tax rate on pre-tax income is higher than the
prevailing corporate federal income tax rate and is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Corporate federal income tax rate...................................... 35.00% 35.00% 35.00%
Differential earnings amount........................................... 3.78 -- 36.68
Tax-exempt investment income........................................... (.20) (.24) (1.66)
Reorganization expenses................................................ .30 .48 2.29
Other items, net....................................................... (1.72) 2.03 2.18
----- ----- -----
Effective tax rate................................................. 37.16% 37.27% 74.49%
----- ----- -----
----- ----- -----
</TABLE>
The differential earnings amount is an equity add-on tax which mutual life
insurance companies are required to pay. The amount is determined annually and
is calculated by comparing the earnings rate of mutual life insurance companies
and certain stock life insurance companies. In certain years, such as 1993 and
1995, the calculations have resulted in negative adjustments with no additional
tax amount to be paid.
The Company's federal income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current.................................................... $ 51,849 $ 44,307 $ 16,862
Deferred................................................... (7,990) (3,105) 2,602
--------- --------- ---------
Total federal income tax expense....................... $ 43,859 $ 41,202 $ 19,464
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-21
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) FEDERAL INCOME TAXES (CONTINUED)
The significant components of net deferred income tax liabilities are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Policy reserves and policyholder funds.............................................. $ 99,137 $ 106,813
Policy acquisition costs capitalized for tax........................................ 29,771 26,588
Deferred policy acquisition costs related to unrealized appreciation................ 18,017 30,813
Deferred compensation............................................................... 12,928 10,134
Other............................................................................... 18,651 23,344
------------ ------------
Total gross deferred income tax asset............................................. 178,504 197,692
------------ ------------
Deferred income tax liabilities:
Deferred policy acquisition costs................................................... (120,585) (124,513)
Net unrealized appreciation on available-for-sale securities........................ (36,394) (88,922)
Reinsurance receivable.............................................................. (14,686) (23,403)
Other............................................................................... (8,176) (9,477)
------------ ------------
Total gross deferred tax liability................................................ (179,841) (246,315)
------------ ------------
Net deferred income tax liability................................................. $ (1,337) $ (48,623)
------------ ------------
------------ ------------
</TABLE>
The Company is required to establish a "valuation allowance" for any portion
of the deferred tax asset that management believes will not be realized. In the
opinion of management, it is more likely than not that it will realize the
benefit of the deferred tax assets, and, therefore, no such valuation allowance
has been established.
During 1996, the Company transferred $0.8 million in deferred tax
liabilities related to assets contributed in the Capital Contribution.
Federal Income tax returns for the Company for years through 1989 are closed
to further assessment of taxes. The Internal Revenue Service is examining
federal income tax returns of the Company for 1990 through 1992. Management
believes adequate provisions have been made for any additional taxes which may
become due with respect to open years.
Income taxes paid by the Company totaled $45.4 million, $51.9 million and
$14.6 million in the years ended December 31, 1996, 1995 and 1994, respectively.
(7) DEFINED BENEFIT PENSION PLANS
The Company has defined benefit pension plans which cover substantially all
of the Company's employees, as well as employees of certain affiliated
companies. The plans provide for benefits based upon years of service and the
employee's compensation. Information for the Company's portion of the plans'
funded status is not available. The Company has frozen the defined benefit
pension plans effective December 31, 1995, and has recognized its portion of a
curtailment gain amounting to $6.2 million, or $3.1 million after federal excise
taxes, as other revenues in 1995. Effective January 1, 1996, the defined benefit
pension plans have been replaced by a defined contribution savings and
retirement plan which also replaces the Company's defined contribution pension
plans. The following information
F-22
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) DEFINED BENEFIT PENSION PLANS (CONTINUED)
presents the plans' funded status and pension cost as of December 31, 1996, and
December 31, 1995 (1995 is prior to revaluation for curtailment of the plans):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated benefit obligation, including
vested benefits of $44,505, and $45,505 in 1996 and 1995,
respectively........................................................ $ (44,505) $ (45,505)
---------- ----------
---------- ----------
Projected benefit obligation for service rendered to date-- includes
effect of increase in compensation levels........................... $ (44,505) $ (45,505)
Plans' assets at fair value, primarily consisting of mutual funds and
certificates of deposit............................................. 53,638 52,592
---------- ----------
Plans' assets in excess of projected benefit obligations............. 9,133 7,087
Unrecognized (gain) loss from actual experience difference from
assumed and effects of changes in assumptions....................... (1,001) (2,745)
Unrecognized prior service cost...................................... (205) --
Net unrecognized transition asset.................................... (891) --
---------- ----------
Prepaid pension cost................................................. $ 7,036 $ 4,342
---------- ----------
---------- ----------
Weighted average discount rate....................................... 7.25% 7.25%
---------- ----------
---------- ----------
Rate of increase in future compensation levels....................... n/a 5.50%
---------- ----------
---------- ----------
Expected long-term rate of return on assets.......................... 8.00% 8.00%
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during year................... $ -- $ 1,768 $ 2,325
Interest cost on projected benefit obligation............... 3,101 3,609 3,282
Actual return on plan assets................................ (4,281) (3,729) (3,632)
Net amortization and deferral............................... (90) (114) (37)
Special termination benefits due to early retirement........ -- -- 1,597
--------- --------- ---------
Defined benefit pension cost (benefit) $ (1,270) $ 1,534 $ 3,535
--------- --------- ---------
--------- --------- ---------
Company's portion of net pension cost (benefit)............. $ (954) $ 696 $ 2,578
--------- --------- ---------
--------- --------- ---------
</TABLE>
During 1993, the Company offered an early retirement plan to qualifying
employees based on age and years of service. The Company's portion of the loss
recognized for the years ending December 31, 1994, from the curtailment and
special termination benefits for the plan was approximately $1.6 million.
DEFINED CONTRIBUTION PENSION PLANS
The Company has three defined contribution 401(k) plans which cover
substantially all employees. The Company's total contribution under the plans
amounted to $0.4 million and $0.6 million in the years ended December 31, 1995,
and 1994, respectively. Effective January 1, 1996, the defined contribution
401(k) plans together with the defined benefit pension plans were replaced by a
single defined contribution savings and retirement plan to which total
contributions from the Company amounted to $2.4 million in 1996.
F-23
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) DEFINED BENEFIT PENSION PLANS (CONTINUED)
NONQUALIFIED PENSION PLAN
The Company also has a nonqualified pension plan covering substantially all
of its career and general agents. Accumulated benefits of the plan are unfunded
and have been included in other liabilities at December 31, 1996, and December
31, 1995, amounting to $13.9 million, and $13.6 million, respectively.
POSTRETIREMENT PLANS
The Company has postretirement benefit plans to provide certain eligible
participants and dependents with certain medical, dental, and life insurance
benefits. The Company's plan for medical and life insurance benefits is combined
with that of the subsidiaries of AMHC. Information for the Company's individual
funded status for 1996 and 1995 is not available. The following information is
presented on a combined plan basis accompanied by the Company's portion of the
net periodic postretirement benefit expense and sets forth the combined
postretirement benefit plans' funded status:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Fully eligible active plan participants.................................................... $ 811 $ 491
Other active plan participants............................................................. 1,727 1,716
Retirees................................................................................... 6,056 6,121
--------- ---------
Accumulated postretirement benefit obligation................................................ 8,594 8,328
Unrecognized prior service cost.............................................................. (989) (27)
Unrecognized (loss) gain..................................................................... 1,245 (167)
--------- ---------
Accrued postretirement benefit cost.......................................................... $ 8,850 $ 8,134
--------- ---------
--------- ---------
</TABLE>
Net periodic postretirement benefit expense included the following
components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................. $ 409 $ 248 $ 268
Interest cost................................................ 572 586 521
Net amortization and deferral................................ 57 5 19
Curtailment and special termination benefits................. -- -- --
--------- --------- ---------
Net periodic postretirement benefit expense.............. $ 1,038 $ 839 $ 808
--------- --------- ---------
--------- --------- ---------
Company's portion of net periodic postretirement benefit
expense..................................................... $ 612 $ 639 $ 426
--------- --------- ---------
--------- --------- ---------
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) for the medical and
dental plan is approximately 8.50 percent, 9.00 percent, and 9.50 percent for
1996, 1995, and 1994, respectively, and is assumed to decrease gradually to 5.00
percent over seven years and remain at that level thereafter. The health care
cost trend rate assumption has a significant effect on the amounts reported. For
example, increasing the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated postretirement benefit
obligation for the medical plan as of December 31, 1995 by 7.70 percent and the
aggregate of the service and interest cost components of net periodic
postretirement benefit expense for 1995 and 1994, by $.06 million and $.02
million, respectively, on a combined basis. As of January 1, 1996 the plan was
changed to provide a fixed monthly benefit for medical benefits; accordingly,
information
F-24
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) DEFINED BENEFIT PENSION PLANS (CONTINUED)
for the health care cost trend rate is not applicable for the year ended
December 31, 1996. The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.25 percent, 7.25 percent and
8.00 percent, as of December 31, 1996, 1995 and 1994, respectively.
(8) RELATED PARTY TRANSACTIONS
As discussed in note 1, the Company made a Capital Contribution of $79
million to the Non-Life Insurance Subsidiaries and effected the Distribution of
the Company's Non-Life Insurance Subsidiaries to AmerUs Group in 1996.
The following summarizes transactions of the Company with affiliates:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Dividend to AMHC........................................... $ 4,158 $ 41,156 $ 4,962
Management, administrative, data processing, rent and other
services fee income from affiliates....................... 7,640 10,423 10,362
Commissions paid to affiliates for the sale of insurance
products.................................................. 521 1,259 2,200
Interest income from financings of affiliates.............. 6,794 6,000 4,890
Investments in bonds and accrued interest in Lartnec and
subsidiaries as of December 31............................ 7,648 12,868 17,242
Contribution of joint venture interests and sale of
partnership interests to partnerships in which an
affiliate has an interest................................. 1,638 10,957 --
Purchase of limited partnership interest in which an
affiliate has an interest................................. 2,160 -- --
Investments in partnerships and joint ventures in which an
affiliate has an interest................................. 18,557 9,625 4,870
Purchase of investments backed by the assets of a trust
which acquired loans from an affiliate.................... 46,755 -- --
Investments in mortgage loans from affiliated companies and
joint ventures............................................ 62,372 63,977 84,344
Payable to an affiliate for purchase of commercial mortgage
loans at December 31...................................... -- 6,520 --
Transfer of partnership interests in certain joint ventures
to an affiliate........................................... -- 1,697 --
Real estate management and mortgage servicing fees charged
by an affiliate........................................... 2,528 2,555 1,301
</TABLE>
(9) REINSURANCE
At December 31, 1996, the Company's maximum retention limit for acceptance
of risk on life insurance was $1 million. The retention limit for certain
policies issued prior to July 1, 1985, was $125,000 and for certain policies
issued after June 30, 1985, and before December 1, 1994, was $250,000. There are
reinsurance agreements with various companies whereby insurance in excess of
these retention limits are reinsured. Insurance in-force ceded to nonaffiliated
companies under risk sharing arrangements at December 31, 1996, 1995 and 1994,
totaled approximately $4,170 million, $3,814 million and $3,265 million,
respectively.
F-25
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) REINSURANCE (CONTINUED)
Total life premiums ceded amounted to $14.8 million, $14.2 million and $13.7
million for the years ended December 31, 1996, 1995, and 1994, respectively.
Total life premiums assumed amounted to $1.5 million, $4.9 million and $7.9
million, respectively.
To the extent that reinsuring companies are unable to meet obligations under
these agreements, the Company remains liable. To limit the possibility of such
losses, the Company evaluates the financial condition of its reinsurers and
monitors concentration of credit risk.
(10) COMMITMENTS AND CONTINGENCIES
The Non-Life Insurance Subsidiaries had various credit lines and
arrangements totaling $85 million at December 31, 1996. Approximately $62
million was outstanding under these agreements at December 31, 1996, which were
collateralized by Company investments of approximately $88 million. Subsequent
to December 31, 1996, the Company's collateral was released.
The Company has agreed to make loans to newly formed partnerships, of which
$26,600,000 was outstanding as of December 31, 1996.
The Company guarantees the payment of 60 percent of a pool of mortgage loans
and the related interest, previously sold to an unrelated party. The outstanding
balance of such mortgage loans subject to this repayment guarantee at December
31, 1996, was approximately $10 million.
The Company is party to financial instruments in the normal course of
business to meet the financing needs of its customers having risk exposure not
reflected in the balance sheet. These financial instruments include commitments
to extend credit and standby letters of credit. Commitments to extend credit are
agreements to lend to customers. Commitments generally have fixed expiration
dates and may require payment of a fee. Since many commitments expire without
being drawn upon, the total amount of commitments does not necessarily represent
future cash requirements. At December 31, 1996, outstanding commitments to
extend credit totaled approximately $15.5 million.
The Company and its joint venture partner are contingently liable in the
event the joint venture, Ameritas Variable Life Insurance Company (AVLIC),
cannot meet its policyholder obligations. At December 31, 1996, AVLIC had
statutory assets of $1,108 million, liabilities of $1,049 million, and surplus
of $59 million.
AmerUs Life is a defendant in a class action lawsuit which was brought on
August 31, 1995 in the District Court for Travis County, Texas. The complaint,
which seeks unspecified damages, was filed by former policyowners on behalf of
themselves and all similarly situated persons who purchased certain individual
life insurance policies which were underwritten and sold by AmerUs Life within
Texas from and after 1980. The complaint alleges that sales presentations and
policy illustrations misrepresented that premiums would "vanish" after a stated
number of years, without adequate disclosure of the effect of changes in the
policy dividends. AmerUs Life has denied the allegations contained in such
complaint and denies any wrongdoing in connection with such allegations. The
parties have engaged in discovery, but a hearing on certification of the class
has not yet been held.
The parties are engaged in a court-initiated mediation process in the Texas
litigation and, in light of the uncertainties, hazards and expenses of
litigation, have discussed a number of different settlement approaches,
including a nationwide class settlement of certain market conduct issues for a
substantial block of the Company's traditional whole life policies. Progress in
negotiating such a class settlement appears to have been made, but certain
issues remain unresolved and no definitive agreement has been reached. Even if
such an agreement were reached, the court would have to approve its terms.
Should a
F-26
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) COMMITMENTS AND CONTINGENCIES (CONTINUED)
settlement satisfactory to the Company not be reached or not be approved, the
Company would continue to vigorously defend against the claims asserted,
including the existence of a legitimate class.
Due to the potential that a settlement may be reached in this case, the
Company has incurred a significant charge to income for 1996. Based upon its
current estimates of the range of loss at between five and eight million
dollars, the Company has established a reserve of five million dollars. The
eventual costs of any settlement cannot be precisely determined at this time,
and may be more or less than the amount of the range.
A class action lawsuit was filed in June 1996 in the United States District
Court for the Northern District of California. The complaint alleges that AmerUs
Life breached the terms of certain life and annuity policies, and breached
certain other duties owed to policyowners, when it allegedly passed an increase
in its corporate income taxes (known as the deferred acquisition cost, or DAC,
tax) through to owners of those policies. The Plaintiff, an insured under a
universal life policy issued by Central Life, seeks unspecified actual and
punitive damages and injunctive relief on behalf of himself and all policyowners
of AmerUs Life with universal life, term and "blended" life insurance policies
and annuities. The plaintiff has recently filed a second complaint in the same
court, based upon the same facts but adding RICO allegations to those made in
the original lawsuit. AmerUs Life denies the allegations contained in both
complaints, including the existence of a legitimate class. The litigation is in
the early discovery stage and is being vigorously defended by AmerUs Life and
the potential range of loss cannot be currently estimated. A hearing on
certification of the class has not yet been scheduled.
Despite the Company's vigorous defense of these class action lawsuits and
its denial of any wrongdoing, there can be no assurance that the outcome of such
lawsuits will not have a material adverse effect on the life insurance industry
generally or on the Company. In the ordinary course of business, the Company and
its subsidiaries are also engaged in certain other litigation, none of which
management believes is material.
(11) STOCKHOLDERS' EQUITY
Generally, the stockholders' equity of the Company's insurance subsidiaries
available for distribution to the Company are limited to the amounts that the
insurance subsidiaries' net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements; however,
payments of such amounts as dividends may be subject to approval by regulatory
authorities. In 1997, the Company's insurance subsidiaries could distribute
approximately $34 million in the form of dividends to the Company without prior
approval of such regulatory authorities. However, as a result of the
distribution and capital contribution, the Company will not be able to pay
additional dividends in the 12-month period following the Distribution of the
Non-Life Insurance Subsidiaries without the prior approval of the Iowa
Commissioner.
The Company made additional contributions to the Non-Life Insurance
Subsidiaries amounting to $4.2 million, $41.2 million, and $5.0 million, in the
years ended December 31, 1996, 1995, and 1994, respectively, which have been
considered dividends to AMHC as a result of the Distribution.
(12) STATUTORY ACCOUNTING PRACTICES
The Company's insurance subsidiaries' statutory net income was $62.4
million, $59.9 million, and $20.3 million in the years ended December 31, 1996,
1995, and 1994, respectively.
The Company's insurance subsidiaries' statutory surplus and capital was
$283.0 million, and $276.3 million at December 31, 1996 and 1995, respectively.
F-27
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) STATUTORY ACCOUNTING PRACTICES (CONTINUED)
The Company's insurance subsidiaries are domiciled in Iowa and prepare their
statutory-basis financial statements in accordance with accounting practices
prescribed or permitted by the Iowa Department of Commerce (Iowa Department).
Prescribed statutory accounting practices include state laws, regulations, and
general administrative rules, as well as a variety of publications of the
National Association of Insurance Commissioners (NAIC). Permitted statutory
accounting practices encompass all accounting practices that are not prescribed;
such practices may differ from state to state, may differ from company to
company within a state, and may change in the future. The NAIC currently is in
the process of codifying statutory accounting practices, the result of which is
expected to constitute the only source of prescribed statutory accounting
practices. Accordingly, that project, which is expected to be completed in 1997,
will likely change, to some extent, prescribed statutory accounting practices
and may result in changes to the accounting practices that insurance enterprises
use to prepare their statutory financial statements.
The Company does not utilize any permitted practices in the preparation of
its statutory-basis financial statements which would have a material impact on
statutory surplus.
The Iowa Department imposes minimum risk-based capital requirements on
insurance enterprises that were developed by the NAIC. The formulas for
determining the amount of risk-based capital (RBC) specify various weighting
factors that are applied to financial balances or various levels of activity
based on the perceived degree of risk. Regulatory compliance is determined by a
ratio (the Ratio) of the enterprise's regulatory total adjusted capital, as
defined by the NAIC, to its authorized control level, RBC, as defined by the
NAIC. Enterprises below specific trigger points or ratios are classified within
certain levels, each of which requires specified corrective action.
AmerUs Life has a Ratio that is at least 700 percent of the authorized
control level RBC requirements; accordingly, AmerUs Life exceeds the RBC
requirements.
(13) FINANCIAL INSTRUMENTS
The Company utilizes a variety of off-balance-sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of its
portfolio of available-for-sale securities, attributable to changes in general
interest rate levels, and to manage duration mismatch of assets and liabilities.
Those instruments include interest rate exchange agreements (swaps, caps and
swaptions) and involve elements of credit and market risks in excess of the
amounts recognized in the accompanying financial statements at a given point in
time. The contract or notional amounts of those instruments reflect the extent
of involvement in the various types of financial instruments.
The Company's exposure to credit risk is the risk of loss from a
counterparty failing to perform according to the terms of the contract. That
exposure includes settlement risk (i.e., the risk that the counterparty defaults
after the Company has delivered funds or securities under terms of the contract)
that would result in an accounting loss and replacement cost risk (i.e., the
cost to replace the contract at current market rates should the counterparty
default prior to settlement date). To limit exposure associated with
counterparty nonperformance on interest rate exchange agreements, the Company
enters into master netting agreements with its counterparties.
The credit risk on all financial instruments, whether on or off the balance
sheet, is controlled through an on-going credit review, approval, and monitoring
process. The Company determines, on an individual counterparty basis, the need
for collateral or other security to support financial instruments with credit
risk and establishes individual and aggregate counterparty exposure limits.
F-28
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) FINANCIAL INSTRUMENTS (CONTINUED)
The Company's outstanding derivative positions shown in notional or contract
amounts, along with their carrying value and estimated fair values, are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------
NOTIONAL CARRYING FAIR
AMOUNT VALUE VALUE
----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest rate caps....................................... $ 500,000 $ 4,056 $ 3,269
Swaptions................................................ 255,000 5,102 4,793
Received fixed........................................... 150,000 6,516 6,516
Pay fixed................................................ 75,000 (621) (621)
----------- --------- ---------
$ 980,000 $ 15,053 $ 13,957
----------- --------- ---------
----------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------
NOTIONAL CARRYING FAIR
AMOUNT VALUE VALUE
----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest rate caps....................................... $ 450,000 $ 4,112 $ 4,110
Received fixed........................................... 150,000 11,887 11,887
Pay fixed................................................ 150,000 (3,392) (3,392)
----------- --------- ---------
$ 750,000 $ 12,607 $ 12,605
----------- --------- ---------
----------- --------- ---------
</TABLE>
INTEREST RATE EXCHANGE AGREEMENTS
The Company enters into interest rate exchange agreements to reduce and
manage interest rate risk associated with individual assets and liabilities and
its overall aggregate portfolio. The interest rate swap agreements, which expire
between 1999 and 2001, generally involve the exchange of fixed and floating rate
interest payments, without an exchange of the underlying principal. The interest
rate cap agreements, which expire between 1997 and 2001, involve the payment of
a maximum fixed interest rate when an indexed rate exceeds that fixed rate.
Swaption agreements, which expire between 1999 and 2002, involve the right to
enter into a swap transaction at a pre-specified price. These agreements are
used in conjunction with interest rate caps to protect against rising rates. The
amounts to be received or paid pursuant to those agreements are accrued and
recognized in the accompanying consolidated statements of income through an
adjustment to investment income over the life of the agreements. The net effect
on income from amortization and interest paid or received was an increase of
$0.9 million and $1.5 million for the years ended December 31, 1996 and 1995,
respectively. There were no material effects in 1994. Gains or losses realized
on closed or terminated agreements accounted for as hedges are deferred and
amortized to investment income on a constant yield basis over the shorter of the
life of the agreements or the expected remaining life of the underlying assets
or liabilities.
F-29
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) FINANCIAL INSTRUMENTS (CONTINUED)
The following table shows unrealized gains and losses on derivative
positions.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------
NET
TOTAL UNREALIZED
NOTIONAL UNREALIZED UNREALIZED GAINS
VALUE GAINS LOSSES (LOSSES)
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Received fixed............................ $ 150,000 $ 4,744 $ -- $ 4,744
Pay fixed................................. 75,000 -- 62 (62)
Interest rate caps........................ 500,000 -- 1,566 (1,566)
Swaptions................................. 255,000 -- -- --
----------- ----------- ----------- -----------
$ 980,000 $ 4,744 $ 1,628 $ 3,116
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------
NET
TOTAL UNREALIZED
NOTIONAL UNREALIZED UNREALIZED GAINS
VALUE GAINS LOSSES (LOSSES)
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Received fixed............................ $ 150,000 $ 11,887 $ -- $ 11,887
Pay fixed................................. 150,000 -- 3,392 (3,392)
Interest rate caps........................ 450,000 183 2,518 (2,335)
----------- ----------- ----------- -----------
$ 750,000 $ 12,070 $ 5,910 $ 6,160
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The Company is exposed to credit loss in the event of nonperformance by
counterparties on interest rate cap and interest rate swap agreements. The
Company does not anticipate nonperformance by any of these counterparties. The
credit risk associated with such agreements is minimized by purchasing such
agreements from financial institutions with long-standing, superior performance
records. The amount of such exposure is essentially their replacement cost,
which is approximated by the unrealized gains in such contracts.
The Company has no current exposure to the counterparty when a contract
contains an unrealized loss.
F-30
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) FINANCIAL INSTRUMENTS (CONTINUED)
MATURITY SCHEDULE BY YEAR FOR DERIVATIVE PRODUCTS
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Received fixed swaps:
Notional amount (in thousands)................ $ 150,000
Weighted average:
Receive rate.................................. 7.86% 7.86% 7.86%
Pay rate (A).................................. 5.58% 5.58% 5.58%
Pay fixed swaps:
Notional amount (in thousands)................ $ 75,000
Weighted average:
Receive rate (A).............................. 5.50% 5.50% 5.50% 5.50% 5.50%
Pay rate...................................... 6.63% 6.63% 6.63% 6.63% 6.63%
Total weighted average rates on swaps:
Receive rate.................................. 7.07% 7.07% 7.07% 5.50% 5.50%
Pay rate...................................... 5.93% 5.93% 5.93% 6.63% 6.63%
Interest rate caps
Notional amount (in thousands)................ $ 25,000 $ 125,000 $ 300,000 $ 50,000
Swaptions
Notional amount (in thousands)................ $ 50,000 $ 105,000 $ 100,000
Total notional value of swaps, caps and
swaptions (in thousands)....................... $ 25,000 $ 325,000 $ 300,000 $ 230,000 $ 100,000
</TABLE>
- ------------------
(A) The actual variable rates in the agreements are based on three-month LIBOR,
and the table assumes that such rates will remain constant at December 31,
1996 levels. To the extent that actual rates change, the variable interest
rate information will change accordingly.
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Values of Financial Instruments," requires
disclosures of fair value information about financial instruments, whether
recognized or not recognized in a company's balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using discounted cash flow or
other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rates and estimates of the amount and
timing of future cash flows. SFAS 107 excludes certain insurance liabilities and
other non-financial instruments from its disclosure requirements. The fair value
amounts presented herein do not include an amount for the value associated with
customer or agent relationships, the expected interest margin (interest earnings
over interest credited) to be earned in the future on investment-type products,
or other intangible items. Accordingly, the aggregate fair value amounts
presented herein do not necessarily represent the underlying value of the
Company; likewise, care should be exercised in deriving conclusions about the
Company's business or financial condition based on the fair value information
presented herein.
The Company closely monitors the level of its insurance liabilities, the
level of interest rates credited to its interest sensitive products, and the
assumed interest margin provided for within the pricing structure of its other
products. Those amounts are taken into consideration in the Company's overall
management of interest rate risk that attempts to minimize exposure to changing
interest rates through the matching of investment maturities with amounts
expected to be due under insurance contracts. As such, the Company believes that
it has reduced the volatility inherent in its fair value adjusted policyowners'
equity, although such volatility will not be reduced completely. The Company has
used discount rates in the determination of fair values for its liabilities that
are consistent with market yields for related assets. The use of the asset
market yield is consistent with management's opinion that the risks inherent in
the Company's asset and liability portfolios are similar, and the fact that fair
values for both assets and
F-31
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
liabilities generally will react in much the same manner during periods of
interest rate changes. However, that assumption might not result in fair values
that are consistent with values obtained through an actuarial appraisal of the
Company's business or values that might arise in a negotiated transaction.
The following presentation reflects fair values for those instruments
specifically covered by SFAS 107, along with fair value amounts for those
traditional insurance liabilities for which disclosure is permitted but not
required; the fair values for all other assets and liabilities have been
reported at their carrying amounts.
VALUATION METHODS AND ASSUMPTIONS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash, short-term investments, policy loans, accrued investment income: the
carrying amounts for these instruments approximate their fair values.
Fixed maturities and equity securities: fair values for bonds are based on
quoted market prices or dealer quotes. If a quoted market price is not
available, fair value is estimated using values obtained from independent
pricing services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate applicable to
the yield, credit quality, and maturity of the investments. The fair values for
preferred and common stocks are based on quoted market prices.
Mortgage loans on real estate: for all performing fixed interest rate loans,
the estimated net cash flows to maturity were discounted to derive an estimated
market value. The discount rate used was based on the individual loan's
remaining weighted average life and a basis point spread based on the market
conditions for the type of loan and credit quality. These spreads were over the
December 31, 1996, United States treasury yield curve. Performing variable rate
commercial loans and residential loans were valued at the current outstanding
balance. Loans which have been restructured, are in foreclosure, are
significantly delinquent, or are to affiliates were valued primarily at the
lower of the estimated net cash flows to maturity discounted at a market rate of
interest or the current outstanding principal balance.
Hedging instruments: fair values for derivative securities are based on
pricing models or formulas using current assumptions and are classified as other
assets or other liabilities.
Policy reserves: fair values of the Company's liabilities under contracts
not involving significant mortality or morbidity risks (principally, annuities)
are stated at the cost the Company would incur to extinguish the liability;
I.E., the cash surrender value.
Debt: fair values for debt are estimated using discounted cash flow analysis
based on the Company's current incremental borrowing rate for similar types of
borrowing arrangements.
The carrying amounts of other financial assets, dividends payable to
policyowners, and policy reserves including significant mortality or morbidity
risks approximate their fair values.
F-32
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Company's significant financial instruments
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1996 1995
---------------------------- ----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Securities available-for-sale:
Fixed maturity................................... $ 2,414,807 $ 2,414,807 $ 3,142,096 $ 3,142,096
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Equity securities................................ $ 64,033 $ 64,033 $ 109,675 $ 109,675
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Short-term investments........................... $ 13,288 $ 13,288 $ 39,353 $ 39,353
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Mortgage loans on real estate...................... $ 225,743 $ 231,337 $ 353,597 $ 369,706
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Interest rate swaps:
Net receivable position.......................... $ 6,516 $ 6,516 $ 11,887 $ 11,887
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net payable position............................. $ (621) $ (621) $ (3,392) $ (3,392)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Interest rate caps................................. $ 6,200 $ 3,269 $ 6,445 $ 4,110
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Swaptions.......................................... $ 5,102 $ 4,793 $ -- $ --
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Financial liabilities:
Policy reserves for annuities...................... $ 1,460,118 $ 1,428,141 $ 1,524,801 $ 1,493,847
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Debt............................................... $ 188,381 $ 188,381 $ 36,461 $ 36,461
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
(15) SUBSEQUENT EVENTS
As mentioned previously, the Company successfully completed its initial
public offering of its Class A common stock in February 1997 with the sale of
3,655,989 shares for gross proceeds of $56.7 million. In addition, the Company
sold $86 million of 8.85% Capital Securities due February 1, 2027.
F-33
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(A) CLOSED BLOCK
Summarized financial information of the Closed Block balance sheet as of
June 30, 1997, and statements of income for the six months ended June 30, 1997
is as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------
<S> <C>
Assets:
Fixed maturity securities, at fair value (amortized cost of $933,019)......... $ 950,617
Short-term investments, at fair value......................................... 14,040
Policy loans.................................................................. 169,029
Cash.......................................................................... (3,115)
Accrued Investment Income..................................................... 10,995
Premiums and fees receivable.................................................. 3,023
Deferred policy acquisition costs............................................. 161,125
Other assets.................................................................. 1,672
--------------
$ 1,307,386
--------------
--------------
Liabilities:
Future life and annuity policy benefits....................................... $ 1,407,021
Policyowner funds............................................................. 7,357
Accrued expense............................................................... 2,868
Dividends payable to policyowners............................................. 133,263
Policy and contract claims.................................................... 7,429
Other liabilities............................................................. 5,852
--------------
$ 1,563,790
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1997
--------------
<S> <C>
Revenues and Expenses:
Insurance premiums............................................................ $ 104,994
Universal life and annuity product charges.................................... 10,007
Net investment income......................................................... 54,278
Realized losses on investments................................................ (989)
Policyowner benefits.......................................................... (108,382)
Underwriting, acquisition, and insurance expenses............................. (2,821)
Amortization of deferred policy acquisition costs............................. (14,111)
Dividends to policyowners..................................................... (29,566)
--------------
Contribution from the Closed Block before income taxes........................ $ 13,410
--------------
--------------
</TABLE>
F-34
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(B) DEBT AND CAPITAL SECURITIES
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------
<S> <C>
Line of credit with Federal Home Loan Bank-bearing interest at 6.90% at June
30, 1997..................................................................... $ 19,927
Federal Home Loan Bank community investment long-term advances with a weighted
average interest rate of 6.35% at June 30,1997............................... 16,621
Bank Credit Facility:
Term loan bearing interest at 6.63%
at June 30, 1997............................................................. 45,000
Revolving credit loan........................................................ --
--------------
$ 81,548
--------------
--------------
</TABLE>
For an additional discussion of the terms of the above indebtedness, see
note 5.
On February 3, 1997, the Company issued $86,000,000 of 8.85% Capital
Securities, Series A, through a wholly-owned subsidiary trust. The sole asset of
the trust is the junior subordinated debentures of the Company in the principal
amount of $88.66 million with interest at 8.85% maturing February 1, 2027. The
Company has fully and unconditionally guaranteed the obligation of the trust
under the Capital Securities and is obligated to mandatorily redeem the
securities on February 1, 2027. The Company may prepay the securities at anytime
after February 1, 2007.
(C) FEDERAL INCOME TAXES
The effective income tax rate for the period ending June 30, 1997 was lower
than the prevailing corporate rate primarily as a result of earned low income
housing and historic rehabilitation credits.
(D) COMMITMENTS AND CONTINGENCIES
AmerUs Life is a defendant in a class action lawsuit, Cozad v. American
Mutual Life Insurance Company, which was brought on August 31, 1995 in the
District Court for Travis County, Texas. The complaint, which seeks unspecified
damages, was filed by former policyowners on behalf of themselves and all
similarly situated persons who purchased individual life insurance policies
which were underwritten and sold by AmerUs Life within Texas and which were
allegedly based upon uniform sales presentations and policy illustrations from
and after 1980. AmerUs Life has denied the allegations contained in such
complaint.
Following a court-initiated mediation process, the Company and the
plaintiffs have entered into a nationwide class settlement of certain market
conduct issues for a substantial block of its policies. On September 16, 1997,
the court entered an order approving the certification of the class and the
fairness of the settlement, subject only to an appeal, if any. A final hearing
has been scheduled following notice to class members. There can be no assurance
the agreement will be approved by the court and become effective. Should a
settlement not be approved, this litigation would continue and the Company would
continue to vigorously defend against claims asserted, including the existence
of a legitimate class. Due to the potential that a settlement may be reached in
this case, the Company incurred a significant charge to income in 1996. Based
upon its current estimates of the range of loss at between five and eight
million dollars, the Company has established a reserve of five million dollars.
The eventual costs of any
F-35
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
settlement cannot be precisely determined at this time, and may be more or less
than the amount of the range.
A class action lawsuit was filed in June 1996 in the United States District
Court for the Northern District of California. The complaint alleges that AmerUs
Life breached the terms of certain life and annuity policies, and breached
certain other duties owed to policyowners, when it allegedly passed an increase
in its corporate income taxes (known as the deferred acquisition cost, or DAC,
tax) through to owners of those policies. The Plaintiff, an insured under a
universal life policy issued by Central Life, seeks unspecified actual and
punitive damages and injunctive relief on behalf of himself and all policyowners
of AmerUs Life with universal life, term and "blended" life insurance policies
and annuities. The plaintiff has recently filed a second complaint in the same
court, based upon the same facts but adding RICO allegations to those made in
the original lawsuit. AmerUs Life denies the allegations contained in both
complaints, including the existence of a legitimate class. The litigation is in
the early discovery stage and is being vigorously defended by AmerUs Life and
the potential range of loss cannot be currently estimated. A hearing on
certification of the class has not yet been scheduled.
AmerUs and its joint venture partner are contingently liable in the event
the joint venture, Ameritas Variable Life Insurance Company (AVLIC), cannot meet
its policyholder obligations. At December 31, 1996, AVLIC had statutory assets
of $1,108 million, liabilities of $1,049 million, and surplus of $59 million.
(E) SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ----------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1996 Operating Summary
Insurance revenues.......................... $ 77,130 $ 75,205 $ 20,504 $ 14,984
----------- ----------- -------------- -------------
----------- ----------- -------------- -------------
Net investment income....................... $ 73,220 $ 70,369 $ 44,910 $ 40,126
----------- ----------- -------------- -------------
----------- ----------- -------------- -------------
Realized gains (losses) on investments...... $ 58,740 $ 5,669 $ (1,854) $ 3,428
----------- ----------- -------------- -------------
----------- ----------- -------------- -------------
Total revenues.............................. $ 209,233 $ 152,429 $ 67,170 $ 76,219
----------- ----------- -------------- -------------
----------- ----------- -------------- -------------
Total benefits and expenses................. $ 139,616 $ 133,043 $ 55,370 $ 60,034
----------- ----------- -------------- -------------
----------- ----------- -------------- -------------
Net income.................................. $ 44,790 $ 11,671 $ 6,483 $ 11,229
----------- ----------- -------------- -------------
----------- ----------- -------------- -------------
Earnings per common share................... $ 1.94 $ 0.50 $ 0.28 $ 0.48
----------- ----------- -------------- -------------
----------- ----------- -------------- -------------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ----------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1995 Operating Summary
Insurance revenues.......................... $ 75,056 $ 74,472 $ 76,898 $ 75,031
----------- ----------- -------------- -------------
----------- ----------- -------------- -------------
Net investment income....................... $ 71,531 $ 69,736 $ 69,224 $ 74,753
----------- ----------- -------------- -------------
----------- ----------- -------------- -------------
Realized gains (losses) on investments...... $ 5,151 $ 18,999 $ 17,414 $ 9,823
----------- ----------- -------------- -------------
----------- ----------- -------------- -------------
Total revenues.............................. $ 151,339 $ 163,857 $ 165,569 $ 162,713
----------- ----------- -------------- -------------
----------- ----------- -------------- -------------
Total benefits and expenses................. $ 134,896 $ 125,615 $ 136,378 $ 136,039
----------- ----------- -------------- -------------
----------- ----------- -------------- -------------
Net income.................................. $ 8,697 $ 25,100 $ 20,213 $ 15,338
----------- ----------- -------------- -------------
----------- ----------- -------------- -------------
Earnings per common share................... $ 0.38 $ 1.08 $ 0.87 $ 0.66
----------- ----------- -------------- -------------
----------- ----------- -------------- -------------
</TABLE>
F-36
<PAGE>
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(F) SUBSEQUENT EVENTS
DELTA LIFE
The Company completed the acquisition of Delta Life Corporation following
receipt of an order on October 23, 1997 from the Tennessee Department of
Commerce and Insurance approving the change of control for $162.9 million in
cash. Delta Life Corporation provides deferred annuity and equity index annuity
products through an insurance subsidiary and had assets of approximately $2.0
billion, at the date of the closing.
On October 23, 1997, the Company entered into a new bank credit facility and
repaid the term loan under the prior bank credit facility. The new loan
agreement provides for a $250 million revolving credit facility on substantially
the same terms as the former agreement. The Company immediately borrowed $235
million to finance the acquisition of Delta Life Corporation, retire the former
term loan and retire certain indebtedness of Delta.
AMVESTORS
On September 19, 1997, the Company entered into an agreement and plan of
merger which provides for the issuance of Class A Common Stock in exchange for
the outstanding common stock of AmVestors Financial Corporation (AmVestors)
after which, AmVestors will survive as a subsidiary of the Company. AmVestors
had approximately $206 million of revenues from the sale of life insurance and
annuity products and net investment income during the year ended December 31,
1996 and had approximately $3.3 billion in assets at that date. The transaction
is subject to approval by the shareholders of the Company and AmVestors and also
regulatory approval, but is expected to close in 1997.
(G) RELATED PARTY TRANSACTIONS
AmerUs Life entered into a master agreement of purchase and sale with AmerUs
Bank, dated as of March 5, 1997, whereby AmerUs Life agreed to purchase whole
loans from AmerUs Bank from time to time. AmerUs Life also entered into a loan
servicing agreement with AmerUs Bank, dated as of March 5, 1997, whereby AmerUs
Bank acts as servicer of the loans and receives a servicing fee ranging from 50
to 58 basis points of the outstanding principal balances of the loans. AmerUs
Life has made three purchases under this agreement during 1997. On March 7,
1997, $25.3 million in outstanding principal at a $1.4 million premium; on
September 10, 1997, $39.1 million in outstanding principal at a $2.7 million
premium; and on September 28, 1997, $34.0 million in outstanding principal at a
$2.4 million premium. Subsequent to September 30, 1997, these loans were sold by
AmerUs Life at a small gain.
AmerUs Life entered into a purchase agreement with AmerUs Mortgage dated
March 1, 1997, whereby AmerUs Life has committed to purchase up to $200 million
principal amount of first mortgage loans originated by AmerUs Mortgage. The
commitment expires on December 31, 1997, and is terminable by either party upon
sixty days' notice. To date, AmerUs Life has purchased 13 mortgage loans
pursuant to such commitment for a total purchase price of $1.8 million.
F-37
<PAGE>
ANNEXES TO THE
PROXY STATEMENT/PROSPECTUS
<TABLE>
<S> <C>
ANNEX I AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
ANNEX II OPINION OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
ANNEX III OPINION OF GOLDMAN, SACHS & CO.
</TABLE>
<PAGE>
ANNEX I
CONFORMED COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
AMERUS LIFE HOLDINGS, INC.
AFC CORP.
AND
AMVESTORS FINANCIAL CORPORATION
DATED AS OF SEPTEMBER 19, 1997 AND AMENDED AS OF OCTOBER 8, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is
dated as of September 19, 1997 and amended as of October 8, 1997, and is by and
among AmVestors Financial Corporation, a Kansas corporation (the "COMPANY"),
AmerUs Life Holdings, Inc., an Iowa corporation ("PARENT"), and AFC Corp., a
Kansas corporation and a subsidiary of Parent ("SUB"). A Glossary of Terms is
attached as Annex A and incorporated herein by reference.
RECITALS
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the merger of Sub into the Company, upon the terms and subject to
the conditions set forth in this Agreement, whereby each issued and outstanding
share of common stock, no par value, of the Company (the "COMPANY COMMON
STOCK"), not owned directly or indirectly by Parent or held in treasury by the
Company, will be converted into the right to receive the Merger Consideration
(as defined below), on the terms set forth herein;
WHEREAS, Parent, Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger; and
WHEREAS, for federal income tax purposes, it is intended that the Merger of
the Company and Sub shall qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "CODE"),
and that this Agreement shall be, and is hereby, adopted as a plan of
reorganization for the purposes of Section 368 of the Code.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties and covenants set forth herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 THE MERGER.
(a) Subject to the terms and conditions of this Agreement, at the Effective
Time (as defined in Section 1.01(b)), Sub shall be merged with and into the
Company (the "MERGER") in accordance with the Kansas Statutes Annotated ("KSA"),
Chapter 17 (the "KGCC"), whereupon the separate existence of the Sub shall
cease, and the Company shall be the surviving corporation (the "SURVIVING
CORPORATION").
(b) The consummation of the Merger (the "CLOSING") shall take place (i) at
the offices of Bryan Cave LLP, One Metropolitan Square, 211 North Broadway,
Suite 3600, St. Louis, Missouri, at 10:00 A.M., on such date (the "CLOSING
DATE") which is three business days after the date on which the last of the
conditions set forth in Article 8 hereof shall have been satisfied or waived in
accordance with this Agreement, or (ii) such other place, time and date as the
parties hereto shall agree. Prior to the Closing, Sub and the Company shall
execute and deliver to the Secretary of State of the State of Kansas (the
"KANSAS SECRETARY OF STATE") a Certificate of Merger in proper form for filing
under the KGCC on the day of the Closing, and the Merger shall become effective
upon the filing of the Certificate of Merger with the Kansas Secretary of State
or at such later time as may be specified in the Certificate of Merger, such
time being herein called the "EFFECTIVE TIME".
(c) The Merger shall have the effects set forth in the KGCC. Without
limiting the generality of the foregoing, at the Effective Time (i) the
Surviving Corporation shall possess all assets and property of every
description, and every interest therein, wherever located, and the rights,
privileges, immunities,
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power, franchises, and authority, of a public as well as of a private nature, of
each of the Company and the Sub and all obligations belonging to or due each of
them shall be vested in the Surviving Corporation without further act or deed;
(ii) title to any real estate or any interest therein vested in either of the
Company or the Sub shall not revert or in any way be impaired by reason of the
Merger; (iii) all rights of creditors and all liens on any property of the
Company and the Sub shall be preserved unimpaired; and (iv) the Surviving
Corporation shall be liable for all the obligations of the Company and the Sub,
and any claim existing, or action or proceeding pending, by or against either of
them, may be prosecuted to judgment with the right of appeal, as if the Merger
had not taken place.
SECTION 1.02 STOCK OPTIONS.
(a) As soon as practicable following the date of this Agreement, but in any
event not less than fifteen trading days prior to the Closing, the Board of
Directors of the Company (or, if appropriate, any committee administering the
Company's 1989 Non-Qualified Stock Option Plan (the "NQSO PLAN") or 1996
Incentive Stock Option Plan (the "ISO PLAN," and together with the NQSO Plan,
the "COMPANY OPTION PLANS") shall adopt such resolutions or take such other
actions as may be required to adjust the terms of all outstanding Company
Options (as defined in Section 3.03) issued pursuant to the Company Option Plans
and related agreements, to provide that at the Effective Time, each Company
Option outstanding (whether or not vested and exercisable) immediately prior to
the Effective Time shall at the Effective Time cease to represent a right to
acquire shares of Company Common Stock and shall be converted automatically into
an option (a "CONTINUING OPTION") to acquire Parent Common Stock in an amount
and at an exercise price determined as provided in the immediately following
sentence (and on substantially the same terms and conditions as were applicable
under such Company Option Plan and the agreements evidencing grants thereunder),
subject to Section 1.02(b). At the Effective Time, if the holder of a Company
Option which is then outstanding and unexercised has not timely elected (with
respect to Company Options granted under the NQSO Plan) or has not timely
requested (with respect to Company Options granted under the ISO Plan; or if so
requested, if such request has been denied by the Company) to receive cash for
such Company Option as described in subsection (b) of this Section 1.02, then
such Company Option shall, in accordance with the provisions of the NQSO Plan or
the ISO Plan, whichever is applicable, become a Continuing Option to acquire (x)
the number of shares of Parent Common Stock equal to the product of (i) the
number of shares of Company Common Stock subject to such Company Option
immediately prior to the Effective Time multiplied by (ii) the Merger
Consideration (a partial share shall be rounded down to the next lower whole
share), with (y) an exercise price equal to the quotient of (i) the original
exercise price per share (the "ORIGINAL EXERCISE PRICE") of Company Common Stock
subject to such Company Option in effect immediately prior to the Effective Time
divided by (ii) the Merger Consideration and rounding the exercise price thus
determined to the nearest whole cent (a half cent shall be rounded to the next
higher whole cent). In the case of Company Options intended to be incentive
stock options (as defined in Section 422 of the Code), the exercise price,
number of shares of Parent Common Stock subject to such Continuing Option and
terms and conditions or exercise of such Continuing Option shall be determined
in order to comply with the requirements of Section 424(a) of the Code.
(b) As soon as practicable following the date of this Agreement, but in any
event not less than fifteen trading days prior to the Closing, the Company shall
deliver to the holders of Company Options (whether or not vested and
exercisable) a Cash Option Notice Form (as defined below) offering to (i)
holders of Company Options issued pursuant to the NQSO Plan the right to elect,
and (ii) holders of Company Options issued pursuant to the ISO Plan the right to
request, to receive in consideration for the cancellation of all (but not less
than all) of such holder's Company Options, an amount in cash equal to the
product of (x) the excess of (i) the Option Cash Price (as defined below), over
(ii) the Original Exercise Price of such Company Option, multiplied by (y) the
number of shares subject to such Company Option. The "OPTION CASH PRICE" is the
product of (A) the last reported sales price per share of Parent Common Stock as
quoted by Nasdaq (as defined below) on the Closing Date multiplied by (B) the
Merger Consideration. Alternatively, with the consent of Parent prior to the
Closing, holders of
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Company Options may request to receive in consideration for the cancellation of
such holder's Company Options, a number of shares of Parent Common Stock
(rounded down to the nearest whole share) equal to the amount of cash which
otherwise would be payable upon termination of such Company Options pursuant to
the first sentence of this Section 1.02(b), divided by the last sales price of
Parent Common Stock as reported on Nasdaq as of the Effective Time.
(c) As soon as practicable after the Effective Time, Parent shall deliver to
the holders of Continuing Options appropriate notices setting forth such
holders' rights pursuant to the respective Company Option Plans.
(d) To make the election for cash consideration described in Section 1.02(b)
above, any eligible Company Option holder must deposit with the Exchange Agent
at least ten trading days prior to the Closing a properly completed notice
("CASH OPTION NOTICE FORM"), in form and substance reasonably satisfactory to
Parent (including an appropriate release), and the Option Agreements (as defined
below) relating to any such Company Options for which such election is made.
Such election shall be irrevocable unless the Agreement is terminated before the
Effective Time. Following the Effective Time, the Company shall deliver to each
such holder the cash amount so elected, calculated in accordance with Section
1.02(b) above. No interest shall be paid on such amount. If this Agreement is
terminated before the Effective Time, the Option Agreement(s) shall be returned
to each such holder.
SECTION 1.03 STOCK APPRECIATION RIGHTS. Following the Effective Time, the
holders of outstanding Company SARs (as defined in Section 3.03(e) hereof),
shall be entitled to receive in consideration for the cancellation of such
Company SAR an amount in cash equal to the product of (x) the excess of (i) the
Option Cash Price over (ii) the strike price of such Company SAR, multiplied by
(y) the number of shares of Company Common Stock referenced by the Company SARs;
provided, that Parent shall have received from each such holder a written
acknowledgement that such payment is in full satisfaction of the Company's and
Parent's obligations in respect of the Company SARs.
SECTION 1.04 ARTICLES OF INCORPORATION AND BY-LAWS.
(a) The Articles of Incorporation of the Company, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
(b) The By-Laws of Sub as in effect immediately prior to the Effective Time
shall be the By-Laws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
SECTION 1.05 DIRECTORS. The individuals who are the directors of Sub
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation until thereafter they cease to be directors in accordance with the
KGCC and the Articles of Incorporation and By-Laws of the Surviving Corporation.
SECTION 1.06 OFFICERS. The individuals who are the officers of the Company
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation until thereafter they cease to be officers in accordance with the
KGCC and the Articles of Incorporation and By-Laws of the Surviving Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.01 CAPITAL STOCK OF SUB. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
Company Common Stock or any shares of capital stock of Sub, each share of common
stock, without par value, of Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and become one fully paid and
nonassessable share of common stock, without par value, of the Surviving
Corporation.
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SECTION 2.02 CANCELLATION OF TREASURY STOCK AND PARENT OWNED STOCK. As of
the Effective Time, by virtue of the Merger and without any action on the part
of the holder of any shares of Company Common Stock or any shares of capital
stock of Sub, each share of Company Common Stock issued and held immediately
prior to the Effective Time in the Company's treasury and each share of Company
Common Stock that is owned by Parent, Sub or any other subsidiary of Parent
shall automatically be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor. At the Effective Time,
shares of Company Common Stock held by subsidiaries of the Company shall be
converted into the right to receive the Merger Consideration in accordance with
Section 2.03.
SECTION 2.03 CONVERSION OF COMPANY COMMON STOCK.
(a) As of the Effective Time, by virtue of the Merger and without any action
on the part of the holder of any shares of Company Common Stock or any shares of
capital stock of Sub, except as otherwise provided in this Section 2.03 and
subject to Section 2.04(f), each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares to be
canceled in accordance with Section 2.02) shall be converted into the right to
receive (x) if the Average Parent Share Price (as defined below) is greater than
or equal to $27.00 but less than or equal to $29.75, the number of shares of
Parent Common Stock (as defined in Section 4.10 hereof) determined by dividing
$20.00 by the Average Parent Share Price and rounding the result to the nearest
one ten-thousandth of a share; (y) if the Average Parent Share Price is less
than $27.00, 0.7407 shares of Parent Common Stock (subject to the next
succeeding paragraph); and (z) if the Average Parent Share Price is greater than
$29.75, 0.6724 shares of Parent Common Stock (as applicable, the "MERGER
CONSIDERATION"); provided, however, that, in any event, if between the date of
this Agreement and the Effective Time the outstanding shares of Parent Common
Stock shall have been changed into a different number of shares or a different
class, by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the Merger
Consideration shall be correspondingly adjusted to the extent appropriate to
reflect such stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares. The "AVERAGE PARENT SHARE PRICE" means
the average of the last reported sales prices per share of Parent Common Stock
as quoted by The Nasdaq National Market ("NASDAQ") for the 20 consecutive
trading days ending on the trading day (the "PRICE MEASURING DATE") which is ten
trading days prior to the Closing Date.
(b) In the event that the Average Parent Share Price on the Price Measuring
Date is less than $27.00, the Company shall have the option to deliver a written
notice to Parent on the trading day following the Price Measuring Date providing
for the termination of this Agreement pursuant to this Section 2.03(b) and
Article IX, subject to the next sentence (the "TERMINATION NOTICE"). If the
Company properly delivers a Termination Notice, this Agreement shall terminate
in accordance with Article IX hereof at the close of business on the fifth
trading day following the Price Measuring Date unless prior to such time Parent
shall have delivered to the Company a written notice whereby the Parent agrees
to adjust the consideration into which each share of Company Common Stock from
the Merger Consideration as determined above to the number of shares of Parent
Common Stock (the "ADJUSTED MERGER CONSIDERATION") determined by dividing $20.00
by the Average Parent Share Price as of the Price Measuring Date and rounding
the result to the nearest one ten-thousandth of a share.
(c) As of the Effective Time, all such shares of Company Common Stock shall
no longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each holder of a certificate representing any such
shares of Company Common Stock shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration.
SECTION 2.04 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. From and after the Effective Time, (i) Parent shall make
available to a bank or trust company designated by Parent and reasonably
satisfactory to the Company (the "EXCHANGE AGENT"), for the benefit of the
holders of shares of Company Common Stock, for exchange in accordance with this
Article II through the Exchange Agent, (i) certificates evidencing such number
of shares of Parent Common Stock issuable to holders of Company Common Stock in
the Merger pursuant to
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Section 2.03 and (ii) upon request of the Exchange Agent cash in the amount
required to be exchanged for shares of Company Common Stock in the Merger
pursuant to Section 2.04(f) (such certificates for shares of Parent Common
Stock, together with any dividends or distributions with respect thereto and
cash, being hereinafter referred to as the "EXCHANGE FUND"). The Exchange Agent
shall, pursuant to irrevocable instructions, deliver the Parent Common Stock
contemplated to be issued pursuant to Section 2.03 out of the Exchange Fund.
Except as contemplated by Section 2.04(f) hereof, the Exchange Fund shall not be
used for any other purpose. The Exchange Agent shall invest any cash included in
the Exchange Fund, as directed by Parent, on a daily basis. Any interest and
other income resulting from such investments shall be paid to Parent.
(b) EXCHANGE PROCEDURES. As promptly as practicable after the Effective
Time, Parent shall cause the Exchange Agent to mail to each holder of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "CERTIFICATES") (i)
a letter of transmittal (which shall be in customary form and shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates evidencing shares of Parent Common Stock.
(c) EXCHANGE OF CERTIFICATES. Upon surrender to the Exchange Agent of a
Certificate for cancellation, together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, and such
other documents as may be reasonably required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor (i)
a Certificate representing that number of whole shares of Parent Common Stock,
if any, which such holder has the right to receive pursuant to this Article II
and (ii) a check in the amount equal to the cash, if any, which such holder has
the right to receive pursuant to the provisions of this Article II (including
any cash in lieu of any fractional shares of Parent Common Stock to which such
holder is entitled pursuant to Section 2.04(f) and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.04(d)), and
the Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of shares of Company Common Stock which is not registered
in the transfer records of the Company, the applicable Merger Consideration,
cash in lieu of any fractional shares of Parent Common Stock to which such
holder is entitled pursuant to Section 2.04(f) and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.04(d) may
be issued to a transferee if the Certificate representing such shares of Company
Common Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.04, each Certificate shall be deemed at all times
after the Effective Time to represent only the right to receive upon such
surrender the applicable Merger Consideration with respect to the shares of
Company Common Stock formerly represented thereby, cash in lieu of any
fractional shares of Parent Common Stock to which such holder is entitled
pursuant to Section 2.04(f) and any dividends or other distributions to which
such holder is entitled pursuant to Section 2.04(d).
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF PARENT COMMON STOCK.
No dividends or other distributions declared or made after the Effective Time
with respect to Parent Common Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Common Stock represented thereby, and no cash payment in lieu
of any fractional shares shall be paid to any such holder pursuant to Section
2.04(f), until the holder of such Certificate shall surrender such Certificate.
Subject to the effect of escheat, tax or other applicable laws, following
surrender of any such Certificate, there shall be paid to the holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, (i) promptly, the amount of any cash payable with
respect to a fractional share of Parent Common Stock to which such holder is
entitled pursuant to Section 2.04(f) and the amount of dividends or other
distributions with a record date after the Effective Time and theretofore paid
with respect to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions,
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with a record date after the Effective Time but prior to surrender and a payment
date occurring after surrender, payable with respect to such whole shares of
Parent Common Stock.
(e) NO FURTHER RIGHTS IN COMPANY COMMON STOCK. All shares of Parent Common
Stock issued or cash paid upon conversion of the shares of Company Common Stock
in accordance with the terms hereof (including any cash paid pursuant to Section
2.04(d) or (f)) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Common Stock.
(f) NO FRACTIONAL SHARES. No certificates or scrip representing fractional
shares of Parent Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any other rights of a shareholder of Parent. Each holder
of a fractional share interest shall be paid an amount in cash equal to the
product obtained by multiplying (i) such fractional share interest to which such
holder (after taking into account all fractional share interests then held by
such holder) would otherwise be entitled by (ii) the product of the (x) Merger
Consideration or (y) Adjusted Merger Consideration, as appropriate, and the
Average Parent Share Price. As promptly as practicable after the determination
of the amount of cash, if any, to be paid to holders of fractional share
interests, the Exchange Agent shall so notify Parent, and Parent shall deposit
such amount with the Exchange Agent and shall cause the Exchange Agent to
forward payments to such holders of fractional share interests subject to and in
accordance with the terms of Sections 2.04(b), (c) and (d).
(g) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
(including any shares of Parent Common Stock) which remains undistributed to the
holders of Company Common Stock for one year after the Effective Time shall be
delivered to Parent, upon demand, and any holders of Company Common Stock who
have not theretofore complied with this Article II shall thereafter look only to
Parent for the applicable Merger Consideration, any cash in lieu of fractional
shares of Parent Common Stock to which they are entitled pursuant to Section
2.04(f) and any dividends or other distributions with respect to the Parent
Common Stock to which they are entitled pursuant to Section 2.04(d). Any portion
of the Exchange Fund remaining unclaimed by holders of shares of Company Common
Stock as of a date which is immediately prior to such time as such amounts would
otherwise escheat to or become property of any government entity shall, to the
extent permitted by applicable law, become the property of Parent free and clear
of any claims or interest of any person previously entitled thereto.
(h) NO LIABILITY. None of the Exchange Agent, Parent nor the Surviving
Corporation shall be liable to any holder of shares of Company Common Stock for
any such shares of Parent Common Stock (or dividends or distributions with
respect thereto), or cash delivered to a public official pursuant to any
abandoned property, escheat or similar law.
(i) WITHHOLDING RIGHTS. Each of the Surviving Corporation and Parent shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Company Common Stock such
amounts as it is required to deduct and withhold with respect to the making of
such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by the Surviving Corporation or
Parent, as the case may be, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
Company Common Stock in respect of which such deduction and withholding was made
by the Surviving Corporation or Parent, as the case may be.
(j) LOST CERTIFICATES. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond, in such reasonable
amount as the Surviving Corporation may direct, as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed Certificate the
applicable Merger Consideration, any cash in lieu of fractional shares of Parent
Common Stock to which the holders thereof are entitled pursuant to Section
2.04(f) and any dividends or other distributions to which the holders thereof
are entitled pursuant to this Agreement.
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(k) FURTHER ASSURANCES. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title and interest in, to or under any of the rights,
properties or assets of either the Sub or the Company acquired or to be acquired
by the Surviving Corporation as a result of, or in connection with, the Merger
or otherwise to carry out this Agreement, the officers of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of each of the Sub and the Company or otherwise, all such deeds, bills of
sale, assignments and assurances and to take and do, in such names and on such
behalves or otherwise, all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest in,
to and under such rights, properties or assets in the Surviving Corporation or
otherwise to carry out the purposes of this Agreement.
SECTION 2.05 STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. From and after the Effective Time, the holders of
certificates representing shares of Company Common Stock outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
shares of Company Common Stock, except as otherwise provided herein or by law.
On or after the Effective Time, any Certificates presented to the Exchange Agent
or Parent for any reason shall be converted into shares of Parent Common Stock,
any cash in lieu of fractional shares of Parent Common Stock to which the
holders thereof are entitled pursuant to Section 2.04(f) and any dividends or
other distributions to which the holders thereof are entitled pursuant to
Section 2.04(d).
SECTION 2.06 REGISTERED STOCK. The shares of Parent Common Stock
receivable as Merger Consideration and upon exercise of the Continuing Options
and in exchange for Company Warrants, shall be registered pursuant to an
effective registration statement filed under the Securities Act of 1933, as
amended (the "SECURITIES ACT").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent that, as of the date hereof
and as of the Closing Date:
SECTION 3.01 ORGANIZATION, STANDING AND CORPORATE POWER. Each Acquired
Company (as defined below) is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is organized and
has the requisite power and authority to carry on its business as now being
conducted. "ACQUIRED COMPANIES" shall mean the Company, American Investors Life
Insurance Company ("AMERICAN") and Financial Benefit Life Insurance Company
("FBL") (together, American and FBL are referred to herein as the "COMPANY
INSURANCE SUBSIDIARIES") and any other direct or indirect subsidiary of the
Company. Each Acquired Company is duly qualified to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary, other
than in such jurisdictions where the failure to be so qualified (individually or
in the aggregate) would not reasonably be expected to have a Material Adverse
Effect on the Company. The Company has made available to Parent complete and
correct copies of its Articles of Incorporation and By-Laws and, to the extent
requested by Parent, the certificates of incorporation and by-laws or comparable
organization documents of the Acquired Companies, in each case as amended to the
date of this Agreement. No Acquired Company is in violation of any provision of
its Articles of Incorporation or By-Laws, except to the extent that such
violations would not, individually or in the aggregate, have a Material Adverse
Effect on the Company.
SECTION 3.02 ACQUIRED COMPANIES.
(a) Section 3.02 of the disclosure schedule delivered on or prior to the
date hereof to Parent by the Company (the "COMPANY DISCLOSURE SCHEDULE") lists
each Acquired Company and the ownership or
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interest therein of the Company. All the outstanding shares of capital stock of
each Acquired Company have been validly issued and are fully paid and
nonassessable and are owned by the Company or by another subsidiary of the
Company, free and clear of all Liens. Except for (i) the capital stock of the
Acquired Companies, (ii) the ownership interests set forth in Section 3.02 of
the Company Disclosure Schedule and (iii) investments made by the Acquired
Companies in the ordinary course of business, the Acquired Companies do not own,
directly or indirectly, any capital stock or other ownership interest in any
Person, with a fair market value as of the date of this Agreement greater than
$500,000.
(b) Except for the subsidiaries disclosed in Section 3.02 of the Company
Disclosure Schedule, each Acquired Company has no subsidiaries and does not
control (whether directly or indirectly, whether through the ownership of
securities or by Contract or proxy or otherwise, and whether alone or in
combination with others) any corporation, partnership, business organization, or
other similar Person. For purposes of this Section, "CONTROL" shall mean the
right to elect a majority of the Board of Directors or other governing body of
any such entity or Person or otherwise manage, direct or govern the business
operations of such entity or Person.
SECTION 3.03 CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of 25,000,000
shares of Company Common Stock and 2,000,000 shares of preferred stock, $1.00
par value per share ("COMPANY PREFERRED STOCK"). As of September 18, 1997, there
were outstanding 13,299,119 shares of Company Common Stock, no shares of Company
Preferred Stock, Company Options to purchase 1,859,884 shares of Company Common
Stock, Company Warrants to purchase 896,747 shares of Company Common Stock,
Company Convertible Debentures convertible into 3,795,620 shares of Company
Common Stock and Company SARs relating to 820,500 shares of Company Common
Stock.
(b) All of the outstanding options to acquire shares of the Company's Common
Stock (collectively, "COMPANY OPTIONS") were issued pursuant to either the NQSO
Plan or the ISO Plan. The number of shares covered by and the exercise prices of
the Company Options as of September 18, 1997 are set forth in the Section 3.03
of the Company Disclosure Schedule. The Company has made available to Parent
true and complete copies of all agreements (the "OPTION AGREEMENTS") entered
into by the Company under the Company Option Plans.
(c) All outstanding warrants to acquire shares of Company Common Stock (the
"COMPANY WARRANTS") consist of (i) warrants for 716,361 shares of Company Common
Stock issued in connection with the acquisition of Financial Benefit Group, Inc.
("FBG") ("ACQUISITION WARRANTS"), (ii) warrants for 10,384 shares of Company
Common Stock assumed by the Company from FBG in connection with the acquisition
of FBG ("FBG WARRANTS"), and (iii) warrants for 170,002 shares of Company Common
Stock issued in connection with previous financing by the Company ("BANK
WARRANTS"). The Company Warrants and the exercise prices therefor, as of
September 18, 1997 are set forth in Section 3.03 of the Company Disclosure
Schedule.
(d) All of the Company's outstanding convertible debt securities are the
Company's 3% Convertible Debentures Due 2003 ("COMPANY CONVERTIBLE DEBENTURES")
issued pursuant to the Indenture (the "INDENTURE") dated July 12, 1996, between
the Company and Boatmen's Trust Company, as trustee. The outstanding principal
amount of the Company Convertible Debentures and the conversion price thereof,
as of September 18, 1997 are set forth in Section 3.03 of the Company Disclosure
Schedule.
(e) All of the outstanding stock appreciation rights with respect to the
Company Common Stock (the "COMPANY SARS") were issued pursuant to resolutions of
the Board of Directors on March 27, 1997. The number of shares covered by and
the weighted average strike price of the Company SARs as of September 18, 1997
are set forth in Section 3.03 of the Company Disclosure Schedule.
(f) All outstanding shares of capital stock of the Acquired Companies have
been duly authorized and validly issued and are fully paid and nonassessable and
all outstanding shares of capital stock of the Company are free of preemptive
rights. Except as set forth in this Section 3.03, and as of the date hereof,
there are outstanding (i) no other shares of capital stock or other voting
securities of the Company, (ii) no
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securities of the Acquired Companies convertible into or exchangeable for shares
of capital stock or voting securities of the Acquired Companies, and (iii) no
other options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to acquire from the Acquired Companies, and no
obligation of the Acquired Companies to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Acquired Companies. All shares of Company Capital Stock
that are subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instrument pursuant to which they are issuable, will
be duly authorized, validly issued, fully paid and nonassessable. Except as set
forth in Section 3.03 of the Company Disclosure Schedule, as of the date of this
Agreement, there are not any outstanding contractual obligations of any Acquired
Company to repurchase, redeem or otherwise acquire any shares of capital stock,
or to make any investment in excess of $500,000 (in the form of a loan, capital
contribution or otherwise) in, any Acquired Company or any other person
(excluding non-equity investments made in the ordinary course).
SECTION 3.04 AUTHORITY. The Company has all requisite corporate power and
authority to execute, deliver and perform this Agreement and to consummate the
transactions contemplated by this Agreement, subject to the conditions set forth
in this Agreement. The Board of Directors of the Company has unanimously
approved this Agreement and the transactions contemplated hereby and has
resolved to recommend to the stockholders of the Company that they approve this
Agreement and the transactions contemplated hereby. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of the Company, subject to Company
Stockholder Approval. This Agreement has been duly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by each of
Parent and Sub, constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to the
extent that (a) enforcement may be limited by or subject to any bankruptcy,
insolvency, reorganization, moratorium, or similar Laws now or hereafter in
effect relating to or limiting creditors' rights generally and (b) the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court or
other similar Person before which any proceeding therefor may be brought.
SECTION 3.05 NO CONFLICTS OR VIOLATIONS. Except as disclosed in Section
3.05 of the Company Disclosure Schedule, the execution and delivery of this
Agreement by Company does not, and the performance by Company of its obligations
under this Agreement will not:
(a) violate any term or provision of any applicable Law or any writ,
judgment, decree, injunction, or similar order applicable to any Acquired
Company and Known to the Company;
(b) conflict with or result in a violation or breach of the provisions
of the articles of incorporation or by-laws of any Acquired Company;
(c) cause any Permits (as defined below) of the Company to lapse or
become invalid or subject to any material limitations after the Closing as a
result of the Merger;
(d) result in the creation or imposition of any Lien upon any Acquired
Company or any of their respective Assets and Properties;
(e) conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default under, or give
to any Person any right of termination, cancellation, acceleration, or
modification in or with respect to, any Contract to which any Acquired
Company is a party or by which any of their respective Assets or Properties
may be bound; or
(f) require any Acquired Company to obtain any consent, approval, or
action of, or make any filing with or give any notice to, any Person
(including pursuant to any Laws);
except (i) as contemplated or disclosed in Sections 3.04, 3.05 and 3.06
hereof or the sections of the Company Disclosure Schedule relating thereto, and
(ii) those violations, conflicts, Liens, breaches,
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defaults and rights which do not individually or in the aggregate with any other
such matters, have, or would reasonably be expected to have, a Material Adverse
Effect on the Company.
SECTION 3.06 NO CONSENTS. No consent, approval, order or authorization of,
or registration, declaration or filing with, any United States Federal, state or
local government or any court, administrative agency or commission or other
governmental authority or agency, domestic or foreign, including Canada and its
provinces (a "GOVERNMENTAL ENTITY"), is required by or with respect to any
Acquired Company in connection with the execution, delivery and performance of
this Agreement by the Company under any Laws or the consummation by the Company
of the transactions contemplated by this Agreement, except for (i) the filing of
a premerger notification and report form by the Company and Parent under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), (ii) the filing with the Securities and Exchange Commission (the "SEC")
of (A) a proxy statement relating to the meetings of the Company's stockholders
and, if required, the Parent's stockholders to be held in connection with the
Merger and the transactions contemplated by this Agreement (as amended or
supplemented from time to time, the "PROXY STATEMENT"), (B) the Form S-4
(hereinafter defined), and (C) such reports under Section 12 or 13(a) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as may be
required in connection with this Agreement and the transactions contemplated by
this Agreement, (iii) such filings with the New York Stock Exchange, Inc.
("NYSE") as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (iv) the filing of the Certificate
of Merger with the Kansas Secretary of State and appropriate documents with the
relevant authorities of other states in which Acquired Companies are qualified
to do business, (v) such as may be required by any applicable state securities
or "BLUE SKY" laws, (vi) such filings, consents or approvals with or from the
Kansas, Michigan, Connecticut and Florida Insurance Commissions and such other
state insurance commissions and similar agencies as may be required in
connection with this Agreement and the transactions contemplated hereby, (vii)
those that may be required solely by reason of Parent's or Sub's (as opposed to
any other third party's) participation in the Merger and the other transactions
contemplated by this Agreement and (viii) such other consents, approvals,
orders, authorizations, registrations, declarations and filings, (x) as may be
required under the laws of any foreign country in which any Acquired Company
conducts any business or owns any property or assets, (y) as are set forth in
Section 3.06 of the Company Disclosure Schedule or (z) that, if not obtained or
made, would not, individually or in the aggregate, have, or would reasonably be
expected to have, a Material Adverse Effect on the Company.
SECTION 3.07 BOOKS AND RECORDS. The corporate minute books of each
Acquired Company are complete and accurate in all material respects and have
been made available to the Parent.
SECTION 3.08 FINANCIAL STATEMENTS AND FILINGS.
(a) The Company has made available to Parent true and complete copies of the
following financial statements (the "COMPANY FINANCIAL STATEMENTS"):
(i) audited (A) annual GAAP Statements for the Company and (B) Annual
Statements for the Company Insurance Subsidiaries, for each of the years
ended December 31, 1994, 1995, and 1996, including all the notes thereto;
and
(ii) unaudited (A) quarterly GAAP Statements for the Company and (B)
Quarterly Statements for the Company Insurance Subsidiaries, for each of the
first three quarters of each of 1995 and 1996, and the first two quarters of
1997, including all the notes thereto.
(b) Each such Company Financial Statement (and the notes thereto), and each
GAAP Statement and Quarterly Statement made available by the Company pursuant to
Section 5.04, including without limitation each balance sheet and each of the
statements of operations, capital and surplus account, and cash flow contained
therein was prepared in accordance with SAP ("SAP STATEMENTS") or GAAP ("GAAP
STATEMENTS"), respectively, except as may be otherwise indicated in notes filed
as a part thereof, as the case may be, presents fairly in all material respects,
the financial condition and results of operations and cash flows of the Company
and its consolidated subsidiaries or the Company Insurance Subsidiaries, as
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the case may be, as of the respective dates thereof or for the respective
periods presented therein, subject, in the case of quarterly statements, to
normal year end adjustments. Each SAP Statement was timely filed and complied in
all material respects with all applicable Laws when filed with the applicable
insurance regulatory authority, and any deficiencies known to the Company with
respect to any such SAP Statement have been cured or corrected to the
satisfaction of such insurance regulatory authority.
(c) Except as indicated on Section 3.08 of the Company Disclosure Schedule,
the Company has not received written notice from the Kansas Commissioner of
Insurance ("KCI") or the Florida Commissioner of Insurance ("FCI") asserting any
deficiency with respect to such SAP Statements.
(d) Since December 31, 1996, the Company Insurance Subsidiaries have filed
all reports and other filings, together with any amendments required to be made
with respect thereto, that it has been required to file with state insurance
regulatory authorities (the "COMPANY INSURANCE SUBSIDIARIES FILINGS"), and all
of the Company Insurance Subsidiaries Filings prior to the date hereof complied,
and all such filings made hereafter prior to the Effective Time will comply, in
all material respects with applicable insurance laws, rules and regulations,
and, except as disclosed in Section 3.08 of the Company Disclosure Schedule,
there are no material open or unresolved issues which were raised by any
insurance or securities regulatory authority and brought to the attention of the
Company by such regulatory authority with respect to any of such filings.
(e) The Company has no reason to believe that any material amount
recoverable pursuant to any material reinsurance, coinsurance, excess insurance,
ceding of insurance, assumption of insurance or indemnification with respect to
insurance or similar material arrangements applicable to the Company Insurance
Subsidiaries or their properties or assets (collectively, "REINSURANCE
AGREEMENTS") is not fully collectible in due course. The Company Insurance
Subsidiaries are entitled to take full credit in their SAP Statements pursuant
to applicable insurance laws, rules and regulations for such reinsurance,
coinsurance or excess insurance ceded pursuant to any such Reinsurance
Agreement. Section 3.08 of the Company Disclosure Schedule sets forth all
reinsurance contracts or arrangements entered into by the Company or any of the
Company Insurance Subsidiaries in which the Company or such subsidiary has ceded
risk to any person.
SECTION 3.09 RESERVES.
(a) All reserves and other liabilities with respect to insurance and
annuities and for claims and benefits incurred but not reported ("RESERVE
LIABILITIES") as established or reflected in the SAP Statements of the Company
Insurance Subsidiaries were determined in accordance with generally accepted
actuarial standards consistently applied, are fairly stated in accordance with
sound actuarial principles, are based on actuarial assumptions that are in
accordance with those called for by the provisions of the related insurance and
annuity Contracts and in the related reinsurance, coinsurance and other similar
Contracts of the Company Insurance Subsidiaries, and meet in all material
respects the requirements of the insurance Laws of its state of domicile.
Adequate provision for all such Reserve Liabilities have been made (under
generally accepted actuarial principles consistently applied) to cover the total
amount of all reasonably anticipated matured and unmatured benefits, dividends,
claims and other liabilities of the Company Insurance Subsidiaries under all
insurance and annuity Contracts under which the Company Insurance Subsidiaries
have any liability (including without limitation any liability arising under or
as a result of any reinsurance, coinsurance or other similar Contract) on the
respective dates of such SAP Statement based on then current information
regarding interest earnings, mortality and morbidity experience, persistency and
expenses. The Company Insurance Subsidiaries own assets that qualify as legal
reserve assets under applicable insurance Laws in an amount at least equal to
all such Reserve Liabilities; and
(b) Adequate provision has been made for all estimated losses, settlements,
costs and expenses from pending suits, actions and proceedings included in the
December 31, 1996 Annual Statement and the latest Quarterly Statements, and the
reserves and accrued Liabilities relating thereto were determined in accordance
with SAP and Statement of Financial Accounting Standards No. 5 issued by the
Financial Accounting Standards Board.
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SECTION 3.10 ABSENCE OF CHANGES. Except (i) as set forth in Section 3.10
of the Company Disclosure Schedule, or (ii) as disclosed in the Company SEC
Documents (hereinafter defined) filed and publicly available prior to the date
of this Agreement (the "FILED COMPANY SEC DOCUMENTS"), from December 31, 1996 to
the date of this Agreement (or such other date or period as may be specifically
referred to below), the Company has conducted its business only in the ordinary
course and there has not been, occurred, or arisen:
(a) any change in, or any event (including without limitation any
damage, destruction, or loss whether or not covered by insurance),
condition, or state of facts of any character that individually or in the
aggregate has or would reasonably be expected to have a Material Adverse
Effect on the Company;
(b) any declaration, setting aside, or payment of any dividend or other
distribution in respect of the capital stock of any Acquired Company or any
direct or indirect redemption, purchase or other acquisition by any Acquired
Company of any such stock or of any interest in or right to acquire any such
stock;
(c) any employment, deferred compensation, or other salary, wage or
compensation Contract entered into between any Acquired Company and any
Company Employee, except for normal and customary Contracts with agents and
consultants and Employees who would earn total annual compensation (other
than from Company Options and Company SARs included in Section 3.03) of less
than $50,000 in the ordinary course of business and consistent with past
practice; or, since June 30, 1997 any increase in the salary, wages, or
other compensation of any kind, whether current or deferred, of any Company
Employee, other than routine increases that were made in the ordinary course
of business and consistent with past practice and that did not result in an
increase of more than 10% of the respective salary, wages or compensation of
any such Person, except for increases which relate to increases in
production by agents consistent with the terms of their existing Contracts;
or any creation of any Plan (as defined in Section 3.14) or any contribution
to (other than a contribution made in the ordinary course of business and
consistent with past practice) or amendment or modification of any Plan; or
any election by or on behalf of any Acquired Company made pursuant to the
provisions of any Plan to accelerate any payments, obligations or vesting
schedules under any Plans;
(d) any payment, discharge, or satisfaction by an Acquired Company of
any Lien or Liability other than Liens or Liabilities that (i) were paid,
discharged, or satisfied in the ordinary course of business and consistent
with past practice, or (ii) were paid, discharged, or satisfied as required
under this Agreement;
(e) except for value received in the ordinary course of business and
consistent with past practice, any cancellation of any Liability owed to any
Acquired Company by any other Person;
(f) any amendment, termination, waiver, disposal or lapse of, or other
failure to preserve, or regulatory agreement with respect to any Permit of
any Acquired Company the result of which individually or in the aggregate
has or would reasonably be expected to have a Material Adverse Effect on the
Company;
(g) any agreement for the sale, merger or transfer of any Acquired
Company or substantially all of the assets or business thereof (except for
this Agreement and documents relating thereto);
(h) any damage, destruction, loss (whether or not covered by insurance)
affecting any of the Assets or Properties of any Acquired Company which
damage, destruction, or loss individually or in the aggregate exceeds $1
million; or
(i) any issuance, sale or disposition by any Acquired Company of any
debenture, note, stock or other security issued by such Acquired Company
(except pursuant to the Company Option Plans), or any modification or
amendment of any right of the holder of any outstanding debenture, note,
stock or other security issued by such Acquired Company (except pursuant to
Section 1.02);
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(j) any Liability involving the borrowing of money by any Acquired
Company, except in the ordinary course of business and consistent with past
practice;
(k) any termination, amendment or entering into by any Company Insurance
Subsidiary as ceding or assuming insurer of any reinsurance, coinsurance or
other similar Contract or any trust agreement or security agreement related
thereto;
(l) any material restriction or limitation in any Permit of any
Acquired Company, including any Company Insurance Subsidiary; or
(m) any Contract to take any of the actions described in this Section
3.10 other than actions expressly permitted under this Section 3.10.
SECTION 3.11 TAXES. Except as disclosed in Section 3.11 of the Company
Disclosure Schedule (with paragraph references corresponding to those set forth
below):
(a) All Tax Returns required to be filed with respect to each Acquired
Company or the affiliated, combined or unitary group of which any such
company is or was a member have been duly and timely filed and all such Tax
Returns are true, correct and complete in all material respects. Each
Acquired Company (i) has duly and timely paid all Taxes that are shown as
due on such Tax Returns, or claimed or asserted by any taxing authority to
be due, from such company for the periods covered by such Tax Returns
(unless such Taxes are being contested in good faith and adequate reserves
therefor have been established in the Acquired Companies books and records)
and have made all required estimated payments of Taxes sufficient to avoid
any penalties for underpayment, or (ii) has duly provided for all such Taxes
in the applicable financial statements, and in the SAP and GAAP Statements,
in the case of Company Insurance Subsidiaries. There are no filed Liens with
respect to Taxes (except for Liens on Taxes not yet due and owing) upon any
of the Assets and Properties of any Acquired Company.
(b) With respect to any period or portion thereof through the Closing
for which Tax Returns have not yet been filed, or for which Taxes are not
yet due or owing, each Acquired Company has established due and sufficient
reserves for the payment of such Taxes in accordance with SAP and GAAP in
the case of Company Insurance Subsidiaries or otherwise in accordance with
GAAP, and such current reserves through the Closing are duly and fully
provided for in all material respects in the SAP and GAAP Statements of such
company for the period then ended.
(c) Section 3.11(c) of the Company Disclosure Schedule discloses all
years for which (i) United States federal income Tax Returns of each
Acquired Company and of each affiliated group (within the meaning of the
Code) of which any Acquired Company is or has been a member which have been
audited or examined by the IRS, or the statute of limitations has expired;
and (ii) state, local and foreign income Tax Returns of each Acquired
Company and of each affiliated or consolidated group of which they are or
have been members which have been audited or examined by the appropriate
state, local or foreign authority, or all statutes of limitation for the
applicable state, local and foreign taxable periods has expired. All
material deficiencies that have been asserted, proposed or assessed as a
result of the above referenced examinations specified in the first two
sentences of this Section 3.11(c) have been paid in full or finally settled
or adequately reserved against to the extent there is a reasonable
possibility that the position of any of the taxing authorities specified in
the first two sentences of this Section 3.11(c) will be sustained, and to
the Knowledge of Company, no issue has been raised by any taxing authority
in any such examination which, by application of the same or similar
principles, reasonably could be expected to result in a material proposed
deficiency for any other period not so examined, except to the extent
adequate reserves have been established in the Acquired Companies books and
records. To the Knowledge of Company, no state of facts exists or has
existed that would constitute grounds for the assessment of any material Tax
liability with respect to any Acquired Company for the periods that have not
been audited by the taxing authorities specified in the first two sentences
of this Section 3.11(c). There are no outstanding agreements, waivers or
arrangements extending the statutory period of limitation
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applicable to any Tax Return or claim for, or the period for the collection
or assessment of, Taxes due from any Acquired Company for any taxable
period. The Company has previously delivered or made available to the Parent
copies, which are true, correct and complete in all material respects, of
each of (i) the most recent audit reports relating to the United States
federal, state, local and foreign income taxes due from each Acquired
Company and (ii) the United States federal, state, local and foreign income
Tax Returns, for each of the last three taxable years, filed by each
Acquired Company, and the Company has made available to Parent for
inspection copies, which are true, correct and complete in all material
respects, of such Tax Returns, (insofar as such Tax Returns relate to any
Acquired Company) filed by any affiliated or consolidated group of which any
Acquired Company was then a member.
(d) No audit or other proceeding by any U.S. or foreign court,
governmental or regulatory authority has been asserted or is pending with
respect to any Taxes due from any Acquired Company or any Tax Return filed
or required to be filed by or relating to any Acquired Company. No material
assessment, deficiency or adjustment of Tax has been asserted or, based on
existing facts and circumstances, is threatened against any Acquired Company
or any Assets and Properties of any Acquired Company.
(e) No election under any of Section 108, 168, 338, 441, 472, 1017, 1033
or 4977 of the Code (or any predecessor provisions) has been made or filed
by or with respect to any Acquired Company or any of their Assets and
Properties. No consent to the application of Section 341(f)(2) of the Code
(or any predecessor provision) has been made or filed by or with respect to
any Acquired Company or any of their Assets and Properties. None of the
Assets and Properties of any Acquired Company is an asset or property that
the Parent or any of its Affiliates is or will be required to treat as being
(i) owned by any other Person pursuant to the provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately before the enactment of the Tax Reform Act of 1986 or (ii)
tax-exempt use property within the meaning of Section 168(h)(1) of the Code.
No election has been made under Section 815(d)(1) of the Internal Revenue
Code of 1954, as amended and in effect immediately before the enactment of
the Deficit Reduction Act of 1984. No closing agreement pursuant to Section
7121 of the Code (or any predecessor provision) or any similar provision of
any state, local or foreign Law has been entered into by or with respect to
any Acquired Company or any of their Assets and Properties.
(f) No Acquired Company has agreed to or is required to make any
material adjustment pursuant to Section 481(a) or 807(f)(1) of the Code (or
any predecessor provision) by reason of any change in any accounting method
or change in basis for determining the reserves of such company or
otherwise, and no Acquired Company has any application pending with any
taxing authority requesting permission for any changes in any accounting
method or in the basis for determining reserves of any of them. Except as
may apply to the industry generally, the IRS has not proposed any such
adjustment or change in accounting method or in the basis of determining
reserves of any of them.
(g) No Acquired Company has been or is in material violation (or with
notice or lapse of time or both, would be in violation) of any applicable
Law relating to the payment or withholding of Taxes (including, without
limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of the
Code or similar provisions under any foreign laws). Each Acquired Company
has duly and timely withheld in all material respects from employee
salaries, wages and other compensation and paid over to the appropriate
taxing authorities all amounts required to be so withheld and paid over for
all periods under all applicable Laws.
(h) Except as disclosed in Section 3.11(h) of the Company Disclosure
Schedule, no Acquired Company is a party to, is bound by, or has any
obligation under, any tax allocation agreement, tax sharing agreement, or
tax indemnification agreement.
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(i) No Acquired Company has made any direct, indirect or deemed
distributions that have been or to the Knowledge of Company, could be taxed
under Section 815 of the Code.
(j) For any open tax years, all ceding commission expenses paid or
accrued by Company Insurance Subsidiaries in connection with any reinsurance
arrangement or Contract or transaction have been capitalized and amortized
over the life or lives of such reinsurance arrangement or Contract in
accordance with the decision of the United States Supreme Court in COLONIAL
AMERICAN LIFE INSURANCE COMPANY V. COMMISSIONER OF INTERNAL REVENUE, 109
S.Ct. 240 (1989) or, in the case of any such expense incurred on or after
September 30, 1990, in accordance with Sections 848 and 197 of the Code.
(k) No material Liabilities have been proposed in connection with any
audit or other proceeding by any U.S. or foreign court, governmental or
regulatory authority, or similar person with respect to any Taxes due from
any Acquired Company or Tax Return filed by or relating to any Acquired
Company, other than those that are disclosed in Section 3.11(k) of the
Company Disclosure Schedule which are being contested in good faith and
adequate reserves therefor have been established in the Acquired Companies
books and records.
(l) Each reserve item with respect to each Acquired Company set forth
in its respective 1996 Federal income tax return was determined in all
material respects in accordance with Section 807 of the Code or other
applicable Code Sections, and has been consistently applied with respect to
the filing of the Federal income tax returns for all years through December
31, 1995 for which the statute of limitations has not expired, and will be
consistently applied for any Tax Return filed on or prior to the Closing
Date.
(m) As of December 31, 1996, no Acquired Company had and during the
period from December 31, 1996 through the Closing Date will have, any Tax
Liability in respect of Taxes to any stockholder of the Company or any of
such stockholder's Affiliates that resulted or will result from a
transaction with an Affiliate prior to the Closing Date that would require
payment after December 31, 1996.
(n) The Company Insurance Subsidiaries satisfy the definition of life
insurance company under Section 816 of the Code.
(o) All material elections with respect to Federal income Taxes
affecting the Acquired Companies are set forth in Section 3.11(o) of the
Company Disclosure Schedule.
(p) Except as set forth in Section 3.11(p) of the Company Disclosure
Schedule, there is no valid power of attorney given by or binding upon any
of the Acquired Companies with respect to Taxes for any period for which the
statute of limitations (including any waivers or extensions) has not yet
expired.
(q) There are no intercompany transactions within the meaning of
Treasury Regulations section 1.1502-13 for which gain has been deferred, and
there are no excess loss accounts as described in Treasury Regulations
section 1.1502-19 that exist with respect to any of the Acquired Companies.
(r) None of the Acquired Companies is a party to or otherwise subject to
any arrangement entered into in anticipation of the Closing and not required
by this Agreement, (i) having the effect of or giving rise to the
recognition of a deduction or loss before the Closing Date, and a
corresponding recognition of taxable income or gain after the Closing Date,
or (ii) that would reasonably be expected to have the effect of or give rise
to the recognition of taxable income or gain by any Acquired Company after
the Closing Date without the receipt of or entitlement to a corresponding
amount of cash.
(s) Section 3.11(s) of the Company Disclosure Schedule sets forth the
amount of any existing policyholders surplus account and shareholders
surplus account with respect to the Acquired Companies within the meaning of
Section 815 of the Code.
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(t) Except for federal income Tax Returns, the Acquired Companies do
not file or join in filing any consolidated, unitary, combined or similar
Tax Returns with any corporation.
(u) None of the Acquired Companies has requested any extension of time
within which to file any Tax Return, which Tax Return has not since been
filed.
(v) The Company has filed, as a common parent corporation of an
"AFFILIATE GROUP" (within the meaning of Section 1504(a) of the Code) a
consolidated return for federal income tax purposes on behalf of itself and
each other Acquired Company which is an "INCLUDIBLE CORPORATION" (within the
meaning of Section 1504(b) of the Code). The Company and each of the
Acquired Companies have not been members of any other affiliated group of
corporations within the meaning of Section 1504 of the Code.
(w) The Company is not and has not been a United States real property
holding company (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(ii) of the Code.
(x) All transactions which could give rise to a substantial
understatement of federal income tax (within the meaning of Section 6662(d)
of the Code) were adequately disclosed (or, with respect to Tax Returns
filed before the Closing will be adequately disclosed) on the Tax Returns
required in accordance with Section 6662(d)(2)(B) of the Code.
SECTION 3.12 LITIGATION. Except as disclosed in the Company's Annual
Report on Form 10-K for the Fiscal Year ended December 31, 1996 (the "COMPANY
10-K") or in Section 3.12 of the Company Disclosure Schedule:
(a) There are no actions, suits, investigations or pending, or, to the
Knowledge of Company, threatened, against any Acquired Company or its Assets
and Properties, at law or in equity, in, before, or by any Person that
individually or in the aggregate have or would reasonably be expected to
have a Material Adverse Effect on the Company; and no event, fact or
circumstance has arisen or occurred (other than claims for benefits under
insurance policies and annuities in force) Known to the Company that would
likely result in the commencement of any action, suit, proceeding or
investigation, against any Acquired Company or any of its Assets and
Properties, at law or in equity, in, before, or by any Person that
individually involves a claim or claims for any injunction or similar relief
or for damages exceeding $250,000 or an unspecified amount of damages, or
that individually or in the aggregate have or would reasonably be expected
to have a Material Adverse Effect on such Acquired Company.
(b) There are no writs, judgments, decrees or similar orders of any
Governmental Entity with competent jurisdiction outstanding against any
Acquired Company that individually exceed $100,000 or that individually or
in the aggregate have or would reasonably be expected to have a Material
Adverse Effect on the Company.
(c) There is no suit, action or proceeding before any Governmental
Entity with competent jurisdiction pending, or, to the Knowledge of the
Company, threatened, against any Acquired Company that expressly seeks to
prevent or delay in any material respect the consummation of the Merger or
the transactions contemplated by this Agreement.
SECTION 3.13 COMPLIANCE WITH LAWS; REGULATORY FILINGS.
(a) To the Knowledge of the Company, the business of the Acquired
Companies is being conducted in compliance in all material respects with all
applicable Laws, including, without limitation, all insurance laws,
ordinances, rules, regulations, decrees and orders of any Governmental
Entity, and all material notices, reports, documents and other information
required to be filed thereunder within the last three years were properly
filed in all material respects and were in compliance in all material
respects with such laws.
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(b) Each Acquired Company has all material permits and insurance and
other licenses, franchises, approvals, authorizations, exemptions,
classifications, certificates, registrations, and similar documents (each of
which, a "PERMIT") in each jurisdiction (as listed in Section 3.13(b) of the
Company Disclosure Schedule) in which the Acquired Companies require Permits
by virtue of the business conducted or the properties owned is required and
which are necessary to conduct of its business as it is currently conducted.
The business of the Acquired Companies has been and is being conducted in
compliance, in all material respects, with all such Permits. To the
Knowledge of the Company, all such Permits are in full force and effect, and
there is no proceeding or investi-gation pending or threatened which would
reasonably be expected to lead to the revocation, amendment, failure to
renew, limitation, modification, suspension or restriction of any such
Permit. No Acquired Company is operating under any formal or informal
agreement or understanding with the regulatory authority of any state which
restricts its authority to do business or requires any Acquired Company to
take, or refrain from taking, any action otherwise permitted by law. No
Acquired Company is a "COMMERCIALLY DOMICILED INSURER" for purposes of
Section 1215.13 of the California Insurance Code.
(c) The Acquired Companies have made available for inspection by Parent
complete copies of all material registrations, filings and submissions made
since January 1, 1995 by the Acquired Companies with any Governmental Entity
and any material reports of examinations issued since January 1, 1995 by any
such Governmental Entity that relate to the Acquired Companies. To the
Knowledge of the Company, the Acquired Companies have filed all reports,
statements, documents, registrations, filings or submissions required to be
filed by any of them with any Governmental Entity, except where the failure
to file, in the aggregate, would not have a Material Adverse Effect on the
Company; and, to the Knowledge of the Company, all such reports, statements,
documents, registrations, filings or submissions were in all material
respects true, complete and accurate when filed.
(d) To the knowledge of the Company, all outstanding insurance and
annuity Contracts issued, reinsured or underwritten by the Company Insurance
Subsidiaries are, to the extent required under applicable Laws in all
material respects, on forms approved by the insurance regulatory authority
of the jurisdiction where issued or have been filed with and not objected to
by such authority within the period provided for objection, and have been
filed or registered as required with all other applicable governmental
authorities.
(e) Neither the Company nor the Company Insurance Subsidiaries has
received any information which would reasonably cause it to believe that the
financial condition of any other party to any material reinsurance,
coinsurance, or other similar Contracts with the Company is so impaired as
to result in a default thereunder.
(f) Except as set forth on Section 3.13 of the Company Disclosure
Schedule, no Real Estate has been used for the storage, treatment,
generation, transportation, manufacture, processing, handling, production,
distribution, deposit, burial, use, or disposal of any Hazardous Substance
except in compliance with Environmental Laws, no Acquired Company has any
material liability arising out of or resulting from a Release of any
Hazardous Substance on or from any Real Estate and each Acquired Company has
complied in all material respects with all applicable Environmental Laws
relating to Real Estate and the business, activities and processing
respectively conducted thereon.
(g) (i) Section 3.13(g) of the Company Disclosure Schedule contains a
true and complete list of (A) each master or prototype (as well as any
individually designed) pension, profit sharing, defined benefit, Code
Section 401(k), and other retirement or employee benefit plan or Contract
(including, but not limited to, simplified employee pension plans, Code
Section 403(a), (b) and (c) annuities, Keogh plans, and individual
retirement accounts and annuities) offered or sold by any Acquired Company
to, or maintained or sponsored for the benefit of any employees of, any
other Person, and (B) each determination letter relating to the creation or
amendment of any such plan or
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Contract. Each such plan or Contract in all material respects conforms with,
and has been offered, sold, maintained and sponsored in accordance with, all
applicable Laws. No Acquired Company is a fiduciary with respect to any plan
or Contract referenced in this Section 3.13.
(ii) No Acquired Company provides administrative or other
contractual services for any plan or Contract referenced in Section
3.13(g)(i), including, but not limited to, any third party administrative
services for any Plan or Parent Plan (as defined in Section 3.14) which
is an "EMPLOYEE WELFARE BENEFIT PLAN" within the meaning of Section 3(1)
of ERISA.
(iii) To the extent that any Acquired Company maintains any
collective or commingled funds or accounts which restrict the Persons who
may invest therein to tax-exempt entities or qualified plans, each such
fund or account (of which a true and complete list and description is
disclosed in Sec-tion 3.13 of the Company Disclosure Schedule) has been
established, maintained and operated in accordance with all applicable
Laws in all material respects, has maintained its tax-exempt status and
has no non-qualified plans or trusts or other taxable entities investing
within it.
(iv) In addition to the representations and warranties contained in
this Section 3.13 hereof, there are no claims pending, or (to the
Knowledge of the Company) threatened against any Acquired Company or any
of their respective Assets or Properties, under any fiduciary liability
insurance policy issued by or to any of them that individually or in the
aggregate has or would reasonably be expected to have a Material Adverse
Effect on any Acquired Company.
(h) No insurance contracts or insurance policies (including without
limitation annuity contracts, variable annuity contracts, and modified
guaranteed contracts) issued by the Company Insurance Subsidiaries fail to
comply with the applicable provisions of Sections 72, 817, 817A, 7702 and
7702A of the Code.
(i) The tax treatment under the Code of all insurance annuity of
investment policies, plans or contracts; all financial products, employee
benefit plans, individual retirement accounts or annuities; or any similar
of related policy, contract, plan or product, whether individual, group or
otherwise, issued or sold by the Company Insurance Subsidiaries is and at
all times has been in all material respects the same or more favorable to
the purchaser, policyholder or intended beneficiaries thereof as the tax
treatment under the Code for which such contracts qualified or purported to
qualify at the time of its issuance or purchase, except for changes
resulting from changes to the Code effective after the date of such issuance
or purchase. For purposes of this Section 3.13(i), the provisions of the
Code relating to the tax treatment of such contracts shall include, but not
be limited to, Sections 72, 79, 89, 101, 104, 105, 106, 125, 130, 401, 402,
403, 404, 408, 412, 415, 419, 419A, 457, 501, 505, 817, 818, 7702 and 7702A
of the Code.
SECTION 3.14 BENEFIT PLANS; ERISA.
(a) Each "EMPLOYEE BENEFIT PLAN" (as defined in Section 3(3) of ERISA),
bonus, deferred compensation, stock option, stock purchase or other equity
compensation plan, program or arrangement, each employment, termination or
severance agreement or plan, incentive compensation or other agreement,
whether written or oral, in each case, which is sponsored, maintained or
contributed to or required to be contributed to by the Company or any other
Acquired Company at any time during the seven-calendar year period
immediately preceding the Closing Date for the benefit of employees or
directors of the Company or any other Acquired Company or former employees
or directors of the Company or any other Acquired Company (collectively, the
"PLANS") is listed at Section 3.14(a) of the Company Disclosure Schedule.
Except as may be required by applicable Law or regulatory action, neither
the Company, nor any Acquired Company, nor any of their respective
Affiliates, has any Contract, plan or commitment, whether legally binding or
not, to create any additional Plan or to modify or change any existing Plan.
(b) With respect to each Plan, the Company has made available to, or
delivered or caused to be delivered to, Parent and its counsel true and
complete copies of the following documents, as
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applicable, for each respective Plan: (i) all Plan documents, with all
amendments thereto or, if the Plan is not a written Plan, a description
thereof; (ii) the current summary plan description with any applicable
summaries of material modifications thereto as well as any other material
employee communications; (iii) all current trust agreements and/or other
documents establishing Plan funding arrangements; (iv) the most recent IRS
determination letter and, if a request for such a letter has been filed and
is currently pending with the IRS, a copy of such filing; (v) the three most
recently prepared IRS Forms 5500; (vi) the most recently prepared financial
statements; and (vii) all material related to contracts, service provider
agreements and investment management and investment advisory agreements.
(c) Except as disclosed at Section 3.14(c) of the Company Disclosure
Schedule and except for the Financial Benefit Group, Inc. Employee Stock
Ownership Plan (the "FBGESOP"), each Plan is in material compliance with
applicable Law, including but not limited to ERISA and the Code, and has
been administered and operated in all material respects in accordance with
such applicable Law and the terms of the Plan. Except for the FBGESOP, each
Plan which is intended to be "QUALIFIED" within the meaning of Section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service and no event has occurred and no condition exists
which could reasonably be expected to result in the revocation of any such
determination. Other than with respect to those matters (the "FBGESOP
MATTERS") that have been specifically disclosed to the IRS in writing in
connection with the Company's application, dated as of July 1996, under the
Employee Plan Closing Agreement Program ("CAP"), the FBGESOP is qualified
under Section 401 of the Code. The Company anticipates finalizing a closing
agreement pursuant to the requirements of Rev. Proc. 94-16 to the effect
that (x) the total non-deductible sanction payable as a result of the tax
qualification defects in the FBGESOP will not exceed $10,000, and (y)
provided that the Company corrects the defects in the FBGESOP, the IRS will
treat the FBGESOP as tax-qualified and in compliance with the requirements
of Section 401(a) of the Code. Except as disclosed at Section 3.14(c) of the
Company Disclosure Schedule, other than with respect to the FBGESOP Matters,
all trusts maintained under the Plans are exempt from taxation under Section
501(a) of the Code.
(d) Except as disclosed at Section 3.14(d) of the Company Disclosure
Schedule, no Plan is or has been covered by Section 302 or Title IV of ERISA
or is or has been subject to the minimum funding requirements of Section 412
of the Code. No liability has been, or could reasonably be expected to be,
incurred under Title IV of ERISA (other than for benefits payable in the
ordinary course of PBGC insurance premiums) or Section 412(f) or (n) of the
Code by any entity required to be aggregated with the Company or any other
Acquired Company pursuant to Section 4001(b) of ERISA and/or Section 414(b)
or (c) of the Code (and the regulations promulgated thereunder) with respect
to any "EMPLOYEE PENSION BENEFIT PLAN" (as defined in Section 3(2) of ERISA)
which is not a Plan.
(e) Full payment has been made of all amounts which the Company or any
other Acquired Company were required under the terms of the Plans to have
paid as contributions to such Plans on or prior to the date hereof
(excluding any amounts not yet due).
(f) Except as disclosed at Section 3.14(f) of the Company Disclosure
Schedule, neither the Company nor any other Acquired Company nor any other
"DISQUALIFIED PERSON" or "PARTY IN INTEREST" (as defined in Section
4975(e)(2) of the Code and Section 3(14) of ERISA, respectively) has engaged
in any transaction in connection with any Plan that could reasonably be
expected to result in the imposition of a material penalty pursuant to
Section 409 of ERISA or a Tax pursuant to Section 4975(a) of the Code.
Except as disclosed at Section 3.14(f) of the Company Disclosure Schedule,
no Plan or related trust owns any securities in violation of Section 407 of
ERISA.
(g) No Plan provides medical, surgical, hospitalization, death or
similar benefits (whether or not insured) for employees or former employees
of the Acquired Companies or any Subsidiary for periods extending beyond
their retirement or other termination of service, other than (i) coverage
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mandated by applicable Law, (ii) death benefits under any "PENSION PLAN," or
(iii) benefits the full cost of which is borne by the current or former
employee (or his beneficiary).
(h) To the Knowledge of the Company, each Plan subject to the
requirements of Section 601 of ERISA has been operated in material
compliance therewith.
(i) Except as disclosed at Section 3.14 of the Company Disclosure
Schedule, neither the execution of this Agreement nor the consummation of
the transactions contemplated hereby will (x) entitle any current or former
director, employee or officer of the Company or any other Acquired Company
to severance pay, unemployment compensation or any other payment, except as
expressly provided in this Agreement, or (y) accelerate the time of payment
or vesting, or increase the amount of compensation due any such director,
employee or officer.
(j) Except as disclosed at Section 3.14(j) of the Company Disclosure
Schedule, no liability, claim, investigation, audit, action or litigation
has been incurred, made, commenced or, to the Knowledge of the Company, is
threatened or anticipated, by or against the Company or any other Acquired
Company with respect to any Plan (other than for benefits payable in the
ordinary course).
SECTION 3.15 PROPERTIES. Except as disclosed in Section 3.15 of the
Company Disclosure Schedule (with the paragraph references specified below):
(a) Each of the Acquired Companies:
(i) has good and valid title to all of its properties, assets and
other rights that do not constitute real property, free and clear of all
Liens;
(ii) owns, has valid leasehold interests in or valid contractual
rights to use, all of the assets, tangible and intangible, used by, or
necessary for the conduct of, its business, except where the failure to
have such valid ownership, interests or rights do not, individually or in
the aggregate, have a Material Adverse Effect on the Company;
(iii) owns and has good and marketable title in fee simple to the
real property owned by such party, free and clear of all Liens; and
(iv) has good and valid rights of ingress and egress to and from all
the real property owned or leased by such party.
(b) Each Acquired Company has the nonexclusive right to use, free and
clear of any royalty or other payment obligations, claims of infringement or
alleged infringement Known to the Company, or other Liens:
(i) all marks, names, trademarks, service marks, patents, patent
rights, assumed names, logos, trade secrets, copyrights, trade names, and
service marks that are used in the conduct of its business, operations,
or affairs (of which a true and complete list and description has been
made available to Parent); and
(ii) all material computer software, programs, and similar systems
owned by or licensed to such Acquired Company or used in the conduct of
its business, operations, or affairs (of which a true and complete list
and description). To the Company's Knowledge, no Acquired Company is in
conflict with or in violation or infringement of, nor has any Acquired
Company received any notice of any conflict with or violation or
infringement of or any claimed conflict with any asserted rights of any
other Person with respect to any intellectual property or any material
computer software, programs, or similar systems.
SECTION 3.16 INVESTMENTS.
(a) The Statutory Financial Statements of the Company set forth a list,
which list is accurate and complete in all material respects, of all
securities, mortgages and other investments (collectively, the "COMPANY
INVESTMENTS") owned by the Company Insurance Subsidiaries as of December 31,
1996, together with the cost basis, book or amortized value, as the case may
be, as of
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December 31, 1996. Section 3.16(a) of the Company Disclosure Schedule sets
forth a list, which list is accurate and complete in all material respects,
of all Company Investments by Company Insurance Subsidiaries at June 30,
1997. All transactions in Company Investments by each of the Company
Insurance Subsidiaries from June 30, 1997 to the date hereof have complied
in all material respects with the investment policies of such Company
Insurance Subsidiary and all applicable insurance laws and regulations.
(b) Except as set forth in the Statutory Financial Statements of the
Company, the Company Insurance Subsidiaries have good and marketable title
to the Company Investments listed in the Statutory Financial Statements of
the Company or acquired in the ordinary course of business since June 30,
1997, other than with respect to those Company Investments which have been
disposed of in the ordinary course of business or as contemplated by this
Agreement or redeemed in accordance with their terms since such date and
other than Permitted Liens or with respect to statutory deposits which are
subject to certain restrictions on transfer.
SECTION 3.17 CONTRACTS. Section 3.17 of the Company Disclosure Schedule
(with paragraph references corresponding to those set forth below) contains a
true and complete list of each of the following Contracts or other documents or
arrangements (true and complete copies, or, if none, written descriptions, of
which have been made available to Parent, together with all amendments thereto)
to which any of the Acquired Companies is a party or by which any of the Assets
and Properties of any of the Acquired Companies is bound:
(a) All employment, agency, consultation, contracts for services or
other Contracts of any type (except insurance and annuity Contracts or Plans
including, without limitation, loans or advances) with any present Company
Employee, if there exists any present or future liability with respect to
such Contract, whether now existing or contingent) other than (i) Contracts
terminable without penalty or other Liability upon 30 days or less notice,
(ii) Contracts with consultants and similar representatives who do not
receive compensation of $100,000 or more per year, (iii) employment or
agency Contracts not containing terms which are unduly burdensome to any of
the Acquired Companies with agents who do not receive compensation of
$100,000 or more per year, and (iv) agency Contracts not on the standard
form, copies of which have been made available to Parent;
(b) All Contracts with any Person containing any provision or covenant
limiting the ability of any Acquired Company to engage in any line of
business or to compete with or to obtain products or services from any
Person or is a party thereto, limiting the ability of any Person to compete
with any Acquired Company;
(c) All material partnership, joint venture, profit-sharing, or similar
Contracts with any Person except for any such arrangement disclosed in the
December 31, 1996 Annual Statement (and the notes thereto) and Plans;
(d) All Contracts relating to the borrowing of money by any Acquired
Company or to the direct or indirect guarantee by any Acquired Company of
any obligation for borrowed money in excess of $500,000 in the aggregate or
any other Liability in respect of indebtedness of any other Person,
including without limitation any Contract relating to (i) the maintenance of
compensating balances that are not terminable by the Acquired Company
without penalty or other Liability upon not more than 60 calendar days'
notice, (ii) any line of credit or similar facility, (iii) the payment for
property, products, or services of any other Person even if such property,
products, or services not conveyed, have not yet been delivered, or
rendered, or (iv) the obligation to take-or-pay, keep-well, make-whole, or
maintain surplus or earnings levels or perform other financial ratios or
requirements; and Section 3.17(d) of the Company Disclosure Schedule
contains a true and complete list of any requirements for consents or
approvals of creditors needed for the Company to consummate the transactions
contemplated hereby;
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(e) All leases or subleases of real property used in the business,
operations, or affairs of the Company, and all other material leases,
subleases, or rental or use Contracts for which the Company is liable;
(f) All Contracts relating to the future disposition or acquisition of
any material Assets or Properties of any Person or of any interest in any
business enterprise (other than the disposition or acquisition of material
Assets or Properties (including Company Investments) in the ordinary course
of business and consistent with past practice);
(g) All Contracts or arrangements (including without limitation those
relating to allocation of expenses, personnel, services, or facilities) with
any Company Affiliate involving annual payments of more than $100,000;
(h) All material reinsurance, coinsurance, or other similar Contracts,
and all trust agreements or other security agreements related thereto,
indicating, with respect to each group of such Contracts (by reinsurer or
coinsurer) or security agreement, the information required to be disclosed
in Schedule S of an Annual Statement;
(i) All outstanding proxies, powers of attorney, or similar delegations
of authority, except for powers of attorney for the service of process
pursuant to applicable insurance or corporate Laws;
(j) All Contracts for the provision of administrative services by or to
any Acquired Company;
(k) All material Contracts for any product, service, equipment,
facility, or similar item (other than insurance and annuity Contracts and
other than reinsurance, coinsurance, and other similar Contracts) that by
their respective terms do not expire or terminate or are not terminable by
an Acquired Company, without penalty or other Liability, within three months
after March 31, 1998; and
(l) All other Contracts (other than insurance and annuity Contracts and
Contracts terminable without penalty or other Liability upon 90 days or less
notice) not otherwise disclosed in the Company Disclosure Schedule that
involve the payment or potential payment, pursuant to the terms of such
Contracts, by or to any of the Acquired Companies of more than $250,000
individually or $500,000 in the aggregate or that are otherwise material to
the Company.
Each Contract disclosed or required to be disclosed in the Company
Disclosure Schedule pursuant to this Section 3.17, is in full force and effect
and constitutes a valid, and binding obligation of any of the Acquired Companies
and of each other Person that is a party thereto in accordance with its terms
subject to equitable rights and the rights of creditors; and (to the Knowledge
of the Company) none of the Acquired Companies nor any other party to such
Contract has materially violated, breached or defaulted under any such Contract
(or with or without notice or lapse of time or both, would be in material
violation or breach of or default under any such Contract). Except as disclosed
in Section 3.17 of the Company Disclosure Schedule and excluding Contracts that
involve the payment or potential payment, pursuant to the terms of such
Contracts, by or to any of the Acquired Companies of less than $100,000 or that
are otherwise not material to the Company, none of the Acquired Companies is a
party to or bound by any Contract that was not entered into in the ordinary
course of business and consistent with past practice. None of the Acquired
Companies is a party to or bound by any collective bargaining or similar labor
Contract.
SECTION 3.18 THREATS OF CANCELLATION. Except as disclosed in Section 3.18
of the Company Disclosure Schedule, since December 31, 1996, and to the
Knowledge of the Company to June 30, 1997, no group of policyholder Affiliates
or Persons writing, selling, or producing, either directly or through
reinsurance assumed, insurance business that individually or in the aggregate
for each such group or Person, respectively, accounted for 3% or more of the
premium or annuity income of the Company Insurance Subsidiaries for the year
ended December 31, 1996, has terminated or threatened to terminate its
relationship with the Company Insurance Subsidiaries.
SECTION 3.19 OPERATIONS INSURANCE. Section 3.19 of the Company Disclosure
Schedule contains a true and complete list and description of all liability,
property, workers compensation, directors
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and officers liability, and other similar insurance Contracts that insure the
business, operations, or affairs of and Acquired Company or affect or relate to
the ownership, use, or operations of any of their respective Assets and
Properties and (a) that have been issued to such Acquired Company (including
without limitation the names and addresses of the insurers, the expiration dates
thereof, and the annual premiums and payment terms thereof) or (b) that are held
by any Affiliate of the Company (including any stockholder of the Company) for
the benefit of any Acquired Company following the Closing. All such insurance is
in full force and effect and (to the Knowledge of the Company) is with
financially sound and reputable insurers and, in light of the business,
operations, and affairs of the Acquired Companies, is in amounts and provides
coverage that are reasonable and customary for Persons in similar businesses.
SECTION 3.20 RELATED PARTY TRANSACTIONS. Except for the transactions
described in Section 3.20 of the Company Disclosure Schedule, all transactions
involving the Acquired Companies that are required to be disclosed in the
Company 10-K in accordance with Item 404 of Regulation S-K have been so
disclosed, and to the knowledge of the Company, since December 31, 1996, none of
the Acquired Companies has entered into any transactions that would be required
to be disclosed in future public filings under the Exchange Act pursuant to such
Item which have not already been disclosed in the Company SEC Reports filed
prior to the date hereof.
SECTION 3.21 BROKERS; SCHEDULE OF FEES AND EXPENSES. Goldman, Sachs & Co.
("GOLDMAN SACHS"), a copy of whose engagement agreement has been provided to
Parent, and Bush-O'Donnell & Co., Inc. ("BUSH-O'DONNELL"), a copy of whose
engagement agreement has been provided to Parent, are each entitled to fees from
the Company in accordance with the provisions of said engagement agreements by
virtue of the transactions contemplated hereby. Except for Goldman Sachs and
Bush-O'Donnell, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of the
Company who might be entitled to any fee or commission upon consummation of the
transactions contemplated by this Agreement.
SECTION 3.22 DISCLOSURE. To the Company's Knowledge, neither the
representations and warranties set forth in this Article III nor any certificate
required to be furnished by the Company to Parent or Sub in connection with this
Agreement or the transactions contemplated hereby contains any untrue statement
of a material fact concerning any of the Acquired Companies or omits to state a
material fact concerning any of the Acquired Companies necessary to make the
statements herein or therein not misleading in light of the circumstances in
which they were made.
SECTION 3.23 VOTING REQUIREMENTS. The approval and adoption of this
Agreement by the holders of a majority of the outstanding shares of Company
Common Stock (the "COMPANY STOCKHOLDER APPROVAL") is the only vote of the
holders of any class or series of Company capital stock necessary to approve
this Agreement and the transactions contemplated by this Agreement.
SECTION 3.24 SEC DOCUMENTS; UNDISCLOSED LIABILITIES.
(a) The Company has filed all required reports, forms and other
documents with the SEC since January 1, 1995 (the "COMPANY SEC DOCUMENTS").
As of its date, each Company SEC Document complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Company SEC Documents. To the Company's Knowledge, none
of the Company SEC Documents contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except to the
extent that such statements have been modified or superseded by a later
filed Company SEC Document.
(b) The consolidated financial statements of the Company included in the
Company SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods indicated (except
as may be indicated in
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the notes filed as a part thereof) and fairly present, in all material
respects, the consolidated financial position of the Company as of the dates
thereof and the consolidated results of its operations and cash flows for
the respective periods indicated therein (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in
the Filed Company SEC Documents, neither the Company nor any other Acquired
Company has any Liabilities required by GAAP to be set forth on a
consolidated balance sheet of the Company and the consolidated other
Acquired Companies or in the notes filed as a part thereof (other than
policyholder benefits payable in the ordinary course of business and
consistent with past practice) against, relating to, or affecting any
Acquired Company as of June 30, 1997 exceeding $1 million in the aggregate.
None of the Acquired Companies (other than the Company) is independently
subject to the informational reporting requirements of Section 13 of the
Exchange Act.
SECTION 3.25 INFORMATION SUPPLIED. None of the information supplied or to
be supplied by the Company for inclusion or incorporation by reference in (i)
the registration statement on Form S-4 (or such other form as deemed
appropriate) to be filed with the SEC by Parent in connection with the issuance
of Parent Common Stock in the Merger (the "FORM S-4") will, at the time the Form
S-4 is filed with the SEC, at any time it is amended or supplemented or at the
time it becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or (ii) the
Proxy Statement will, at the date the Proxy Statement is first mailed to the
Company's stockholders and Parent's stockholders or at the time of the Company
Special Meeting and the Parent Special Meeting (as defined in Section 7.01(c)),
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material respects
with the requirements of the Exchange Act and the rules and regulations
promulgated thereunder, except that no representation or warranty is made by the
Company with respect to statements made or incorporated by reference therein
based on information supplied by Parent or Sub for inclusion or incorporation by
reference in the Proxy Statement.
SECTION 3.26 OPINION OF FINANCIAL ADVISOR. The Board of Directors of the
Company has received the written opinion of Goldman Sachs, dated the date of
this Agreement, that, as of such date, the Merger Consideration is fair from a
financial point of view to the Company's stockholders, a signed copy of which
has been delivered to Parent.
SECTION 3.27 STATE TAKEOVER STATUTE. The Merger is not a "CONTROL SHARE
ACQUISITION" subject to the provisions of the Kansas Control Share Acquisition
Act (KSA 17-1286 ET SEQ.), as such term is defined by such Act.
SECTION 3.28 INDENTURE. The Company is in compliance with all covenants
set forth in the Indenture pursuant to which the Company Convertible Debentures
were issued, and no Fundamental Change (as defined in the Indenture) has
occurred or will occur as a result of the consummation of the Merger. The
Company Board of Directors has adopted resolutions authorizing the redemption of
the Company Convertible Debentures pursuant to Section 1102 of the Indenture.
For the 20 consecutive Trading Days (as defined in the Indenture) ended
September 19, 1997, the average closing price of the Company Common Stock has
exceeded 135% of the Conversion Price (as defined in the Indenture). The Company
Convertible Debentures may be redeemed pursuant to Section 1102 of the Indenture
provided that notices of redemption (the "REDEMPTION NOTICES") with respect
thereto are given prior to September 26, 1997.
SECTION 3.29. CERTAIN COMPANY INFORMATION. No IMO doing business with any
of the Company Insurance Subsidiaries produced more than 5%, and no individual
agent of the Company Insurance Subsidiaries produced more than 1%, of the
premiums written by the Company Insurance Subsidiaries, neither (i) during the
period beginning January 1, 1997 through the date hereof (except as disclosed in
Section 3.29(b) of the Company Disclosure Schedule) nor (ii) from the date
hereof to the Closing Date (except as disclosed by the Company to Parent in
writing prior to Closing).
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.
Parent and Sub each jointly and severally represent and warrant to the
Company that, as of the date hereof and the Closing Date:
SECTION 4.01 ORGANIZATION, STANDING AND CORPORATE POWER. Parent and Sub
are each corporations duly organized, validly existing and in good standing
under the laws of the states of Iowa and Kansas, respectively, and have the
requisite power and authority to carry on its business as now being conducted.
Parent and Sub are duly qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification necessary, other than in such
jurisdictions where the failure to be so qualified (individually or in the
aggregate) would not reasonably be expected to have a Material Adverse Effect on
Parent. Parent and Sub have each made available to the Company complete and
correct copies of their respective Articles of Incorporation and By-Laws and, to
the extent requested by the Company, the certificates of incorporation and
by-laws or comparable organization documents of each of the "SIGNIFICANT
SUBSIDIARIES" within the meaning of Rule 1-02 of Regulation S-X of the SEC of
Parent (the "PARENT SUBSIDIARIES"), in each case as amended to the date of this
Agreement. Neither Parent nor Sub is in violation of any provision of its
Articles of Incorporation or By-Laws, except to the extent that such violations
would not, individually or in the aggregate, have a Material Adverse Effect on
Parent.
SECTION 4.02 SUBSIDIARIES OF PARENT. Section 4.02 of the Parent Disclosure
Schedule lists each Parent Subsidiary and the ownership or interest therein of
Parent as of the date hereof. Except as set forth in Section 4.02 of the Parent
Disclosure Schedule, all the outstanding shares of capital stock of each Parent
Subsidiary have been validly issued and are fully paid and nonassessable and are
owned by the Parent or by another Parent Subsidiary, free and clear of all
Liens.
SECTION 4.03 AUTHORITY OF PARENT AND SUB. Each of Parent and Sub has all
requisite corporate power and authority to execute, deliver and perform this
Agreement and to consummate the transactions contemplated by this Agreement,
subject to the conditions set forth in this Agreement. The Board of Directors of
the Parent and the Sub, respectively, has unanimously approved this Agreement
and the transactions contemplated hereby and the Board of Directors of Parent
has resolved to recommend to the stockholders of Parent that they approve the
issuance of the Parent Common Stock in connection with the Merger. The execution
and delivery of this Agreement by the Parent and Sub and the consummation by the
Parent and Sub of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of the Parent and Sub,
respectively, subject to Parent Stockholder Approval. This Agreement has been
duly executed and delivered by the Parent and Sub and, assuming the due
authorization, execution and delivery by the Company, constitutes a valid and
binding obligation of the Parent and Sub, enforceable against the Parent and Sub
in accordance with its terms, except to the extent that (a) enforcement may be
limited by or subject to any bankruptcy, insolvency, reorganization, moratorium,
or similar Laws now or hereafter in effect relating to or limiting creditors'
rights generally and (b) the remedy of specific performance and injunctive and
other forms of equitable relief are subject to certain equitable defenses and to
the discretion of the court or other similar Person before which any proceeding
therefor may be brought.
SECTION 4.04 NO CONFLICTS OR VIOLATIONS. Except as set forth in Section
4.04 of the Parent Disclosure Schedule, the execution and delivery of this
Agreement by Parent and by Sub do not, and the performance by Parent and by Sub
of their respective obligations under this Agreement will not:
(a) violate any term or provision of any applicable Law or any writ,
judgment, decree, injunction, or similar order naming Parent or Sub and
Known to Parent or Sub;
(b) conflict with or result in a violation or breach of any of the
provisions of the articles or certificate of incorporation or by-laws of
Parent or Sub;
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(c) result in the creation or imposition of any Lien upon Parent or Sub
or any of their respective Assets and Properties;
(d) conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default under, or give
to any Person any right of termination, cancellation, acceleration, or
modification in or with respect to, any Contract to which Parent or Sub is a
party or by which any of their respective Assets or Properties may be bound
(other than pursuant to the Revolving Credit and Term Loan Agreement, dated
as of December 11, 1996, among Parent, certain signatory Banks thereto and
The Chase Manhattan Bank (the "PARENT CREDIT AGREEMENT"); or
(e) require Parent or Sub to obtain any other consent, approval, or
action of, or make any filing with or give any notice to, any Person
(including pursuant to any Laws);
except (i) as contemplated or disclosed in Sections 4.03, 4.04 and 4.05 hereof
or the sections of the Parent Disclosure Schedule relating thereto, and (ii)
those violations, conflicts, Liens, breaches, defaults and rights which do not
individually or in the aggregate with any other such matters, have a Material
Adverse Effect on the Parent or Sub.
SECTION 4.05 NO CONSENTS. No consent, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity is required
by or with respect to Parent, Sub or any other Parent Subsidiary in connection
with the execution and delivery of this Agreement by Parent or Sub, as the case
may be, or the consummation by Parent or Sub, as the case may be, of the
transactions contemplated by this Agreement, except for (i) the filing of a
premerger notification and report form by Parent, the Company and Sub under the
HSR Act, (ii) the filing with the SEC of the Proxy Statement and the Form S-4,
(iii) the filing of the Certificate of Merger with the Kansas Secretary of State
and appropriate documents with the relevant authorities of other states in which
Parent is qualified to do business, (iv) such as may be required by any
applicable state securities or "BLUE SKY" laws, (v) such filings, consents or
approvals with or from the Iowa Insurance Commission and such other state
insurance commissions and similar agencies as may be required in connection with
this Agreement and the transactions contemplated by this Agreement, (vi) such
filings with the Nasdaq as may be required in connection with this Agreement and
the transactions contemplated by this Agreement, (vi) those that may be required
solely by reason of the Company's (as opposed to any other third party's)
participation in the Merger and the other transactions contemplated by this
Agreement, and (vii) such other consents, approvals, orders, authorizations,
registrations, declarations and filings, (x) as may be required under the laws
of any foreign country in which Parent or any Parent Subsidiary conducts any
business or owns any property or assets, (y) as are set forth in Section 4.05 of
the Parent Disclosure Schedule or (z) that, if not obtained or made, would not,
individually or in the aggregate, have a Material Adverse Effect on Parent.
SECTION 4.06 BOOKS AND RECORDS. The corporate minute books of Parent, Sub
and each Parent Subsidiary are complete and accurate in all material respects
and have been made available to the Company.
SECTION 4.07 SEC DOCUMENTS; UNDISCLOSED LIABILITIES.
(a) Parent has filed all required reports, forms and other documents with
the SEC since January 1, 1997 (the "PARENT SEC DOCUMENTS"). As of its date, each
Parent SEC Document complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Parent SEC
Documents. To Parent's Knowledge, none of the Parent SEC Documents contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except to
the extent that such statements have been modified or superseded by a later
filed Parent SEC Document.
(b) The consolidated financial statements of the Parent included in the
Parent SEC Documents complies as to form in all material respects with
applicable accounting requirements and the published
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rules and regulations of the SEC with respect thereto, have been prepared in
accordance with United States generally accepted accounting principles (except,
in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods indicated (except as may be
indicated in the notes thereto) and fairly present, in all material respects,
the consolidated financial position of the Parent as of the dates thereof and
the consolidated results of its operations and cash flows for the respective
periods indicated therein (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the Filed Parent SEC
Documents (as defined in Section 4.09) or in Section 4.07 of the Parent
Disclosure Schedule, neither the Parent nor any Parent Subsidiary has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) required by generally accepted accounting principles to be set
forth on a consolidated balance sheet of the Parent and the consolidated Parent
Subsidiaries or in the notes filed as a part thereof and which, individually or
in the aggregate, would reasonably be expected to have a Material Adverse Effect
on Parent.
(c) None of the Parent Subsidiaries is independently subject to the
informational reporting requirements of the Exchange Act.
SECTION 4.08 INFORMATION SUPPLIED. None of the information supplied or to
be supplied by Parent or Sub for inclusion or incorporation by reference in (i)
the Form S-4 will, at the time the Form S-4 is filed with the SEC, at any time
it is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) the Proxy Statement will, at the date
the Proxy Statement is first mailed to the Company's stockholders and Parent's
stockholders or at the time of the Company Special Meeting and the Parent
Special Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Form S-4 will comply as to form in all material
respects with the requirements of the Securities Act and Exchange Act and the
rules and regulations promulgated thereunder, except that no representation or
warranty is made by Parent or Sub with respect to statements made or
incorporated by reference therein based on information supplied by the Company
for inclusion or incorporation by reference in the Form S-4.
SECTION 4.09 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Parent
SEC Documents filed and publicly available prior to the date of this Agreement
(the "FILED PARENT SEC DOCUMENTS"), or as set forth in Section 4.09 of the
Parent Disclosure Schedule, from December 31, 1996 to the date of this
Agreement, Parent has conducted its business only in the ordinary course and
there has not been, occurred or arisen:
(a) any change in, or any event (including without limitation any
damage, destruction, or loss whether or not covered by insurance),
condition, or state of facts of any character that individually or in the
aggregate has or would reasonably be expected to have a Material Adverse
Effect on the Parent;
(b) any declaration, setting aside, or payment of any dividend (other
than Parent's regular quarterly dividend) or other distribution in respect
of the capital stock of Parent or Sub or any direct or indirect redemption,
purchase or other acquisition by Parent of any such stock or of any interest
in or right to acquire any such stock;
(c) any amendment, termination, waiver, disposal or lapse of, or other
failure to preserve, or regulatory agreement with respect to any Permit of
the Parent or any Parent Subsidiary the result of which individually or in
the aggregate has or would reasonably be expected to have a Material Adverse
Effect on the Parent; or
(d) any binding agreement for the sale, merger or transfer of Parent or
any Parent Subsidiary or substantially all of the assets or business
thereof.
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SECTION 4.10 CAPITALIZATION.
(a) The authorized capital stock of Parent consists of 145,000,000
shares, of which 75,000,000 shares are shares of Series A Common Stock, no
par value, of Parent ("PARENT COMMON STOCK"), 45,000,000 shares are shares
of Series B Common Stock, no par value, of Parent common stock ("SERIES B
COMMON STOCK") and 20,000,000 shares of preferred stock, ("PARENT PREFERRED
STOCK"). As of September 1, 1997, there were outstanding 18,155,989 shares
of Parent Common Stock, 5,000,000 shares of Series B Common Stock, no shares
of Parent Preferred Stock and Parent Options to purchase 664,000 shares of
Parent Common Stock.
(b) All outstanding shares of capital stock of Parent and each Parent
Subsidiary have been duly authorized and validly issued and are fully paid
and nonassessable and all outstanding shares of capital stock of Parent are
free of preemptive rights. Except as set forth in this Section 4.10, as of
the date of this Agreement, there are outstanding (i) no other shares of
capital stock or other voting securities of Parent, (ii) no securities of
Parent convertible into or exchangeable for shares of capital stock or
voting securities of Parent and (iii) no other options or other rights to
acquire from Parent, and no obligation of Parent to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of Parent. All shares of Parent Common
Stock that are subject to issuance pursuant to the Merger, upon issuance
pursuant to this Agreement, will be duly authorized, validly issued, fully
paid and nonassessable.
(c) As of the date of this Agreement, the authorized capital stock of
Sub consists of 100 shares of common stock, par value $0.01 per share, all
of which have been validly issued, are fully paid and nonassessable and are
owned by Parent free and clear of any Lien.
SECTION 4.11 FINANCIAL STATEMENTS.
(a) Parent has made available to the Company true and complete copies of
the following financial statements (the "PARENT FINANCIAL STATEMENTS"):
(i) audited (A) annual GAAP Statements for Parent and (B) Annual
Statements for AmerUs Life Insurance Company, (the "PARENT INSURANCE
SUBSIDIARY"), for each of the years ended December 31, 1994, 1995, and
1996, including all the notes thereto (or such shorter period as such
entity has existed); and
(ii) unaudited (A) quarterly GAAP Statements for Parent and (B)
Quarterly Statements for the Parent Insurance Subsidiaries, for each of
the first three quarters of each of 1995 and 1996, and the first two
quarters of 1997, including all the notes thereto (or such shorter period
as such entity has existed).
(b) Each such Parent Financial Statement (and the notes thereto), and
each GAAP Statement and Quarterly Statement made available by Parent
pursuant to Section 4.11(a), including without limitation each balance sheet
and each of the statements of operations, capital and surplus account, and
cash flow contained therein was prepared in accordance with SAP ("SAP
STATEMENTS") or GAAP ("GAAP STATEMENTS"), respectively, except as may be
otherwise indicated in notes filed as a part thereof, as the case may be,
presents fairly in all material respects, the financial condition and
results of operations and cash flows of the Parent and its consolidated
subsidiaries or the Parent Insurance Subsidiaries, as the case may be, as of
the respective dates thereof or for the respective periods presented
therein, subject, in the case of quarterly statements, to normal year end
adjustments. Each SAP Statement complied in all material respects with all
applicable Laws when filed with the applicable insurance regulatory
authority, and any deficiencies known to Parent with respect to any such SAP
Statement have been cured or corrected to the satisfaction of such insurance
regulatory authority.
(c) Except as indicated on Section 4.11 of the Parent Disclosure
Schedule, Parent has not received written notice from the Iowa Commissioner
of Insurance ("ICI") asserting any deficiency with respect to such SAP
Statements.
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(d) Since June 30, 1997, the Parent Insurance Subsidiaries have filed
all reports and other filings, together with any amendments required to be
made with respect thereto, that it has been required to file with state
insurance regulatory authorities (the "PARENT INSURANCE SUBSIDIARIES
FILINGS"), and all of the Parent Insurance Subsidiaries Filings prior to the
date hereof complied, and all such filings made hereafter prior to the
Effective Time will comply, in all material respects with applicable
insurance laws, rules and regulations, and, except as disclosed in Section
4.11 of the Parent Disclosure Schedule, there are no material open or
unresolved issues which were raised by any insurance or securities
regulatory authority and brought to the attention of the Parent by such
regulatory authority with respect to any of such filings.
(e) Except where such would not reasonably be expected to have a
Material Adverse Effect on Parent, (i) Parent has no reason to believe that
any material amount recoverable pursuant to Reinsurance Agreements is not
fully collectible in due course, and (ii) Parent Insurance Subsidiaries are
entitled to take full credit in their SAP Statements pursuant to applicable
insurance laws, rules and regulations for such reinsurance, coinsurance or
excess insurance ceded pursuant to any such Reinsurance Agreement.
SECTION 4.12 RESERVES.
(a) All Reserve Liabilities as established or reflected in the SAP
Statements of the Parent Insurance Subsidiaries were determined in
accordance with generally accepted actuarial standards consistently applied,
are fairly stated in accordance with sound actuarial principles, are based
on actuarial assumptions that are in accordance with those called for by the
provisions of the related insurance and annuity Contracts and in the related
reinsurance, coinsurance and other similar Contracts of the Parent Insurance
Subsidiaries, and meet in all material respects the requirements of the
insurance Laws of its state of domicile. Adequate provision for all such
Reserve Liabilities have been made (under generally accepted actuarial
principles consistently applied) to cover the total amount of all reasonably
anticipated matured and unmatured benefits, dividends, claims and other
liabilities of the Company Insurance Subsidiaries under all insurance and
annuity Contracts under which the Company Insurance Subsidiaries have any
liability (including without limitation any liability arising under or as a
result of any reinsurance, coinsurance or other similar Contract) on the
respective dates of such SAP Statement based on then current information
regarding interest earnings, mortality and morbidity experience, persistency
and expenses. The Company Insurance Subsidiaries own assets that qualify as
legal reserve assets under applicable insurance Laws in an amount at least
equal to all such Reserve Liabilities; and
(b) Adequate provision has been made for all estimated losses,
settlements, costs and expenses from pending suits, actions and proceedings
included in the December 31, 1996 Annual Statement and the latest Quarterly
Statements, and the reserves and accrued Liabilities relating thereto were
determined in accordance with SAP and Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board.
SECTION 4.13 TAXES. Except as disclosed in Section 4.13 of the Parent
Disclosure Schedule:
(a) All Tax Returns required to be filed with respect to Parent and each
Parent Subsidiary have been duly and timely filed, other than any Tax
Returns the failure of which to timely file would not reasonably be expected
to have a Material Adverse Effect on Parent. Except where failure to do so
would not reasonably be expected to have a Material Adverse Effect on Parent
(x) all such Tax Returns are true, correct and complete in all material
respects and (y) each of Parent and each Parent Subsidiary (i) has duly and
timely paid all Taxes that are shown as due, or claimed or asserted by any
taxing authority to be due, from such company for the periods covered by
such Tax Returns and have made all required estimated payments of Taxes
sufficient to avoid any penalties for underpayment, or (ii) has duly
provided for all such Taxes in the applicable financial statements, and in
the SAP or GAAP Statements, in the case of Parent Insurance Subsidiaries.
(b) Except where failure to do so would not reasonably be expected to
have a Material Adverse Effect on Parent, with respect to any period or any
portion thereof through the Closing for
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which Tax Returns have not yet been filed, or for which Taxes are not yet
due or owing, Parent and each Parent Subsidiary has made due and sufficient
current accruals for such Taxes in accordance with SAP in the case of Parent
Insurance Subsidiaries or otherwise in accordance with GAAP, and such
current accruals through the Closing are duly and fully provided for in the
SAP or GAAP Statements of such company for the period then ended.
SECTION 4.14 LITIGATION. Except as disclosed in the Parent Filed SEC
Documents or in Section 4.14 of the Parent Disclosure Schedule:
(a) There are no actions, suits, investigations or pending, or, to the
Knowledge of Parent, threatened, against Parent or any Parent Subsidiary or
its Assets and Properties, at law or in equity, in, before, or by any Person
that individually or in the aggregate have or would reasonably be expected
to have a Material Adverse Effect on the Parent.
(b) There are no writs, judgments, decrees or similar orders of any
Governmental Entity with competent jurisdiction outstanding against Parent
or any Parent Subsidiary that individually exceed $100,000 or that
individually or in the aggregate have or would reasonably be expected to
have a Material Adverse Effect on the Parent.
As of the date of this Agreement, except as disclosed in the Parent Filed
SEC Documents, there is no suit, action or proceeding of any Governmental Entity
with competent jurisdiction and pending, or, to the Knowledge of the Parent,
threatened, against Parent or any Parent Subsidiary that expressly seeks to
prevent or delay in any material respect the consummation of the Merger or the
transactions contemplated by this Agreement.
SECTION 4.15 COMPLIANCE WITH LAWS; REGULATORY FILINGS.
(a) The business of Parent and the Parent Subsidiaries is being
conducted in compliance in all respects with all applicable Laws, including,
without limitation, all insurance laws, ordinances, rules, regulations,
decrees and orders of any Governmental Entity, and all notices, reports,
documents and other information required to be filed thereunder within the
last three years were properly filed in all respects and were in compliance
in all respects with such laws, except where the failure to do so would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect on Parent.
(b) Except where the failure to do so would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect on
Parent, (i) Parent and the Parent Subsidiaries have all Permits the use and
exercise of which are necessary for the conduct of its business as now
conducted, (ii) the business of Parent and the Parent Subsidiaries has been
and is being conducted in compliance, in all material respects, with all
such Permits, (iii) all such Permits are in full force and effect, and (iv)
there is no proceeding or investigation pending or threatened which would
reasonably be expected to lead to the revocation, amendment, failure to
renew, limitation, suspension or restriction of any such Permit.
(c) Parent and the Parent Subsidiaries have filed all reports,
statements, documents, registrations, filings or submissions required to be
filed by any of them with any Governmental Entity, and, to the Knowledge of
Parent, all such reports, statements, documents, registrations, filings or
submissions were in all material respects true, complete and accurate when
filed except where the failure to file, in the aggregate, would not have a
Material Adverse Effect on Parent.
(d) Except as set forth on Section 4.15 of the Parent Disclosure
Schedule, and except where such would not individually or in the aggregate,
be reasonably expected to have a Material Adverse Effect and no Real Estate
has been used for the storage, treatment, generation, transportation,
manufacture, processing, handling, production, distribution, deposit,
burial, use, or disposal of any Hazardous Substance except in compliance
with Environmental Laws, neither Parent nor any Parent Subsidiary has any
liability arising out of or resulting from a Release of any Hazardous
Substance on or from any Real Estate and Parent and each Parent Subsidiary
has complied in all
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material respects with all applicable Environmental Laws relating to Real
Estate and the business, activities and processing respectively conducted
thereon.
SECTION 4.16 PROPERTIES. Except as disclosed in Section 4.16 of the Parent
Disclosure Schedule and except where such would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect on Parent
and each of the Parent Subsidiaries:
(a) has good and valid title to all of its properties, assets and other
rights that do not constitute real property, free and clear of all Liens,
except for Permitted Liens;
(b) owns, has valid leasehold interests in or valid contractual rights
to use, all of the assets, tangible and intangible, used by, or necessary
for the conduct of, its business, except where the failure to have such
valid ownership, interests or rights do not, individually or in the
aggregate, have a Material Adverse Effect on Parent; and
(c) owns and has good and marketable title in fee simple to the real
property owned by such party, free and clear of all liens except Permitted
Liens.
SECTION 4.17 INVESTMENTS.
(a) The Statutory Financial Statement of Parent Insurance Subsidiary
sets forth a list, which list is accurate and complete in all material
respects, of all securities, mortgages and other investments (collectively,
the "PARENT INVESTMENTS") owned by the Parent Insurance Subsidiaries as of
December 31, 1996, together with the cost basis book or amortized value, as
the case may be, as of December 31, 1996. All transactions in Parent
Investments by each of the Parent Insurance Subsidiaries from December 31,
1996 to the date hereof have complied in all material respects with the
investment policies of such Parent Insurance Subsidiary and all applicable
insurance laws and regulations except where the failure to so comply does
not, individually or in the aggregate, have a Material Adverse Effect on
Parent.
(b) Except as set forth in the Statutory Financial Statements of the
Parent Insurance Subsidiaries and except where the failure to so comply does
not, individually or in the aggregate, have a Material Adverse Effect on
Parent, the Parent Insurance Subsidiaries have good and marketable title to
the Parent Investments listed in the Statutory Financial Statements of the
Parent Insurance Subsidiary or acquired in the ordinary course of business
since December 31, 1996, other than with respect to those Parent Investments
which have been disposed of in the ordinary course of business or as
contemplated by this Agreement or redeemed in accordance with their terms
since such date and other than Permitted Liens or with respect to statutory
deposits which are subject to certain restrictions on transfer.
SECTION 4.18 CONTRACTS. As of the date hereof, each Contract listed as a
"MATERIAL CONTRACT" (pursuant to Item 601(10) of Regulation S-K) in the Parent
SEC Documents is in full force and effect and constitutes a valid, and binding
obligation of the Parent or Parent Subsidiary and of each other Person that is a
party thereto in accordance with its terms subject to equitable rights and the
rights of creditors; and (to the Knowledge of Parent), neither Parent nor any
Parent Subsidiary nor any other party to such Contract has materially violated,
breached or defaulted under any such Contract (or with or without notice or
lapse of time or both, would be in material violation or breach of or default
under any such Contract).
SECTION 4.19 VOTING REQUIREMENTS; VOTING. The approval and adoption by
Parent's stockholders of the issuance of shares of Parent Common Stock in
connection with the consummation of the Merger ("PARENT STOCKHOLDER APPROVAL")
as required by Nasdaq is the only vote of the holders of any class or series of
Parent Capital Stock necessary to approve this Agreement and the transactions
contemplated by this Agreement. The Board of Directors of AmerUs Group Co., the
holder of approximately 70% of the outstanding voting securities of Parent (the
"GROUP SHARES"), has resolved to vote its shares of Parent Common Stock to
approve the issuance of shares of Parent Common Stock in connection with
consummation of the Merger.
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SECTION 4.20 BROKERS; SCHEDULE OF FEES AND EXPENSES. Donaldson, Lufkin &
Jenrette and Fox-Pitt, Kelton Inc. are the only brokers, investment bankers,
financial advisors or other persons entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or Sub, and such fee or commission is payable by Parent.
SECTION 4.21 BENEFIT PLANS; ERISA. Each Parent Plan (as defined below) is
in material compliance with applicable Law, including but not limited to ERISA
and the Code, and has been administered and operated in all material respects in
accordance with such applicable Law and the terms of the Plan, except where the
failure to so administer and operate such Plan would not reasonably be expected
to have a Material Adverse Effect on the Parent. For purposes of this Agreement,
the term "PARENT PLAN" shall mean each "EMPLOYEE BENEFIT PLAN" (as defined in
Section 3(3) of ERISA), bonus, deferred compensation, stock option, stock
purchase or other equity compensation plan, program or arrangement, each
employment, termination or severance agreement or plan, incentive compensation
or other agreement, whether written or oral, in each case, which is sponsored,
maintained or contributed to or required to be contributed to by the Parent or
any Parent Subsidiaries at any time during the seven-year calendar year period
immediately preceding the Closing Date for the benefit of employees or directors
of the Parent or any Parent Subsidiaries or former employees or directors of the
Parent or any Parent Subsidiaries. No liability has been, or could reasonably be
expected to be, incurred under Title IV of ERISA (other than for benefits
payable in the ordinary course or PBGC insurance premiums) or Section 412(f) or
(n) of the Code by an entity required to be aggregated with the Parent or any of
its Affiliates pursuant to Section 4001(b) of ERISA and/or Section 414(b) or (c)
of the Code (and the regulations promulgated thereunder) with respect to any
Parent Plan or "EMPLOYEE BENEFIT PLAN" (as defined in Section 3(2)) which is not
a Parent Plan.
SECTION 4.22 RELATED PARTY TRANSACTIONS. All transactions involving Parent
that are required to have been disclosed in the Parent SEC Documents in
accordance with Item 404 of Regulation S-K have been so disclosed, and to the
Knowledge of Parent, since December 31, 1996, neither it nor any Parent
Subsidiary has entered into any transactions that would be required to be
disclosed in future public filings under the Exchange Act pursuant to such Item
except for such transactions that are on economic terms no less favorable to
Parent or any Parent Subsidiary, as the case may be, than Parent or such Parent
Subsidiary would be able to obtain in a comparable arms'-length transaction with
a Person that is not affiliated with Parent, or as have been disclosed in
Section 4.22 of the Parent Disclosure Schedule.
SECTION 4.23 DISCLOSURE. To Parent's Knowledge, neither the
representations and warranties set forth in this Article IV nor any certificate
required to be furnished by the Parent, Parent Subsidiaries or Sub to the
Company in connection with this Agreement or the transactions contemplated
hereby contains any untrue statement of a material fact concerning Parent,
Parent Subsidiaries or Sub or omits to state a material fact concerning any of
them necessary to make the statements herein or therein not misleading in light
of the circumstances in which they were made.
SECTION 4.24 INTERIM OPERATIONS OF SUB. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement and has
not engaged in any business activities or conducted any operations other than in
connection with the transactions contemplated by this Agreement.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with Parent that, at all times before the
Closing, the Company will comply with all covenants and provisions of this
Article V, except to the extent Parent may otherwise consent in writing, or to
the extent otherwise required or permitted by this Agreement.
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SECTION 5.01 CONTRACT AND REGULATORY APPROVALS. The Company will (a) take
all commercially reasonable steps necessary or desirable, and proceed diligently
and in good faith and use all commercially reasonable efforts to obtain, as
promptly as practicable, all approvals required by any applicable Contract to
permit the consummation of the transactions contemplated hereby, (b) take all
commercially reasonable steps necessary or desirable, and proceed diligently and
in good faith and use all commercially reasonable efforts to obtain, as promptly
as practicable, all approvals, authorizations, and clearances of governmental
and regulatory authorities required to permit the consummation of the
transactions contemplated hereby (including without limitation any required
approvals of the insurance regulatory authorities in Kansas, Florida, Michigan
and Connecticut), (c) provide such other information and communications to such
governmental and regulatory authorities as Parent or such authorities may
reasonably request, and (d) cooperate with Parent and Sub in obtaining, as
promptly as practicable, all approvals, authorizations, and clearances of
governmental or regulatory authorities and others required of Parent or Sub to
consummate the transactions contemplated hereby.
SECTION 5.02 HSR FILINGS. The Company will (a) take promptly all actions
necessary to make the filings required of it and the Acquired Companies under
the HSR Act, (b) comply at the earliest practicable date with any request for
additional information received from the Federal Trade Commission or Antitrust
Division of the Department of Justice pursuant to the HSR Act, (c) cooperate
with Parent and Sub in connection with their filings under the HSR Act, and (d)
request early termination of the applicable waiting period.
SECTION 5.03 CONDUCT OF BUSINESS. The Company will, and will cause the
Acquired Companies to, conduct its and their respective businesses only in the
ordinary course and consistent with past practice, except as otherwise provided
in this Agreement or except as may be consented to by Parent in writing. Without
limiting the generality of the foregoing:
(a) The Company will use all commercially reasonable efforts permitted
by this Agreement to and cause each of the Acquired Companies to (i)
preserve intact its present business organization, field force, reputation,
and policyholder, annuitant or customer relations, (ii) keep available the
services of its present key officers, directors, employees, agents,
consultants, and other similar representatives, (iii) maintain all Permits
to do business in each jurisdiction in which it has such Permits, (iv)
maintain in full force and effect all Contracts, documents, and arrangements
set forth in Section 3.17 of the Company Disclosure Schedule, except to the
extent they are terminated in the ordinary course of business, (v) maintain
all of its Assets and Properties in current working order and condition,
ordinary wear and tear excepted, (vi) continue all current marketing and
selling activities relating to its business, operations, or affairs in
accordance with its current marketing plan and applicable Law, and (vii)
with respect to the Company Insurance Subsidiaries, maintain the rating
classification, or its equivalent, assigned as of the date hereof to it by
A.M. Best Company, Inc.
(b) The Company will maintain, and will cause each of the Acquired
Companies to maintain, their respective Books and Records in the usual
manner and consistent with past practice and will not permit a material
change in any applicable underwriting, investment, actuarial, financial
reporting, or accounting practice or policy of each Acquired Company or in
any assumption underlying such a practice or policy, or in any method of
calculating any bad debt, contingency, or other reserve for financial
reporting purposes or for other accounting purposes (including without
limitation, any practice, policy, assumption, or method relating to or
affecting the determination of insurance or annuities in force, premium or
investment income, Reserve Liabilities, or operating ratios with respect to
expenses, losses, or lapses).
(c) The Company will (i) prepare properly and file duly and validly all
reports and all Tax Returns required to be filed with any governmental or
regulatory authorities with respect to its business, operations, or affairs
and (ii) pay in full and when due all Taxes indicated by such Tax Returns or
otherwise levied or assessed upon it or any of its Assets and Properties,
and withhold or collect and pay to the proper taxing authorities or hold in
separate bank accounts for such payment all Taxes that it is required to so
withhold or collect and pay, unless reasonable reserves therefor
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have been established and reflected in its Books and Records. The Company
will not make any tax election with respect to such Tax Returns without the
consent of Parent, which consent shall not be unreasonably withheld. The
Company shall not and shall not permit any Acquired Company to settle any
material audit, make or change any material Tax election or file any amended
Tax Return (except as provided in Section 3.11 of the Company Disclosure
Schedule). At least 10 days prior to filing any income Tax Return or other
material Tax Return relating to the Company or any Acquired Company, the
Company shall deliver a copy of such Tax Return to Parent for Parent's
review and comment. The Company will refrain from making, filing, or
entering into (whether before or after the closing) any election, consent,
or agreement described in Section 3.11(e) or Section 3.11(f) hereof with
respect to any Acquired Company or any of their respective Assets and
Properties.
(d) The Company will cause (i) all Reserve Liabilities with respect to
insurance and annuity Contracts established or reflected in the Books and
Records of the Company Insurance Subsidiaries to be (A) established in
accordance with the methods for establishing Liabilities and reserving
methods followed by the Company Insurance Subsidiaries in the preparation of
the December 31, 1996 Annual Statement and (B) adequate (under generally
accepted actuarial principles consistently applied) to cover the total
amount of all reasonably anticipated matured and unmatured benefits,
dividends, losses, claims, expenses, and other Liabilities of the Company
Insurance Subsidiaries under all insurance and annuity Contracts pursuant to
which the Company Insurance Subsidiaries has or will have any liability
(including without limitation any liability arising under or as a result of
any reinsurance, coinsurance, or other similar Contract) and (ii) the
Company Insurance Subsidiaries to continue to own assets that qualify as
legal reserve assets under all applicable insurance Laws in an amount at
least equal to its required Reserve Liabilities.
(e) The Company will use all commercially reasonable efforts to maintain
in full force and effect until the Closing substantially the same levels of
coverage as the insurance afforded under the Contracts described in Section
3.17 of the Company Disclosure Schedule. Any and all benefits under such
Contracts paid or payable to any Acquired Company prior to the Closing with
respect to the business, operations, affairs, or Assets and Properties of
such Acquired Company shall be paid to such Acquired Company.
(f) The Company will continue to and will cause the other Acquired
Companies to comply, in all material respects, with all Laws applicable to
its business, operations, or affairs.
(g) The Company will not and will cause the other Acquired Companies not
to incur any Liabilities outside of the ordinary course of their respective
businesses and consistent with past practices.
SECTION 5.04 FINANCIAL STATEMENTS AND REPORTS.
(a) As promptly as practicable but not later than (i) sixty days
following the end of each calendar quarter, the Company will deliver to the
Parent true and complete copies of the quarterly GAAP consolidated balance
sheet of the Acquired Companies and the related consolidated statements of
income of the Acquired Companies for the quarter then ended, together with
any consolidating supplementary schedules related thereto and (ii)
forty-five days following the end of each calendar quarter, the Company will
deliver to the Parent a copy of the Quarterly Statement of the Company
Insurance Subsidiaries for such quarter, prepared in accordance with SAP.
(b) As promptly as practicable, the Company will deliver to the Parent
true and complete copies of the Company's monthly financial, marketing and
investment reports distributed to the Company's Board of Directors and at
the request of Parent such other material financial statements, reports, or
analyses as may be prepared or received by it or any of the Acquired
Companies and as relate to any of the business, operations, or affairs of
the Acquired Companies, including without limitation normal internal reports
which the Company prepares (such as those reflecting monthly premiums,
claims, and cash flow) and special reports (such as those of financial or
actuarial consultants), as well as any reports prepared for the stockholders
of the Company.
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(c) As promptly as practicable, the Company will deliver to the Parent
the calculation of the accrued liability with respect to each Plan which is
a non-qualified deferred compensation plan.
SECTION 5.05 INVESTMENTS. Each of the Acquired Companies will invest its
future cash flow, any cash from matured and maturing investments, any cash
proceeds from the sale of its Assets and Properties, and any cash funds
currently held by it exclusively in cash equivalent assets or in short-term
investments (consisting of United States government issued or guaranteed
securities, commercial paper rated A-1 or P-1, or certificates of deposit issued
by one or more of the banks or financial institutions listed in Section 5.05 of
the Company Disclosure Schedule), except (i) as otherwise required by Law, (ii)
as required to provide cash (in the ordinary course of business and consistent
with past practice) to meet its reasonably anticipated current obligations,
(iii) in accordance with past practices in the ordinary course of business, and
in the case of the Company and the Company Insurance Subsidiaries, with the
investment policies set forth in Section 5.05 of the Company Disclosure
Schedule, or (iv) as consented to by the Parent. The Company Insurance
Subsidiaries will not take any actions, other than as otherwise permitted by
this Agreement or in the ordinary course of business and consistent with past
practice (including, without limitation, normal amortization and depreciation of
any depreciable asset) designed to cause the assets of the Company Insurance
Subsidiaries that are classified as nonadmitted under SAP or by the applicable
insurance regulatory authorities, to be greater or less than their respective
dollar amounts as of December 31, 1996.
SECTION 5.06 EMPLOYEE MATTERS. Except as may be required by Law or by this
Agreement or as disclosed in Section 5.06 of the Company Disclosure Schedule, or
except for such Contract representations, promises, changes, alterations, or
amendments that do not and will not result in any Liability to any of the
Acquired Companies, the Acquired Companies will refrain from directly or
indirectly, without the consent of Parent:
(a) Making any representation or promise, oral or written, to any
Company Employee which is inconsistent with the terms of any Plan;
(b) Making any change to, or amending in any way, the Contracts,
salaries, wages, or other compensation of any Company Employee whose annual
compensation exceeds $100,000 other than routine changes or amendments that
(i) are made in the ordinary course of business and consistent with past
practice, (ii) do not and will not result in increases of more than 5% in
the salary, wages, or other compensation of any such Person, and (iii) do
not and will not exceed, in the aggregate, 5% of the total salaries, wages,
and other compensation of all Company Employees;
(c) Adopting, entering into, amending, altering or terminating,
partially or completely, any Plan; or making any election made pursuant to
the provisions of any Plan to accelerate any payments, obligations or
vesting schedules under any Plans;
(d) Adopting, entering into, amending, altering, or terminating,
partially or completely, any employment, agency consultation, or
representation Contract that is, or had it been in existence on the date of
this Agreement would have been, required to be disclosed in Section 3.17(a)
of the Company Disclosure Schedule;
(e) Approving any general or company wide pay increases for Company
Employees; or
(f) Entering into any Contract with any Company Employee that is not
terminable by any of the Acquired Companies, without penalty or other
Liability, upon not more than 60 calendar days' notice.
Notwithstanding anything contained herein to the contrary, the Company's
Chief Executive Officer may award and pay severance compensation (not to exceed
$30,000 with respect to any individual or $300,000 in the aggregate) to Company
Employees pursuant to the Severance Plan authorized by the Company's Board of
Directors in the resolutions of its March 27, 1997 meeting, a true and correct
copy of which resolutions has been provided to Parent.
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SECTION 5.07 NO CHARTER AMENDMENTS. Each of the Acquired Companies will
refrain from amending its certificate of incorporation or by-laws and from
taking any action with respect to any such amendment.
SECTION 5.08 NO ISSUANCE OF SECURITIES. Each of the Acquired Companies
will refrain from authorizing or issuing any shares of their capital stock or
other equity securities (except as required pursuant to the terms of the
existing Company Options, Company Warrants, and Company Convertible Debentures)
or entering into any Contract or granting any option, warrant, or right calling
for the authorization or issuance of any such shares or other equity securities,
or creating or issuing any securities directly or indirectly convertible into or
exchangeable for any such shares or other equity securities, or issuing any
options, warrants, or rights to purchase any such convertible securities.
SECTION 5.09 NO DIVIDENDS. Except as set forth in Section 5.09 of the
Company Disclosure Schedule, the Company will refrain from declaring, setting
aside, or paying any dividend (other than the regular quarterly dividend of
$0.03 per share of Company Common Stock) or other distribution in respect of its
capital stock and from directly or indirectly redeeming, purchasing, or
otherwise acquiring any of its capital stock or any interest in or right to
acquire any such stock.
SECTION 5.10 NO DISPOSAL OF PROPERTY. Except as set forth in Section 5.10
of the Company Disclosure Schedule or as otherwise expressly provided in this
Agreement, each of the Acquired Companies will refrain from (a) disposing of any
of its Assets and Properties and from permitting any of its Assets and
Properties to be subjected to any Liens, except to the extent any such
disposition or any such Lien is made or incurred in the ordinary course of the
business and consistent with past practice, (b) selling any material part of its
insurance products, operations, or business to any third party (other than sales
of insurance products in the ordinary course of business consistent with past
practice), (c) entering into any Contracts obligating it to administer the
insurance operations of any other Person, and (d) entering into any Contracts
permitting any other Person to administer its insurance operations.
SECTION 5.11 NO BREACH OR DEFAULT. Each of the Acquired Companies will
refrain from violating, breaching, or defaulting, and from taking or failing to
take any action that (with or without notice or lapse of time or both) would
constitute a material violation, breach, or default, in any way under any term
or provision of any Contract to which it is a party or by which any of its
Assets and Properties is or may be bound.
SECTION 5.12 NO INDEBTEDNESS. Except in the ordinary course of business
and consistent with past practice and except for existing contractual
obligations, each of the Acquired Companies will refrain from creating,
incurring, assuming, guaranteeing, or otherwise becoming liable for, and from
canceling, paying, agreeing to cancel or pay, or otherwise providing for a
complete or partial discharge in advance of a scheduled payment date with
respect to, any Liability, and from waiving any right to receive any direct or
indirect payment or other benefit under any Liability owing to such company.
SECTION 5.13 NO ACQUISITIONS. The Company will refrain from (a) merging,
consolidating, or otherwise combining or agreeing to merge, consolidate, or
otherwise combine with any other Person, (b) acquiring or agreeing to acquire
blocks of business of all or substantially all the Assets and Properties or
capital stock or other equity securities of any other Person, or (c) otherwise
acquiring or agreeing to acquire control of any other Person.
SECTION 5.14 NOTICE AND CURE. The Company will notify Parent promptly in
writing of, and contemporaneously will provide Parent with true and complete
copies of any and all information or documents relating to, and will use all
commercially reasonable efforts to cure before the Closing, any event,
transaction, or circumstance occurring after the date of this Agreement and
before the Effective Time that causes or will cause any covenant or agreement
under this Agreement to be breached, or that renders or will render untrue any
representation or warranty of the Company contained in this Agreement as if the
same were made on or as of the date of such event, transaction, or circumstance.
The Company also will use all commercially reasonable efforts to cure, before
the Closing, any violation or
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breach of any representation, warranty, covenant, or agreement made by it in
this Agreement, whether occurring or arising before or after the date of this
Agreement.
SECTION 5.15 SUPPLEMENTS TO SCHEDULES. The Company shall at any time or
from time to time after the date hereof and prior to the Closing Date,
supplement or amend the Company Disclosure Schedule with respect to any matter
arising after the date hereof which, if existing or occurring at the date
hereof, would have been required to be set forth or described therein. No
supplement or amendment to the Company Disclosure Schedule shall be deemed to
cure any breach of a representation or warranty of the Company made herein, or
have any effect for the purpose of determining the satisfaction of the
conditions to Closing set forth in Article VIII.
SECTION 5.16 NO SOLICITATION, ETC.
(a) Except as set forth below, the Company shall not, nor shall the
Company authorize or permit any of the Acquired Companies, or any of its or
their officers, directors, employees, representatives or agents, to,
directly or indirectly, encourage, solicit, participate in, initiate or
continue discussions or negotiations with, or provide any information to,
any Person (other than Parent or Sub) with respect to, or take any action to
facilitate any inquiries or the making of, or enter into any agreement
(including any preliminary agreement) relating to, or approve any proposal
that constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal (as defined below). The Company shall, and shall cause each
Acquired Company to, immediately cease and cause to be terminated any
existing activities, discussions, or negotiations by the Company, any
Acquired Company or any officer, director or employee of, investment banker,
attorney, accountant or other advisor or representative of, the Company or
any Acquired Company, with parties conducted heretofore with respect to any
of the foregoing. Notwithstanding the first sentence of this Section, at any
time prior to the approval of this Agreement and the Merger by the Company's
stockholders at the Company Special Meeting (as defined below), the Company
may furnish information and access, in each case only in response to
requests which were not solicited on or after the date hereof, to any Person
pursuant to a customary confidentiality agreement, and may participate in
discussions and negotiate with such Person concerning an Acquisition
Proposal, if the Board of Directors of the Company determines in its good
faith judgment, following consultation with outside counsel, that (i) such
Person shall have submitted a Competitive Proposal (as defined below) which
was not solicited on or after the date hereof, and (ii) that it is required
to do so in order to comply with its fiduciary duties to stockholders under
applicable Law. The Company's Board of Directors shall notify Parent orally
(within one Business Day), and in writing (as promptly as practicable) of
all inquiries and proposals that it may receive relating to any Acquisition
Proposal and the material terms and conditions thereof, that it and any
Acquired Company or any of its or their officers, directors, employees,
representatives or agents may receive relating to any Acquisition Proposal
and thereafter keep Parent promptly advised of any material developments
with respect thereto.
(b) Except as set forth in this Section 5.16(b), the Company's Board of
Directors shall not withdraw or modify, or propose to withdraw or modify,
its recommendation of this Agreement and the transactions contemplated
hereby or approve or recommend, or propose to approve or recommend, any
Acquisition Proposal. Notwithstanding the foregoing, if the Company's Board
of Directors determines in its good faith judgment, following consultation
with outside counsel and an independent financial advisor, that (i) such
Person shall have submitted a Superior Proposal (as defined below) which was
not solicited on or after the date hereof, and (ii), that it is required to
do so in order to comply with its fiduciary duties to stockholders under
applicable law, the Company's Board of Directors may (x) withdraw or modify,
or propose to withdraw or modify, its recommendation of the transactions
contemplated hereby on account of such Superior Proposal or (y) approve or
recommend such Superior Proposal or terminate this Agreement (and
concurrently with or after such termination, cause the Company to enter into
any agreement with respect to such Superior Proposal) but in each case of
the foregoing (x) and (y) only after providing at least five Business Days'
prior written notice to Parent (A) advising Parent that the Company's Board
of Directors has received or become aware of a Superior Proposal, (B)
specifying the material terms and conditions
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of such Superior Proposal, and (C) identifying the person making the
Superior Proposal, and (D) stating that it intends to withdraw its
recommendation or approve or recommend such Superior Proposal.
(c) Nothing contained in this Section 5.16 shall prohibit the Company's
Board of Directors from disclosing to the Company's stockholders a position
permitted by this Section 5.16 in accordance with Rules 14d-9 and 14e-2
promulgated under the Exchange Act with respect to any tender offer for
shares of capital stock of the Company.
(d) "ACQUISITION PROPOSAL" means any proposal, offer or expression of
interest from any Person involving a merger, consolidation or other business
combination with the Company or any other Acquired Company or any proposal,
offer or expression of interest to acquire or cause to be acquired in any
manner, directly or indirectly, including, without limitation, through any
reinsurance or coinsurance transaction, all or a significant portion of the
business, assets, or capital stock of the Company or any other Acquired
Company, other than the transactions contemplated by this Agreement.
(e) "SUPERIOR PROPOSAL" means any bona fide Acquisition Proposal from
any Person and which is otherwise on terms that the Company's Board of
Directors determines in its good faith reasonable judgment, following
consultation with outside counsel and an independent financial advisor, to
be more favorable to the Company's stockholders than the Merger and for
which financing, to the extent required, is then committed or which, in the
good faith judgement of the Board of Directors, based upon the advice of its
financial advisors, is reasonably capable of being obtained by such third
party on commercially reasonable terms.
(f) "COMPETITIVE PROPOSAL" means any bona fide Acquisition Proposal
from any Person that the Company's Board of Directors determines in its good
faith reasonable judgment, could reasonably be expected to lead to a
transaction which is financially superior to the Merger.
SECTION 5.17 NOTICE TO WARRANT HOLDERS. The Company will cause to be
mailed to the registered holders of Company Warrants, at least 20 days before
the Effective Time, a notice stating (i) the date on which the Merger is
expected to become effective, and (ii) the date as of which it is expected that
holders of Company Common Stock of record will be entitled to exchange their
shares of Common Stock for Merger Consideration.
SECTION 5.18 EXERCISE OF CALL OF COMPANY CONVERTIBLE DEBENTURES.
(a) The Company will cause Redemption Notices to be mailed to all
registered holders of Company Convertible Debentures prior to September 26,
1997, in accordance with applicable provisions of the Indenture, and shall
use its commercially reasonable efforts to cause the redemption of all
outstanding Company Convertible Debentures in accordance with Section 1102
of the Indenture (the "REDEMPTION").
(b) In the event that the Company requires cash to pay for any Company
Convertible Debentures duly surrendered on the Redemption Date (as defined
in the Indenture), the Company may request in writing not less than ten
business days in advance of the Redemption Date that Parent purchase, and
Parent shall purchase, at Parent's election, either such surrendered Company
Convertible Debentures or a new issue of convertible debentures of the
Company simultaneously with consummation of the Redemption, in each case, in
the amount actually redeemed and at a price equal to par value and on terms
which are substantially identical to the Company Convertible Debentures
(including interest rate, maturity, conversion price and redemption
provisions). Notwithstanding the above, Parent may not convert any Company
Convertible Debenture into shares of Company Common Stock, if and to the
extent such conversion would require applicable regulatory approvals, if
any, which Parent has not obtained.
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ARTICLE VI
COVENANTS OF PARENT AND SUB
SECTION 6.01 CONTRACT AND REGULATORY APPROVALS. Parent and Sub will (a)
take all commercially reasonable steps necessary or desirable, and proceed
diligently and in good faith and use all commercially reasonable efforts to
obtain, as promptly as practicable, all approvals required by any applicable
Contract to permit the consummation of the transactions contemplated hereby, (b)
take all commercially reasonable steps necessary or desirable, and proceed
diligently and in good faith and use all commercially reasonable efforts to
obtain, as promptly as practicable, all approvals, authorizations, and
clearances of governmental and regulatory authorities required to permit the
consummation of the transactions contemplated hereby, (c) provide such other
information and communications to such governmental and regulatory authorities
as Parent or such authorities may reasonably request (including without
limitation any required approvals of the insurance regulatory authorities in
Iowa and any other applicable state insurance commission or similar agency), and
(d) cooperate with the Acquired Companies in obtaining, as promptly as
practicable, all approvals, authorizations, and clearances of governmental or
regulatory authorities and others required of the Acquired Companies to
consummate the transactions contemplated hereby.
SECTION 6.02 HSR FILINGS. Parent and Sub will (a) take promptly all
actions necessary to make the filings required of it and Sub under the HSR Act
and make payment of the required filing fee, (b) comply at the earliest
practicable date with any request for additional information received from the
Federal Trade Commission or Antitrust Division of the Department of Justice
pursuant to the HSR Act, (c) cooperate with the Acquired Companies in connection
with their filings under the HSR Act, and (d) request early termination of the
applicable waiting period.
SECTION 6.03 NOTICE AND CURE. The Parent and Sub will notify the Company
promptly in writing of, and contemporaneously will provide the Company with true
and complete copies of any and all information or documents relating to, and
will use all commercially reasonable efforts to cure before the Closing, any
event, transaction, or circumstance occurring after the date of this Agreement
that causes or will cause any covenant or agreement of the Parent under this
Agreement and before the Effective Time to be breached, or that renders or will
render untrue any representation or warranty of the Parent contained in this
Agreement as if the same were made on or as of the date of such event,
transaction, or circumstance. The Parent also will use all commercially
reasonable efforts to cure, before the Closing, any violation or breach of any
representation, warranty, covenant, or agreement made by it in this Agreement,
whether occurring or arising before or after the date of this Agreement.
SECTION 6.04 CERTAIN FURTHER TAX REPRESENTATIONS AND COVENANTS.
(a) All current Employees of the Company or any Acquired Company as of
the Closing shall be employed, immediately after the Closing, by the
Surviving Corporation. On and after the Closing, the Parent and the
Surviving Corporation shall honor all provisions of all Plans in effect as
of the Closing; PROVIDED, HOWEVER, that nothing in this Section 6.04 shall
be construed as preventing the Parent or the Surviving Corporation from
amending, modifying or terminating any of the Plans, or other contracts,
arrangements, commitments or understandings, in accordance with their terms
and applicable Law.
(b) The Parent, following the Closing Date, shall permit such Employees
who are retained as Employees of the Surviving Corporation or who become
Employees of the Parent or any Parent Subsidiary thereafter, and who were
participating in the Plans immediately prior to the Closing Date, to
participate in corresponding Parent Plans (including but not limited to the
Parent's "SECTION 125" Plan) or continue participating in the Plans on terms
that are substantially similar to those provided to similarly situated
Employees of the Parent (or Parent Subsidiary, as applicable). With respect
to those Parent Plans in which Employees of the Company will be
participating on or after the Closing
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Date, the Parent shall credit prior service of Employees with the Company or
any Acquired Company, as applicable, for purposes of determining the
vesting, eligibility, waiting periods or qualification or participation of
such Employees under the Parent Plans and any successor benefit programs to
the extent that such service was recognized under the Plans; such prior
service credited under a Parent Plan shall include service with other
entities to the extent that such service is credited by the Company or any
Acquired Company for purposes of any Plan similar to such Parent Plan. All
Employees of the Company or any Acquired Company shall receive credits for
payments made under any Plan which is a welfare plan under Section 3(1) of
ERISA during the plan year in which the Closing occurs for purposes of
satisfying the applicable deductibles and maximum out-of-pocket limits of
any similar welfare plans of the Surviving Corporation, the Parent or any
Parent Subsidiary during the plan year in which the Closing occurs.
(c) The Parent shall reasonably cooperate with the Surviving Corporation
to maintain the qualified status of each Plan intended to be qualified under
Section 401(a) of the Code.
(d) As of the Closing, the AmVestors Financial Corporation Employees'
Stock Ownership Plan shall be frozen with respect to participation.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 PREPARATION OF FORM S-4 AND THE PROXY STATEMENT; COMPANY
SPECIAL MEETING AND PARENT SPECIAL MEETING.
(a) As soon as practicable following the date of this Agreement, the
Company and Parent shall prepare and file with the SEC the Proxy Statement
and Parent shall prepare and file with the SEC the Form S-4, in which the
Proxy Statement shall be included as part of the prospectus. Each of the
Company and Parent shall use reasonable efforts to have the Form S-4
declared effective under the Securities Act as promptly as practicable after
such filing. Each of the Company and Parent shall use reasonable efforts to
cause the Proxy Statement to be mailed to the Company's stockholders and, if
required, Parent's stockholders, respectively, as promptly as practicable
after the Form S-4 is declared effective under the Securities Act. Parent
shall also take any action required to be taken under any applicable state
securities or "BLUE SKY" laws in connection with the issuance of Parent
Common Stock pursuant to the Merger, and the Company shall furnish all
information concerning the Company and the holders of the Company Common
Stock and rights to acquire the Company Common Stock pursuant to the Company
Employee Stock Plans as may be reasonably requested in connection with any
such action.
(b) The Company shall, in accordance with all applicable Laws, and the
Articles of Incorporation and By-Laws of the Company, duly call, give notice
of, convene and hold a special meeting of its stockholders (the "COMPANY
SPECIAL MEETING") as promptly as practicable after the date hereof for the
purpose of considering and taking action upon this Agreement and such other
matters as may be appropriate at the Company Special Meeting.
Notwithstanding anything in this Agreement to the contrary, the Company
shall not take any action which interferes with the convening of the Company
Special Meeting or the taking of the stockholders' vote at the meeting. The
Board of Directors of the Company will include its recommendation that the
stockholders of the Company approve and adopt this Agreement and the
transactions contemplated hereby in any proxy or other solicitation
materials or communications prepared in connection with the Company Special
Meeting.
(c) Parent shall, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "PARENT SPECIAL MEETING") for the purpose of obtaining the
Parent Stockholder Approval. Parent shall, through its Board of Directors,
recommend to its stockholders that they give the Parent Stockholder Approval
unless otherwise determined by the Board of Directors of Parent in good
faith, after consultation with outside counsel, as necessary in order to
comply with its fiduciary duties to Parent and its stockholders under
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applicable law. The Company shall vote or cause to be voted any shares of
Parent Capital Stock owned of record by the Company or any Acquired Company
in favor of the Parent Stockholder Approval.
SECTION 7.02 LETTER OF THE COMPANY'S ACCOUNTANTS. The Company shall use
reasonable efforts to cause to be delivered to the Company and Parent a letter
of Deloitte & Touche, LLP, the Company's independent public accountants, dated a
date within two business days before the date on which the Form S-4 shall become
effective and addressed to Parent, in form and substance reasonably satisfactory
to Parent and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
SECTION 7.03 LETTER OF PARENT'S ACCOUNTANTS. Parent shall use reasonable
efforts to cause to be delivered to the Company a letter of KPMG Peat Marwick
LLP, Parent's independent public accountants, dated a date within two business
days before the date on which the Form S-4 shall become effective and addressed
to the Company, in form and substance reasonably satisfactory to the Company and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
SECTION 7.04 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Each of the Company and Parent shall, and shall cause each of its
respective subsidiaries to, afford to the other party and to the officers,
directors, employees, accountants, counsel, financial advisors and other
representatives of such other party, reasonable access during normal
business hours during the period prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records
and, during such period, each of the Company and Parent shall, and shall
cause each of its respective subsidiaries to, furnish promptly to the other
party (i) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the
requirements of United States Federal or state securities laws and (ii) all
other information concerning its business, properties and personnel as such
other party may reasonably request. Such information shall be held in
confidence to the extent required by, and in accordance with, the provisions
of the letters dated September 8, 1997, between the Company and Parent (the
"CONFIDENTIALITY AGREEMENTS").
(b) In the event that this Agreement is terminated in accordance with
its terms, each party shall promptly redeliver to the other all non-public
written material provided pursuant to this Section 7.04 and shall not retain
any copies, extracts or other reproductions in whole or in part of such
written material. In such event, all documents, memoranda, notes and other
writings prepared by Parent or the Company based on the information in such
material shall be destroyed (and Parent and the Company shall use their
respective reasonable best efforts to cause their advisors and
representatives to similarly destroy their documents, memoranda and notes),
and such destruction (and reasonable best efforts) shall be certified in
writing by an authorized officer supervising such destruction.
SECTION 7.05 REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties shall use reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities, if any) and the taking of all
reasonable steps as may be necessary to obtain an approval or waiver from,
or to avoid an action or proceeding by, any Governmental Entity, (ii) the
obtaining of all necessary consents, approvals or waivers from third
parties, (iii) the defending of any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement or the
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consummation of the transactions contemplated by this Agreement including
seeking to have any stay or temporary restraining order entered by any court
or other Governmental Entity vacated or reversed, and (iv) the execution and
delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement; provided, however, that Parent shall not be obligated to take any
action pursuant to the foregoing if the taking of such action or the
obtaining of any waiver, consent, approval or exemption is reasonably likely
to result in the imposition of a condition or restriction of the type
referred to in Section 8.01(g)(i) and (ii). In connection with and without
limiting the foregoing, Parent, the Company and their respective Boards of
Directors shall (i) take all action necessary so that no state takeover
statute or similar statute or regulation is or becomes applicable to the
Merger, this Agreement or any other transaction contemplated by this
Agreement and (ii) if any state takeover statute or similar statute or
regulation becomes applicable to the Merger, this Agreement or any other
transaction contemplated by this Agreement, take all action necessary so
that the Merger and the other transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated by
this Agreement and otherwise to minimize the effect of such statute or
regulation on the Merger and the other transactions contemplated by this
Agreement.
(b) The Company shall give prompt notice to Parent, and Parent or Sub
shall give prompt notice to the Company, of (i) any representation or
warranty made by it or contained in this Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect or (ii) the failure by it to comply with
or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement; PROVIDED, HOWEVER,
that no such notification shall be deemed to cure any breach of the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
SECTION 7.06 INDEMNIFICATION.
(a) Parent shall, to the fullest extent permitted by law, cause the
Surviving Corporation to honor, and will itself honor, all the Company's
obligations to indemnify each current or former director and officer of the
Company or the Company subsidiaries (each, an "INDEMNIFIED PARTY" and
collectively, the "INDEMNIFIED PARTIES") for acts or omissions by such
Indemnified Parties occurring prior to the Effective Time to the extent that
such obligations of the Company exist on the date of this Agreement, whether
pursuant to the Company's Certificate of Incorporation, By-Laws or
individual indemnity agreements. Any amendment, repeal or other modification
to the Certificate of Incorporation or By-Laws of the Company shall not
affect the obligations of Parent hereunder and shall not adversely affect
the rights thereunder of Indemnified Parties, unless such modification is
required by law.
(b) For a period of six years after the Effective Time (it being
understood that the Company has prepaid all premiums for such policies
through February 17, 2000), Parent shall cause to be maintained in effect
the current policies of directors' and officers' liability insurance
maintained by the Company (provided that Parent may substitute therefor
policies containing terms with respect to coverage and amounts identical or
more extensive to the coverage and amounts currently provided by the
Company's policy) with respect to claims arising from or related to facts or
events which occurred at or prior to the Effective Time; PROVIDED, HOWEVER,
that Parent shall not be obligated to make annual premium payments for such
insurance to the extent such premiums exceed 150% of the annual premiums
paid as of the date hereof by the Company for such insurance (such 150%
amount, the "MAXIMUM PREMIUM"). If such insurance coverage cannot be
obtained at all, or can only be obtained at an annual premium in excess of
the Maximum Premium, Parent shall maintain the most advantageous policies of
directors' and officers' insurance obtainable for an annual premium equal to
the Maximum Premium. The Company represents to Parent that the Maximum
Premium is $300,000.
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SECTION 7.07 FEES AND EXPENSES. Except as provided in Section 9.02, all
fees and expenses, including any transfer taxes or fees payable to any broker,
investment banker or financial advisor, incurred in connection with the Merger,
this Agreement and the transactions contemplated by this Agreement shall be paid
by the party incurring such fees or expenses, whether or not the Merger is
consummated, except that expenses incurred in connection with SEC filing fees,
the printing and mailing of the Proxy Statement and the Form S-4 shall be shared
equally by Parent and the Company.
SECTION 7.08 PUBLIC ANNOUNCEMENTS. Parent and Sub, on the one hand, and
the Company, on the other hand, shall consult with each other before issuing,
and provide each other the opportunity to review and comment upon, any press
release or other public statements with respect to the transactions contemplated
by this Agreement, including the Merger, and shall not issue any such press
release or make any such public statement without such consultation and the
prior approval of the other party, except as may be required by applicable law,
court process or by obligations pursuant to any listing agreement with any
national securities exchange.
SECTION 7.09 TAX TREATMENT. Each of Parent and the Company shall use its
reasonable best efforts to (i) not take any action and (ii) not fail to take any
action either before or after the Effective Time which action or failure to act
would prevent, or would be likely to prevent, the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code, and shall each
use their reasonable efforts to obtain the opinion of their respective counsel
referred to in Sections 8.02(d) and 8.03(d) of this Agreement.
SECTION 7.10 AFFILIATES. Prior to the Closing Date, the Company shall use
its reasonable efforts to deliver to Parent a letter identifying all persons who
are, at the time this Agreement is submitted for approval to the stockholders of
the Company, "AFFILIATES" of the Company (including all directors of the
Company) for purposes of Rule 145 under the Securities Act. The Company shall
use reasonable efforts to cause each such person to deliver to Parent on or
prior to the Closing Date a written agreement substantially in the form attached
hereto as Annex B.
Section 7.11 COMPANY SHAREHOLDER TAX REPRESENTATION. Immediately prior to
the Closing Date, the Company shall deliver to Parent a schedule identifying all
persons who are five-percent shareholders of the Company. The Company shall use
reasonable best efforts to obtain from such persons representations which
counsel may reasonably require in connection with their opinions under Sections
8.02(d) and 8.03(d) of this Agreement.
SECTION 7.12 CERTIFICATES OF OFFICERS. Immediately prior to the Closing
Date, the Company, Sub and Parent shall deliver to Parent and the Company, as
appropriate, certificates of officers and directors of Parent, Sub and the
Company, as appropriate, which counsel may reasonably require in connection with
their opinions under Sections 8.02(d) and 8.03(d) of this Agreement.
SECTION 7.13 STOCK EXCHANGE LISTING. Parent shall as promptly as
practicable prepare and submit to the Nasdaq a listing application covering the
shares of Parent Common Stock to be issued in connection with the Merger and
this Agreement, and shall use all reasonable efforts to obtain, prior to the
Effective Time, approval for the listing of such shares, subject to official
notice of issuance.
SECTION 7.14 OTHER ACTIONS AND AGREEMENTS. Except as expressly permitted
by this Agreement, the Company and Parent shall not, and shall not permit any of
their respective subsidiaries to, take any action that would, or that would
reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect or (iii) any
of the conditions to the Merger set forth in Article VIII not being satisfied.
Notwithstanding any other provision herein, any consequence of the Company's
good faith, commercially reasonable compliance with Section 5.18 of this
Agreement will not be considered for purposes of determining whether a Material
Adverse Effect on the Company has occurred, whether a representation or warranty
has been breached or whether a condition to Parent's obligations hereunder has
been satisfied, provided Section 3.28 is accurate and the Company is in
compliance with Section 5.18.
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ARTICLE VIII
CONDITIONS PRECEDENT
SECTION 8.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) COMPANY STOCKHOLDER APPROVAL AND PARENT STOCKHOLDER APPROVAL. The
Company shall have obtained the Company Stockholder Approval and Parent
shall have obtained the Parent Stockholder Approval.
(b) STOCK EXCHANGE LISTING. The shares of Parent Company Stock issuable
to the Company's stockholders in the Merger and employees pursuant to this
Agreement shall have been approved for listing on the Nasdaq, subject to
official notice of issuance.
(c) ANTITRUST. The waiting periods (and any extensions thereof)
applicable to the transactions contemplated by this Agreement under the HSR
Act shall have been terminated or shall have expired.
(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect; provided, however, that
subject to the proviso in Section 7.05(a) each of the parties shall have
used reasonable efforts to prevent the entry of any such injunction or other
order and to appeal as promptly as possible any such injunction or other
order that may be entered.
(e) FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order instituted by the SEC or state regulatory authorities,
and Parent shall have received all state securities or "BLUE SKY"
authorizations necessary to issue the Parent Common Stock pursuant to this
Agreement.
(f) MATERIAL CONSENTS AND APPROVALS. The Company, Parent, each Acquired
Company and each Parent Subsidiary shall have obtained or made, as
appropriate, such material consents, approvals, orders, authorizations,
registrations, declarations, Permits or filings in connection with this
Agreement and the transactions contemplated by this Agreement or for the
conduct of their businesses as currently conducted or as expected to be
conducted (including without limitation any requisite action of the
insurance regulatory authorities in Iowa, Kansas, Florida, Michigan and
Connecticut and any other state insurance commissions and similar agencies
and Nasdaq), shall have been obtained and shall be in full force and effect,
in each case without the abrogation or diminishment of the Permits currently
held by the Company or the imposition of significant restrictions upon the
transactions contemplated hereby or the conduct of the business of the
Surviving Corporation.
(g) NO LITIGATION. There shall not be instituted, pending, or
threatened, any action, suit, investigation, or other proceeding in, before,
or by any Governmental Entity or other Person (i) challenging the
acquisition by Parent or Sub of any shares of Company Common Stock, seeking
to restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement or seeking to obtain from the
Company, Parent or Sub any damages that are material in relation to the
Company and the other Acquired Companies taken as a whole, (ii) seeking to
prohibit or limit the ownership or operation by the Company, any Acquired
Company, Parent or any Parent Subsidiary of any material portion of the
business or assets of the Company, any Acquired Company, Parent or any
Parent Subsidiary or to compel the Company, any Acquired Company, Parent or
any Parent Subsidiary to dispose of or hold separate any material portion of
the business or assets of the Company, any Acquired Company, Parent or any
Parent Subsidiary, as a result of the Merger or any of the other
transactions contemplated by this Agreement, or (iii) which otherwise is
reasonably likely to have a Material Adverse Effect on the Company or a
Material Adverse Effect on Parent.
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SECTION 8.02 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB. The obligations
of Parent and Sub to effect the Merger are further subject to the satisfaction
or waiver by Parent on or prior to the Closing Date of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company set forth in this Agreement that are qualified as to
materiality shall be true and correct, and the representations and
warranties of the Company set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date, except to the extent any such representation
or warranty expressly relates to an earlier date (in which case as of such
date), and Parent shall have received a certificate signed on behalf of the
Company by the Chief Executive Officer and the Chief Financial Officer of
the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Parent shall
have received a certificate signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company to such
effect.
(c) OFFICERS' AND DIRECTORS' CERTIFICATES. The Company shall have
delivered to Parent a certificate, dated the Closing Date and executed by
the Secretary of the Company, certifying (a) that the Company has duly and
validly taken all corporate action necessary to authorize its execution and
delivery of this Agreement and its performance of its obligations under this
Agreement, (b) that the resolutions (true and complete copies of which shall
be attached to the certificate) of the Board of Directors and stockholders
of the Company with respect to this Agreement and the transactions
contemplated hereby have been duly and validly adopted and are in full force
and effect and (c) as to the aggregate amount of legal and investment
banking fees incurred by the Company in connection with the transactions
contemplated by this Agreement. In addition, the Company shall have
delivered to Parent executed copies of the certificates, dated the Closing
Date, of officers and directors of the Company, Parent and Sub that may
reasonably be required by counsel in connection with the tax opinions
referred to in Section 8.02(d) and 8.03(d) of this Agreement.
(d) TAX OPINION. Parent shall have received an opinion dated the Closing
Date from Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Parent and
Sub, in form and substance reasonably satisfactory to Parent, substantially
to the effect that, on the basis of facts, representations and assumptions
set forth in such opinion which are consistent with the state of facts
existing on the Closing Date, the Merger will be treated for United States
Federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code. In rendering such opinion, Skadden, Arps, Slate,
Meagher & Flom LLP may require and rely upon (and may incorporate by
reference) representations and covenants, including those contained in
certificates of officers of Parent, the Company, Sub and others. The
specific provisions of each such representation and covenant shall be in
form and substance reasonably satisfactory to Skadden, Arps, Slate, Meagher
& Flom LLP and each such representation and covenant shall be dated on or
before the date of such opinion and shall not have been withdrawn or
modified in any material respect.
(e) ABSENCE OF MATERIAL ADVERSE EFFECT ON THE COMPANY. There shall not
have occurred since the date of this Agreement any event, change, effect or
development which, individually or in the aggregate, has had or is
reasonably likely to have, a Material Adverse Effect on the Company.
(f) GOOD STANDING CERTIFICATES. The Company shall have delivered to
Parent at the Closing (i) certified certificates of good standing dated not
more than 21 calendar days prior to the Closing Date from each of the
jurisdictions listed in Section 3.13(b) of the Company Disclosure Schedule
with respect to each of the Permits issued to an Acquired Company by such
jurisdiction and (ii) bringdown certificates of good standing dated as of
the Closing Date for insurance permits from the state insurance commission
of Kansas, with respect to American, and of Florida, with respect to FBL.
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SECTION 8.03 CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of
the Company to effect the Merger is further subject to the satisfaction or
waiver by the Company on or prior to the Closing Date of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent and Sub set forth in this Agreement that are qualified as to
materiality shall be true and correct, and the representations and
warranties of Parent and Sub set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date, except to the extent any such representation
or warranty expressly relates to an earlier date (in which case as of such
date), and the Company shall have received a certificate signed on behalf of
Parent by the Chief Executive Officer and the Chief Financial Officer of
Parent to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND SUB. Parent and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and
the Company shall have received a certificate signed on behalf of Parent by
the Chief Executive Officer and the Chief Financial Officer of Parent to
such effect.
(c) OFFICERS' AND DIRECTORS' CERTIFICATES. Parent shall have delivered
to the Company a certificate, dated the Closing Date and executed by the
Secretary of Parent, certifying (a) that Parent has duly and validly taken
all corporate action necessary to authorize its execution and delivery of
this Agreement and its performance of its obligations under this Agreement,
and (b) that the resolutions (true and complete copies of which shall be
attached to the certificate) of the Board of Directors and stockholders of
Parent with respect to this Agreement and the transactions contemplated
hereby have been duly and validly adopted and are in full force and effect.
In addition, Parent shall have delivered to Parent executed copies of the
certificates, dated the Closing Date, of officers and directors of Parent,
Parent and Sub that may reasonably be required by counsel in connection with
the tax opinions referred to in Section 8.02(d) and 8.03(d) of this
Agreement.
(d) TAX OPINION. The Company shall have received an opinion dated the
Closing Date from Bryan Cave LLP, counsel to the Company, in form and
substance reasonably satisfactory to the Company, substantially to the
effect that, on the basis of facts, representations and assumptions set
forth in such opinion which are consistent with the state of facts existing
on the Closing Date, the Merger will be treated for United States Federal
income tax purposes as a reorganization within the meaning of Section 368(a)
of the Code. In rendering such opinion, Bryan Cave LLP may require and rely
upon (and may incorporate by reference) representations and covenants,
including those contained in certificates of officers of Parent, the
Company, Sub and others necessary to give such opinion and to provide
assurance to stockholders of the Company that they will not recognize gain
in the Merger, except to the extent cash is received in exchange for
fractional shares. The specific provisions of each such representation and
covenant shall be in form and substance reasonably satisfactory to Bryan
Cave LLP and each such representation and covenant shall be dated on or
before the date of such opinion and shall not have been withdrawn or
modified in any material respect.
(e) ABSENCE OF MATERIAL ADVERSE EFFECT ON PARENT OR DELTA. There shall
not have occurred since the date of this Agreement any event, change, effect
or development which, individually or in the aggregate, has had or is
reasonably likely to have, a Material Adverse Effect on Parent.
Notwithstanding any other provision of this Agreement, it is understood and
agreed that for all purposes of this Agreement, except for the following
sentence, no term, representation, warranty, covenant, agreement or other
provision hereunder shall be deemed to apply to or include Delta Life
Corporation, or its subsidiaries (collectively, "DELTA") or the effect of
the acquisition of Delta on Parent. In the event Parent acquires Delta,
there shall not have occurred any event, change, effect or development
which, individually or in the aggregate, has had or is reasonably likely to
have, a Material Adverse Effect on Parent.
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ARTICLE IX
TERMINATION
SECTION 9.01 TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time, upon notice by the terminating party to the other party:
(a) at any time before the Closing, by mutual written agreement of the
parties; or
(b) at any time by the Company if any of the covenants set forth in
Article VI or representations and warranties set forth in Article IV shall
have been breached, or shall not have been performed or complied with, in
any material respect, at or before the Closing Date and such breach, non-
performance, or noncompliance has not been cured or eliminated within 30
calendar days after written notice thereof has been given to Parent, or if a
condition under Sections 8.01 or 8.03 to the Company's obligations hereunder
cannot be satisfied prior to the Outside Date;
(c) at any time by Parent if any of the covenants set forth in Article V
or representations and warranties set forth in Article III shall have been
breached, or shall not have been performed or complied with, in any material
respect, before the Closing Date and such breach, non-performance, or
non-compliance has not been cured or eliminated within 30 calendar days
after written notice thereof has been given to Company, or if a condition
under Sections 8.01 or 8.02 to Parent's obligations hereunder cannot be
satisfied prior to the Outside Date;
(d) by Parent or Company, if this Agreement and the Merger shall have
failed to receive the requisite approval of the stockholders of (i) the
Company at the Company Special Meeting, or (ii) Parent at the Parent Special
Meeting;
(e) at any time after June 30, 1998 (the "OUTSIDE DATE") by the Company
or Parent, if the transactions contemplated by this Agreement have not been
consummated on or before such date, provided, that this Agreement shall be
extended not more than ninety days thereafter if the Merger shall not have
occurred as a result of the failure to receive the governmental approvals
set forth in Section 3.06 of the Disclosure Schedule hereto, and such
failure to obtain approval is not caused by a breach of this Agreement (or
any representation, warranty, covenant, or agreement included herein) by the
party electing to terminate pursuant to this clause (e);
(f) by the Company in accordance with Section 5.16(b);
(g) by Parent if the Board of Directors of the Company shall have
withdrawn or modified its recommendation of this Agreement or the
transactions contemplated hereby or approves or recommends any Acquisition
Proposal; or
(h) by the Company in accordance with Section 2.03(b), unless Parent
agrees to pay the Adjusted Merger Consideration.
SECTION 9.02 EFFECT OF TERMINATION.
(a) If this Agreement is validly terminated pursuant to Section 9.01
hereof, this Agreement will forthwith become null and void, and there will
be no Liability on the part of Company or Parent or Sub (or any of their
respective Affiliates, officers, directors, employees, agents, consultants,
or other representatives), except that (i) the provisions of this Section
9.02, Section 5.18, Section 7.07, the second sentence of Section 7.14, and
Section 10.02 will continue to apply following any such termination, (ii)
the provisions relating to confidentiality in Section 7.04 hereof will
continue to apply following any such termination and (iii) any such
termination shall be without prejudice to any claim which either party may
have against the other for breach of this Agreement (or any representation,
warranty, covenant, or agreement included herein). Without limitation on
remedies all reasonable out-of-pocket expenses incurred in connection with
this Agreement and the transactions contemplated hereby by a nonbreaching
party who terminates this Agreement pursuant to Section 9.01 hereof will be
reimbursed promptly by the breaching party.
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(b) In the event this Agreement is terminated by the Company pursuant to
Section 9.01(f), or by Parent pursuant to Section 9.01(g), the Company shall
pay to Parent by wire transfer of immediately available funds (A) within two
Business Days following such termination the amount of $10.8 million, plus
(B) within two Business Days following receipt of a written demand therefor,
an amount equal to all reasonable out-of-pocket expenses incurred by Parent
in connection with this Agreement and the transactions contemplated hereby,
it being understood that such amounts are intended to constitute liquidated
damages and not as a penalty.
(c) In the event this Agreement is terminated (x) by either the Company
or Parent pursuant to Section 9.01(d)(i), or (y) by either the Company or
Parent pursuant to Section 9.01(e) (provided solely in the case of this
subsection (y) that the Company's stockholders shall not have voted upon the
approval of this Agreement at the Company Special Meeting prior to the
Outside Date and such failure to vote was not primarily due to Parent's
actions or inactions), (i) the Company shall pay to Parent by wire transfer
of immediately available funds within two Business Days following receipt of
a written demand therefor, an amount equal to all reasonable out-of-pocket
expenses incurred by Parent in connection with this Agreement and the
transactions contemplated hereby and in addition (ii) if the Company, at any
time within 24 months following the date of such termination, approves,
enters into an agreement with respect to, or there is filed or publicly
announced, (A) a merger, consolidation or other business combination
involving the Company or any other Acquired Company or (B) any direct or
indirect (including through any reinsurance or coinsurance transaction)
acquisition by any Person of all or a significant portion of the business or
assets of the Company or any other Acquired Company or of the capital stock
of any Acquired Company, or (C) any transaction which would result in the
direct or indirect acquisition by any Person of the power to direct the
voting or disposition of shares of capital stock of the Company representing
50% or more of the total voting power of all outstanding shares of capital
stock of the Company, or otherwise resulting in a change in control of the
Company, the Company shall pay to Parent by wire transfer of immediately
available funds the amount of $10.8 million, it being understood that such
amounts are intended to constitute liquidated damages and not as a penalty.
(d) In the event this Agreement is terminated by Parent or the Company
pursuant to Section 9.01(d)(i) and, prior to the Company Special Meeting,
(x) the Board of Directors of the Company withdrew or modified its
recommendation of this Agreement or the transactions contemplated hereby or
approved or recommended any Acquisition Proposal, and (y) Parent had not
terminated this Agreement pursuant to Section 9.01(g), the Company shall pay
to Parent by wire transfer of immediately available funds (A) within two
Business Days following such termination the amount of $10.8 million, plus
(B) within two Business Days following receipt of a written demand therefor,
an amount equal to all reasonable out-of-pocket expenses incurred by Parent
in connection with this Agreement and the transactions contemplated hereby,
it being understood that such amounts are intended to constitute liquidated
damages and not as a penalty.
SECTION 9.03 AMENDMENT. This Agreement may be amended by the parties at
any time before or after the Company Stockholder Approval or the Parent
Stockholder Approval; provided, however, that after the Company Stockholder
Approval or the Parent Stockholder Approval, there shall be made no amendment
that by law requires further approval by such stockholders without the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
SECTION 9.04 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, or (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement, waive compliance with any of the
covenants or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
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SECTION 9.05 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. A
termination of this Agreement pursuant to Section 9.01, an amendment of this
Agreement pursuant to Section 9.03 or an extension or waiver pursuant to Section
9.04 shall, in order to be effective, require, in the case of Parent, Sub or the
Company, action by its Board of Directors or, in the case of an extension or
waiver pursuant to Section 9.04, the duly authorized designee of its Board of
Directors.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 10.01
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 10.02 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing (including by facsimile)
and shall be deemed given upon receipt by the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
AmerUs Life Holdings, Inc.
418 Sixth Avenue
Des Moines, Iowa 50309-2407
Phone: (515) 283-3260
Fax: (515) 283-3402
Attention: General Counsel
WITH A COPY TO:
Skadden, Arps, Slate, Meagher
& Flom LLP
919 Third Avenue
New York, New York 10022
Phone: (212) 735-3380
Fax: (212) 735-2000
Attention: Jeffrey W. Tindell, Esq.
(b) if to the Company, to:
AmVestors Financial Corporation
555 South Kansas Avenue
Topeka, Kansas 66603
Phone: (913) 232-6945
Fax: (913) 232-5827
Attention: President
WITH A COPY TO:
Bryan Cave LLP
One Metropolitan Square
211 North Broadway, Suite 3600
St. Louis, Missouri 63102
Phone: (314) 259-2000
Fax: (314) 259-2020
Attention: J. Mark Klamer, Esq.
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SECTION 10.03 INTERPRETATION. When a reference is made in this Agreement
to a Section, Article, Annex or Exhibit, such reference shall be to a Section or
Article of, or an Annex or Exhibit to, this Agreement unless otherwise
indicated. In this Agreement, unless a contrary intention appears, (i) the words
"HEREIN", "HEREOF" and "HEREUNDER" and other words of similar import refer to
this Agreement as a whole and not to any particular Article, Section or other
subdivision. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "INCLUDE", "INCLUDES" or
"INCLUDING" are used in this Agreement, they shall be deemed to be followed by
the words "WITHOUT LIMITATION".
SECTION 10.04 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule or law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 10.05 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 10.06 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement (including the documents referred to herein) (a) constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this Agreement
and (b) except for the provisions of Sections 1.02 and 7.06 are not intended to
confer upon any person other than the parties any rights or remedies. It is
expressly agreed that the stockholders of neither Parent nor the Company are
intended beneficiaries of any provision hereof.
SECTION 10.07 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof, provided that the laws of the state of Kansas shall govern the
effects of the Merger contemplated hereby.
SECTION 10.08 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Parent or to any direct or indirect wholly owned Parent Subsidiary,
but no such assignment shall relieve Sub of any of its obligations under this
Agreement. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns. Parent shall cause Sub to perform its
obligations hereunder.
SECTION 10.09 ENFORCEMENT; CONSENT TO JURISDICTION. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court of
the United States located in the State of New York or in New York state court,
this being in addition to any other remedy to which they are entitled at law or
in equity. In addition, each of the parties hereto (a) consents to submit itself
to the personal jurisdiction of any Federal court located in the State of New
York or any New York state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
initiate any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal court sitting
in the State of New York or a New York state court.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of Company, Parent and Sub, effective as of the
date first written above.
AMERUS LIFE HOLDINGS, INC.
By: /s/ Roger K. Brooks
--------------------------------------
Name: Roger K. Brooks
TITLE: PRESIDENT
Signature Attested By:
/s/ James A. Smallenberger
--------------------------------------
Name: James A. Smallenberger
TITLE: SECRETARY
AFC CORP.
By: /s/ Roger K. Brooks
--------------------------------------
Name: Roger K. Brooks
Title: President
Signature Attested By:
/s/ James A. Smallenberger
--------------------------------------
Name: James A. Smallenberger
Title: Secretary
AMVESTORS FINANCIAL CORPORATION
By: /s/ Ralph W. Laster, Jr.
--------------------------------------
Name: Ralph W. Laster, Jr.
Title: Chairman and CEO
Signature Attested By:
/s/ Lynn F. Hammes
--------------------------------------
Name: Lynn F. Hammes
Title: Secretary
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ANNEX A
GLOSSARY OF TERMS
The capitalized terms used in this Agreement and not defined herein shall
have the meanings set forth below. Other terms are also defined in the text of
the Agreement. Unless the context otherwise requires, such capitalized terms
shall include the singular and plural and the conjunctive and disjunctive forms
of the terms defined.
"Affiliate" shall mean any Person that, directly or indirectly through one
or more intermediaries, controls, is controlled by, or is under common control
with the Person specified.
"Agreement" shall mean this Agreement and Plan of Merger, together with the
annexes and exhibits attached hereto, the Disclosure Schedules, and the other
agreements and documents to be executed and delivered pursuant hereto.
"Annual Statement" shall mean any annual statement of the Company Insurance
Subsidiaries or the Parent Insurance Subsidiaries, as the case may be, filed
with or submitted to the insurance regulatory authority in the state in which
the Company Insurance Subsidiaries or the Parent Insurance Subsidiaries, as the
case may be, is domiciled on forms prescribed or permitted by such authority.
"Acquired Companies" shall mean the Company, American Investors Life
Insurance Company, Financial Benefit Life Insurance Company and any other direct
or indirect subsidiary of the Company.
"Assets and Properties" shall mean all assets or properties of every kind,
nature, character, and description (whether real, personal, or mixed, whether
tangible or intangible, whether absolute, accrued, contingent, fixed, or
otherwise, and wherever situated) as now operated, owned, or leased by a
specified Person, including without limitation cash, cash equivalents,
securities, accounts and notes receivable, real estate, equipment, furniture,
fixtures, insurance or annuities in force, goodwill, and going concern value.
"Books and Records" shall mean all accounting, financial reporting, Tax,
business, marketing, corporate, and other files, documents, instruments, papers,
books, and records of a specified Person, including without limitation financial
statements, budgets, projections, ledgers, journals, deeds, titles, policies,
manuals, minute books, stock certificates and books, stock transfer ledgers,
Contracts, franchises, permits, agency lists, policyholder lists, supplier
lists, complaint lists, underwriting manuals, correspondence files, marketing
and sales materials, reports, computer files, retrieval programs, operating data
or plans, and environmental studies or plans.
"Business Day" shall mean a day other than Saturday, Sunday, or any day on
which the principal commercial banks located in New York are authorized or
obligated to close under the Laws of New York.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act.
"Closing" shall have the meaning ascribed to it in Section 1.01(b).
"Closing Date" shall have the meaning ascribed to it in Section 1.01(b).
"Code" shall mean the Internal Revenue Code of 1986, as amended (including
without limitation any successor code), and the rules and regulations
promulgated thereunder.
"Company" shall have the meaning ascribed to it in the preamble to this
Agreement.
"Company Affiliate" shall mean (a) each Affiliate of Company, (b) each
holder of 5% or more of any class of capital stock of Company, (c) each
executive officer or director of an Acquired Company and (d) each of their
respective Affiliates.
"Company Common Stock" shall have the meaning ascribed to it in the
Preamble.
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"Company Convertible Debentures" shall have the meaning ascribed to it in
Section 3.03(d).
"Company Disclosure Schedule" shall mean the schedule dated as of the date
of this Agreement and furnished by Company to Parent, and containing all lists,
descriptions, exceptions, and other information and materials as are required to
be included therein pursuant to this Agreement.
"Company Warrants" shall have the meaning ascribed to it in Section 3.03(c).
"Contract" shall mean any agreement, lease, sublease, license, sublicense,
promissory note, evidence of indebtedness, insurance policy, annuity contract,
reinsurance agreement or other contract or commitment (whether written or oral).
"Employee" shall mean any present or former officer, director, employee,
agent, regional director, consultant or other similar representative of the
Person referenced (including any predecessor thereof).
"Environmental Laws" shall mean any Federal, state or local law, statute,
ordinance or regulation pertaining to health, industrial hygiene, or the
environmental condition on or under any property including, without limitation,
CERCLA and the Toxic Substance Control Act, and the rules and regulations
thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended (including without limitation any successor act), and the rules and
regulations promulgated thereunder.
"GAAP" shall mean generally accepted accounting principles, consistently
applied throughout the specified period and in the immediately prior comparable
period.
"GAAP Statements" shall have the meaning ascribed to it in Section 3.08(b).
"Hazardous Substance" shall mean (I) any and all hazardous, toxic or
dangerous waste, substance, pollutant, contaminant, radiation or material
defined as such in (or deemed as such for purposes of) CERCLA, at the Closing
Date, or any other Environmental Law and (II) any petroleum or petroleum-based
products.
"IRS" shall mean the United States Internal Revenue Service or any successor
agency.
"Knowledge of Company" or any capitalized derivative thereof means the
actual knowledge of or knowledge which would have been obtained in a reasonable
investigation by an officer of any Acquired Company with responsibility (sole or
shared) for the particular subject matter.
"Knowledge of Parent" or any capitalized derivative thereof means the actual
knowledge of or knowledge which would have been obtained in a reasonable
investigation by an officer of Parent with responsibility (sole or shared) for
the particular subject matter.
"Laws" shall mean all laws, statutes, ordinances, regulations, and other
pronouncements having the effect of law of the United States of America or any
state, commonwealth, city, county, municipality, court, tribunal, agency,
government, department, commission, bureau, or instrumentality thereof.
"Liabilities" shall mean all debts, obligations, and other liabilities of a
Person (whether absolute, accrued, contingent, fixed, or otherwise, or whether
due or to become due) which are recognized as liabilities in accordance with SAP
or GAAP, as the case may be.
"Lien" shall mean any mortgage, pledge, assessment, security interest,
lease, sublease, lien, adverse claim, levy, charge, covenant or other
encumbrance of any kind, or any conditional sale Contract, title retention
Contract, or other Contract to give or to refrain from giving any of the
foregoing other than Permitted Liens.
"Material Adverse Effect" shall mean, with respect to any Person, a material
adverse effect on (I) the organization, existence, Assets, Liabilities,
business, sales force, new sales, prospects, operations, condition (financial or
otherwise), or results of operations of such Person, together with any
subsidiaries thereof, taken as a whole, or (II) the ability of such Person to
perform its material obligations under this Agreement, provided that the term
Material Adverse Effect shall not include any changes or effects on
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<PAGE>
the organization, existence, Assets, Liabilities, business, sales force, new
sales, prospects, operations, condition (financial or otherwise), or results of
operations on Parent, together with any subsidiaries thereof, taken as a whole,
caused by changes in general economic conditions or changes generally affecting
Parent's industry.
"Parent" shall have the meaning ascribed to it in the preamble of this
Agreement.
"Parent Common Stock" shall have the meaning ascribed to it in Section 4.10.
"Parent Disclosure Schedule" shall mean the schedule dated as of the date of
this Agreement and furnished by Parent to Company, and containing all lists,
descriptions, exceptions, and other information and materials as are required to
be included therein pursuant to this Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established under
ERISA.
"Permitted Liens" of a Person shall mean the following liens: (i) Liens for
Taxes or assessments or other governmental charges or levies, either not yet due
and payable or to the extent that nonpayment thereof is expressly permitted by
the terms of this Agreement; (ii) pledges or deposits securing obligations under
worker's compensation, unemployment insurance, social security or public
liability laws or similar legislation; (iii) pledges or deposits securing bids,
tenders, contracts (other than contracts for the payment of money) or leases to
which such Person is a party as lessee made in the ordinary course of business;
(iv) deposits securing public or statutory obligations of such Person; (v)
workers', mechanics', suppliers', carriers', warehousemen's or other similar
liens arising in the ordinary course of business and securing indebtedness
aggregating not in excess of $500,000 at any time outstanding, not yet due and
payable; (vi) deposits securing or in lieu of surety, appeal or customs bonds in
proceedings to which such Person is a party; (vii) pledges or deposits effected
by such Person as a condition to obtaining or maintaining any License of such
Person; (viii) any attachment or judgment lien, unless the judgment it secures
shall not, within 60 days after the entry thereof, have been discharged or
execution thereof stayed pending appeal, or shall not have been discharged
within 60 days after the expiration of any such stay; (ix) zoning restrictions,
easements, licenses, or other restrictions on the use of real property or other
minor irregularities in title (including leasehold title) thereto, so long as
the same do not materially impair the use, value, or marketability of such real
property, leases or leasehold estates; and (x) Liens under the provisions of
insurance policies and annuities in force and reinsurance and coinsurance
contracts in force.
"Person" shall mean any natural person, corporation, general partnership,
limited partnership, limited liability company, proprietorship, trust, union,
association, court, tribunal, agency, government, department, commission,
self-regulatory organization, arbitrator, board, bureau, instrumentality, or
other entity, enterprise, authority, or business organization.
"Quarterly Statement" of a Person shall mean (I) any quarterly statement of
such Person prepared in accordance with GAAP, and (II) any quarterly statement
of such Person's Insurance Subsidiaries prepared in accordance with SAP and
filed with or submitted to the insurance regulatory authority in the state in
which it is domiciled on forms prescribed or permitted by such authority.
"Real Estate" of a Person means all real property and interests therein,
including without limitation leasehold interests, owned or held at any time
since January 1, 1994 by such Person.
"Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, migrating, dumping or
other disposal in any amount into or onto the air, ground or surface water,
land, or other parts of the environment, however caused, not permitted by or in
compliance with Environmental Laws.
"SAP" shall mean the accounting practices required or permitted by the
National Association of Insurance Commissioners and the insurance regulatory
authority in the state in which the Company Insurance Subsidiaries or the Parent
Insurance Subsidiaries, as the case may be, is domiciled, consistently applied
throughout the specified period and in the immediately prior comparable period.
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<PAGE>
"SAP Statements" shall have the meaning ascribed to it in Section 3.08(b).
"Sub" shall have the meaning ascribed to it in the preamble to this
Agreement.
"subsidiary" shall mean each of those Persons, regardless of jurisdiction of
organization, of which another Person, directly or indirectly through one or
more subsidiaries, (I) owns beneficially securities having more than 50% of the
voting power in the election of directors (or persons fulfilling similar
functions or duties) of the owned Person (without giving effect to any
contingent voting rights), or (II) controls as the general partner or managing
member.
"Taxes" shall mean all taxes, charges, duties, fees, levies, or other
similar assessments or Liabilities, including without limitation all net and
gross income, gross receipts, ad valorem, premium, excise, real property,
personal property, windfall profit, sales, use, transfer, license, withholding,
employment, payroll, Phase III, profit, estimated, severance, stamp, occupation,
value added, registration, environmental, workers compensation, social security
and franchise taxes imposed by the United States of America, any possession
thereof, or any state, county, local, or foreign government, or any subdivision,
agency, or other similar Person of any of the foregoing; and such term shall
include any interest, fines, penalties, correction fees, sanction amounts,
assessments, or additions to tax relating to, resulting from, attributable to,
or incurred in connection with any such tax or any contest or dispute thereof.
"Tax Returns" of a Person shall mean any report, return, information return,
or other document (including any related or supporting information and any
amendments thereto) filed or required to be filed with any federal, state,
local, or foreign governmental entity or other authority in connection with the
determination, assessment or collection of any Tax (whether or not such Tax is
imposed on such Person) or the administration of any laws, regulations or
administrative requirements relating to any Tax, or any statement required to be
furnished to any Person under any Tax Law.
I-A-4
<PAGE>
ANNEX B
FORM OF AFFILIATE LETTER FOR
AFFILIATES OF THE COMPANY
[ ], 1997
AmerUs Life Holdings, Inc.
418 Sixth Avenue
Des Moines, Iowa 50309-2407
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to be
an "affiliate" of AmVestors Financial Corporation, a Kansas corporation (the
"Company"), as the term "affiliate" is defined for purposes of paragraphs (c)
and (d) of Rule 145 of the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"). Pursuant to the terms of the
Agreement and Plan of Merger dated as of September 19, 1997 (the "Merger
Agreement") among AmerUs Life Holdings, Inc., an Iowa corporation ("Parent"),
AFC Corp., a Kansas corporation ("Merger Sub"), and the Company, the Merger Sub
will be merged with and into the Company (the "Merger"). Capitalized terms used
in this letter without definition shall have the meanings assigned to them in
the Merger Agreement.
As a result of the Merger, I may receive shares of common stock, no par
value, of Parent (the "Parent Shares"). I would receive such Parent Shares in
exchange for shares (or upon exercise of options for shares) owned by me of
common stock, no par value, of the Company (the "Company Shares").
1. I represent, warrant and covenant to Parent that in the event I receive
any Parent Shares as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the
Parent Shares in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Merger Agreement and
discussed the requirements of such documents and other applicable
limitations upon my ability to sell, transfer or otherwise dispose of the
Parent Shares, to the extent I felt necessary, with my counsel or counsel
for the Company.
C. I have been advised that the issuance of the Parent Shares to me
pursuant to the Merger has been registered with the Commission under the Act
on a Registration Statement on Form S-4. However, I have also been advised
that, because at the time the Merger is submitted for a vote of the
shareholders of the Company, (a) I may be deemed to be an affiliate of the
Company and (b) the distribution by me of the Parent Shares has not been
registered under the Act, I may not sell, transfer or otherwise dispose of
the Parent Shares issued to me in the Merger unless (i) such sale, transfer
or other disposition is made in conformity with the volume and other
limitations of Rule 145 promulgated by the Commission under the Act, (ii)
such sale, transfer or other disposition has been registered under the Act
or (iii) in the opinion of counsel reasonably acceptable to Parent, such
sale, transfer or other disposition is otherwise exempt from registration
under the Act.
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<PAGE>
D. I understand that Parent is under no obligation to register the
sale, transfer or other disposition of the Parent Shares by me or on my
behalf under the Act or, except as provided in paragraph 2(A) below, to take
any other action necessary in order to make compliance with an exemption
from such registration available.
E. I understand that Parent reserves the right to place on the
certificates for the Parent Shares issued to me, or any substitutions
therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE
WITH THE TERMS OF AN AGREEMENT DATED [____________], 1997 BETWEEN THE
REGISTERED HOLDER HEREOF AND AMERUS LIFE HOLDINGS, INC., A COPY OF WHICH
AGREE-MENT IS ON FILE AT THE PRINCIPAL OFFICES OF AMERUS LIFE HOLDINGS,
INC."
F. I understand that unless a sale or transfer is made in conformity
with the provisions of Rule 145, or pursuant to a registration statement,
Parent reserves the right to put the following legend on the certificates
issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER
THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE
HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF
1933."
G. Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of the Company as described in the first
paragraph of this letter, nor as a waiver of any rights I may have to object
to any claim that I am such an affiliate on or after the date of this
letter.
2. By Parent's acceptance of this letter, Parent hereby agrees with me as
follows:
A. For so long as and to the extent necessary to permit me to sell the
Parent Shares pursuant to Rule 145 and, to the extent applicable, Rule 144
under the Act, Parent shall (a) use its reasonable efforts to (i) file, on a
timely basis, all reports and data required to be filed with the Commission
by it pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and (ii) furnish to me upon request a written
statement as to whether Parent has complied with such reporting requirements
during the 12 months (or such shorter period as Parent has been subject
thereto) preceding any proposed sale of the Parent Shares by me under Rule
145, and (b) otherwise use its reasonable efforts to permit such sales
pursuant to Rule 145 and Rule 144. Parent hereby represents to me that it
has filed all reports required to be filed with the Commission under Section
13 of the 1934 Act during the preceding 12 months (or such shorter period as
Parent has been subject thereto).
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<PAGE>
B. It is understood and agreed that certificates with the legends set
forth in paragraphs E and F above will be substituted by delivery of
certificates without such legend if (i) one year shall have elapsed from the
date the undersigned acquired the Parent Shares received in the Merger and
the provisions of Rule 145(d)(2) are then available to the undersigned, (ii)
two years shall have elapsed from the date the undersigned acquired the
Parent Shares received in the Merger and the provisions of Rule 145(d)(3)
are then applicable to the undersigned, or (iii) Parent has received either
an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to Parent, or a "no action" letter obtained by the undersigned
from the staff of the Commission, to the effect that the restrictions
imposed by Rule 145 under the Act no longer apply to the undersigned.
Very truly yours,
--------------------------------------
Name:
Agreed and accepted this day
of , 1997, by
AMERUS LIFE HOLDINGS, INC.
By:
- ----------------------------------------
Name:
Title:
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<PAGE>
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
ANNEX II
September 19, 1997
Board of Directors
AmerUs Life Holdings, Inc.
418 Sixth Avenue
Des Moines, Iowa 50309-2407
Dear Board Members:
You have requested our opinion as to the fairness from a financial point of
view to AmerUs Life Holdings, Inc. (the "Company") of the consideration to be
paid by the Company pursuant to the terms of the Agreement of Merger, dated as
of September 19, 1997 (the "Agreement") by and among AmVestors Financial
Corporation ("AmVestors"), the Company and a wholly owned subsidiary of the
Company ("Sub"), pursuant to which Sub will be merged (the "Merger") with and
into AmVestors.
Pursuant to the Agreement, each share of common stock, no par value
("AmVestors Common Stock"), of AmVestors will be converted, subject to certain
exceptions, into the right to receive an amount of shares of Series A common
stock, no par value ("Company Common Stock"), of the Company, determined as
follows: (a) if the Average Company Share Price (as defined below) is greater
than or equal to $27.00 but less than or equal to $29.75, the number of shares
of Company Common Stock determined by dividing $20.00 by the Average Company
Share Price; (b) if the Average Company Share Price is less than $27.00, 0.7407
shares of Company Common Stock; and (c) if the Average Company Share Price is
greater than $29.75, 0.6724 shares of Company Common Stock (such number of
shares determined pursuant to clauses (a) through (c) above, the "Exchange
Ratio"). The "Average Company Share Price" means the average of the last
reported sales prices per share of Company Common Stock as quoted by The Nasdaq
National Market for the 20 consecutive trading days ending on the trading day
which is ten trading days prior to the consummation of the Merger.
In arriving at our opinion, we have reviewed the draft dated September 19,
1997 of the Agreement. We also have reviewed financial and other information
that was publicly available or furnished to us by the Company and AmVestors,
including information provided during discussions with their respective
managements. Included in the information provided during discussions with the
respective managements were certain financial projections of AmVestors for the
period beginning January 1, 1997 and ending December 31, 2001 prepared by the
management of AmVestors, as well as certain financial projections of the
Company, pro forma for the acquisition of Delta Life Corporation, for the period
beginning January 1, 1997 and ending December 31, 1999 prepared by the
management of the Company. In addition, we have compared certain financial and
securities data of AmVestors with various other companies whose securities are
traded in public markets, reviewed the historical stock prices and trading
volumes of the common stock of AmVestors, reviewed prices and premiums paid in
certain other business combinations and conducted such other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company and AmVestors or
their respective representatives, or that was otherwise reviewed by us. In
particular, we have relied upon the estimates of the management of the Company
of the operating synergies achievable as a result of the Merger. With respect to
the financial projections supplied to us, we have assumed that they have been
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the management of the Company and AmVestors as to the
future
II-1
<PAGE>
Board of Directors
AmerUs Life Holdings, Inc.
Page 2 September 19, 1997
operating and financial performance of the Company and AmVestors. We have not
assumed any responsibility for making any independent evaluation of any assets
or liabilities or for making any independent verification of any of the
information reviewed by us.
Our opinion is necessarily based on economic, market, financial and other
conditions as they existed on, and on the information made available to us as
of, the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which Company Common Stock will actually trade at any time. Our
opinion does not address the relative merits of the Merger and the other
business strategies being considered by the Company's Board of Directors, nor
does it address the Board's decision to proceed with the Merger. Our opinion
does not constitute a recommendation to any shareholder as to how such
shareholder should vote on the proposed transaction.
Donaldson, Lufkin, & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company in the past and has been compensated
for such services. In January 1997, DLJ co-managed an initial public offering of
Company Common Stock and received usual and customary underwriters compensation.
In addition, in April 1996, DLJ advised Financial Benefit Group, Inc. in its
sale to AmVestors and received usual and customary compensation for such
services.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair to the Company from a financial
point of view.
<TABLE>
<S> <C> <C>
Very truly yours,
DONALDSON, LUFKIN, & JENRETTE
SECURITIES CORPORATION
By: /s/ WILLIAM J. WHEELER
-----------------------------------------
William J. Wheeler
SENIOR VICE PRESIDENT
</TABLE>
II-2
<PAGE>
Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004
Tel: 212-902-1000
ANNEX III
[LETTERHEAD]
PERSONAL AND CONFIDENTIAL
September 19, 1997
Board of Directors
AmVestors Financial Corporation
555 S. Kansas Avenue
Topeka, KS 66601
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to the holders of the outstanding shares of Common Stock, no par value (the
"Shares"), of AmVestors Financial Corporation (the "Company") of the Exchange
Ratio (as defined below) pursuant to the Agreement and Plan of Merger, dated as
of September 19, 1997, among AmerUs Life Holdings, Inc. ("AmerUs"), Joe Corp., a
wholly-owned subsidiary of AmerUs, and the Company (the "Agreement"). Pursuant
to the Agreement, the Company will merge with Joe Corp. (the "Merger") and each
outstanding Share will be converted into the right to receive a number of shares
of Series A Common Stock, no par value (the "AmerUs Common Stock"), of AmerUs,
computed, subject to adjustment, such that each Share will be exchanged for at
least 0.6724 shares of AmerUs Common Stock, as set forth in the Agreement (the
"Exchange Ratio").
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement. We also
have provided certain investment banking services to AmerUs from time to time,
including having acted as its financial advisor on the formation of a mutual
holding company in 1996, having acted as lead manager of the initial public
offering of AmerUs Common Stock in January 1997 and as lead manager of an
issuance of the Capital Securities of AmerUs Capital I, an affiliate of AmerUs,
in January 1997, and we may provide investment banking services to AmerUs in the
future.
In connection with this opinion, we have reviewed, among other things, the
Agreement; an actuarial appraisal dated May 13, 1997 of the insurance operations
of the Company prepared by Actuarial Resources Corporation (the "Appraisal");
Annual Reports to Stockholders and Annual Reports on Form 10-K of the Company
for the five years ended December 31, 1996; the Registration Statement on Form
S-1 of AmerUs, dated January 28, 1997; Statutory Annual Statements filed by
American Investors Life Insurance Company, Financial Benefit Life
<PAGE>
AmVestors Financial Corporation
September 19, 1997
Page Two
Insurance Company and AmerUs Life Insurance Company (including the predecessor
companies Central Life Assurance Company and American Mutual Life Insurance
Company), with the Insurance Departments of the States under which they are
respectively organized for the five years ended December 31, 1996; certain
interim statutory reports filed by American Investors Life Insurance Company,
Financial Benefit Life Insurance Company and AmerUs Life Insurance Company with
the Insurance Departments of the States under which they are respectively
organized; certain interim reports to stockholders and Quarterly Reports on Form
10-Q of the Company and AmerUs; certain other communications from the Company
and AmerUs to their respective stockholders; certain information regarding the
reserves of AmerUs; certain internal financial analyses and forecasts for the
Company prepared by the management of the Company; and certain internal
financial analyses and forecasts for AmerUs and the Company prepared by the
management of AmerUs. We have held discussions with members of the senior
management of the Company and AmerUs regarding the strategic rationale for, and
the potential benefits of, the Merger and the past and current business
operations, financial condition and future prospects of their respective
companies. We also have discussed the pro forma impact of the Merger, as well as
the pending acquisition by AmerUs of Delta Life and Annuity Company ("Delta
Life") with the management of AmerUs (the "Pro Forma Information"), as well as
certain other financial analyses provided to us by AmerUs regarding Delta Life.
In addition, we have reviewed the reported price and trading activity for the
Shares and the AmerUs Common Stock, compared certain financial and stock market
information for the Company and AmerUs with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the life insurance
and annuities industries specifically and in other industries generally and
performed such other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us, including the information furnished by the
Company and AmerUs relating to reserves and related items, and have assumed such
accuracy and completeness for purposes of rendering this opinion. In that
regard, we have assumed, with your consent, that the financial estimates of the
Company and AmerUs, including, without limitation, the Pro Forma Information
provided to us by AmerUs have been reasonably prepared and reflect the best
currently available judgments of the Company and AmerUs and that such estimates
will be realized in the amounts and the times contemplated thereby. We are not
actuaries and our services did not include actuarial determinations or
evaluations by us or an attempt to evaluate actuarial assumptions. In addition,
we have not made an independent evaluation or appraisal of the assets and
liabilities of the Company, AmerUs, Delta Life or any of their subsidiaries and,
except for the Appraisal and certain information related to the reserves of the
Company and AmerUs, we have not been furnished with any such evaluation or
appraisal.
<PAGE>
AmVestors Financial Corporation
September 19, 1997
Page Three
Our advisory services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of Shares should vote with respect to such transaction.
Our opinion is necessarily based upon financial, economic, market and other
conditions as they exist and can be evaluated on the date hereof. We are not
expressing any opinion as to the value of the AmerUs Common Stock when issued to
the holders of the Shares pursuant to the Agreement or to the prices at which
such AmerUs Common Stock will trade subsequent to the Merger.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to the
holders of Shares.
Very truly yours,
/s/ Goldman, Sachs & Co.
- ----------------------------
GOLDMAN, SACHS & CO.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 851 of the Iowa Business Corporation Act ("IBCA") provides that a
corporation has the power to indemnify its directors against liabilities and
expenses incurred by reason of such person serving in the capacity of director
or officer, if such person has acted in good faith and in a manner reasonably
believed by the individual to be in or not opposed to the best interests of the
corporation, and in any criminal proceeding if such person had no reasonable
cause to believe the individual's conduct was unlawful. The foregoing indemnity
provisions notwithstanding, in the case of actions brought by or in the right of
the corporation, no indemnification shall be made to such director with respect
to any matter as to which such individual has been adjudged to be liable to the
corporation unless, and only to the extent that, a court determines that
indemnification is proper under the circumstances. Indemnification, where
proper, is limited to reasonable expenses incurred in connection with such
proceedings.
Section 852 of the IBCA provides that, unless limited by its articles of
incorporation, a corporation must indemnify a director who successfully defends
himself in a proceeding to which the director was a party by nature of the
director's role as director.
Section 853 of the IBCA provides that a corporation may pay for or
reimburse the reasonable expenses incurred by a director who is a party to
proceeding prior to final disposition where (1) the director supplies the
corporation with written affirmation that the director has acted in good faith
pursuant to Section 851, (2) the director agrees, in writing, to repay the
advance if it is determined that the director did not meet the required standard
of conduct, and (3) the facts known at the time of reimbursement would not
preclude indemnification.
Section 854 of the IBCA specifies, where a corporation's articles of
incorporation do not provide otherwise, the manner in which a director may apply
for indemnification to the court conducting the proceeding.
Section 855 of the IBCA specifies the process that a corporation must use
in determining whether indemnification of a director is permissible because the
director has met the standard of conduct required by Section 851.
Section 856 of the IBCA provides that, unless a corporation's articles of
incorporation provide otherwise, an officer of a corporation who is not a
director is entitled to indemnification to the same extent as a director.
Section 857 of the IBCA authorizes the purchase and maintenance of
insurance to indemnify an individual who is or was a director, officer,
employee, or agent of the corporation.
Article VIII of the Amended and Restated Articles of Incorporation of the
Registrant (the "Articles") provides in part that the Registrant shall indemnify
its directors to the fullest extent possible under the IBCA, and the
Registrant's Bylaws extend the same indemnity to its officers. The Articles
also provide that no directors shall be liable to the Registrant or its
shareholders for monetary damages for breach of the individual's fiduciary duty
as a director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its shareholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for any transaction in which the director derived an improper
personal benefit, or (iv) under the IBCA provisions relating to improper
distributions.
The Registrant maintains a directors' and officers' liability insurance
policy to insure against losses arising from claims made against its directors
and officers, subject to the limitations and conditions as set forth in the
policies. In
II-1
<PAGE>
addition, the Registrant has entered into indemnification agreements with its
directors and certain of its executive officers providing for the
indemnification of such persons as permitted by the Articles and Iowa law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
The exhibits included as part of this Registration Statement are those
listed below in the Index of Exhibits attached to this Registration Statement.
The Registrant agrees to furnish supplementally a copy of any omitted schedule
to the Commission upon request.
(b) FINANCIAL STATEMENT SCHEDULES
Report of Independent Auditors on Schedules
Schedule I - Summary of Investments (Other than Investments in Related
Parties)
Schedule III - Supplementary Insurance Information
Schedule IV - Reinsurance
Schedule V - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar amount of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-2
<PAGE>
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDe offering thereof.
(c)(1) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form S-4, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Des Moines,
State of Iowa, on November 12, 1997.
AMERUS LIFE HOLDINGS, INC.
By: /s/ Roger K. Brooks
------------------------------
Roger K. Brooks
Chairman, President and Chief Executive Officer
Each officer and director of AmerUs Life Holdings, Inc. whose signature
appears below hereby constitutes and appoints Joseph K. Haggerty and James A.
Smallenberger, or either of them, with full power to act, his or her true and
lawful attorneys-in-fact and agents with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to sign
any and all amendments, including post-effective amendments and supplements to
this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or their substitutes, may lawfully do or
cause to be done by virture hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/s/ Roger K. Brooks Chairman, President and Chief Execu- November 12, 1997
- --------------------------- tive Officer (principal executive officer)
Roger K. Brooks and Director
/s/ Michael E. Sproule
- --------------------------- Executive Vice President and Chief November 12, 1997
Michael E. Sproule Financial Officer (principal financial
officer)
/s/ Michael G. Fraizer Senior Vice President and Controller/ November 12, 1997
- --------------------------- Treasurer (principal accounting officer)
Michael G. Fraizer
/s/ John R. Albers
- ---------------------------
John R. Albers Director November 12, 1997
/s/ Malcolm Candlish
- ---------------------------
Malcolm Candlish Director November 12, 1997
/s/ Maureen M. Culhane
- --------------------------- Director November 12, 1997
Maureen M. Culhane
II-4
<PAGE>
/s/ Thomas F. Gaffney
- --------------------------- Director November 12, 1997
Thomas F. Gaffney
/s/ Ilene B. Jacob
- --------------------------- Director November 12, 1997
Ilene B. Jacobs
/s/ Sam C. Kalainov
- ---------------------------
Sam C. Kalainov Director November 12, 1997
/s/ John W. Norris, Jr.
- ---------------------------
John W. Norris, Jr. Director November 12, 1997
/s/ Jack C. Pester
- ---------------------------
Jack C. Pester Director November 12, 1997
/s/ John A. Wing
- ---------------------------
John A. Wing Director November 12, 1997
</TABLE>
II-5
<PAGE>
AMERUS LIFE HOLDINGS, INC.
INDEX TO EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
2.1 Plan of Reorganization dated October 27, 1995, filed as Exhibit
2.1 to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
2.2* Amended and Restated Agreement and Plan of Merger, dated as of
September 19, 1997 and as amended and restated as of October 8,
1997, by and among the Registrant, AFC Corp. and AmVestors
Financial Corporation ("AmVestors") (included as Annex I to the
Joint Proxy Statement/Prospectus contained in this Registration
Statement).
3.1 Amended and Restated Articles of Incorporation of the Registrant,
filed as Exhibit 3.5 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, are hereby
incorporated by reference.
3.2 Bylaws of the Registrant, filed as Exhibit 3.2 to the
registration statement of the Registrant on Form S-1,
Registration Number 333-12239, are hereby incorporated by
reference.
4.1 Amended and Restated Trust Agreement dated as of February 3, 1997
among the Registrant, Wilmington Trust Company, as property
trustee, and the administrative trustees named therein (AmerUs
Capital I business trust), filed as Exhibit 3.6 to the
registration statement of the Registrant and AmerUs Capital I on
Form S-1, Registration Number 333-13713, is hereby incorporated
by reference.
4.2 Indenture dated as of February 3, 1997 between the Registrant and
Wilmington Trust Company relating to the Registrant's 8.85%
Junior Subordinated Debentures, Series A, filed as Exhibit 4.1 to
the registration statement of the Registrant and AmerUs Capital I
on Form S-1, Registration 333-13713, is hereby incorporated by
reference.
4.3 Guaranty Agreement dated as of February 3, 1997 between the
Registrant, as guarantor and Wilmington Trust Company, as
trustee, relating to the 8.85% Capital Securities, Series A,
issued by AmerUs Capital I, filed as Exhibit 4.4 to the
registration statement on Form S-1, Registration Number,
333-13713, is hereby incorporated by reference.
5.1* Opinion of Joseph K. Haggerty, Esq., General Counsel of the
Registrant, as to the legality of securities being registered.
8.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, as to
certain federal income tax matters.
8.2* Opinion of Bryan Cave LLP, as to certain federal income tax
matters.
10.1 Amended and Restated Intercompany Agreement dated as of December
1, 1996, among American Mutual Holding Company, AmerUs Group Co.
and the Registrant, filed as Exhibit
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<PAGE>
10.81 to the Registrant's registration statement on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.2 Joint Venture Agreement, dated as of March 8, 1996, between
American Mutual Insurance Company and Ameritas Life Insurance
Corp., and First Amendment thereto dated as of April 1, 1996
between American Mutual Life Insurance Company and Ameritas Life
Insurance Corp., filed as Exhibit 10.2 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.3 Management and Administration Service Agreement, dated as of
April 1, 1996, among American Mutual Life Insurance Company,
Ameritas Variable Life Insurance Company and Ameritas Life
Insurance Corp., filed as Exhibit 10.3 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.4 Agreement and Plan of Merger, dated as of August 24, 1994, among
Central Life Assurance Company and American Mutual Life Insurance
Company, filed as Exhibit 10.4 to the registration statement of
the Registrant on Form S-1, Registration Number 333-12239, is
hereby incorporated by reference.
10.5 Line of Credit Application and Approval, dated February 28, 1996
and April 22, 1996, respectively, between American Mutual Life
Insurance Company and Federal Home Loan Bank of Des Moines, filed
as Exhibit 10.5 to the registration statement of the Registrant
on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.6 All AmerUs Supplemental Executive Retirement Plan, effective
January 1, 1996, filed as Exhibit 10.6 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.7 American Mutual Life Insurance Supplemental Pension Plan (which
was curtailed as of December 31, 1995), filed as Exhibit 10.7 to
the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.8 Central Life Assurance Company Supplemental Pension Plan (which
was curtailed as of December 31, 1995), filed as Exhibit 10.8 to
the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.9 Management Incentive Plan, filed as Exhibit 10.9 to the
registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.10 AmerUs Life Insurance Company Performance Share Plan, filed as
Exhibit 10.10 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated
by reference.
10.11 AmerUs Life Stock Incentive Plan, filed as Exhibit 10.11 to the
registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.12 Employment Agreement, dated February 1, 1995, between American
Mutual Life Insurance Company and Sam C. Kalainov, filed as
Exhibit 10.12 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated
by reference.
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<PAGE>
10.13 AmerUs Life Non-Employee Director Stock Plan, filed as Exhibit
10.13 to the registration statement of the Registrant on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.14 Modification of Real Estate Contract, dated as of July 1, 1996
between AmerUs Life Insurance Company and AmerUs Properties,
Inc., filed as Exhibit 10.14 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.15 Asset Management and Disposition Agreement, dated January 3, 1995
between American Mutual Life Insurance Company and Central
Properties, Inc. (now AmerUs Properties, Inc.), filed as Exhibit
10.15 to the registration statement of the Registrant on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.16 Management Contract, dated January 1, 1993, between Central Life
Assurance Company and Central Properties, Inc. (now AmerUs
Properties, Inc.), filed as Exhibit 10.16 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.17 Management Contract, dated November 1, 1994, between American
Mutual Life Insurance Company and CPI Resource Group (now AmerUs
Group Co.), filed as Exhibit 10.17 to the registration statement
of the Registrant on Form S-1, Registration Number 333-12239, is
hereby incorporated by reference.
10.18 Management Contract, dated January 1, 1993, between Central Life
Assurance Company and Central Properties, Inc. (now AmerUs
Properties, Inc.), filed as Exhibit 10.18 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.19 Management Contract, dated January 1, 1995 between American
Mutual Life Insurance Company and Central Properties, Inc. (now
AmerUs Properties, Inc.), filed as Exhibit 10.19 to the
registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.20 Management Contract, dated July 1, 1994, between Central Life
Assurance Company and CPI Resource Group (now AmerUs Group Co.),
filed as Exhibit 10.20 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.21 Management Contract, dated February 1, 1994, between Central Life
Assurance Company and Central Properties, Inc. (now AmerUs
Properties, Inc.), filed as Exhibit 10.21 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.22 Management Contract, dated May 1, 1994, between Central Life
Assurance Company and Central Properties, Inc. (now AmerUs
Properties, Inc.), filed as Exhibit 10.22 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.23 Management Contract, dated February 1, 1994, between Central Life
Assurance Company and Central Properties, Inc. (now AmerUs
Properties, Inc.), filed as Exhibit 10.23 to the registra-
II-8
<PAGE>
tion statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.24 Management Contract, dated January 4, 1994, between Central Life
Assurance Company and CPI Resource Group (now AmerUs Group Co.),
filed as Exhibit 10.24 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.25 Management Contract, dated November 1, 1994, between American
Mutual life Insurance Company and CPI Resource Group (now AmerUs
Group Co.), filed as Exhibit 10.25 to the registration statement
of the Registrant on Form S-1, Registration Number 333-12239, is
hereby incorporated by reference.
10.26 Lease - Business Property, dated December 1, 1995, between
American Mutual Life Insurance Company and AmerUs Leasing, filed
as Exhibit 10.26 to the registration statement of the Registrant
on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.27 Lease - Business Property, dated January 1, 1996, between
American Mutual Life Insurance Company and AmerUs Bank, filed as
Exhibit 10.27 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated
by reference.
10.28 Lease - Business Property, dated January 1, 1996, between
American Mutual Life Insurance Company and AmerUs Bank, filed as
Exhibit 10.28 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated
by reference.
10.29 Lease - Business Property, dated January 1, 1996, between
American Mutual Life Insurance Company and AmerUs Bank, filed as
Exhibit 10.29 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated
by reference.
10.30 Lease - Business Property, dated January 1, 1996, between
American Mutual Life Insurance Company and AmerUs Group, filed as
Exhibit 10.30 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated
by reference.
10.31 Lease - Business Property, dated January 1, 1996, between
American Mutual Life Insurance Company and AmerUs Group, filed as
Exhibit 10.31 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated
by reference.
10.32 Assumption and Amendment of Lease Agreement, dated as of November
27, 1993 among Central Life Assurance Company, Midland Savings
Bank FSB (now AmerUs Bank) and Midland Financial Mortgages, Inc.
(now AmerUs Mortgage, Inc.), filed as Exhibit 10.32 to the
registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.33 Form of Indemnification Agreement executed with directors and
certain officers, filed as Exhibit 10.33 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.34 Amended and Restated Agreement and Certificate of Limited
Partnership of CPI Housing Partners I, L.P., dated as of
September 1, 1995, among AmerUs Properties, Inc., American Mutual
Life Insurance Company and American Mutual Affordable Housing
Partners, L.P.,
II-9
<PAGE>
filed as Exhibit 10.34 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.35 Amended and Restated Agreement of Limited Partnership of American
Mutual Affordable Housing Partners, L.P., dated as of September
1, 1995, among GrA Partners Joint Venture, AmerUs Properties,
Inc., American Mutual Life Insurance Company, NCC Polar Company
and NCC Orion Company, filed as Exhibit 10.35 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.36 Amended and Restated Agreement and Certificate of Limited
Partnership of 65th & Vista, L.P., dated as of September 1, 1995,
among AmerUs Properties, Inc. American Mutual Life Insurance
Company and American Mutual Affordable Housing Partners, L.P.,
filed as Exhibit 10.36 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.37 Amended and Restated Agreement and Certificate of Limited
Partnership of 60th & Vista, L.P., dated as of September 1,
1995, among I.R.F.B. Joint Venture, American Mutual Life
Insurance Company and American Mutual Affordable Housing
Partners, L.P., filed as Exhibit 10.37 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.38 Certificate of Limited Partnership and Limited Partnership
Agreement of CPI Housing Partners II, L.P., dated March 27, 1995,
between Central Properties, Inc. (now AmerUs Properties, Inc.)
and American Mutual Life Insurance Company, filed as Exhibit
10.38 to the registration statement of the Registrant on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.39 Amended and Restated Agreement and Certificate of Limited
Partnership of API Housing Partners III, L.P., dated as of March
1, 1996, among AmerUs Properties, Inc., American Mutual Life
Insurance Company, American Mutual Affordable Housing Partners
II, L.P. and AmerUs Management, Inc., filed as Exhibit 10.39 to
the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.40 Certificate of Limited Partnership and Limited Partnership
Agreement of API Housing Partners IV, L.P., dated as of June
1995, between AmerUs Properties, Inc. and American Mutual Life
Insurance company, filed as Exhibit 10.40 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.41 Amended and Restated Agreement and Certificate of Limited
Partnership of API Housing Partners V, L.P., dated as of March 1,
1996, among AmerUs Properties, Inc., American Mutual Life
Insurance Company, American Mutual Affordable Housing Partners
II, L.P. and AmerUs Management, Inc., filed as Exhibit 10.41 to
the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.42 Amended and Restated Agreement and Certificate of Limited
Partnership of API-Chimney Ridge Partners, L.P., dated as of
March 1, 1996, among AmerUs Properties, Inc., American Mutual
Life Insurance Company, American Mutual Affordable Housing
Partners II, L.P. and AmerUs Management, Inc., filed as Exhibit
10.42 to the registration statement of the Registrant on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
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<PAGE>
10.43 Certificate of Limited Partnership and Limited Partnership
Agreement of API Housing Partners VI, L.P., dated as of October
10, 1995, between AmerUs Properties, Inc. and American Mutual
Life Insurance Company, filed as Exhibit 10.43 to the
registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.44 Certificate of Limited Partnership and Limited Partnership
Agreement of 86th & Meredith Associates, L.P., dated as of
February 14, 1995, between Central Properties, Inc. (now AmerUs
Properties, Inc.) and American Mutual Life Insurance Company,
filed as Exhibit 10.44 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.45 Certificate of Limited Partnership and Limited Partnership
Agreement of Altoona Meadows Investors, L.P., dated as of
February 22, 1995, between KPI Investments, Inc. and Dennis
Galeazzi, filed as Exhibit 10.45 to the registration statement of
the Registrant on Form S-1, Registration Number 333-12239, is
hereby incorporated by reference.
10.46 First Amendment to the Certificate of Limited Partnership and
Limited Partnership Agreement of Altoona Meadows Investors, L.P.,
dated as of September 28, 1995, between KPI Investments, Inc. and
American Mutual Life Insurance Company, filed as Exhibit 10.46 to
the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.47 Loan Servicing Agreement, dated August 1, 1990, between Central
Life Assurance Company and Midland Financial Mortgages, Inc. (now
AmerUs Mortgage), filed as Exhibit 10.30 to Central Resource
Group, Inc.'s Registration Statement on Form S-1, Registration
No. 33-48359, filed on June 4, 1992, filed as Exhibit 10.47 to
the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.48 Construction Loan Servicing Agreement, dated November 20, 1995,
between American Mutual Life Insurance Company and AmerUs
Properties, Inc., filed as Exhibit 10.48 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.49 Servicing Agreement, dated March 1996, between American Mutual
Life Insurance Company and AmerUs Properties, Inc., filed as
Exhibit 10.49 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated
by reference.
10.50 Loan Servicing Agreement, dated September 1, 1994, between
Central Life Assurance Company and Midland Savings Bank, FSB (now
AmerUs Bank), filed as Exhibit 10.50 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.51 Miscellaneous Services Agreement, dated as of January 1, 1996,
among American Mutual Life Insurance Company, AmerUs Group Co.,
AmerUs Bank, AmerUs Mortgage, Inc., Iowa Realty Company, Inc.,
Midland Homes, Inc., Iowa Title Company, AmerUs Insurance, Inc.,
and AmerUs Finance Inc., filed as Exhibit 10.51 to the
registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.52 Amendment to Service Agreement, dated as of May 1, 1996, between
American Mutual Life Insurance Company and AmerUs Bank, filed as
Exhibit 10.52 to the registration statement of
II-11
<PAGE>
the Registrant on Form S-1, Registration Number 333-12239, is
hereby incorporated by reference.
10.53 Data Processing Service Agreement, dated November 1, 1989,
between Central Life Assurance Company and Midland Financial
Savings and Loan Association (now AmerUs Bank; filed as Exhibit
10.29 to Central Resource Group, Inc.'s registration statement on
Form S-1, Registration No. 33-48359, filed on June 4, 1992),
filed as Exhibit 10.53 to the registration statement of the
Registrant on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.54 First Amendment to Data Processing Service Agreement, dated as of
September 30, 1990, between Central Life Assurance Company and
Midland Savings Bank FSB (now AmerUs Bank), filed as Exhibit
10.54 to the registration statement of the Registrant on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.55 Second Amendment to Data Processing Service Agreement, dated as
of May 1, 1991, between Central Life Assurance Company and
Midland Savings Bank FSB (now AmerUs Bank), filed as Exhibit
10.55 to the registration statement of the Registrant on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.56 Third Amendment to Data Processing Service Agreement, dated as of
October 1, 1991, between Central Life Assurance Company and
Midland Savings Bank, FSB (now AmerUs Bank), filed as Exhibit
10.56 to the registration statement of the Registrant on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.57 Fourth Amendment to Data Processing Service Agreement, dated as
of January 2, 1992, between Central Life Assurance Company and
Midland Savings Bank, (now AmerUs Bank), filed as Exhibit 10.57
to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.58 Fifth Amendment to Data Processing Service Agreement, dated as of
July 1, 1993, between Central Life Assurance Company and Midland
Savings Bank FSB (now AmerUs Bank), filed as Exhibit 10.58 to the
registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.59 Sixth Amendment to Data Processing Service Agreement, dated as of
September 1, 1995, between American Mutual Life Company and
AmerUs Bank, filed as Exhibit 10.59 to the registration statement
of the Registrant on Form S-1, Registration Number 333-12239, is
hereby incorporated by reference.
10.60 Seventh Amendment to Data Processing Service Agreement, dated as
of January 1, 1996, between American Mutual Life Insurance
Company and AmerUs Bank, filed as Exhibit 10.60 to the
registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.61 Data Processing Support Services Agreement, dated as of July 1,
1993, between Central Life Assurance Company and Midland Savings
Bank, FSB (now AmerUs Bank), filed as Exhibit 10.61 to the
registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.62 Miscellaneous Services Agreement, dated as of February 5, 1992,
between Central Life Assurance Company and Midland Savings Bank
FSB (now AmerUs Bank), filed as Exhibit
II-12
<PAGE>
10.62 to the registration statement of the Registrant on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.63 Investment Management Agreement, dated as of August 15, 1992,
between Central Life Assurance Company and Midland Savings Bank
FSB (now AmerUs Bank), filed as Exhibit 10.63 to the registration
statement of the Registrant on Form S-1, Registration Number
333-12239, is hereby incorporated by reference.
10.64 Disbursement Services Agreement, dated as of April 15, 1995,
between American Mutual Life Insurance Company and Midland
Savings Bank FSB (now AmerUs Bank), filed as Exhibit 10.64 to the
registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.65 Purchase Agreement, dated as of June 28, 1996, between AmerUs
Life Insurance Company and AmerUs Bank, filed as Exhibit 10.65 to
the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.66 Brokerage Contract dated January 1, 1995, among American Mutual
Life Insurance Company and Midland Investment Services, Inc. (now
AmerUs Investments, Inc.), filed as Exhibit 10.66 to the
registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.67 Servicing Agreement, dated March 1, 1992, between Central Life
Assurance Company and Midland Investment Services, Inc. (now
AmerUs Investments, Inc.), filed as Exhibit 10.67 to the
registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.68 Tax Allocation Agreement dated as of November 4, 1996, filed as
Exhibit 10.68 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated
by reference.
10.69 Amended and Restated Articles of Limited Partnership of T.L.B.
Limited Partnership, undated, among F. Barry Tapp, Lartnec
Investment Co., Michael H. Taylor, Michael Longley and Michael A.
Hammond, along with a Memorandum of Understanding Regarding
Assignments of Partnership Interests dated December 21, 1988 and
three corresponding Assignments of Partnership Interest dated
December 6, 1988 wherein Central Life Assurance Company is
Assignee, and an Assignment of Partnership Interest of T.L.B.
Limited Partnership dated December 29, 1995, between Lartnec
Investment Co. and AmerUs Properties, Inc., filed as Exhibit
10.69 to the registration statement of the Registrant on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.70 Assignment of Partnership Interest of T.L.B. Limited Partnership,
dated December 28, 1994, between Lartnec Investment Co. and
Central Properties, Inc. (now AmerUs Properties, Inc.) and
Assignment of Limited Partnership Interest of T.L.B. Limited
Partnership, dated December 30, 1995, between American Mutual
Life Insurance Company and AmerUs Properties, Inc., filed as
Exhibit 10.70 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated
by reference.
10.71 Limited Partnership Agreement of South 19th Limited Partnership,
dated December 30, 1985, among Lartnec Investment Co., F. Barry
Tapp and Michael H. Taylor, along with a Memorandum of
Understanding Regarding Assignments of Partnership Interests
dated December 21,
II-13
<PAGE>
1988 and three corresponding Assignments of Partnership Interest
dated December 6, 1988 wherein Central Life Assurance Company is
Assignee, and an Assignment of Partnership Interest of South 19th
Limited Partnership dated December 29, 1995, between Lartnec
Investment Co. and AmerUs Properties, Inc., filed as Exhibit
10.71 to the registration statement of the Registrant on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.72 Assignment of Partnership Interest of South Limited Partnership,
dated December 28, 1994, between Lartnec Investment Co. and
Central Properties, Inc. (now AmerUs Properties, Inc.) and
Assignment of Partnership Interest of South 19th Limited
Partnership, dated December 30, 1995, between American Mutual
Life Insurance Company and AmerUs Properties, Inc., filed as
Exhibit 10.72 to the registration statement of the Registrant on
Form S-1, Registration Number 333-12239, is hereby incorporated
by reference.
10.73 Limited Partnership Agreement of Theater Project Limited
Partnership dated March 15, 1985, among Tapp Management, Inc.,
Tapp Management Co., Ltd., Michael Longley, Michael A. Hammond
and Gary L. Wood along with an Amendment to Certificate of
Limited Partnership, dated August 22, 1986, and an Assignment of
Limited Partnership Interest, dated November 15, 1992, between F.
Barry Tapp and Tapp Development Co., Ltd., and an Amended
Certificate of Limited Partnership dated December 24, 1992, filed
as Exhibit 10.73 to the registration statement of the Registrant
on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.74 Assignment of Limited Partnership Interest of Theater Project
Limited Partnership, dated December 30, 1995, between American
Mutual Life Insurance Company and AmerUs Properties, Inc., filed
as Exhibit 10.74 to the registration statement of the Registrant
on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.75 Certificate of Limited Partnership and Limited Partnership
Agreement of Lagos Vista Limited Partnership, dated August 10,
1994, between Central Properties, Inc. (now AmerUs Properties,
Inc.) and Central Life Assurance Company, filed as Exhibit 10.75
to the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.76 Joint Venture Agreement, dated July 30, 1980, between F. Barry
Tapp and Lartnec Investment Co., along with an Assignment by F.
Barry Tapp of Interest in Tapp & LICO Properties, dated December
24, 1981, between F. Barry Tapp and Tapp Development Co., Ltd.,
an Assignment of Partnership Interest, dated December 6, 1988,
between Tapp Development Co., Ltd. and Central Life Assurance
Company and an Assignment of Joint Venture Interest of Tapp and
LICO Properties, dated December 29, 1995, between Lartnec
Investment Co. and AmerUs Properties, Inc., filed as Exhibit
10.76 to the registration statement of the Registrant on Form
S-1, Registration Number 333-12239, is hereby incorporated by
reference.
10.77 Assignment of Joint Venture Interest of Tapp and LICO Properties,
dated December 28, 1994, between Lartnec Investment Co. and
Central Properties, Inc. (now AmerUs Properties, Inc.) and
Assignment of Joint Venture Interest of Tapp and LICO Properties,
dated December 30, 1995, between American Mutual Life Insurance
Company and AmerUs Properties, Inc., filed as Exhibit 10.77 to
the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
II-14
<PAGE>
10.78 Joint Venture Agreement, dated December 30, 1980, between MBT,
Ltd. and Lartnec Investment Co., along with an Assignment by F.
Barry Tapp of Interest in MBT, Ltd., dated December 24, 1981,
between F. Barry Tapp and Tapp Development Co., Ltd., an
Assignment by Michael H. Taylor of Interest in MBT, Ltd., dated
December 23, 1981, between Michael H. Taylor and Tapp Development
co., Ltd., an Assignment of Limited Partnership interest, dated
December 6, 1988, between Tapp Development Co., Ltd. and Central
Life Assurance Company, and an Assignment of Joint Venture
Interest of Round Rock Outlet, Ltd., dated December 29, 1995,
between Lartnec Investment Co. and AmerUs Properties, Inc., filed
as Exhibit 10.78 to the registration statement of the Registrant
on Form S-1, Registration Number 333-12239, is hereby
incorporated by reference.
10.79 Assignment of Joint Venture Interest of Round Rock Outlet, Ltd.,
dated December 28, 1994 between Lartnec Investment Co. and
Central Properties, Inc. (now AmerUs Properties, Inc.) and
Assignment of Joint Venture Interest of Round Rock Outlet, Ltd.,
dated December 30, 1995, between American Mutual Life Insurance
Company and AmerUs Properties, Inc., filed as Exhibit 10.79 to
the registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.80 Revolving Credit and Term Loan Agreement, dated as of December
1996, among the Registrant, certain Signatory Banks thereto and
The Chase Manhattan Bank, Note issued by the Registrant and
Borrower Pledge Agreement, filed as Exhibit 10.80 to the
registration statement of the Registrant on Form S-1,
Registration Number 333-12239, is hereby incorporated by
reference.
10.81 Agreement and Plan of Merger, dated as of August 13, 1997 and as
amended as of September 5, 1997, among the Registrant, a wholly
owned subsidiary of the Registrant and Delta Life Corporation,
filed as Exhibit 2.2 to the Registrant's current report on Form
8-K on October 8, 1997, is hereby incorporated by reference.
10.82* Purchase Agreement between AmerUs Life and AmerUs Bank dated
March 5, 1997 relating to the sale of certain loans.
10.83* Letter Agreement dated as of March 1, 1997 between AmerUs Life
and AmerUs Mortgage relating to the purchase of residential
mortgage loans, together with an amendment thereto dated March
11, 1997
10.84* Credit Agreement, dated as of October 23, 1997, among the
Registrant, Various Lender Institutions, the Co-Arrangers and The
Chase Manhattan Bank, as Administrative Agent
10.85* Coinsurance Agreement, effective February 1, 1996, between Delta
Life and Annuity Company and London Life Reinsurance Company
11* Computation of Pro Forma Earnings Per Share
21.1* List of Subsidiaries of the Registrant
23.1* Consent of KPMG Peat Marwick LLP
23.2* Consent of Deloitte & Touche, LLP
23.3* Consent of Person About to Become a Director
II-15
<PAGE>
23.4* Consent of Joseph K. Haggerty, Esq. (included in Exhibit 5.1)
23.5* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 8.1)
23.6* Consent of Bryan Cave LLP (included in Exhibit 8.2)
23.7* Consent of Donaldson, Lufkin & Jenrette Securities Corporation
23.8* Consent of Goldman Sachs & Co.
24.1* Power of Attorney (included in the signature page to this
Registration Statement)
27.1* Financial Data Schedule
99.1* Form of Proxy Card for Registrant Special Meeting of Shareholders
99.2* Form of Proxy Card for AmVestors Special Meeting of Stockholders
99.3* Employment Agreement, dated as of September 19, 1997, among Mark
V. Heitz, AmVestors Financial Corporation, American Investors
Life Insurance Company, Inc., AmVestors Investment Group, Inc.
and American Investors Sales Group, Inc.
99.4* Agreement of Sale, dated as of October 22, 1997, by and between
R. Rex Lee and AmerUs Group Co.
__________________________________
* Filed with this Registration Statement
(b) INDEX TO FINANCIAL STATEMENT SCHEDULES
Report of Independent Auditors on Schedules
Schedule I - Summary of Investments (Other than Investments in Related
Parties)
Schedule III - Supplementary Insurance Information
Schedule IV - Reinsurance
Schedule V - Valuation and Qualifying Accounts
The Financial Statement Schedules appear at pages S-1 to S-10 of the
Joint Proxy Statement Prospectus which forms a part of this Registration
Statement.
II-16
<PAGE>
Exhibit 5.1
AmerUs Life Holdings, Inc.
699 Walnut Street
Des Moines, Iowa 50309
November 12, 1997
AmerUs Life Holdings, Inc.
699 Walnut Street
Des Moines, Iowa 50309
Gentlemen:
The following opinion is furnished in connection with the Registration
Statement on Form S-4 (the "Registration Statement") being filed by AmerUs
Life Holdings, Inc., an Iowa corporation (the "Company") under the Securities
Act of 1933, as amended, relating to the issuance of shares of the Class A
Common Stock, no par value, of the Company (the "Class A Common Stock") in
connection with:
(a) the proposed merger (the "Merger") of AFC Corp., a Kansas
corporation and a wholly-owned subsidiary of the Company, with and
into AmVestors Financial Corporation, a Kansas corporation
("AmVestors"), in accordance with the terms of the Amended and
Restated Agreement and Plan of Merger, dated as of September 19,
1997, as amended and restated as of October 8, 1997, by and among
the Company, AFC Corp. and AmVestors (the "Merger Agreement", a copy
of which is attached as Annex I to the Joint Proxy
Statement/Prospectus forming a part of the Registration Statement);
(b) the exercise, following consummation of the Merger, of the
outstanding AmVestors warrants identified in Section 3.03(c) of the
Merger Agreement (the "Assumed Warrants").
<PAGE>
I have examined originals or copies, certified or otherwise identified to
my satisfaction, of such corporate records and other documents, and have
conducted such other investigations of fact and law, as I have deemed necessary
or advisable for purposes of this opinion. For purposes of this opinion, I have
assumed that the Assumed Warrants were duly authorized and issued, are in full
force and effect and constitute the legal, valid and binding obligations of
AmVestors in accordance with their terms.
Upon the basis of the foregoing, I am of the opinion that:
1. The Class A Common Stock to be issued in connection with the Merger
has been duly authorized and, subject to the Registration Statement
becoming effective, when issued in accordance with the terms of the
Merger Agreement, the Class A Common Stock will be legally issued,
fully paid and nonassessable.
2. Upon consummation of the Merger, the Class A Common Stock issuable
upon exercise of the Assumed Warrants has been duly authorized and,
subject to the Registration Statement becoming effective, when issued
in accordance with the terms of the Assumed Warrants, as applicable,
and upon receipt by the Company of the consideration therefor, the
Class A Common Stock will be legally issued, fully paid and
nonassessable.
I consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to me in the Joint Proxy Statement/Prospectus
forming a part of the Registration Statement.
Very truly yours,
/s/ Joseph K. Haggerty
------------------------
Joseph K. Haggerty
Senior Vice President and
General Counsel
2
<PAGE>
Exhibit 8.1
November 12, 1997
AmerUs Life Holdings, Inc.
418 Sixth Avenue
Des Moines, Iowa 50309-2407
Ladies and Gentlemen:
We have acted as counsel to AmerUs Life Holdings, Inc., an Iowa
corporation ("AmerUs"), in connection with (i) the Merger, as defined and
described in the Agreement and Plan of Merger by and among AmerUs, AFC Corp.,
a Kansas corporation and a wholly owned subsidiary of AmerUs ("Merger Sub"),
and AmVestors Financial Corporation, a Kansas corporation ("AmVestors"),
dated as of September 19, 1997 and amended as of October 8, 1997 (the "Merger
Agreement") and (ii) the preparation and filing of the Registration
Statement, dated November 12, 1997 (the "Registration Statement"), which
includes the Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus"), filed with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") and the Securities Exchange Act of 1934, as amended.
Unless otherwise indicated, each defined term has the meaning ascribed to it
in the Merger Agreement.
In the Merger, (i) each issued and outstanding share of common
stock, no par value, of AmVestors ("AmVestors Common Shares") (other than
shares to be cancelled in accordance with clause (ii) below) will be
converted into the right to receive the Merger Consideration, (ii) all
AmVestors Common Shares that are held by AmVestors as treasury shares and any
AmVestors Common Shares owned by AmerUs, Merger Sub or any other wholly owned
subsidiary of AmerUs will be cancelled and retired
<PAGE>
AmerUs Life Holdings, Inc.
November 12, 1997
Page 2
and shall cease to exist and no stock of AmerUs or other consideration shall
be delivered in exchange therefor and (iii) each share of common stock,
without par value, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and become one fully paid and
nonassessable share of common stock, without par value, of AmVestors.
In connection with this opinion, we have examined and are familiar
with originals and copies, certified or otherwise identified to our
satisfaction, of (i) the Merger Agreement, (ii) the Joint Proxy
Statement/Prospectus, and (iii) such other documents as we have deemed necessary
or appropriate in order to enable us to render the opinion below. In our
examination, we have assumed the legal capacity of all natural persons, the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies, and the authenticity of the originals of
such latter documents.
Subject to (i) the Merger being consummated in the manner described
in the Merger Agreement, (ii) the accuracy of the facts concerning the Merger
that have come to our attention during our engagement, (iii) certain
representations made by AmerUs, Merger Sub and AmVestors in connection with
the issuance of our opinion and (iv) the qualifications set forth under the
heading "THE MERGER--Certain U.S. Federal Income Tax Considerations of the
Merger," our opinion as to the material U.S. federal income tax consequences
of the Merger is set forth in the Joint Proxy Statement/Prospectus under the
heading "THE MERGER--Certain U.S. Federal Income Tax Considerations of the
Merger." We express no opinion as to whether such discussion addresses all of
<PAGE>
AmerUs Life Holdings, Inc.
November 12, 1997
Page 3
the U.S. federal income tax consequences of the Merger. In addition, we
express no opinion as to the U.S. federal, state, local, or foreign or other
tax considerations, other than as set forth in the Joint Proxy
Statement/Prospectus under the heading "THE MERGER --Certain U.S. Federal
Income Tax Considerations of the Merger." Further, there can be no
assurances that the opinion expressed herein will be accepted by the Internal
Revenue Service, or if challenged, by a court. This opinion is delivered in
accordance with the requirements of Item 601(b)(8) of Regulation S-K under
the Securities Act.
In rendering our opinion, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended, Treasury
Department regulations promulgated thereunder, pertinent judicial
authorities, interpretive rulings of the Internal Revenue Service and such
other authorities as we have considered relevant. It should be noted that
statutes, regulations, judicial decisions and administrative interpretations
are subject to change at any time (possibly with retroactive effect). A
change in the authorities or the facts, information, covenants, statements,
representations or assumptions upon which our opinion is based could affect
our conclusions. This opinion is expressed as of the date hereof, and we are
under no obligation to supplement or revise our opinion to reflect any
changes (including changes that have retroactive effect) (i) in applicable
law or (ii) that would cause any statement, representation or assumption
herein to no longer be true or correct.
This letter is furnished to you solely for use in connection with the
Merger, as described in the Merger Agreement, and is not to be used, circulated,
quoted, or otherwise referred to for any other purpose (except as provided in
the next sentence) without our express written permission. In accordance with
the requirements of
<PAGE>
AmerUs Life Holdings, Inc.
November 12, 1997
Page 4
Item 601(b)(23) of Regulation S-K under the Securities Act, we hereby consent
to the filing of this opinion as an exhibit to the Registration Statement and
to the reference to our firm under the heading "THE MERGER--Certain U.S.
Federal Income Tax Considerations of the Merger" in the Joint Proxy
Statement/Prospectus. In giving such consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7
of the Securities Act or the rules and regulations of the Commission
thereunder.
Very truly yours,
Skadden, Arps, Slate, Meagher & Flom LLP
<PAGE>
Exhibit 8.2
November 12, 1997
AmVestors Financial Corporation
555 South Kansas Avenue
Topeka, Kansas 66603
Ladies and Gentlemen:
We have acted as counsel to AmVestors Financial Corporation, a
Kansas corporation ("AmVestors"), in connection with (i) the Merger, as
defined and described in the Agreement and Plan of Merger by and among AmerUs
Life Holdings, Inc., an Iowa corporation ("AmerUs"), AFC Corp., a Kansas
corporation and a wholly owned subsidiary of AmerUs ("Merger Sub"), and
AmVestors, dated as of September 19, 1997 and amended as of October 8, 1997
(the "Merger Agreement") and (ii) the preparation and filing of the
Registration Statement, dated November 12, 1997 (the "Registration
Statement"), which includes the Joint Proxy Statement/Prospectus (the "Joint
Proxy Statement/Prospectus"), filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended
(the "Securities Act") and the Securities Exchange Act of 1934, as amended.
Unless otherwise indicated, each defined term has the meaning ascribed to it
in the Merger Agreement.
In the Merger, (i) each issued and outstanding share of common
stock, no par value, of AmVestors ("AmVestors Common Shares") (other than
shares to be cancelled in accordance with clause (ii) below) will be
converted into the right to receive the Merger Consideration, (ii) all
AmVestors Common Shares that are held by AmVestors as treasury shares and any
AmVestors Common Shares owned by AmerUs, Merger Sub or any other wholly owned
subsidiary of AmerUs will be cancelled and retired and shall cease to exist
and no stock of AmerUs or other consideration shall be delivered in exchange
therefor and
<PAGE>
AmVestors Financial Corporation
November 12, 1997
Page 2
(iii) each share of common stock, without par value, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted into
and become one fully paid and nonassessable share of common stock, without
par value, of AmVestors.
In connection with this opinion, we have examined and are familiar
with originals and copies, certified or otherwise identified to our
satisfaction, of (i) the Merger Agreement, (ii) the Joint Proxy
Statement/Prospectus, and (iii) such other documents as we have deemed
necessary or appropriate in order to enable us to render the opinion below.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents.
Subject to (i) the Merger being consummated in the manner described
in the Merger Agreement, (ii) the accuracy of the facts concerning the Merger
that have come to our attention during our engagement, (iii) certain
representations made by AmerUs, Merger Sub and AmVestors in connection with
the issuance of our opinion and (iv) the qualifications set forth under the
heading "THE MERGER--Certain U.S. Federal Income Tax Considerations of the
Merger," our opinion as to the material U.S. federal income tax consequences
of the Merger is set forth in the Joint Proxy Statement/Prospectus under the
heading "THE MERGER--Certain U.S. Federal Income Tax Considerations of the
Merger." We express no opinion as to whether such discussion addresses all
of the U.S. federal income tax consequences of the Merger. In addition, we
express no opinion as to the U.S. federal, state, local, or foreign or other
tax considerations, other than as set forth in the Joint Proxy State-
<PAGE>
AmVestors Financial Corporation
November 12, 1997
Page 3
ment/Prospectus under the heading "THE MERGER --Certain U.S. Federal Income
Tax Considerations of the Merger." Further, there can be no assurances that
the opinion expressed herein will be accepted by the Internal Revenue
Service, or if challenged, by a court. This opinion is delivered in
accordance with the requirements of Item 601(b)(8) of Regulation S-K under
the Securities Act.
In rendering our opinion, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended, Treasury
Department regulations promulgated thereunder, pertinent judicial
authorities, interpretive rulings of the Internal Revenue Service and such
other authorities as we have considered relevant. It should be noted that
statutes, regulations, judicial decisions and administrative interpretations
are subject to change at any time (possibly with retroactive effect). A
change in the authorities or the facts, information, covenants, statements,
representations or assumptions upon which our opinion is based could affect
our conclusions. This opinion is expressed as of the date hereof, and we are
under no obligation to supplement or revise our opinion to reflect any
changes (including changes that have retroactive effect) (i) in applicable
law or (ii) that would cause any statement, representation or assumption
herein to no longer be true or correct.
This letter is furnished to you solely for use in connection with
the Merger, as described in the Merger Agreement, and is not to be used,
circulated, quoted, or otherwise referred to for any other purpose (except as
provided in the next sentence) without our express written permission. In
accordance with the requirements of Item 601(b)(23) of Regulation S-K under
the Securities Act, we hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to our firm under
the heading "THE MERGER--Certain U.S. Federal Income Tax Considerations of
the Merger" in the Joint Proxy Statement/Prospectus. In
<PAGE>
AmVestors Financial Corporation
November 12, 1997
Page 4
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or
the rules and regulations of the Commission thereunder.
Very truly yours,
Bryan Cave LLP
<PAGE>
MASTER AGREEMENT OF PURCHASE AND SALE
This MASTER AGREEMENT OF PURCHASE AND SALE is made and entered into as of
the 5th day of March, 1997, by and between AmerUs Life Insurance Company, an
Iowa corporation, as buyer ("Buyer"), and AmerUs Bank, a federal savings bank,
as seller ("Seller").
WHEREAS, Seller desires to sell certain Mortgage Loans (as defined below)
from time to time; and
WHEREAS, Buyer desires to purchase loans such as the Mortgage Loans from
time to time; and
WHEREAS, it is contemplated that from time to time Seller will sell to
Buyer and Buyer will purchase from Seller Mortgage Loans on the terms and
conditions set forth in this Agreement;
NOW THEREFORE, in consideration of the mutual covenants and obligations
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS; CONSTRUCTION
Section 1.1. DEFINED TERMS. For purposes of this Agreement, capitalized
terms shall have the meanings indicated below:
(a) "Affiliate" means, with respect to any Person, any Person which,
directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under common control with the
Person specified.
(b) "Agreement" means this Master Agreement of Purchase and Sale dated
as of March 5, 1997, by and between Seller and Buyer, including all
exhibits and schedules attached hereto and referenced herein, as
the same may be amended or supplemented from time to time.
(c) "Assignment" means the assignment which has the effect of
assigning to Buyer all of Seller's interest in a Mortgage.
(d) "Book Value" means, as to any Mortgage Loan, the unpaid principal
balance owed, as shown on the books and records of Seller as of the
Cut-Off Date.
(e) "Business Day" means any calendar day of the week other than a
Saturday or Sunday, or a day on which banking institutions and/or
thrift and savings and loan institutions located in the State of
Iowa are authorized or obligated by law or executive order to be
closed.
<PAGE>
(f) "Closing Date" means, with respect to any purchase and sale of
Mortgage Loans pursuant to this Agreement, such date as mutually
agreed upon by the parties.
(g) "Combined Loan to Value Ratio" means, with respect to any Mortgage
Loan as of any date, the percentage equivalent of the fraction,
the numerator of which is the sum of (i) outstanding principal
balance of such Mortgage Loan as of such date and (ii) the
outstanding principal balance as of the date of origination of any
mortgage loan or mortgage loans that are senior or equal in
priority to such Mortgage Loan and that are secured by the same
Mortgaged Property and the denominator of which is the value of the
related Mortgaged Property (based on appraisals made of the
Mortgaged Property at the time of origination of such Mortgage Loan
or, in the absence of an appraisal, internal calculations made by
Seller at the time of origination) as of the date of the
origination of such Mortgage Loan; provided, however, that the
financed amount of credit life premium for such Mortgage Loan shall
not be included in the numerator of such fraction.
(h) "Cut-Off Date" means the date set forth on the Settlement Statement
on which Mortgage Loans to be sold pursuant to this Agreement have
been identified on the appropriate Schedule of Assets and as of
which the Book Value of each of the Mortgage Loans is calculated.
(i) "Loan Interest Rate" with respect to each Mortgage Loan means the
annual rate at which interest accrues on such Mortgage Loan as
changed from time to time in accordance with the provisions of the
related Note and Mortgage.
(j) "Mortgage" means a security instrument creating a lien on real
property that serves as collateral for a Mortgage Loan, and any
amendments, supplements or modifications thereto. For purposes of
this definition, the security instrument may be a deed of trust, a
mortgage, a trust deed or a similar instrument creating a lien on
real property.
(k) "Mortgage Loan" means a closed-end loan evidenced by a Note,
secured by a first or second lien on Mortgaged Property, and any
and all rights, benefits, collateral, payments, recoveries,
proceeds and obligations arising therefrom or in connection
therewith, which Mortgage Loans are listed on a Schedule of Assets.
(l) "Mortgage Loan File" means all documents in the possession of
Seller pertaining to a Mortgage Loan, as described in Section 2.6.
(m) "Mortgaged Property" with respect to any Mortgage Loan means the
real property, together with improvements thereon, encumbered by
the Mortgage securing the indebtedness evidenced by the Note.
(n) "Note" means a promissory note made by an Obligor or Obligors
evidencing the indebtedness of such Obligor or Obligors under a
Mortgage Loan, and any amendments, supplements or modifications
thereto.
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<PAGE>
(o) "Obligor" means each individual who is now or hereafter liable for
the full or partial payment or performance of any Mortgage Loan,
whether such obligation is direct, indirect, primary, secondary,
joint or several.
(p) "Permitted Exceptions" with respect to any Mortgaged Property means
(i) the lien of current real property taxes and assessments not yet
due and payable; (ii) covenants, conditions, restrictions, rights
of way, easements and other matters of public record as of the date
of recording acceptable to prudent mortgage lending institutions
generally; (iii) other matters to which like properties are
commonly subject which do not materially interfere with the
benefits of the security intended to be provided by the related
Mortgage or the use, enjoyment, value or marketability of the
Mortgaged Property; and (iv) a valid first lien.
(q) "Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability
company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
(r) "Premium" means, with respect to a particular purchase of Mortgage
Loans pursuant to this Agreement, such amount which is set forth on
the appropriate Settlement Statement, and which shall be the
product of the Book Value of such Mortgage Loans and the Premium
Rate agreed upon by Buyer and Seller with respect to such Mortgage
Loans.
(s) "Premium Rate" means such rate as is mutually agreed upon by the
parties with respect to a particular purchase of Mortgage Loans, as
set forth in each Settlement Statement, and which shall be
expressed as a percentage of the outstanding principal balance of
the Mortgage Loans to be purchased.
(t) "Purchase Price" means the aggregate price, as set forth in each
Settlement Statement, which Buyer has agreed to pay for the
Mortgage Loans, which amount equals the Book Value of the Mortgage
Loans as of the Cut-Off Date, plus interest which has accrued but
remains unpaid up to, but not including, the Cut-Off Date, plus any
Premium.
(u) "Schedule of Assets" means a list of Mortgage Loans to be purchased
by Buyer from Seller pursuant to this Agreement, which Schedule of
Assets is attached to a Settlement Statement and is hereby
incorporated into this Agreement by reference thereto and which
shall set forth the following information concerning each Mortgage
Loan purchased by Buyer: (i) last name of Obligor(s); (ii)
Mortgaged Property street address, city and state; (iii) account
number; (iv) date account opened; (v) Book Value; (vi) accrued but
unpaid interest; (vii) date of last payment; (viii) date next due;
(ix) Loan Interest Rate; and (x) remaining term.
(v) "Settlement Statement" means a loan funding settlement statement to
be executed and delivered by Buyer and Seller upon the sale of
Mortgage Loans pursuant to this Agreement as of each Closing Date
which details, with respect to the Mortgage Loans being sold on
such Closing Date, the Cut-Off Date, the
3
<PAGE>
aggregate Book Value of the Mortage Loans, the accrued interest on
the Mortgage Loans, the Premium Rate, the Premium, the Purchase
Price and wiring instructions. A form of the Settlement Statement
is attached hereto as EXHIBIT A.
Section 1.2. CONSTRUCTION.
(a) Accounting and financial terms used in this Agreement and not
otherwise defined herein shall be construed in accordance with
generally accepted accounting definitions and principles,
consistently applied.
(b) Words used in this Agreement in the singular shall be deemed to
include the plural and vice versa, where the context so permits.
(c) The use of any gender in this Agreement shall be deemed to include
the other gender.
(d) References in this Agreement to articles, sections, subsections,
paragraphs and other subdivisions without reference to a document
are to designated articles, sections, subsections, paragraphs and
other subdivisions of this Agreement.
(e) The words "herein," "hereof," "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular provision.
(f) The terms "include" or "including" shall mean without limitation by
reason of enumeration.
(g) References in this Agreement to a specific statute or regulation
shall be deemed to include any successor statute or regulation.
ARTICLE II
PURCHASE OF MORTGAGE LOANS
Section 2.1. PURCHASE OF MORTGAGE LOANS. For and in consideration of the
mutual promises contained herein, Buyer hereby agrees to purchase from time to
time on each Closing Date from Seller the Mortgage Loans which are listed on the
Schedule of Assets attached to the Settlement Statement executed and delivered
by Buyer and Seller as of such Closing Date, and Seller hereby agrees to sell
such Mortgage Loans to Buyer. A separate Settlement Statement shall be executed
and delivered by Buyer and Seller each time Buyer purchases and Seller sells
Mortgage Loans pursuant to this Agreement. Each Settlement Statement is hereby
incorporated by reference into this Agreement. Each sale shall take place at
the offices of Seller, unless otherwise agreed by Seller and Buyer.
Section 2.2. PAYMENT OF PURCHASE PRICE. The Purchase Price for Mortgage
Loans to be purchased by Buyer in accordance with this Agreement shall be set
forth on the Settlement Statement executed and delivered by Buyer and Seller as
of the Closing Date for such Mortgage Loans and shall be paid by Buyer to Seller
on such Closing Date by wire transfer of immediately
4
<PAGE>
available funds in lawful money of the United States of America and against
delivery of the duly endorsed Notes and assignment of the Mortgage Loans to
Buyer in accordance with the requirements of this Agreement.
Section 2.3. DILIGENCE. Prior to each Closing Date, Buyer shall have the
right to review, with respect to the Mortgage Loans to be sold on a particular
Closing Date, the Mortgage Loan Files and the Mortgaged Property securing each
such Mortgage Loan. Buyer may reject any such Mortgage Loan that does not
conform to its underwriting assumptions or its documentation, credit or
collateral requirements. Any such unacceptable Mortgage Loan shall be deleted
from its respective Schedule of Assets before the applicable Closing Date.
Buyer shall complete its due diligence review prior to the applicable Closing
Date. Seller shall cause its officers, servicers and employees to provide such
assistance and to furnish such reasonably available information in respect of
the Mortgage Loans as Buyer may from time to time reasonably request.
Section 2.4. RECOURSE; ENDORSEMENT. All Mortgage Loans purchased by
Buyer from Seller pursuant to this Agreement shall be purchased "without
recourse." Prior to a Closing Date, Seller shall endorse to Buyer each and
every Note evidencing a Mortgage Loan to be sold on such Closing Date using the
following endorsement on the back thereof:
Pay to the order of AmerUs Life Insurance Company, without recourse.
EXECUTED this ______ day of ______________, 19__.
AMERUS BANK
By:
------------------------------------------
Its:
------------------------------------------
Section 2.5. INDIVIDUAL ASSIGNMENT OF MORTGAGES AND NOTES.
(a) With respect to each sale of Mortgage Loans under this Agreement,
upon payment by Buyer to Seller of the Purchase Price, there shall
be a direct transfer, from Seller to Buyer, of title to the Notes
and Mortgages relating to such Mortgage Loans.
(b) Seller shall execute and deliver to Buyer an Assignment with
respect to each Mortgage Loan sold to Buyer under this Agreement.
Along with the endorsement of the applicable Note, an Assignment
shall evidence the assignment by Seller to Buyer of all of the
interests of Seller, its successors and assigns, in the Mortgage
described therein.
(c) The assignment of Seller's interest in the Notes and the Seller's
interest in the Mortgages shall be accomplished on the Closing Date
for the sale of the related Mortgage Loans or within ninety (90)
days thereof. Prior to the completion of
5
<PAGE>
the assignment of Seller's respective interests in the Notes and
the Mortgages, if Buyer so requests Seller shall assign such
interests directly to a third party at the direction of Buyer.
Section 2.6. CONTENTS OF MORTGAGE LOAN FILES. Each and every Mortgage
Loan identified in a Schedule of Assets shall be accompanied by the following
documents, which shall be delivered to the Buyer on the appropriate Closing
Date; provided, however, that the material described in subsection (e) of this
Section 2.6 shall be delivered within ninety (90) days after the appropriate
Closing Date:
(a) The original Note signed by the Obligor and bearing Seller's
endorsement to Buyer.
(b) The original recorded Mortgage executed contemporaneously with the
Note.
(c) The original of any and all intervening assignments, including the
Assignment.
(d) The original credit application.
(e) All credit information in the possession of Seller concerning the
Obligor or any other Person obligated on the Mortgage Loan and all
guarantees and other agreements securing such transactions,
including all credit reports.
(f) Evidence of application for adequate flood insurance coverage, if
applicable, with respect to the Mortgaged Property, with Seller
being declared or designated as mortgagee and loss payee or an
authorization signed by the Obligor to add Seller, its successors
and/or its assigns, as mortgagee.
(g) Copies of all disclosure statements required by any federal or
state law, rule or regulation, including without limitation the
Real Estate Settlement Procedures Act and any truth-in-lending act
or similar consumer protection act, and all statements indicating
that the Obligor has received such required disclosures, including
any acknowledgment of receipt of the original statement shown
thereon.
(h) A statement showing the unpaid principal balance of the Mortgage
Loan, the amount of periodic installments and the date(s) to which
principal and interest have been paid and, if required by Buyer, a
ledger card or ledger history relaying all receipts and
disbursements from the inception of the Mortgage Loan including the
date of each receipt or disbursement.
(i) Any title insurance, title opinion or title report with respect to
the lien priority of the Mortgage Loan.
(j) All documents relating to any rights of rescission of the Obligor.
(k) A copy of any appraisal of the Mortgaged Property.
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<PAGE>
(l) Any and all other documents, agreements or instruments related to
the Mortgage or the Note and Seller's rights and benefits therein
and any and all documents related to the making and closing of the
Mortgage Loan.
In the event that any original document (or copy thereof certified by the
public recording office in which such document has been recorded) listed above
cannot be delivered on the Closing Date for the related Mortgage Loans because
(i) such document has not been returned from the applicable recording office, or
(ii) the final attorney title opinion has not yet been issued, Seller shall
deliver or cause to be delivered to Buyer the originals of such documents, or
certified copies thereof, within ninety (90) days after such Closing Date.
Section 2.7. BOOKS AND RECORDS. Each sale of Mortgage Loans under this
Agreement shall be reflected on Seller's financial statements and records as a
sale of assets by Seller, without recourse, except as set forth herein. In the
event that a court of competent jurisdiction were to hold that any transaction
evidenced under this Agreement constitutes a loan and not a purchase and sale,
it is the intent of the parties hereto that this Agreement shall constitute a
security agreement under applicable law and that Seller has granted a first
priority security interest in all of Seller's right, title and interest in and
to each Mortgage Loan and all proceeds thereof. To protect the interests of
Buyer in the event that the transactions contemplated hereunder are deemed to
constitute a pledge of security for a loan, Seller shall execute or cause to be
executed such documents and take or cause to be taken such actions as may be
necessary to maintain and preserve the security interest of Buyer granted
pursuant to this Section 2.7. Seller hereby appoints Buyer its attorney-in-fact
to execute, deliver and file of record any financing statement, continuation
statement, instrument of further assurance or other document or to take such
other action, as may be required under this Section 2.7, and such appointment is
irrevocable and coupled with an interest.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. GENERAL REPRESENTATIONS AND WARRANTIES OF SELLER. As of
each Closing Date, Seller hereby makes each of the following representations and
warranties to Buyer:
(a) Seller is a federal savings bank, duly organized and validly
existing under the laws of the United States of America which has
the power to own its assets and to transact the business in which
it is presently engaged. To the extent required, Seller is duly
qualified in good standing under the laws the State of Iowa and
each jurisdiction where its ownership of property or the conduct of
its business requires such qualification and where the failure to
be so qualified would have a material adverse affect on the
business and assets of Seller, taken as a whole.
(b) Seller has the requisite power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated
hereby. Seller has been duly authorized by proper action to
approve the execution and delivery of this Agreement, the sale of
the Mortgage Loans to Buyer according to the terms of this
Agreement and the execution and delivery to Buyer of all
instruments
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<PAGE>
appropriate and necessary for the transfer and sale of the Mortgage
Loans to Buyer. This Agreement has been duly executed and
delivered by Seller and constitutes a legal, valid and binding
obligation of Seller, enforceable against Seller in accordance with
its terms, subject only to bankruptcy and insolvency laws and
similar laws affecting creditors' rights generally and equitable
principles of law.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transaction contemplated by this Agreement will
conflict with or result in a breach of, or constitute a default
under, any instrument or agreement to which Seller is a party, or
by which it is bound, nor be in violation of any governmental
decree, order or ruling as to which Seller may be bound.
(d) The consummation of the transactions contemplated by this Agreement
are in the ordinary course of business of Seller, and the transfer,
assignment and conveyance of the Notes and the Mortgages by Seller
pursuant to this Agreement are not subject to the bulk transfer or
similar statutory provisions in effect in any applicable
jurisdiction.
(e) No action, suit, proceeding or governmental investigation or
inquiry is currently pending or, to the knowledge of Seller,
threatened against Seller which, if adversely determined, would
have a material adverse effect on the business, combined assets or
financial condition of Seller or on the Mortgage Loans or would
prevent the consummation of the transactions contemplated by this
Agreement.
(f) Seller does not believe, nor does it have any reason or cause to
believe, that it cannot perform each and every covenant contained
in this Agreement. Seller is solvent, and the sale of the Mortgage
Loans will not cause Seller to become insolvent. The sale of the
Mortgage Loans is not undertaken with the intent to hinder, delay
or defraud any creditor of Seller.
(g) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery
and performance by Seller of or compliance of Seller with this
Agreement, or, if required, such consent, approval, authorization
or order has been obtained prior to the applicable Closing Date.
(h) Seller has not, in connection with this transaction, incurred any
obligation, made any commitment or taken any action which might
result in a claim against or an obligation by Buyer to pay a sales
brokerage commission, finder's fee or similar fee with respect to
this Agreement.
(i) With respect to approximately ninety percent (90%) of the Mortgage
Loans, by aggregate principal balance as of the Cut-Off Date, as of
the date of origination and, to the best of Seller's knowledge, as
of the Closing Date, the Obligor occupies the related Mortgaged
Property as the Obligor's primary residence. The sole basis for
such representation is either (i) a representation by the Obligor
at origination of the Mortgage Loan that the Mortgaged Property
will be used for a
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period of at least six months every year, or that the Obligor
intends to use the Mortgaged Property, as the primary residence, or
(ii) that the address of the Mortgaged Property is the Obligor's
mailing address as reflected in Seller's records. No more than ten
percent (10%) of the Mortgaged Properties, by aggregate principal
balance as of the Cut-Off Date, are non-owner occupied, and none of
the Mortgaged Properties are rental properties. No Mortgage Loan
was made for the purpose of original construction or made to
facilitate an exchange of property by the Obligor.
Section 3.2. REPRESENTATIONS AND WARRANTIES OF SELLER REGARDING THE
MORTGAGE LOANS. With respect to each Mortgage Loan, as of the Closing Date on
which such Mortgage Loan is sold to Buyer, Seller hereby makes the following
representations and warranties to Buyer:
(a) Seller has clear, marketable and valid title and is the owner of
the Mortgage Loan and the indebtedness evidenced by the Note, and
has the unqualified right to transfer title to the Mortgage Loan
and all documents and instruments in connection therewith to Buyer,
free of any encumbrance, lien, pledge or interest of any third
Person whatsoever.
(b) The information regarding the Mortgage Loan contained in the
Schedule of Assets is true and correct in all respects as of the
Cut-Off Date.
(c) The Note, the Mortgage and all instruments and supporting
documentation evidencing, securing or otherwise related to the
Mortgage Loan are genuine, valid and enforceable according to their
terms, subject only to bankruptcy and insolvency laws, or similar
laws affecting creditors' rights generally and equitable principles
of law, and all signatures thereon are genuine.
(d) The Mortgage Loan was underwritten in compliance with Seller's
underwriting guidelines attached hereto as EXHIBIT B; provided,
however, that a default on the Mortgage Loan shall not, by itself,
be deemed to infer that such Mortgage Loan does not comply with
Seller's underwriting guidelines.
(e) The Mortgage Loan is not contractually delinquent by more than
thirty (30) days, nor has it been delinquent for more than sixty
(60) days at any time within the twelve (12) month period preceding
the Closing Date, nor has the Mortgage Loan at any time been
renewed for the purpose of concealing the delinquency of any
Persons obligated thereon.
(f) As to the Mortgage Loan, all applicable federal, state and local
laws, rules and regulations have been complied with, including
without limitation the Real Estate Settlement Procedures Act, the
Equal Credit Opportunity Act, the Federal Truth-in-Lending Act
(Regulation Z), the Fair Credit Reporting Act, the Flood Disaster
Protection Act, licensing laws, federal and state usury laws, and
any other applicable laws, rules or regulations which prohibit or
limit fees, charges or costs which lenders may impose on borrowers.
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(g) The Mortgage has been duly recorded and constitutes a valid and
legally enforceable lien on the Mortgaged Property in accordance
with the laws of the jurisdiction in which the Mortgaged Property
is located, and the Mortgaged Property is not subject to any other
recorded liens having priority over the lien of the Seller, except
for Permited Exceptions and other liens as are approved in writing
by Buyer.
(h) The Assignment relating to the Mortgage is in recordable form and
is acceptable for recording under the laws of the jurisdiction in
which the Mortgaged Property is located.
(i) The Mortgage Loan and the Note are free from any right of
rescission, defense (including the defense of usury), off-set,
counterclaim or recoupment assessable by the Obligor. No right of
rescission, defense, off-set, counterclaim or recoupment has been
asserted to Seller or, to Seller's knowledge, to any other Person.
(j) The terms of the Note and the Mortgage have not been impaired,
waived, altered or modified in any respect, except by a written
instrument which, if necessary to protect the interests of Buyer,
has been recorded.
(k) The Note, the Mortgage and all other documents contained in the
Mortgage Loan File are on FNMA or FHLMC uniform instruments or on
forms acceptable to FNMA or FHLMC or reasonably acceptable to
Buyer.
(l) Seller has made no representations to the Obligor that are
inconsistent with the Note, the Mortgage or any other mortgage
instrument concerning the Obligor.
(m) There is no payment default, and, to the best of Seller's
knowledge, there is no other default, breach, violation or event of
acceleration existing under the Note or the Mortgage and no event
which, with the passage of time or with notice and the expiration
of any applicable grace or cure period, would constitute a default,
breach, violation or event of acceleration, and Seller has not
waived any default, breach, violation or event of acceleration.
(n) The Mortgage contains customary provisions such as to render the
rights and remedies of the holder thereof adequate for the
realization against the Mortgaged Property of the benefits of the
security provided thereby, including (i) in the case of a Mortgage
designated as a deed of trust, by trustee's sale, and (ii)
otherwise by judicial foreclosure.
(o) Neither the Mortgage nor the Note has been satisfied, canceled,
subordinated or rescinded, in whole or in part, and the Mortgaged
Property has not been released from the lien of the Mortgage, in
whole or in part, nor has any instrument been executed that would
effect any such release, cancellation, subordination or rescission.
Seller has not waived performance by the Obligor of any action,
where the Obligor's failure to perform such action would cause the
Mortgage
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Loan to be in default, nor has Seller waived any default resulting
from the action or inaction by the Obligor.
(p) The Mortgage Loan has been closed and the proceeds of the Mortgage
Loan have been fully disbursed and there is no requirement for
future advances with respect thereto. All costs, fees and expensed
incurred in making or closing the Mortgage Loan and the recording
of the Mortgage have been paid, and the Obligor is not entitled to
any refund of any amounts paid or due under the Note or the
Mortgage.
(q) If required by Seller's underwriting guidelines, the Mortgage Loan
is covered by either (i) an attorney's opinion of title and
abstract of title the form and substance of which is acceptable to
FNMA or (ii) an ALTA lender's title policy or other generally
acceptable form of policy of insurance issued by a title insurer
qualified to do business in the jurisdiction where the Mortgaged
Property is located, insuring Seller, its successor and assigns, as
to the appropriate first or second priority lien of the Mortgage,
in the original principal amount of the Mortgage Loan, subject only
to Permitted Exceptions. No claims have been made under any such
lender's title insurance policy, and Seller has not taken any
action or failed to take any action which would impair the coverage
of any such lender's title insurance policy.
(r) To the best of Seller's knowledge, there are no mechanic's or
similar liens or claims which have been filed for work, labor or
material (and no rights outstanding that by law could give rise to
such liens) affecting the Mortgaged Property which are or may be
liens prior to or equal or coordinate with the lien of the
Mortgage.
(s) In the event that the Mortgage is a deed of trust, a trustee,
authorized and duly qualified under applicable law to serve as
such, has been properly designated and currently so serves and is
named in the Mortgage.
(t) If required pursuant to Seller's underwriting guidelines, the
Mortgage Loan File contains an appraisal of the Mortgaged Property
signed prior to the approval of the application for the Mortgage
Loan by a qualified appraiser who (i) is licensed in the state
where the Mortgaged Property is located; (ii) has no interest,
direct or indirect, in the Mortgaged Property or in any loan on the
security thereof; and (iii) does not receive compensation that is
affected by the approval or disapproval of the Mortgage Loan. All
such appraisals comply in all material respects with applicable
federal and state laws and regulations.
(u) The Obligor has not requested from Seller, and Seller has no
knowledge of any request for, any relief for the Obligor under the
Soldiers' and Sailors' Civil Relief Act of 1940.
(v) To the best of Seller's knowledge, there exists no violation of any
local, state, or federal environmental law, rule or regulation in
respect of the Mortgaged Property which violation has or could have
a material adverse effect on the market value
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of such Mortgaged Property. Seller has no knowledge of any pending
action or proceeding involving the Mortgaged Property in which
compliance with any environmental law, rule or regulation is in
issue; and, to the best of Seller's knowledge, nothing further
remains to be done to satisfy in full all requirements of each such
law, rule or regulation constituting a prerequisite to the use and
enjoyment of such Mortgaged Property.
(w) The Mortgaged Property is a fee simple estate and consists of a
parcel of real property with (i) a single family residence, (ii) a
two-to four-family dwelling, (iii) an individual condominium unit
in a low-rise or high-rise condominium project, or (iv) an
individual unit in a planned unit development erected thereon.
(x) All improvements upon the Mortgaged Property are insured by a
blanket hazard insurance policy which is issued by an insurer and
in an amount acceptable to FNMA against loss by fire and such other
risks (excluding mud slides and earthquakes) as are usually insured
against in the broad form of extended coverage hazard insurance
from time to time available, including flood hazards if upon
origination of the Mortgage Loan, the Mortgaged Property was
located in an area identified in the Federal Register by the
Federal Emergency Management Agency as having special flood hazards
(and if flood insurance was required by federal regulation).
Seller has not engaged in and has no knowledge of the Obligor's or
any subservicer's having engaged in, any act or omission which
would impair the coverage of any such policy, the benefits of the
endorsement provided for therein or the validity and binding effect
of either.
(y) No taxes, impositions, fees or assessments in the nature of a tax
shall accrue against or be collected from Buyer on the Mortgage
Loan by reason of the purchase by Buyer of the Mortgage Loan.
(z) The Mortgage has never been assigned to any third party.
(aa) Seller has not initiated an action of foreclosure against nor
obtained a judgment of foreclosure against the related Mortgaged
Property.
(bb) To the best of Seller's knowledge: (i) neither the Mortgaged
Property nor any improvements thereon is the subject of pending
insurance claims; (ii) the Obligor is not deceased, and neither
the Obligor nor the Mortgage Loan is the subject of, or are in any
way affected by, any pending legal proceeding; and (iii) the
Mortgaged Property is not the subject matter of a pending sale to a
third party by the Obligor, nor is the Mortgage Loan the subject
matter of a payoff in progress.
(cc) None of the credits applied to the Mortgage Loan has been
gratuitous or given by Seller for considerations other than the
payment of money, and all amounts represented to be payable on
Mortgage Loan are, in fact, payable in accordance with the
provisions of the Note.
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(dd) The Mortgage contains usual and customary provisions for the
acceleration of amounts outstanding on the Note in the event that
the Mortgaged Property is sold.
(ee) Seller has not received notice of: (i) any proceeding for the total
or partial condemnation of the Mortgaged Property; (ii) any
proceeding for relief by or against any Obligor under federal or
state bankruptcy or insolvency laws; or (iii) any subsequent,
intervening mortgage, lien, attachment, lis pendens or other
encumbrance affecting the Mortgaged Property, other than Permitted
Exceptions.
(ff) The Mortgage Loan contains no provisions pursuant to which payments
are (i) paid or partially paid with funds deposited in any separate
account established by Seller, Obligor or any Person on behalf of
Obligor; (ii) paid by any source other than Obligor; or (iii)
contains any similar provisions which may constitute a "buydown" of
the interest rate.
(gg) The consideration received by Seller upon the sale of the Mortgage
Loan constitutes fair consideration and reasonably equivalent value
for the Mortgage Loan.
(hh) Seller used no adverse selection procedures in selecting the
Mortgage Loan from among the outstanding loans in Seller's
portfolio.
(ii) The Combined Loan to Value Ratio on the Mortgage Loan does not
exceed one hundred percent (100%).
(jj) The related Mortgage Loan File contains each of the documents and
instruments specified to be included therein, with such exceptions
as set forth in Section 2.6 hereof.
(kk) The Mortgaged Property is neither a mobile home nor a manufactured
housing unit that is not permanently attached to its foundation.
(ll) The Mortgage Loan has no shared appreciation feature or other
contingent interest feature.
(mm) The Mortgage Loan is secured by either a first or a second lien.
Seller has not received a notice of default of any first mortgage
loan related to a Mortgaged Property which has not been cured.
(nn) The indebtedness evidenced by the Mortgage Loan is not convertible
to an ownership interest in the related Mortgaged Property or the
related Obligor.
(oo) No Mortgage related to the Mortgage Loan provides that the related
Mortgaged Property secures any other promissory note or obligation
expressly described in such Mortgage other than another Mortgage
Loan.
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(pp) The Mortgage Loan does not permit the Obligor to require the
release of all or a portion of the Mortgaged Property from the lien
of the related Mortgage other than upon payment in full of the
Mortgage Loan.
(oo) The Mortgage Loan does not provide for deferred interest.
Section 3.3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby makes
the following representations and warranties to Seller as of each Closing Date:
(a) Buyer is a corporation, duly organized and validly existing under
the laws of the State of Iowa, which has the power to own its
assets and to transact the business in which it is presently
engaged. Buyer is duly qualified and in good standing under the
laws of the State of Iowa and each jurisdiction where its ownership
of property or the conduct of its business requires such
qualification and where the failure to be so qualified would have a
material adverse affect on the business and assets of Buyer, taken
as a whole.
(b) Buyer has the requisite corporate power and authority to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all
necessary corporate action, and no other corporate proceedings on
the part of Buyer are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by Buyer and constitutes a
legal, valid and binding obligation of Buyer, enforceable against
Buyer in accordance with its terms, subject only to bankruptcy and
insolvency laws and similar laws affecting creditors' rights
generally and equitable principles of law.
(c) Neither the execution and delivery of this Agreement, nor the
consummation of the transaction contemplated by this Agreement will
conflict with or result in a breach of, or constitute a default
under, any instrument or agreement to which Buyer is a party, or by
which it is bound, or be in violation of any governmental decree,
order or ruling as to which Buyer may be bound.
(d) No action, suit, proceeding or governmental investigation or
inquiry is currently pending or, to the knowledge of Buyer,
threatened against Buyer which, if adversely determined, would have
a material adverse effect on the business, combined assets or
financial condition of Buyer or on the Mortgage Loans or would
prevent the consummation of the transactions contemplated by this
Agreement.
(e) Buyer does not believe, nor does it have any reason or cause to
believe, that it cannot perform each and every covenant contained
in this Agreement. Buyer is solvent, and the purchase of the
Mortgage Loans will not cause Buyer to become insolvent.
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(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery
and performance by Buyer of or compliance of Buyer with this
Agreement, or, if required, such consent, approval, authorization
or order has been obtained prior to the applicable Closing Date.
(g) Buyer has not, in connection with this transaction, incurred any
obligation, made any commitment or taken any action which might
result in a claim against or an obligation by Seller to pay a sales
brokerage commission, finder's fee or similar fee with respect to
this Agreement.
ARTICLE IV
COVENANTS OF SELLER
Section 4.1. COVENANTS OF SELLER. Seller covenants with Buyer to do as
follows:
(a) Do and perform, or cause to be done and performed, at Buyer's
request, such acts as may reasonably be necessary or desirable in
order to vest in Buyer title to all the Mortgage Loans sold to
Buyer under this Agreement and to enable Buyer to collect payments
due to Buyer under the Mortgage Loans.
(b) With respect to each sale of Mortgage Loans under this Agreement,
deliver to Buyer any monies rightfully due and owing to Buyer which
are received after the related Cut-Off Date with respect to such
Mortgage Loans.
(c) Forward promptly to Buyer all communications or inquiries
concerning Mortgage Loans which Seller receives after the Closing
Date with respect to such Mortgage Loans.
(d) Comply with all applicable requirements of the Real Estate
Procedures Settlement Act and Regulation X promulgated thereunder,
including without limitation any notification requirements
regarding a transfer of servicing.
ARTICLE V
INDEMNIFICATION; REPURCHASE
Section 5.1. SELLER'S INDEMNIFICATION. (a) Seller shall indemnify
Buyer and protect, defend and hold Buyer, its Affiliates, officers, directors,
employees, agents and successors harmless from and against any and all
liability, loss, cost, demand, lawsuits, injury or expense, including without
limitation all court costs, expert witness fees, trial preparation fees and
attorney's fees wheresoever and howsoever arising, so long as such fees or costs
are reasonable in amount, which Buyer may incur for or by reason of:
(i) The untruthfulness of any of the warranties or
representations made by Seller in this Agreement, to the
extent that such untruthfulness does not arise by reason of
Buyer's actions;
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(ii) Seller's breach of, or failure to perform or observe, any
covenants or provisions of this Agreement, to the extent
that the breach has a material adverse effect and to the
extent that such breach does not arise by reason of Buyer's
actions; or
(iii) Any action taken by Seller with respect to any Mortgage Loan
prior to the Closing Date for such Mortgage Loan.
(b) The foregoing provisions of this Section 5.1 shall be subject to
the following conditions:
(i) Buyer must promptly notify Seller upon commencement of any
action or assertion of any claim by any Person which would
give rise to a claim for indemnification if Seller is
unaware of the action or assertion;
(ii) If Seller agrees that indemnification by Seller is
applicable to a cause of action, no settlement of action
against Buyer shall be made without the consent of Seller,
and Seller may settle any action without the consent of
Buyer, but Buyer shall be given an opportunity to review and
comment on proposed settlement documents; and
(iii) Seller shall have the right to select counsel for the
defense of any action or assertion of a claim against Buyer,
subject to approval by Buyer, which approval shall not be
unreasonably withheld, and each party shall have the right
to consult with the other party regarding the defense of a
claim against it.
Section 5.2. BUYER'S INDEMNIFICATION. (a) Buyer shall indemnify Buyer and
protect, defend and hold Seller, its Affiliates, officers, directors, employees,
agents and successors harmless from and against any and all liability, loss,
cost, demand, lawsuits, injury or expense, including without limitation all
court costs, expert witness fees, trial preparation fees and attorney's fees
wheresoever and howsoever arising, so long as such fees or costs are reasonable
in amount, which Seller may incur for or by reason of:
(i) The untruthfulness of any of the warranties or
representations made by Buyer in this Agreement, to the
extent that such untruthfulness does not arise by reason of
Seller's actions;
(ii) Buyer's breach of, or failure to perform or observe, any
covenants or provisions of this Agreement, to the extent
that the breach has a material adverse effect and to the
extent that such breach does not arise by reason of Seller's
actions; or
(iii) Any action taken by Buyer with respect to any Mortgage Loan
after the Closing Date for such Mortgage Loan.
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(b) The foregoing provisions of this Section 5.2 shall be subject to
the following conditions:
(i) Seller must promptly notify Buyer upon commencement of any
action or assertion of any claim by any Person which would
give rise to a claim for indemnification if Buyer is unaware
of the action or assertion;
(ii) If Buyer agrees that indemnification by Buyer is applicable
to a cause of action, no settlement of action against Seller
shall be made without the consent of Buyer as long as
indemnification continues to be sought, and Buyer may settle
any action without the consent of Seller, but Seller shall
be given an opportunity to review and comment on proposed
settlement documents; and
(iii) Buyer shall have the right to select counsel for the defense
of any action or assertion of a claim against Seller,
subject to approval by Seller, which approval shall not be
unreasonably withheld, and each party shall have the right
to consult with the other party regarding the defense of a
claim against it.
Section 5.3. CURE OF BREACH, REPURCHASE OR SUBSTITUTION BY SELLER. In
the event of a breach of any of Seller's representations, warranties or
covenants, in addition to the remedies specified in Section 5.1 above, Buyer,
as assignee of any purchased Mortgage Loan, may demand, for the twenty-four
(24) months immediately following the Closing Date for such Mortgage Loan
(the "Substitution Period"), that Seller, at Seller's option, either: (a)
cure the breach or (b) substitute a loan of equal value subject to all the
terms and conditions of this Agreement. After the Substitution Period, in
the event of a breach of any of Seller's representations, warranties or
covenants, in addition to the remedies specified in Section 5.1 above, Buyer
may demand that Seller, at Seller's option, either: (a) cure the breach or
(b) repurchase such Mortgage Loan forthwith, for the then unpaid principal
balance plus accrued interest. Seller shall have a period of ten (10)
Business Days from its receipt of written notice from Buyer of a breach to
take such action demanded by Buyer as Seller may elect, but if Seller elects
to cure the breach and the nature of the breach giving rise to the obligation
of Seller to cure the breach is such that it cannot be cured immediately,
Seller shall have the right to proceed diligently to effect a cure, which
shall in no event be effectuated later than thirty (30) days from the date of
Seller's receipt of notice of the breach. If Seller has not cured the breach
after this thirty (30) day period lapses, Seller shall repurchase or
substitute the Mortgage Loan at the option of Buyer.
ARTICLE VI
AGREEMENT NOT TO COMPETE; PREPAYMENT
Section 6.1. AGREEMENT NOT TO COMPETE. (a) Seller shall not take any
action or permit or cause any action to be taken by any of its employees or any
of its Affiliates on behalf of Seller to personally, by telephone or mail,
solicit the Obligor under any Mortgage Loan for the purpose of refinancing a
Mortgage Loan, in whole or in part, without the prior written consent of Buyer.
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(b) Notwithstanding the foregoing, it is understood and agreed that
promotions undertaken by Seller or any Affiliate of Seller on behalf of Seller
which are directed to the general public at large, including without limitation
mass mailings based on commercially acquired mailing lists and newspaper, radio
and television advertisements, shall not constitute solicitation under this
Section 6.1.
(c) It is understood and agreed that all rights and benefits relating to
the solicitation of any Obligors and the attendant right, title and interest in
and to the list of such Obligors and data relating to their Mortgages (including
insurance renewal dates) shall be transferred to Buyer pursuant to this
Agreement as of each Closing Date, and Seller shall take no action to undermine
these rights and benefits.
Section 6.2. PREPAYMENT OF MORTGAGE LOAN. If any Mortgage Loan is
prepaid within forty-five (45) days of the date on which it was sold to Buyer
hereunder, Buyer shall not be obligated to pay a Premium with respect to such
prepaid Mortgage Loan. If Buyer has paid a Premium prior to the prepayment
of such Mortgage Loan, Seller shall promptly repay to Buyer 100 percent of
such Premium.
ARTICLE VII
MISCELLANEOUS
Section 7.1. NOTICES. All demands, notices, offers, acceptances, waivers
and other communications required or permitted by this Agreement shall be in
writing (including telegraphic, facsimile or telex communication) and shall
be effective and deemed delivered only when received by the party to which it
is sent; PROVIDED, HOWEVER, that a facsimile transmission shall be deemed to
be received when transmitted so long as the transmitting machine has provided
an electronic confirmation of such transmission and a written copy is sent by
first class or express mail, postage prepaid or by overnight courier. Any
such notice shall be sent to a party at the following address or facsimile
number (or such other address or facsimile number as may hereafter be
furnished to the other parties hereto, in writing, by such party wishing to
change its address or facsimile number):
(i) If to Buyer: AmerUs Life Insurance Company
699 Walnut Street
Des Moines, Iowa 50309
Attn: Steven L. Schipper
Telecopy Number: (515) 362-3631
(ii) If to Seller: AmerUs Bank
418 Sixth Avenue
Des Moines, Iowa 50309
Attn: Thomas R. Bernau
Telecopy Number: (515) 283-3349
With copy to: Elizabeth D. Swanson, Esq.
AmerUs Life Holdings, Inc.
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611 Fifth Avenue
Des Moines, Iowa 50309
Telecopy: (515) 283-3269
Section 7.2. RELATIONSHIP BETWEEN PARTIES. Under no circumstances
shall Buyer and Seller be considered agents or employees of each other, nor
shall this Agreement be construed as creating a partnership or joint venture.
Section 7.3. EXECUTION IN COUNTERPARTS. This Agreement and any
amendment pursuant to Section 7.12 may be executed in any number of
counterparts, each of which counterparts shall be deemed to be an original,
and such counterparts shall constitute but one and the same instrument.
Section 7.4. GOVERNING LAW. Exept to the extent federal law applies, this
Agreement shall be governed by and construed in accordance with the laws of the
State of Iowa, without regard to principles of conflicts of laws. Seller and
Buyer hereby consent to the jurisdiction of all courts in the State of Iowa with
respect to any action connected with this Agreement or arising therefrom.
Section 7.5. SEVERABILITY OF PROVISIONS. Should any provision or
provisions of this Agreement be declared invalid, illegal or unenforceable
for any reason, such decision shall not affect the validity, legality or
enforceability of the remaining portion, which remaining portion shall remain
in full force and effect as if this Agreement had been executed with the
invalid, illegal or unenforceable portion eliminated therefrom. Any such
invalidity, illegality or unenforceability of a provision in a particular
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction. To the extent permitted by applicable law, Seller and
Buyer waive any provision of law which prohibits or renders unenforceable any
provision of this Agreement.
Section 7.6. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes
the entire contract between the parties hereto, and no party shall be liable
or bound to the other in any manner by any warranties, representations or
covenants except as specifically set forth herein. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the
respective successors and permitted assigns of the parties hereto. Nothing
in this Agreement, express or implied, is intended to confer upon any party,
other than the parties hereto and their respective successors and permitted
assigns, any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided herein.
Section 7.7. COSTS, FEES AND EXPENSES. Except as otherwise provided in
this Agreement, each party hereto agrees to pay all costs, fees and expenses
which it has incurred in connection with or incidental to the matters contained
in this Agreement, including without limitation any fees and disbursements to
its accountants and counsel. To the extent this Agreement provides that one
party is entitled to reimbursement from the other for expenses incurred by it,
such party shall upon request provide reasonable documentations evidencing such
expenses.
Section 7.8. HEADINGS. Section headings used in this Agreement are for
convenience of reference only and are not part of this Agreement for any other
purpose.
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Section 7.9. SURVIVAL OF CERTAIN PROVISIONS. The covenants,
representations, warranties, agreements, obligations, undertakings and
indemnifications of Seller and Buyer contained in this Agreement shall be
continuing and shall survive the execution and the termination of this
Agreement.
Section 7.10. NO WAIVER. Failure or delay on the part of Seller or
Buyer to exercise any right provided for in this Agreement shall not act as a
waiver thereof, nor shall any single or partial exercise of any right by
Seller or Buyer preclude any other or further exercise thereof. In no event
shall a term or provision of this Agreement be deemed to have been waived,
modified or amended unless such waiver, modification or amendment is in
writing and signed by the parties hereto.
Section 7.11. NO REMEDY EXCLUSIVE. No remedy under this Agreement is
intended to be exclusive of any other available remedy, and each remedy shall
be cumulative and shall be in addition to other remedies under this Agreement
or existing at law or equity.
Section 7.12. AMENDMENTS. Each and every modification and amendment of
this Agreement must be in writing and signed by the parties hereto.
Section 7.13. ASSIGNMENT OF AGREEMENT. This Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of
Buyer and Seller.
Section 7.14. TERMINATION. This Agreement may be terminated by either
party, with or without cause, upon ten (10) days' prior written notice. No
such termination shall affect the rights or liabilities of the parties with
respect to Mortgage Loans purchased by Buyer prior to the date of such
termination.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in the
as of the 5th day of March, 1997.
AMERUS BANK
By:
--------------------------------------------
Its Senior Vice President
AMERUS LIFE INSURANCE COMPANY
By:
--------------------------------------------
Its Vice President
21
<PAGE>
EXHIBIT A
LOAN FUNDING SETTLEMENT STATEMENT
Reference is hereby made to that certain Master Agreement of Purchase and
Sale dated as of March 5, 1997, by and between AmerUs Bank ("Seller") and
AmerUs Life Insurance Company ("Buyer"), as such agreement may be amended or
supplemented from time to time pursuant to its terms (the "Agreement"). As
of the Closing Date set forth below in this Loan Funding Settlement Statement
by and between Seller and Buyer (this "Settlement Statement"), Seller hereby
sells, assigns, transfers and conveys to Buyer the Mortgage Loans described
in the Schedule of Assets attached hereto (the "Loans") in accordance with
the terms and conditions set forth in the Agreement and the terms set forth
in this Settlement Statement, and Buyer hereby agrees to purchase the Loans
from Seller in accordance with the terms and conditions set forth in the
Agreement and the terms set forth in this Settlement Statement and
acknowledges receipt of the Loans. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Agreement.
In consideration of the mutual covenants and obligations contained herein
and in the Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Seller and Buyer hereto agree as
follows:
1. In addition to the terms and conditions set forth in the Agreement,
the following terms shall apply to the sale by Seller and the purchase by Buyer
of the Loans:
CLOSING DATE:
--------------------------
CUT-OFF DATE:
--------------------------
BOOK VALUE: $
--------------------------
ACCRUED INTEREST: $
--------------------------
PREMIUM RATE:
--------------------------
PREMIUM: $
--------------------------
TOTAL PURCHASE PRICE: $
--------------------------
2. Seller hereby represents, warrants and covenants to Buyer that (i)
this Settlement Statement has been duly authorized, executed and delivered by
Seller and constitutes the legal, valid and binding obligation of Seller,
enforceable in accordance with its terms, subject only to bankruptcy and
insolvency laws and similar laws affecting creditors' rights generally and
equitable principles of law and (ii) the representations and warranties of
Seller set forth in the Agreement are true and correct as of the date hereof.
3. Buyer hereby represents, warrants and covenants to Seller that (i)
this Settlement Statement has been duly authorized, executed and delivered by
Buyer and constitutes the legal, valid and binding obligation of Buyer,
enforceable in accordance with its terms, subject only to bankruptcy and
insolvency laws and similar laws affecting creditors' rights generally and
equitable principles of law and (ii) the representations and warranties of
Buyer set forth in the Agreement are true and correct as of the date hereof.
4. This Settlement Statement shall be governed by and construed in
accordance with the laws of the State of Iowa, without regard to principles of
conflicts of law. Any modification or
<PAGE>
amendment of this Settlement Statement must be in writing and signed by the
parties hereto. This Settlement Statement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which,
taken together, shall constitute one instrument. All representations,
warranties and covenants made in this Settlement Statement shall be
continuing representations, warranties and covenants and shall survive the
execution and and the termination of this Settlement Statement.
IN WITNESS WHEREOF, the parties hereto have executed this Loan Funding
Settlement Statement as of the ____ day of ________ 19__.
AMERUS BANK
By:
--------------------------------------
Its Senior Vice President
AMERUS LIFE INSURANCE COMPANY
By:
--------------------------------------
Its Vice President
<PAGE>
Wiring Instructions:
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- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
<PAGE>
EXHIBIT B
UNDERWRITING GUIDELINES
<PAGE>
March 1, 1997
Steve Stotts
AmerUs Life
611 Fifth Avenue
Des Moines, IA 50309
RE: Master Commitment for the Purchase of Residential Mortgage Loans
Dear Gentlepersons:
This letter and the exhibits represent an agreement (the "Master Commitment")
between AmerUs Mortgage ("Seller") and AmerUs Life ("Purchaser"). Under this
Master Commitment, Seller and Purchaser agree to the one hundred percent
whole loan sale and purchase of first lien residential mortgage loans. The
total amount of the Master Commitment will be $200,000,000. The terms and
conditions of this Master Commitment will expire on March 1, 1998, or upon
the delivery and purchase of the Master Commitment amount. The mortgage loans
must meet the terms and conditions as stated on the attached appendices.
SECTION 1. LOAN PROGRAMS.
Eligible loan programs are identified on the attached appendices. Other loan
programs may be added to this Commitment from time to time by letter
agreement between Seller and Purchaser.
SECTION 2. UNDERWRITING GUIDELINES.
Section 2a. DELEGATED UNDERWRITING APPROVAL BY SELLER. Seller shall receive
delegated underwriting authority, in accordance with the terms and guidelines
of this Master Commitment. Seller acknowledges and agrees that its
underwriting will conform to prudent and sound underwriting practices.
Purchaser may, at its sole option, perform a separate credit evaluation at
the time the loan is submitted for loan purchase. All loans originated under
this Master Commitment shall have standard FHLMC or FNMA full or alternative
documentation and shall generally meet the underwriting guidelines specified
in the FHLMC SELLER/SERVICER GUIDE and FNMA SELLING AND SERVICING GUIDE,
unless exceptions to these guidelines are specified in the attached
appendices or given approval by Purchaser for a specified loan prior to its
closing.
Section 2b. COMPLIANCE. Seller represents and warrants to Purchaser that any
and all requirements of federal, state, or local law, rule, or regulation
applicable to any loan originated under this commitment have been complied
with, including but not limited to usury, truth-in-lending, real estate
settlement procedures, consumer credit protection, equal credit opportunity,
and disclosure laws. Seller shall deliver to Purchaser such evidence of
compliance with all such requirements that Purchaser may at its sole option
<PAGE>
MASTER COMMITMENT PAGE 2
and from time to time require. Without limiting the foregoing, Seller
acknowledges and agrees that it is responsible for delivering to borrowers
all applicable Equal Credit Opportunity Act notices required in connection
with a loan.
SECTION 3. WEATHER RELATED, TAX AND INSURANCE ESCROWS.
Purchaser shall give Seller the option of waiving escrows for taxes and
homeowner's insurance if the loan-to-value ratio of the subject loan is less
than or equal to 80%. Purchaser shall allow weather related escrow holdbacks
under Seller's current escrow policies. Seller shall not waive escrows for
flood insurance or private mortgage insurance where such insurance is
required for any loan.
SECTION 4. PIPELINE OF LOANS.
Seller shall provide to Purchaser at least monthly, but no more frequently
than weekly, a Pipeline Report of all unfunded loans registered under this
Master Commitment. At minimum this report shall include lock/float status,
current interest rate and price, approval status, and projected closing date.
At request of Purchaser, Seller shall provide separate tracking and reporting
of loans or product types deemed higher risk, for purposes of limiting
Purchaser's obligation to purchase such loans to a percentage of the
Commitment amount as specified in the attached appendices or as Purchaser and
Seller shall from time to time agree.
SECTION 5. LOAN DELIVERY, REVIEW AND FUNDING.
Section 5a. DELIVERY AND FUNDING. Seller shall deliver a Schedule of Loans to
Purchaser for review and funding on a date each month mutually agreed upon by
Seller and Purchaser, but no more than forty-five days following the closing
date of the loans. Purchaser will purchase each eligible loan within five
business days of receipt of the Schedule of Loans. Any loan which is not
eligible for purchase will be suspended and Seller shall have thirty days to
cure the suspended loan and resubmit it for purchase.
Purchaser shall fund all mortgage loans at its committed price. Pricing shall
be established by Seller subject to review and approval of Purchaser and
according to the methodology specified in the attached appendices. All
funding amounts shall be net of any fees or accrued interest owed to
Purchaser by Seller.
Section 5b. DELIVERY AND FUNDING DOCUMENTS. At the time of loan delivery,
Seller's Warehouse Lender shall submit a Schedule of Mortgage Loans to
Purchaser which shall list all security instruments and mortgage loan
documents required for funding that are held by Seller or Seller's Warehouse
Lender as collateral of the mortgage loans, and which will be delivered to
Purchaser at the time of loan funding. The following documents will be
required for funding: the original mortgage note endorsed without recourse to
Purchaser, a certified copy of the assignment of mortgage made to Purchaser,
a certified copy of the interim assignment to Seller (if applicable), the
private mortgage
<PAGE>
MASTER COMMITMENT PAGE 3
insurance certificate (if applicable), a certified copy of the mortgage or
deed of trust, and a title commitment or a preliminary title opinion. The
Loan File, which shall be understood to contain all original credit, income,
employment, and collateral documentation used to originate, underwrite, and
close the mortgage loan, including but not limited to the original credit
report, property appraisal, and Seller's Application Approval Certificate,
will be held by Seller for purposes of servicing the loans.
Section 5c. FINAL DOCUMENTS. Recorded mortgages, assignments and final title
policies or opinions will be tracked and received by Seller as custodian for
Purchaser. Seller shall provide to Purchaser within two hundred and seventy
days of the date which Purchaser funds the mortgage loan a Final Documents
Certification Schedule which shall indicate all final documents held by
Seller on behalf of purchaser.
SECTION 6. SERVICING RIGHTS.
The servicing rights and related escrow accounts to all loans originated
under this Commitment shall be retained by Seller. Seller and Seller's
sub-servicer shall perform all servicing functions on behalf of Purchaser in
a prudent and sound fashion and in accordance with generally accepted
accounting principles, and shall generally meet the servicing and accounting
guidelines specified in the FHLMC SELLER/SERVICER GUIDE or FNMA SELLING AND
SERVICING GUIDE, unless exceptions to these guidelines are specified in the
attached appendices. Servicing fees will be established for each program on
the attached appendices.
SECTION 7. WARRANTIES AND REPRESENTATIONS OF SELLER.
Seller hereby warrants and represents to Purchaser as follows:
Section 7a. ORGANIZATION AND GOOD STANDING. Seller is a duly organized,
validly existing corporation in good standing under the laws of the State of
Iowa.
Section 7b. AUTHORITY AND CAPACITY. Seller is duly licensed or empowered by
any and all agencies or governing bodies having appropriate jurisdiction and
authority to originate, service and sell residential mortgage loans under the
terms of this Master Commitment. Seller has all the requisite power,
authority, and capacity to enter into this Master Commitment and to perform
the obligations required of it hereunder, including, but not limited to, the
power and authority to transfer all right, title and interest in the mortgage
loans and the related documents. The execution of this Master Commitment has
been duly authorized, and the Master Commitment constitutes a legal, valid,
and binding obligation of Seller, enforceable against it in accordance with
its terms.
Section 7c. EFFECTIVE AGREEMENT. The execution and performance of this Master
Commitment by Seller, and the consummation of the transactions contemplated
herein, will not violate any provision of law applicable to Seller, and do
not and will not conflict with any of the terms of Seller's articles of
incorporation, charter, bylaws or other
<PAGE>
MASTER COMMITMENT PAGE 4
governing instrument relating to the conduct of its business or ownership of
its properties, or any other agreement, order or instrument to which Seller
is a party of by which it is bound.
Section 7d. COMPLIANCE WITH CONTRACTS AND REGULATIONS. Seller has complied
with all of its obligations under all contracts which relate to the
origination and servicing of mortgage loans, and with all applicable laws,
regulations, and policies, including, without limitation, those of the Federal
Housing Administration, the Veterans Administration, FNMA, FHLMC, or private
mortgage insurers, with respect to any of the loans originated and serviced
by Seller under this Master Commitment.
Section 7e. TITLE TO LOANS, SERVICING RIGHTS AND RELATED ESCROW ACCOUNTS.
Seller is the lawful owner of the loans, the servicing documentation, and
escrow accounts relating to the loans. As of Seller's delivery of the loan
documents to the Purchaser and the Purchaser's funding date, the loans, the
loan documentation, and the servicing rights to the loans, shall be free and
clear of any and all liens, claims, charges, defenses, offsets, pledges, and
encumbrances of any kind or nature whatsoever.
Section 7f. ACCURACY AND COMPLETENESS OF LOAN DOCUMENTATION. Seller certifies
that all documents and all copies of documents provided to Purchaser
concerning any loan purchased shall be accurate, complete, and genuine.
SECTION 8. WARRANTIES AND REPRESENTATIONS OF PURCHASER.
Section 8a. ORGANIZATION AND GOOD STANDING. Purchaser is a duly organized,
validly existing corporation in good standing under the laws of the State of
Iowa.
Section 8b. AUTHORITY AND CAPACITY. Purchaser is duly licensed or empowered
by any and all agencies or governing bodies having appropriate jurisdiction
and authority to purchase residential mortgage loans under the terms of this
Master Commitment. Purchaser has all the requisite power, authority, and
capacity to enter into this Master Commitment and to perform the obligations
required of it hereunder, including, but not limited to, the power and
authority to assume all right, title, and interest in the mortgage loans and
related documents. The execution of this Master Commitment has been duly
authorized, and the Master Commitment constitutes a legal, valid and binding
obligation of Purchaser, enforceable against it in accordance with its terms.
Section 8c. EFFECTIVE AGREEMENT. The execution and performance of this Master
Commitment by Purchaser, and the consummation of the transactions
contemplated herein, will not violate any provision of law applicable to
Purchaser, and do not and will not conflict with any of the terms of
Purchaser's articles of incorporation, charter, bylaws or other governing
instrument relating to the conduct of its business or ownership of its
properties, or any other agreement, order or instrument to which Purchaser is
a party or by which it is bound.
<PAGE>
MASTER COMMITMENT PAGE 5
SECTION 9. NOTICES.
All notices, requests, demands, and other documentation or communications
which are required or permitted to be given under this Master Commitment
shall be in writing and shall be deemed effective upon receipt and addressed
to the following or to such other addresses as may be furnished from time to
time by either party:
(a) If to the Seller:
David Menker
Senior Vice President
AmerUs Mortgage
1516 35th Street Suite 200
West Des Moines, IA 50266
(b) If to the Purchaser:
Steve Stotts
AmerUs Life
611 Fifth Ave.
Des Moines, IA 50309
SECTION 10. TERMINATION.
This Master Agreement may be terminated by either Seller or Purchaser by
giving written notice not less than sixty calendar days prior to the
effective date of such termination. Such termination shall not in any manner
affect either Seller's or Purchaser's respective duties, obligations,
covenants, representations, or warranties with regard to loans previously
originated or purchased; nor shall the termination affect the purchase of
loans by Purchaser for which Seller has issued a Rate and Price Commitment,
taken a loan application under a Loan Program offered under this Master
Commitment, or given loan underwriting approval prior to or on the date of
such notice of termination or the termination date.
SECTION 11. WAIVERS, AMENDMENTS AND ADDENDA.
Either the Purchaser or the Seller may, by written notice to the other and
upon mutual acceptance by both parties:
(a) Extend the time for the performance of any of the obligations
of or transactions by the other;
(b) Waive compliance with any of the terms, conditions or
covenants required to be complied with by the other; or
(c) Waive or modify performance of any of the obligations of the
other under this Master Commitment.
<PAGE>
MASTER COMMITMENT PAGE 6
Any amendments or addenda to this Master Commitment or the obligations of the
Purchaser or the Seller pursuant to this Master Commitment shall be effective
only if executed in writing by both parties.
SECTION 12. ENTIRE AGREEMENT.
This Master Commitment, including all Exhibits and Appendices, constitutes
the entire agreement between the parties, and supersedes all other
agreements, understandings, representations, and negotiations with respect to
this Master Commitment, whether oral or written.
SECTION 13. BINDING EFFECT.
This Master Commitment shall inure to the benefit of and be binding upon the
parties hereto and their successors and permitted assigns, but neither the
Master Commitment nor any of the rights, interests, or obligations under
this Master Commitment shall be assigned by either party without the prior
written consent of other party.
SECTION 14. ACCEPTANCE AND ACKNOWLEDGMENT OF MASTER COMMITMENT.
The authorized officers of AmerUs Mortgage and AmerUs Life have executed this
Master Commitment as of the date first written above.
AmerUs Mortgage AmerUs Life
By: \s\ David R. Menker By: /s/ Steve S. Stotts
----------------------- ------------------------
David R. Menker Steven Stotts
Its Senior Vice President and Its Portfolio Manager
Risk Manager
<PAGE>
MASTER COMMITMENT PAGE 7
APPENDIX I: ELIGIBLE PRODUCTS
AmerUs Agency 5/1 ARM
AmerUs Agency 7/1 ARM
AmerUs Nonagency 5/1 ARM (95%)
AmerUs Nonagency 7/1 ARM (95%)
<PAGE>
MASTER COMMITMENT PAGE 8
APPENDIX II: SERVICING FEES AND PRICING
I. SERVICING FEES: Purchaser shall pay Seller an annual servicing fee of
0.25% of the unpaid principal balance of the loans originated under this
commitment during the initial fixed interest rate period of the loans.
Commencing on the first Change Date of each loan, the servicing fee shall be
0.375%.
II. PRICING: Pricing for all loans originated under this Commitment shall be
set daily by Seller. A base (par) rate shall be established as the par
equivalent FHLMC 60-day MBS rate for five and seven year balloons, plus
0.25%. The maximum price shall be 101.00. Buy-ups and buy downs shall be
calculated according to the following schedule. The base rate shall apply to
all conforming agency-quality loans. All nonagency and jumbo loans shall be
originated at a rate equal to the base plus 0.125%.
PRICE SCHEDULE
Rate Differential Corresponding BD/BU Ratio
(from Par Rate) Price (Price/Rate)
- -------------------------------------------------------------
-1.000 97.000 3.0/1
-0.875 97.375 3.0/1
-0.750 97.750 3.0/1
-0.625 98.125 3.0/1
-0.500 98.500 3.0/1
-0.375 98.875 3.0/1
-0.250 99.250 3.0/1
-0.125 99.625 3.0/1
Base 100.000 3.0/1
0.125 100.375 3.0/1
0.250 100.625 2.5/1
0.375 101.000 2.5/1
<PAGE>
March 11, 1997
Steve Stotts
Vice President
AmerUs Life
611 Fifth Avenue
Des Moines, IA 50309
Re: Amendments to Master Commitment for the Purchase of Residential Mortgage
Loans
Dear Steve:
This Letter Agreement shall represent an addendum to the Master Commitment
dated March 1, 1997, between AmerUs Mortgage ("Seller") and AmerUs Life
("Purchaser") and shall be deemed to amend and supplement that Commitment. In
addition to the representations, warranties, and covenants and despite
anything to the contrary in the Master Commitment, Seller and Purchaser agree
as follows:
I. COMMITMENT EXPIRATION. The Master Commitment shall expire on December 31,
1997, or a date prior to that date if mutually agreed upon by Seller and
Purchaser.
II. MODIFIED PRODUCTS. The Nonagency 5/1 and 7/1 ARM products described on
the attached product descriptions shall be eligible for sale under this
Commitment.
The authorized officers of AmerUs Mortgage and AmerUs Life have executed this
Letter Agreement as of the date first written above.
AmerUs Mortgage AmerUs Life
By: /s/ David R. Menker By: /s/ Steve Stotts
------------------------------- ------------------------
David R. Menker Steve Stotts
Its Senior Vice President and Its Vice President and
Risk Manager Portfolio Manager
attachments
<PAGE>
SUBJECT: NONAGENCY 5/1 & 7/1 ARM
[logo] SECTION: SPECIAL AMERUS PRODUCTS
PAGE NUMBER: 3.3.1
PREPARED BY: DORIS DUNGEY
APPROVED BY: DORIS DUNGEY
DATE: 10 MARCH 1997
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SUMMARY This program offering features conforming and nonconforming
ARMs for up to 95% LTV. These loans feature low first
adjustment caps, and convertible loans feature a low
conversion margin as well. All loans will be purchased by
AmerUS Life for portfolio investment.
AVAILABILITY This program is available for retail and wholesale
originations.
ELIGIBLE The 5/1 and 7/1 ARMs are eligible for this program. The 5/1
PRODUCTS product has a 2.00% first adjustment cap, 2.00% periodic
cap, and 5.00% lifetime cap. The 7/1 has a 5/00% first
adjustment cap, 2.00% periodic cpa, and 5.00% lifetime cap.
Both products are indexed to the one-year Treasury Bill,
with a 2.75% margin. These ARMs are not assumable within the
initial fixed period; after the first adjustment the loan may
be assumed with the consent and under the conditions of the
note holder.
CONVERTIBILITY Conforming loans have a conversion option. The conversion
option may be exercised on the first, second, or third
interest rate change date. The converted rate is equal to
0.375% over the FNMA 60-day required net yield in effect
45 days prior to conversion, rounded to the nearest 0.125%.
The conversion fee is $250.00.
LOCK OPTIONS This product will be priced daily. Standard locks are
available for 60 or 90 day periods, with no lock fees.
Extended locks with float-down options are not available for
this product.
OCCUPANCY Amount Purchase No Cash Cash Out
--------- ------ -------- ------- --------
LTV AND LOAN 1-2 Unit Principal $350,000 95% 90% 75%
AMOUNTS LIMITS Residence $400,000 90% 80% 75%
$500,000 85% 80% 75%
1 Unit Second $400,000 90% 80% 65%
Home
Investor and 3-4 unit properties are not eligible.
ELIGIBLE Single family attached, single family detached, multi-family
PROPERTIES 2-unit, condominiums and PUDs. All properties must meet
agency collateral standards.
TERM All loans must be written for 20, 25 or 30 year terms only.
SUBORDINATE Subordinate financing is not acceptable.
FINANCING
PMI Private mortgage insurance is required on all loans with
LTVs greater than 80%
UNDERWRITING All loans must be underwritten to agency guidelines except
GUIDELINES where specified otherwise in this document.
<PAGE>
NONAGENCY 5/1 & 7/1 PAGE 3.3.2
QUALIFYING RATE The borrower may be qualified at the note rate in all
cases. There is no qualifying floor.
TEMPORARY Temporary buydowns with a 3-2-1 or 2-1-0 schedule are
BUYDOWNS allowed in this program. The borrower may be
qualified at 2.00% below the note rate for principal
residences. Second homes qualify at the note rate.
ESCROWS Escrows for taxes and insurance are required, but may
be waived for a 0.25% increase in price.
DOCUMENTATION Both full and alternate documentation are available
REQUIREMENTS-- for this program.
APPLICATION
DOCUMENTATION Note: FNMA/FHLMC 3522
REQUIREMENTS-- Rider: FNMA/FHLMC 3182
CLOSING Mortgage/Deed of Trust: Conventional State-Specific
DISCLOSURES In addition to standard Truth-in-Lending and RESPA
disclosures, the applicant must be provided with an ARM
5/1 or 7/1 loan program disclosure and a copy of the
Adjustable Rate Mortgage Consumer Handbook at the time
of application.
SYSTEM CODES
<PAGE>
[CONFORMED COPY WITH EXHIBIT F
CONFORMED AS EXECUTED]
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[GRAPHIC] [GRAPHIC]
CREDIT AGREEMENT
AMONG
AMERUS LIFE HOLDINGS, INC.,
VARIOUS LENDING INSTITUTIONS,
BANK ONE, INDIANA, NA
AND
ABN AMRO BANK, N.V.
AS CO-ARRANGERS,
AND
THE CHASE MANHATTAN BANK,
AS ADMINISTRATIVE AGENT
-------------------------------------------
DATED AS OF OCTOBER 23, 1997
-------------------------------------------
$250,000,000
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<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. Amount and Terms of Credit . . . . . . . . . . . . . . . . . . . 1
1.01 Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Minimum Amount of Each Borrowing; Maximum Number of Borrowings . . 2
1.03 Notice of Borrowing. . . . . . . . . . . . . . . . . . . . . . . . 2
1.04 Disbursement of Funds. . . . . . . . . . . . . . . . . . . . . . . 2
1.05 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.06 Conversions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.07 Pro Rata Borrowings. . . . . . . . . . . . . . . . . . . . . . . . 4
1.08 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.09 Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.10 Increased Costs, Illegality, etc.. . . . . . . . . . . . . . . . . 6
1.11 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.12 Change of Lending Office . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2. Fees; Commitments. . . . . . . . . . . . . . . . . . . . . . . . 10
2.01 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.02 Voluntary Reduction of Commitments . . . . . . . . . . . . . . . . 10
2.03 Mandatory Reduction of Commitments . . . . . . . . . . . . . . . . 11
SECTION 3. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.01 Voluntary Prepayments. . . . . . . . . . . . . . . . . . . . . . . 11
3.02 Mandatory Repayments . . . . . . . . . . . . . . . . . . . . . . . 12
3.03 Method and Place of Payment. . . . . . . . . . . . . . . . . . . . 12
3.04 Net Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . 15
4.01 Conditions Precedent to the Initial Borrowing Date . . . . . . . . 15
4.02 Conditions Precedent to All Loans. . . . . . . . . . . . . . . . . 18
SECTION 5. Representations, Warranties and Agreements . . . . . . . . . . . 19
5.01 Corporate Status . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.02 Corporate Power and Authority. . . . . . . . . . . . . . . . . . . 20
5.03 No Contravention of Laws, Agreements or Organizational Documents . 20
(i)
<PAGE>
Page
----
5.04 Litigation and Contingent Liabilities. . . . . . . . . . . . . . . 20
5.05 Use of Proceeds; Margin Regulations. . . . . . . . . . . . . . . . 20
5.06 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.07 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . 21
5.08 Public Utility Holding Company Act . . . . . . . . . . . . . . . . 21
5.09 True and Complete Disclosure; Projections and Assumptions. . . . . 21
5.10 Financial Condition; Financial Statements. . . . . . . . . . . . . 22
5.11 Security Interests . . . . . . . . . . . . . . . . . . . . . . . . 22
5.12 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . 22
5.13 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . 23
5.14 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.15 Intellectual Property, etc.. . . . . . . . . . . . . . . . . . . . 24
5.16 Pollution and Other Regulations. . . . . . . . . . . . . . . . . . 24
5.17 Labor Relations; Collective Bargaining Agreements. . . . . . . . . 25
5.18 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.19 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.20 Compliance with Statutes, etc. . . . . . . . . . . . . . . . . . . 26
5.21 Insurance Licenses . . . . . . . . . . . . . . . . . . . . . . . . 26
5.22 Insurance Business . . . . . . . . . . . . . . . . . . . . . . . . 26
5.23 Reinsurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 6. Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . . 27
6.01 Information Covenants. . . . . . . . . . . . . . . . . . . . . . . 27
6.02 Books, Records and Inspections . . . . . . . . . . . . . . . . . . 30
6.03 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.04 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.05 Corporate Franchises . . . . . . . . . . . . . . . . . . . . . . . 31
6.06 Compliance with Statutes, etc. . . . . . . . . . . . . . . . . . . 31
6.07 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.08 Performance of Obligations . . . . . . . . . . . . . . . . . . . . 33
6.09 Good Repair. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.10 End of Fiscal Years; Fiscal Quarters . . . . . . . . . . . . . . . 33
6.11 Maintenance of Licenses and Permits. . . . . . . . . . . . . . . . 33
SECTION 7. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . 33
7.01 Changes in Business. . . . . . . . . . . . . . . . . . . . . . . . 34
7.02 Consolidation, Merger, Sale or Purchase of Assets, etc.. . . . . . 34
7.03 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.04 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(ii)
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7.05 Issuance of Stock. . . . . . . . . . . . . . . . . . . . . . . . . 41
7.06 Prepayments of Indebtedness, Modifications of Agreements, etc. . . 41
7.07 Dividends, etc.. . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.08 Limitation on Certain Restrictions . . . . . . . . . . . . . . . . 42
7.09 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . 42
7.10 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.11 Interest Coverage Ratio. . . . . . . . . . . . . . . . . . . . . . 43
7.12 Minimum Adjusted Consolidated Surplus. . . . . . . . . . . . . . . 43
7.13 Minimum Risk-Based Capital . . . . . . . . . . . . . . . . . . . . 44
7.14 Minimum Rating . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 8. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . 44
8.01 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.02 Representations, etc.. . . . . . . . . . . . . . . . . . . . . . . 45
8.03 Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.04 Default Under Other Agreements . . . . . . . . . . . . . . . . . . 45
8.05 Bankruptcy, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.06 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.07 Pledge Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.08 Judgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.09 Revocation of Insurance License. . . . . . . . . . . . . . . . . . 48
8.10 Iowa Approvals and Regulations. . . . . . . . . . . . . . . . . . . 48
SECTION 9. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10. The Administrative Agent. . . . . . . . . . . . . . . . . . . . 67
10.01 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.02 Delegation of Duties. . . . . . . . . . . . . . . . . . . . . . . 68
10.03 Exculpatory Provisions. . . . . . . . . . . . . . . . . . . . . . 68
10.04 Reliance by Administrative Agent. . . . . . . . . . . . . . . . . 69
10.05 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . 69
10.06 Non-Reliance. . . . . . . . . . . . . . . . . . . . . . . . . . . 69
10.07 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.08 The Administrative Agent in its Individual Capacity . . . . . . . 71
10.09 Successor Administrative Agent. . . . . . . . . . . . . . . . . . 71
SECTION 11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 71
11.01 Payment of Expenses, etc. . . . . . . . . . . . . . . . . . . . . 71
11.02 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . 72
(iii)
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11.03 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
11.04 Benefit of Agreement. . . . . . . . . . . . . . . . . . . . . . . 73
11.05 No Waiver; Remedies Cumulative. . . . . . . . . . . . . . . . . . 75
11.06 Payments Pro Rata . . . . . . . . . . . . . . . . . . . . . . . . 75
11.07 Calculations; Computations. . . . . . . . . . . . . . . . . . . . 76
11.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. . . . . . . . . 76
11.09 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.10 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.11 Headings Descriptive. . . . . . . . . . . . . . . . . . . . . . . 78
11.12 Amendment or Waiver . . . . . . . . . . . . . . . . . . . . . . . 78
11.13 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
11.14 Domicile of Loans . . . . . . . . . . . . . . . . . . . . . . . . 79
11.15 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 79
11.16 WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . 79
11.17 Register. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
11.18 Collateral Release. . . . . . . . . . . . . . . . . . . . . . . . 80
ANNEX I -- List of Banks and Commitments
ANNEX II -- Bank Addresses
ANNEX III -- Corporate Status
ANNEX IV -- Plans
ANNEX V -- Subsidiaries
ANNEX VI -- Collective Bargaining Agreements
ANNEX VII -- Capitalization
ANNEX VIII -- Indebtedness
ANNEX IX -- Insurance Licenses
ANNEX X -- Reinsurance
ANNEX XI -- Liens
EXHIBIT A -- Form of Notice of Borrowing
EXHIBIT B -- Form of Note
EXHIBIT C -- Form of Section 3.04(b)(ii) Certificate
EXHIBIT D -- Form of Opinion of Joseph Haggerty, Esq.
EXHIBIT E-1 -- Form of Officer's Certificate
EXHIBIT E-2 -- Form of Secretary's Certificate
EXHIBIT F -- Form of Pledge Agreement
EXHIBIT G -- Form of Assignment and Assumption Agreement
(iv)
<PAGE>
CREDIT AGREEMENT, dated as of October 23, 1997, among AMERUS LIFE
HOLDINGS, INC., an Iowa corporation (the "Borrower"), the lending
institutions listed from time to time on Annex I hereto (each a "Bank" and,
collectively, the "Banks"), BANK ONE, INDIANA, NA and ABN AMRO BANK, N.V.,
as Co-Arrangers, and THE CHASE MANHATTAN BANK, as Administrative Agent (the
"Administrative Agent"). Unless otherwise defined herein, all capitalized
terms used herein and defined in Section 9 are used herein as so defined.
W I T N E S S E T H :
WHEREAS, subject to and upon the terms and conditions set forth herein,
the Banks are willing to make available to the Borrower the credit facility
provided for herein.
NOW, THEREFORE, IT IS AGREED:
SECTION 1. AMOUNT AND TERMS OF CREDIT.
1.01 COMMITMENTS. Subject to and upon the terms and conditions set
forth herein, each Bank severally agrees, at any time and from time to time
on and after the Effective Date and prior to the Maturity Date, to make a
loan or loans (each, a "Loan" and, collectively, the "Loans") to the
Borrower, which Loans (i) shall, at the option of the Borrower, be Base Rate
Loans or Eurodollar Loans, PROVIDED that (x) except as otherwise specifically
provided in Section 1.10(b), all Loans comprising the same Borrowing shall at
all times be of the same Type and (y) unless the Administrative Agent has
determined that the Syndication Date has occurred (at which time this clause
(y) shall no longer be applicable), prior to the 90th day following the
Initial Borrowing Date the Borrower may only elect Base Rate Loans, or
Eurodollar Loans having an Interest Period of one week, and if during such
period the Borrower elects to have Loans outstanding as Eurodollar Loans, the
Interest Periods for all such Eurodollar Loans shall begin and end on the
same dates, (ii) may be repaid and reborrowed at any time in accordance with
the provisions hereof, (iii) shall have an aggregate principal amount at any
time outstanding which does not exceed for any Bank the Commitment of such
Bank at such time and (iv) shall have an aggregate principal amount at any
time outstanding which does not exceed for all Banks the Total Commitment at
such time.
<PAGE>
1.02 MINIMUM AMOUNT OF EACH BORROWING; MAXIMUM NUMBER OF BORROWINGS. The
aggregate principal amount of each Borrowing hereunder shall not be less than
$5,000,000 and, if in excess thereof, shall be in an integral multiple of
$1,000,000. More than one Borrowing may be incurred on any day; PROVIDED
that at no time shall there be outstanding more than six Borrowings of
Eurodollar Loans.
1.03 NOTICE OF BORROWING. (a) In connection with its incurrence of
Loans on any Business Day, including the Initial Borrowing Date, the Borrower
shall give the Administrative Agent at its Notice Office, prior to 11:00 A.M.
(New York time), at least three Business Days' prior written notice (or
telephonic notice promptly confirmed in writing) of each Eurodollar Loan or
at least one Business Day's prior written notice (or telephonic notice
promptly confirmed in writing) of each Base Rate Loan. Such notice (the
"Notice of Borrowing"), except as otherwise expressly provided in Section
1.10, shall be irrevocable, and, in the case of a written notice and a
confirmation of telephonic notice, shall be in the form of Exhibit A hereto,
appropriately completed to specify (i) the aggregate principal amount of the
Loans to be made pursuant to such Borrowing, (ii) the date of such Borrowing
(which shall be a Business Day) and (iii) whether the respective Borrowings
shall consist of Base Rate Loans or Eurodollar Loans and, if Eurodollar
Loans, the Interest Period to be initially applicable thereto. The
Administrative Agent shall promptly give each Bank written notice (or
telephonic notice promptly confirmed in writing) of each proposed Borrowing,
of such Bank's proportionate share thereof and of the other matters covered
by the Notice of Borrowing.
(b) Without in any way limiting the obligation of the Borrower to
confirm in writing any notice it may give hereunder by telephone, the
Administrative Agent may act prior to receipt of written confirmation without
liability upon the basis of such telephonic notice, believed by the
Administrative Agent in good faith to be from an Authorized Officer of the
Borrower. In each such case the Administrative Agent's record of the terms
of any such telephonic notice shall be conclusive absent manifest error.
1.04 DISBURSEMENT OF FUNDS. (a) Subject to the terms and conditions
herein set forth, no later than 11:00 A.M. (New York time) on the date of
each incurrence of Loans, each Bank will make available to the Administrative
Agent its PRO RATA share of each Borrowing requested to be made on such date
in the manner provided below.
(b) Each Bank shall make available all amounts it is to fund under any
Borrowing in U.S. dollars and immediately available funds to the
Administrative Agent at the Administrative Agent's Payment Office and the
Administrative Agent will make
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<PAGE>
available to the Borrower as promptly as practicable by depositing to its
account at the Administrative Agent's Payment Office the aggregate of the
amounts so made available in the type of funds received. Unless the
Administrative Agent shall have been notified by any Bank prior to the date
of any such Borrowing that such Bank does not intend to make available to the
Administrative Agent its portion of the Borrowing or Borrowings to be made on
such date, the Administrative Agent may assume that such Bank has made such
amount available to the Administrative Agent on the date of such Borrowing,
and the Administrative Agent, in reliance upon such assumption, may (in its
sole discretion and without any obligation to do so) make available to the
Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Administrative Agent by such Bank and the
Administrative Agent has made available same to the Borrower, the
Administrative Agent shall be entitled to recover such corresponding amount
from such Bank. If such Bank does not pay such corresponding amount
forthwith upon the Administrative Agent's demand therefor, the Administrative
Agent shall promptly notify the Borrower, and the Borrower shall immediately
pay such corresponding amount to the Administrative Agent. The
Administrative Agent shall also be entitled to recover from the Bank or the
Borrower, as the case may be, interest on such corresponding amount in
respect of each day from the date such corresponding amount was made
available by the Administrative Agent to the Borrower to the date such
corresponding amount is recovered by the Administrative Agent, at a rate per
annum equal to (x) if paid by such Bank, the overnight Federal Funds
Effective Rate or (y) if paid by the Borrower, the then applicable rate of
interest, calculated in accordance with Section 1.08(a) or (b), as the case
may be, for the respective Loans.
(c) Nothing in this Section 1.04 shall be deemed to relieve any Bank
from its obligation to fulfill its commitments hereunder or to prejudice any
rights which the Borrower may have against any Bank as a result of any
default by such Bank hereunder.
1.05 NOTES. (a) The Borrower's obligation to pay the principal of,
and interest on, all the Loans made to it by each Bank shall be evidenced by
a promissory note substantially in the form of Exhibit B with blanks
appropriately completed in conformity herewith (each a "Note" and
collectively the "Notes").
(b) The Note issued to each Bank shall (i) be executed by the Borrower,
(ii) be payable to the order of such Bank and be dated the Initial Borrowing
Date (or if issued after the Initial Borrowing Date, be dated the date of the
issuance thereof), (iii) be in a stated principal amount equal to the
Commitment of such Bank and be payable in the principal amount of the
outstanding Loans evidenced thereby, (iv) mature on the Maturity Date, (v)
bear interest as provided in the appropriate clause of Section 1.08 in
respect of the Base Rate Loans and Eurodollar Loans, as the case may be,
evidenced
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<PAGE>
thereby, (vi) be subject to voluntary prepayment as provided in Section 3.01
and mandatory repayment as provided in Section 3.02 and (vii) be entitled to
the benefits of this Agreement and the other Credit Documents.
(c) Each Bank will record on its internal records the amount of each
Loan made by it and each payment in respect thereof and will prior to any
transfer of its Note endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such
notation or any error in any such notation shall not affect the Borrower's
obligations in respect of such Loans.
1.06 CONVERSIONS. The Borrower shall have the option to convert on any
Business Day all or a portion at least equal to $5,000,000 (and, if in excess
thereof, an integral multiple of $1,000,000) of the outstanding principal
amount of the Loans of one Type into a Borrowing or Borrowings of the other
Type of Loan; PROVIDED that (i) no partial conversion of a Borrowing of
Eurodollar Loans shall reduce the outstanding principal amount of the
Eurodollar Loans pursuant to such Borrowing to less than $5,000,000, (ii)
Base Rate Loans may only be converted into Eurodollar Loans if no Default or
Event of Default is in existence on the date of the conversion, (iii)
Borrowings of Eurodollar Loans resulting from this Section 1.06 shall be
limited in number as provided in Section 1.02, (iv) Eurodollar Loans may only
be converted into Base Rate Loans on the last day of the Interest Period
applicable thereto, (v) unless the Administrative Agent has determined that
the Syndication Date has occurred (at which time this clause (v) shall no
longer be applicable), prior to the 90th day following the Initial Borrowing
Date, conversions of Base Rate Loans into Eurodollar Loans may only be made
in accordance with Section 1.01(i)(y), and (vi) each such conversion shall be
made PRO RATA among the Loans of each Bank of the Type being converted. Each
such conversion shall be effected by the Borrower by giving the
Administrative Agent at its Notice Office, prior to 11:00 A.M. (New York
time), at least three Business Days' (or one Business Day's in the case of a
conversion into Base Rate Loans) prior written notice (or telephonic notice
promptly confirmed in writing) (each a "Notice of Conversion") specifying the
Loans to be so converted, the Type of Loans to be converted into and, if to
be converted into a Borrowing of Eurodollar Loans, the Interest Period to be
initially applicable thereto. The Administrative Agent shall give each Bank
prompt notice of any such proposed conversion affecting any of its Loans.
1.07 PRO RATA BORROWINGS. All Borrowings of Loans under this Agreement
shall be loaned by the Banks PRO RATA on the basis of their Commitments. It
is understood that no Bank shall be responsible for any default by any other
Bank in its obligation to make Loans hereunder and that each Bank shall be
obligated to make the Loans provided to be made by it hereunder, regardless
of the failure of any other Bank to fulfill its commitments hereunder.
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<PAGE>
1.08 INTEREST. (a) The unpaid principal amount of each Base Rate Loan
shall bear interest from the date of the Borrowing thereof until the earlier
of (i) the maturity (whether by acceleration or otherwise) of such Base Rate
Loan and (ii) the conversion of such Base Rate Loan to a Eurodollar Loan
pursuant to Section 1.06, at a rate per annum which shall at all times be the
Base Rate in effect from time to time.
(b) The unpaid principal amount of each Eurodollar Loan shall bear
interest from the date of the Borrowing thereof until the earlier of (i) the
maturity (whether by acceleration or otherwise) of such Eurodollar Loan or
(ii) the conversion of such Eurodollar Loan to a Base Rate Loan pursuant to
Section 1.06, at a rate per annum which shall at all times be the Applicable
Margin then in effect for Eurodollar Loans plus the relevant Eurodollar Rate
for the Interest Period applicable to such Eurodollar Loan.
(c) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan and any other overdue amount payable
hereunder shall bear interest at a rate per annum equal to the Base Rate in
effect from time to time plus 2%, PROVIDED that overdue principal in respect
of Eurodollar Loans shall bear interest until the end of the Interest Period
applicable to such Eurodollar Loans at a rate per annum equal to 2% in excess
of the rate otherwise applicable to such Eurodollar Loans.
(d) Interest shall accrue from and including the date of any Borrowing
to but excluding the date of any repayment thereof and shall be payable (i)
in respect of each Base Rate Loan, quarterly in arrears on the last Business
Day of each calendar quarter, (ii) in respect of each Eurodollar Loan, on the
last day of each Interest Period applicable thereto and, in the case of an
Interest Period of six months, on the date occurring three months after the
first day of such Interest Period and (iii) in respect of each Loan, on any
conversion or prepayment (on the amount so converted or prepaid), at maturity
(whether by acceleration or otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in accordance
with Section 11.07(b).
(f) The Administrative Agent, upon determining the interest rate for
any Borrowing of Eurodollar Loans for any Interest Period, shall promptly
notify the Borrower and the Banks thereof.
1.09 INTEREST PERIODS. At the time the Borrower gives a Notice of
Borrowing or Notice of Conversion in respect of the making of, or conversion
into, a Borrowing of Eurodollar Loans (in the case of the initial Interest
Period applicable thereto) or prior to 11:00 A.M. (New York time) on the
third Business Day prior to
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<PAGE>
the expiration of an Interest Period applicable to a Borrowing of Eurodollar
Loans, it shall have the right to elect by giving the Administrative Agent
written notice (or telephonic notice promptly confirmed in writing) of the
Interest Period to be applicable to such Borrowing, which Interest Period
shall, at the option of the Borrower, be a one week period or a one, two,
three or six month period. Notwithstanding anything to the contrary
contained above:
(i) the initial Interest Period for any Borrowing of Eurodollar Loans
shall commence on the date of such Borrowing (including the date of any
conversion from a Borrowing of Base Rate Loans) and each Interest Period
occurring thereafter in respect of such Borrowing shall commence on the day
on which the next preceding Interest Period expires;
(ii) if any Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period, such Interest Period shall end on the last Business Day of
such calendar month;
(iii) if any Interest Period would otherwise expire on a day which
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, PROVIDED that if any Interest Period would
otherwise expire on a day which is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iv) no Interest Period may be elected if it would extend beyond the
Maturity Date; and
(v) no Interest Period may be elected at any time when a Default or
Event of Default is then in existence.
If upon the expiration of any Interest Period, the Borrower has failed,
or is not permitted, to elect a new Interest Period to be applicable to the
respective Borrowing of Eurodollar Loans as provided above, the Borrower
shall be deemed to have elected to convert such Borrowing into a Borrowing of
Base Rate Loans effective as of the expiration date of such current Interest
Period.
1.10 INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that (x) in
the case of clause (i) below, the Administrative Agent or (y) in the case of
clauses (ii) and (iii) below, any Bank shall have determined in good faith
(which determination shall, absent manifest error, be final and conclusive and
binding upon all parties hereto):
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<PAGE>
(i) on any date for determining the Eurodollar Rate for any
Interest Period, that, by reason of any changes arising after the Effective
Date affecting the interbank Eurodollar market, adequate and fair means do
not exist for ascertaining the applicable interest rate on the basis
provided for in the definition of Eurodollar Rate; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to
any Eurodollar Loans (other than any increased cost or reduction in the
amount received or receivable resulting from the imposition of or a change
in the rate of taxes or similar charges) because of (x) any change since
the Effective Date in any applicable law, governmental rule, regulation,
guideline, order or request (whether or not having the force of law), or in
the interpretation or administration thereof and including the introduction
of any new law or governmental rule, regulation, guideline, order or
request (such as, for example, but not limited to, a change in official
reserve requirements, but, in all events, excluding reserves required under
Regulation D to the extent included in the computation of the Eurodollar
Rate) and/or (y) other circumstances affecting the interbank Eurodollar
market or the position of such Bank in such market; or
(iii) at any time, that the making or continuance of any Eurodollar
Loan has become unlawful by compliance by such Bank in good faith with any
change since the Effective Date in any law, governmental rule, regulation,
guideline or order, or the interpretation or application thereof, or would
conflict with any thereof not having the force of law but with which such
Bank customarily complies, or has become impracticable as a result of a
contingency occurring after the Effective Date which materially adversely
affects the interbank Eurodollar market;
then, and in any such event, such Bank (or the Administrative Agent in the
case of clause (i) above) shall (x) on such date and (y) within 10 Business
Days of the date on which such event no longer exists give notice (by
telephone confirmed in writing) to the Borrower and to the Administrative
Agent of such determination and the reason therefor (which notice the
Administrative Agent shall promptly transmit to each of the other Banks).
Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no
longer be available until such time as the Administrative Agent notifies the
Borrower and the Banks that the circumstances giving rise to such notice by
the Administrative Agent no longer exist, and any Notice of Borrowing or
Notice of Conversion given by the Borrower with respect to Eurodollar Loans
which have not yet been incurred shall be deemed rescinded by the Borrower
or, in the case of a Notice of Borrowing, shall, at the option of the
Borrower, be deemed converted into a Notice of Borrowing for
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Base Rate Loans to be made on the date of Borrowing contained in such Notice
of Borrowing, (y) in the case of clause (ii) above, the Borrower shall pay to
such Bank, upon written demand therefor, such additional amounts (in the form
of an increased rate of, or a different method of calculating, interest or
otherwise as such Bank shall determine in good faith) as shall be required to
compensate such Bank for such increased costs or reductions in amounts
receivable hereunder (a written notice as to the additional amounts owed to
such Bank, showing the basis for the calculation thereof, which basis shall
be reasonable and consistently applied, submitted to the Borrower by such
Bank shall, absent manifest error, be final and conclusive and binding upon
all parties hereto) and (z) in the case of clause (iii) above, the Borrower
shall take one of the actions specified in Section 1.10(b) as promptly as
possible and, in any event, within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may
(and in the case of a Eurodollar Loan affected pursuant to Section
1.10(a)(iii) the Borrower shall) either (i) if the affected Eurodollar Loan
is then being made pursuant to a Borrowing, by giving the Administrative
Agent telephonic notice (confirmed promptly in writing) thereof on the same
date that the Borrower was notified by a Bank (or on the next Business Day if
the Borrower received such notice after 3:00 p.m. (New York time)) pursuant
to Section 1.10(a)(ii) or (iii), cancel said Borrowing, convert the related
Notice of Borrowing into one requesting a Borrowing of Base Rate Loans or
require the affected Bank to make its requested Loan as a Base Rate Loan, or
(ii) if the affected Eurodollar Loan is then outstanding, upon at least one
Business Day's notice to the Administrative Agent, require the affected Bank
to convert each such affected Eurodollar Loan into a Base Rate Loan, PROVIDED
that if more than one Bank is affected at any time, then all affected Banks
must be treated the same pursuant to this Section 1.10(b).
(c) If any Bank shall have determined in good faith that after the
Effective Date the adoption or effectiveness of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change
in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged by law with the
interpretation or administration thereof, or compliance by such Bank or its
parent corporation with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank
or comparable agency, in each case made subsequent to the Effective Date, has
or would have the effect of reducing the rate of return on such Bank's or its
parent corporation's capital or assets as a consequence of such Bank's
commitments or obligations hereunder to a level below that which such Bank or
its parent corporation could have achieved but for such adoption,
effectiveness, change or compliance (taking into consideration such Bank's or
its parent corporation's policies with respect to capital
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adequacy), then from time to time, upon demand by such Bank (with a copy to
the Administrative Agent), the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank or its parent
corporation for such reduction. Each Bank, upon determining in good faith
that any additional amounts will be payable pursuant to this Section 1.10(c),
will give prompt written notice thereof to the Borrower, which notice shall
set forth the basis of the calculation of such additional amounts, which
basis must be reasonable and consistently applied, although the failure to
give any such notice shall not release or diminish any of the Borrower's
obligations to pay additional amounts pursuant to this Section 1.10(c) upon
the subsequent receipt of such notice.
1.11 COMPENSATION. The Borrower shall compensate each Bank, upon its
written request (which request shall set forth the basis for requesting such
compensation), for all reasonable losses, expenses and liabilities
(including, without limitation, any loss, expense or liability incurred by
reason of the liquidation or reemployment of deposits or other funds required
by such Bank to fund its Eurodollar Loans but excluding any loss of
anticipated profit with respect to such Loans) which such Bank may sustain:
(i) if for any reason (other than a default by such Bank or the
Administrative Agent) a Borrowing of Eurodollar Loans does not occur on a
date specified therefor in a Notice of Borrowing or Notice of Conversion
(whether or not withdrawn by the Borrower or deemed withdrawn pursuant to
Section 1.10(a)); (ii) if any repayment, prepayment or conversion of any of
its Eurodollar Loans occurs on a date which is not the last day of an
Interest Period applicable thereto; (iii) if any prepayment of any of its
Eurodollar Loans is not made on any date specified in a notice of prepayment
given by the Borrower; or (iv) as a consequence of (x) any other failure by
the Borrower to repay its Loans when required by the terms of this Agreement
or (y) an election made pursuant to Section 1.10(b). Calculation of all
amounts payable to a Bank under this Section 1.11 shall be made as though
that Bank had actually funded its relevant Eurodollar Loan through the
purchase of a Eurodollar deposit bearing interest at the Eurodollar Rate in
an amount equal to the amount of that Loan, having a maturity comparable to
the relevant Interest Period and through the transfer of such Eurodollar
deposit from an offshore office of that Bank or other bank to a domestic
office of that Bank in the United States of America; PROVIDED, HOWEVER, that
each Bank may fund each of its Eurodollar Loans in any manner it sees fit and
the foregoing assumption shall be utilized only for the calculation of
amounts payable under this Section 1.11.
1.12 CHANGE OF LENDING OFFICE. Each Bank agrees that, upon the
occurrence of any event giving rise to the operation of Section 1.10(a)(ii)
or (iii) or 3.04 with respect to such Bank, it will, if requested by the
Borrower, use reasonable efforts (subject to overall policy considerations of
such Bank) to designate another lending office for any Loans affected by such
event; PROVIDED that such designation is made on such
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terms that, in the opinion of such Bank, such Bank and its lending office
suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of any
such Section. Nothing in this Section 1.12 shall affect or postpone any of
the obligations of the Borrower or the right of any Bank provided in Section
1.10 or 3.04.
SECTION 2. FEES; COMMITMENTS.
2.01 FEES. (a) The Borrower agrees to pay the Administrative Agent a
commitment fee (the "Commitment Fee") for the account of each Bank for the
period from and including the Effective Date to but excluding the earlier of
the Maturity Date and the date the Total Commitment has been terminated (the
"Termination Date"), computed at a per annum rate equal to the Applicable
Commitment Fee Percentage from time to time on the daily average Unutilized
Commitment of such Bank. Accrued Commitment Fees shall be due and payable in
arrears on the last Business Day of each March, June, September and December
and on the Termination Date.
(b) The Borrower agrees to pay the Administrative Agent a utilization
fee (the "Utilization Fee") for the account of each Bank for each day from
and including the Effective Date to and including the earlier of the Maturity
Date and the Termination Date on which the outstanding principal amount of
all Loans made by such Bank equals or exceeds 50% of the Commitment of such
Bank, computed at a per annum rate equal to the Applicable Utilization Fee
Percentage from time to time on the outstanding principal amount of Loans of
such Bank from time to time. Accrued Utilization Fees shall be due and
payable in arrears on the last Business Day of each March, June, September
and December and on the Termination Date.
(c) The Borrower shall pay to the Administrative Agent, for the account
of the Administrative Agent, when and as due, such fees as have been, or are
from time to time, separately agreed upon.
(d) All computations of Fees shall be made in accordance with Section
11.07(b).
2.02 VOLUNTARY REDUCTION OF COMMITMENTS. Upon at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in
writing) given by the Borrower to the Administrative Agent at its Notice
Office (which notice the Administrative Agent shall promptly transmit to each
of the Banks), the Borrower shall have the right, without premium or penalty,
to terminate, in whole or in part, the Total Unutilized Commitment, PROVIDED
that (x) partial reductions of the Total
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Unutilized Commitment pursuant to this Section 2.02 shall be in the amount of
at least $5,000,000, and (y) any such termination shall apply proportionately
to permanently reduce the Commitment of each of the Banks.
2.03 MANDATORY REDUCTION OF COMMITMENTS. (a) The Total Commitment
(and the Commitment of each Bank) shall be terminated at 5:00 p.m. (New York
time) on the Expiration Date unless the Effective Date has occurred on or
before such date.
(b) The Total Commitment shall terminate on the Maturity Date.
(c) In addition to any other mandatory commitment reductions
pursuant to this Section 2.03, the Total Commitment shall be permanently
reduced on any date after the Effective Date on which the Borrower incurs any
Indebtedness for borrowed money (other than Indebtedness for borrowed money
incurred pursuant to Sections 7.04(a)-(o)) by an amount equal to 50% of the
net proceeds of such Indebtedness. Any reduction to the Total Commitment
pursuant to this Section 2.03(c) shall be applied proportionately to reduce
the Commitment of each Bank; PROVIDED, that in no event shall the Total
Commitment be reduced below $150,000,000 at any time as a result of this
Section 2.03(c).
SECTION 3. PAYMENTS.
3.01 VOLUNTARY PREPAYMENTS. The Borrower shall have the right to
prepay Loans, without premium or penalty (except for amounts payable pursuant
to Section 1.11), in whole or in part, from time to time on the following
terms and conditions: (i) the Borrower shall give the Administrative Agent at
its Notice Office written notice (or telephonic notice promptly confirmed in
writing) of its intent to prepay the Loans, the amount of such prepayment and
(in the case of Eurodollar Loans) the specific Borrowing(s) pursuant to which
made, which notice shall be received by the Administrative Agent (x) in the
case of Base Rate Loans, no later than 11:00 A.M. (New York time) one
Business Day prior to the date of such prepayment, or (y) in the case of
Eurodollar Loans, three Business Days prior to the date of such prepayment,
which notice shall promptly be transmitted by the Administrative Agent to
each of the Banks; (ii) each partial prepayment of any Borrowing shall be in
an aggregate principal amount of at least $5,000,000, PROVIDED that no
partial prepayment of Eurodollar Loans made pursuant to a Borrowing shall
reduce the aggregate principal amount of the Loans outstanding pursuant to
such Borrowing to an amount less than $5,000,000; and (iii) each prepayment
in respect of any Loans made pursuant to a Borrowing shall be applied PRO
RATA among such Loans.
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3.02 MANDATORY REPAYMENTS. (a) On any day on which the sum of the
aggregate outstanding principal amount of the Loans exceeds the Total
Commitment as then in effect, the Borrower shall prepay principal of Loans in
an amount equal to such excess.
(b) With respect to each repayment of Loans required by this
Section 3.02, the Borrower may designate the Types of Loans which are to be
repaid and, in the case of Eurodollar Loans, the specific Borrowing or
Borrowings pursuant to which made, PROVIDED that: (i) if any repayment of
Eurodollar Loans made pursuant to a single Borrowing shall reduce the
outstanding Eurodollar Loans made pursuant to such Borrowing to an amount
less than $5,000,000 such Borrowing shall be converted immediately into a
Borrowing of Base Rate Loans and (ii) each repayment of Loans made pursuant
to the same Borrowing shall be applied PRO RATA among the Banks which made
such Loans. In the absence of a designation by the Borrower as described in
the preceding sentence, the Administrative Agent shall, subject to the above,
make such designation in its sole discretion.
3.03 METHOD AND PLACE OF PAYMENT. Except as otherwise specifically
provided herein, all payments under this Agreement and the Notes shall be
made to the Administrative Agent for the ratable account of the Banks
entitled thereto, not later than 11:00 A.M. (New York time) on the date when
due and shall be made in immediately available funds and in lawful money of
the United States of America at the Payment Office, it being understood that
written, telex or facsimile notice by the Borrower to the Administrative
Agent to make a payment from the funds in the Borrower's account at the
Payment Office shall constitute the making of such payment to the extent of
such funds held in such account. Any payments under this Agreement which are
made later than 11:00 A.M. (New York time) shall be deemed to have been made
on the next succeeding Business Day. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Business Day, the
due date thereof shall be extended to the next succeeding Business Day and,
with respect to payments of principal, interest shall be payable during such
extension at the applicable rate in effect immediately prior to such
extension.
3.04 NET PAYMENTS. (a) All payments made by the Borrower hereunder
or under any Note will be made without setoff, counterclaim or other defense.
Except as provided in Section 3.04(b), all such payments will be made free
and clear of, and without deduction or withholding for, any present or future
taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any
political subdivision or taxing authority thereof or therein with respect to
such payments (but excluding, except as provided in the second succeeding
sentence, any tax imposed on or measured by the net income or net profits of
a
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Bank, or franchise taxes imposed on it, pursuant to the laws of the
jurisdiction in which it is organized or the jurisdiction in which the
principal office or applicable lending office of such Bank is located or any
subdivision thereof or therein) and all interest, penalties or similar
liabilities with respect to such non-excluded taxes, levies, imposts, duties,
fees, assessments or other charges (all such non-excluded taxes, levies,
imposts, duties, fees, assessments or other charges being referred to
collectively as "Taxes"). If any Taxes are so levied or imposed, the
Borrower agrees to pay the full amount of such Taxes, and such additional
amounts as may be necessary so that every payment of all amounts due under
this Agreement or under any Note, after withholding or deduction for or on
account of any Taxes, will not be less than the amount provided for herein or
in such Note. If any amounts are payable in respect of Taxes pursuant to the
preceding sentence, the Borrower agrees to reimburse each Bank, upon the
written request of such Bank, for taxes imposed on or measured by the net
income or net profits of such Bank, and franchise taxes imposed on such Bank,
pursuant to the laws of the jurisdiction in which such Bank is organized or
in which the principal office or applicable lending office of such Bank is
located or under the laws of any political subdivision or taxing authority of
any such jurisdiction in which such Bank is organized or in which the
principal office or applicable lending office of such Bank is located and for
any withholding of taxes as such Bank shall determine are payable by, or
withheld from, such Bank, in respect of such amounts so paid to or on behalf
of such Bank pursuant to the preceding sentence and in respect of any amounts
paid to or on behalf of such Bank pursuant to this sentence. The Borrower
will furnish to the Administrative Agent within 45 days after the date the
payment of any Taxes is due pursuant to applicable law certified copies of
tax receipts evidencing such payment by the Borrower. The Borrower agrees to
indemnify and hold harmless each Bank, and reimburse such Bank upon its
written request, for the amount of any Taxes so levied or imposed and paid by
such Bank.
(b) Each Bank that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax
purposes agrees to deliver to the Borrower and the Administrative Agent on or
prior to the Effective Date, or in the case of a Bank that is an assignee or
transferee of an interest under this Agreement pursuant to Section 11.04(b)
(unless the respective Bank was already a Bank hereunder immediately prior to
such assignment or transfer), on the date of such assignment or transfer to
such Bank, (i) two accurate and complete original signed copies of Internal
Revenue Service Form 4224 or 1001 (or successor forms) certifying to such
Bank's entitlement to a complete exemption from United States withholding tax
with respect to payments to be made under this Agreement and under any Note,
or (ii) if the Bank is not a "bank" within the meaning of Section
881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service
Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate
substantially in the form of Exhibit C (any such certificate,
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a "Section 3.04(b)(ii) Certificate") and (y) two accurate and complete
original signed copies of Internal Revenue Service Form W-8 (or successor
form) certifying to such Bank's entitlement to a complete exemption from
United States withholding tax with respect to payments of interest to be made
under this Agreement and under any Note. In addition, each Bank agrees that
from time to time after the Effective Date, when a lapse in time or change in
circumstances renders the previous certification obsolete or inaccurate in
any material respect, it will deliver to the Borrower and the Administrative
Agent two new accurate and complete original signed copies of Internal
Revenue Service Form 4224 or 1001, or Form W-8 and a Section 3.04(b)(ii)
Certificate, as the case may be, and such other forms as may be required in
order to confirm or establish the entitlement of such Bank to a continued
exemption from or reduction in United States withholding tax with respect to
payments under this Agreement and any Note, or it shall immediately notify
the Borrower and the Administrative Agent of its inability to deliver any
such Form or Certificate, in which case such Bank shall not be required to
deliver any such Form or Certificate pursuant to this Section 3.04(b).
Notwithstanding anything to the contrary contained in Section 3.04(a), but
subject to Section 11.04(b) and the immediately succeeding sentence, (x) the
Borrower shall be entitled, to the extent it is required to do so by law, to
deduct or withhold income or similar taxes imposed by the United States (or
any political subdivision or taxing authority thereof or therein) from
interest, Fees or other amounts payable hereunder for the account of any Bank
which is not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent
that such Bank has not provided to the Borrower U.S. Internal Revenue Service
Forms that establish a complete exemption from such deduction or withholding
and (y) the Borrower shall not be obligated pursuant to Section 3.04(a)
hereof to gross-up payments to be made to a Bank in respect of income or
similar taxes imposed by the United States if (I) such Bank has not provided
to the Borrower the Internal Revenue Service Forms required to be provided to
the Borrower pursuant to this Section 3.04(b) or (II) in the case of a
payment, other than interest, to a Bank described in clause (ii) above, to
the extent that such Forms do not establish a complete exemption from
withholding of such taxes. Notwithstanding anything to the contrary
contained in the preceding sentence or elsewhere in this Section 3.04 and
except as set forth in Section 11.04(b), the Borrower agrees to pay any
additional amounts and to indemnify each Bank in the manner set forth in
Section 3.04(a) (without regard to the identity of the jurisdiction requiring
the deduction or withholding) in respect of any Taxes deducted or withheld by
it as described in the immediately preceding sentence as a result of any
changes after the Effective Date in any applicable law, treaty, governmental
rule, regulation, guideline or order, or in the interpretation thereof,
relating to the deducting or withholding of such Taxes.
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SECTION 4. CONDITIONS PRECEDENT.
4.01 CONDITIONS PRECEDENT TO THE INITIAL BORROWING DATE. The
obligation of the Banks to make Loans to the Borrower hereunder on the
Initial Borrowing Date is subject to the satisfaction of each of the
following conditions at such time:
(a) EFFECTIVENESS; NOTES. (i) The Effective Date shall have
occurred and (ii) there shall have been delivered to the Administrative
Agent for the account of each Bank the appropriate Note or Notes
executed by the Borrower in the amount, maturity and as otherwise
provided herein.
(b) OPINIONS OF COUNSEL. On the Initial Borrowing Date, the
Administrative Agent shall have received an opinion, or opinions, in
form and substance reasonably satisfactory to the Administrative Agent,
addressed to each of the Banks and dated the Initial Borrowing Date,
from Joseph Haggerty, Esq., counsel to the Borrower, which opinion shall
cover the matters contained in Exhibit D hereto.
(c) OFFICER'S CERTIFICATE; CORPORATE PROCEEDINGS. (i) On the
Initial Borrowing Date, the Banks shall have received from the Borrower
(A) an Officer's Certificate, dated the Initial Borrowing Date and
signed by the President or any Vice President of the Borrower, in the
form of Exhibit E-1 hereto with appropriate insertions and (B) a
Secretary's Certificate, dated the Initial Borrowing Date and signed by
the Secretary or any Assistant Secretary of the Borrower, in the form of
Exhibit E-2 hereto with appropriate insertions, together with (x) copies
of the Certificate of Incorporation and By-Laws or other organizational
documents of the Borrower and its direct Subsidiaries and (y) the
resolutions of the Borrower and the other documents referred to in such
certificate, and the foregoing shall be reasonably satisfactory to the
Administrative Agent.
(ii) All corporate and legal proceedings and all instruments and
agreements in connection with the transactions contemplated by this
Agreement and the other Credit Documents shall be reasonably
satisfactory in form and substance to the Administrative Agent, and the
Administrative Agent shall have received all information and copies of
all certificates, documents and papers, including good standing
certificates and any other records of corporate proceedings and
governmental approvals, if any, which the Administrative Agent
reasonably may have requested in connection therewith, such documents
and papers where appropriate to be certified by proper corporate or
governmental authorities.
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(d) EXISTING CREDIT AGREEMENT. On the Initial Borrowing Date and
concurrently with the making of the initial Loans hereunder, all
commitments under the Existing Credit Agreement shall have been
terminated, all principal, interest, fees and other amounts thereunder
shall have been paid in full and the collateral securing the Existing
Credit Agreement shall have been released, in each case to the
satisfaction of the Administrative Agent and the Collateral Agent.
(e) ADVERSE CHANGE, ETC. On the Initial Borrowing Date, nothing
shall have occurred (and the Banks shall have become aware of no facts
or conditions not previously known or disclosed on any Annex hereto),
which, when taken as a whole, the Administrative Agent shall reasonably
determine (A) has, or is reasonably likely to have, a material adverse
effect on the rights or remedies of the Banks, the Administrative Agent
or the Collateral Agent under this Agreement or any other Credit
Document, or on the ability of the Borrower to perform its obligations
to them, or (B) has or is reasonably likely to have a Material Adverse
Effect.
(f) LITIGATION. No actions, suits or proceedings shall be pending
or, to the knowledge of the Borrower, threatened against the Borrower
(i) with respect to this Agreement or any other Credit Document or the
transactions contemplated hereby or thereby or (ii) which either the
Administrative Agent or the Required Banks shall in good faith determine
has, or is reasonably likely to have, (x) a Material Adverse Effect or
(y) a material adverse effect on the rights or remedies of the Banks,
the Administrative Agent or the Collateral Agent hereunder or under any
other Credit Document or on the ability of the Borrower to perform its
obligations to them hereunder or under any other Credit Documents.
(g) APPROVALS, ETC. On the Initial Borrowing Date the following
approvals shall have been obtained to the satisfaction of the Banks:
(i) all necessary and material governmental and third party
approvals, permits and licenses in connection with this Agreement
and the transactions contemplated by the Credit Documents and
otherwise referred to herein or therein, to the extent such
approvals, consents, permits and licenses are required to be
obtained or made prior to the Initial Borrowing Date, shall have
been obtained and remain in full force and effect, and all
applicable waiting periods shall have expired, in each case without
any action being taken by any competent authority (including any
court having jurisdiction) which restrains, prevents or imposes, in
the
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reasonable judgment of the Required Banks or the Administrative
Agent, materially adverse conditions upon the consummation of any
such agreement or transaction;
(ii) any necessary shareholder approvals in connection with
the Indebtedness to be incurred pursuant to this Agreement and the
Liens to be created under the Pledge Agreement shall have been
obtained and remain in full force and effect; and
(iii) all regulatory approvals in connection with the pledge
of the stock and notes pursuant to the Pledge Agreement shall have
been obtained and remain in full force and effect.
(h) PLEDGE AGREEMENT. On or prior to the Initial Borrowing Date,
the Borrower shall have duly authorized, executed and delivered a Pledge
Agreement substantially in the form of Exhibit F hereto (as modified,
amended or supplemented from time to time in accordance with the terms
thereof and hereof, the "Pledge Agreement"), which Pledge Agreement
shall be in full force and effect, and shall have delivered to the
Collateral Agent, as pledgee thereunder:
(i) all of the Pledged Securities referred to therein,
endorsed in blank or together with undated stock powers executed in
blank, as appropriate; and
(ii) evidence that all other actions necessary or, in the
reasonable opinion of the Collateral Agent, desirable to perfect
and protect the security interests purported to be created by the
Pledge Agreement have been taken or will be taken promptly after
the Initial Borrowing Date.
(i) FINANCIAL STATEMENTS; PROJECTIONS. Prior to the Initial
Borrowing Date, the Borrower shall have delivered or caused to be
delivered to the Administrative Agent with copies for each Bank:
(i) the audited consolidated and consolidating balance sheets
of the Borrower as of December 31, 1996, and the related
consolidated and consolidating statements of income, of
stockholder's equity and of cash flows for the fiscal year then
ended, in each case prepared in accordance with GAAP;
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(ii) the audited Annual Statement of each Regulated Insurance
Company for the fiscal year ended December 31, 1996, prepared in
accordance with SAP and as filed with the Applicable Insurance
Regulatory Authority;
(iii) the unaudited consolidated and consolidating balance
sheets of the Borrower as of June 30, 1997, and the related
consolidated and consolidating statements of income, of
stockholder's equity and of cash flows for the fiscal quarter then
ended, in each case prepared in accordance with GAAP; and
(iv) the Quarterly Statement of each Regulated Insurance
Company for the fiscal quarter ended June 30, 1997.
(j) DELTA LIFE ACQUISITION. No later than concurrently with the
initial Borrowing hereunder, the Borrower shall have consummated the
acquisition of Delta Holdings through a merger of a Wholly-Owned
Subsidiary of the Borrower with Delta Holdings, and Delta Holdings and
Delta Life shall be Wholly-Owned Subsidiaries of the Borrower.
(k) PAYMENT OF FEES. On the Initial Borrowing Date, all costs,
fees and expenses (including, without limitation, legal fees and
expenses), and all other compensation contemplated by this Agreement or
the other Credit Documents, due to the Administrative Agent or any Banks
shall have been paid to the extent due.
4.2 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of each Bank
to make each Loan (including, without limitation, Loans made on the Initial
Borrowing Date) is subject, at the time of the making of each such Loan, to
the satisfaction of the following conditions:
(a) NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time of
the making of each such Loan and also after giving effect thereto (i)
there shall exist no Default or Event of Default and (ii) all
representations and warranties contained herein or in the other Credit
Documents shall be true and correct in all material respects with the
same effect as though such representations and warranties had been made
on the date of the making of such Loan (it being understood and agreed
that any representation or warranty which by its terms is made as of a
specified date shall be required to be true and correct in all material
respects only as of such specified date).
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(b) NOTICE OF BORROWING. Prior to the making of each Loan, the
Administrative Agent shall have received a Notice of Borrowing meeting
the requirements of Section 1.03(a).
The occurrence of the Initial Borrowing Date and the acceptance of
the proceeds of each Loan shall constitute a representation and warranty by
the Borrower to the Administrative Agent and each of the Banks that all the
conditions specified in this Section 4 and applicable to the Initial
Borrowing Date and/or the making of such Loan, as the case may be, exist as
of that time (except to the extent that any of the conditions specified in
this Section 4 are required to be satisfactory to or determined by any Bank,
the Required Banks and/or the Administrative Agent or otherwise expressly
calls for a subjective determination to be made by any Bank, the Required
Banks and/or the Administrative Agent). All of the Notes, certificates,
legal opinions and other documents and papers referred to in this Section 4,
unless otherwise specified, shall be delivered to the Administrative Agent at
the Notice Office for the account of each of the Banks and, except for the
Notes, in sufficient counterparts or copies for each of the Banks and shall
be in form and substance reasonably satisfactory to the Administrative Agent.
SECTION 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. In order
to induce the Banks to enter into this Agreement and to make the Loans
provided for herein, the Borrower makes the following representations and
warranties to, and agreements with, the Banks, all of which shall survive the
execution and delivery of this Agreement and the making of the Loans (with
the making of each Loan being deemed to constitute a representation and
warranty that the matters specified in this Section 5 are true and correct in
all material respects on and as of the date of the making of such Loan unless
such representation and warranty expressly indicates that it is being made as
of any specific date in which case such representation and warranty shall be
true and correct in all material respects as of such specified date):
5.01 CORPORATE STATUS. Except as disclosed on Annex III hereto,
the Borrower and each of its Subsidiaries (i) is a duly organized and validly
existing corporation or business trust or other entity in good standing under
the laws of the jurisdiction of its organization and has the corporate or
other organizational power and authority to own its property and assets and
to transact the business in which it is engaged and presently proposes to
engage, and (ii) has been duly qualified and is authorized to do business and
is in good standing in all jurisdictions where it is required to be so
qualified and where the failure to be so qualified would have a Material
Adverse Effect.
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5.02 CORPORATE POWER AND AUTHORITY. The Borrower has the corporate
power and authority to execute, deliver and carry out the terms and
provisions of the Credit Documents to which it is a party and has taken all
necessary corporate action to authorize the execution, delivery and
performance of the Credit Documents to which it is a party. The Borrower has
duly executed and delivered each Credit Document to which it is a party and
each such Credit Document constitutes the legal, valid and binding obligation
of the Borrower enforceable against the Borrower in accordance with its
terms, except to the extent that enforceability thereof may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws affecting
creditors' rights generally and general principles of equity regardless of
whether enforcement is sought in a proceeding in equity or at law.
5.03 NO CONTRAVENTION OF LAWS, AGREEMENTS OR ORGANIZATIONAL
DOCUMENTS. Neither the execution, delivery and performance by the Borrower of
the Credit Documents to which it is a party nor compliance with the terms and
provisions thereof, nor the consummation of the transactions contemplated
therein, (i) will contravene any applicable provision of any law, statute,
rule, regulation, order, writ, injunction or decree of any court or
governmental instrumentality, (ii) will conflict or be inconsistent with or
result in any breach of any of the terms, covenants, conditions or provisions
of, or constitute a default under, or (other than pursuant to the Pledge
Agreement) result in the creation or imposition of (or the obligation to
create or impose) any Lien upon any of the property or assets of the Borrower
or any of its Subsidiaries pursuant to the terms of, any indenture, mortgage,
deed of trust, loan agreement, credit agreement or any other material
instrument to which the Borrower or any of its Subsidiaries is a party or by
which it or any of its property or assets are bound or to which it may be
subject or (iii) will violate any provision of the Certificate of
Incorporation or By-Laws of the Borrower or any of its Subsidiaries.
5.04 LITIGATION AND CONTINGENT LIABILITIES. There are no actions,
suits or proceedings pending or threatened in writing involving the Borrower
or any of its Subsidiaries (including, without limitation, with respect to
this Agreement or any documentation executed in connection herewith) (i) that
have or could reasonably be expected to have a Material Adverse Effect or
(ii) that could reasonably be expected to have a material adverse effect on
the rights or remedies of the Banks, the Administrative Agent or the
Collateral Agent or on the ability of the Borrower to perform its respective
obligations to the Banks, the Administrative Agent or the Collateral Agent
hereunder and under the other Credit Documents to which it is, or will be, a
party.
5.05 USE OF PROCEEDS; MARGIN REGULATIONS. (a) The proceeds of the
Loans incurred on the Initial Borrowing Date shall be utilized as follows:
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(i) first, to repay all obligations existing under the Existing Credit
Agreement and all fees, interest and other amounts payable thereunder in
their entirety; and
(ii) second, to finance the Delta Life Acquisition.
(b) After compliance with clause (a) above, the proceeds of the Loans
incurred on the Initial Borrowing Date and thereafter shall be utilized as
follows: (i) to finance other mergers and acquisitions not prohibited
hereunder; and (ii) for general corporate purposes.
(c) Neither the making of any Loan hereunder or other Indebtedness or
financing of the Borrower, nor the use of the proceeds thereof, will violate
or be inconsistent with the provisions of Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System and no part of the proceeds
of any Loan or other Indebtedness or financing of the Borrower will be used
to purchase or carry any Margin Stock or to extend credit for the purpose of
purchasing or carrying any Margin Stock.
5.06 APPROVALS. Any order, consent, approval, license, authorization,
or validation of, or filing, recording or registration with, or exemption by,
any foreign or domestic governmental or public body or authority, or any
subdivision thereof, which is required to authorize or is required in
connection with (i) the execution, delivery and performance of any Credit
Document or (ii) the legality, validity, binding effect or enforceability of
any Credit Document, has been obtained.
5.07 INVESTMENT COMPANY ACT. Neither the Borrower nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of
1940, as amended.
5.08 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor any
of its Subsidiaries is a "holding company," or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
5.09 TRUE AND COMPLETE DISCLOSURE; PROJECTIONS AND ASSUMPTIONS. All
factual information (taken as a whole) heretofore or contemporaneously
furnished by or on behalf of the Borrower or any of its Subsidiaries to the
Administrative Agent or any Bank (including, without limitation, all
information contained in the Credit Documents) for purposes of or in
connection with this Agreement or any transaction contemplated herein is, and
all other factual information (taken as a whole) hereafter
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furnished by or on behalf of any such Persons in writing to the
Administrative Agent will be, true and accurate in all material respects on
the date as of which such information is dated and not incomplete by omitting
to state any material fact necessary to make such information (taken as a
whole) not misleading at such time in light of the circumstances under which
such information was provided. The projections contained in such materials
are based on good faith estimates and assumptions believed by the Borrower to
be reasonable and attainable at the time made, it being recognized by the
Banks that such projections as to future events are not to be viewed as facts
and that actual results during the period or periods covered by any such
projections may differ from the projected results.
5.10 FINANCIAL CONDITION; FINANCIAL STATEMENTS. (a) The financial
statements delivered to the Administrative Agent pursuant to Section 4.01(i)
present fairly in all material respects the financial position of the
respective Persons referred to in such Sections at the dates of said
statements and the results of operations for the periods covered thereby.
All such financial statements have been prepared in accordance with SAP or
GAAP, as indicated in Section 4.01(i), consistently applied except to the
extent provided in the notes to said financial statements.
(b) Since December 31, 1996, nothing has occurred which, when taken as
a whole, has or is reasonably likely to have a Material Adverse Effect.
5.11 SECURITY INTERESTS. On and after the Initial Borrowing Date but
prior to the Collateral Release Date, the Pledge Agreement creates, as
security for the Obligations, valid and enforceable perfected security
interests in and Liens on all of the Collateral subject thereto, superior to
and prior to the rights of all third persons, and subject to no other Liens,
in favor of the Collateral Agent for the benefit of the Banks. At all times
on or after the Initial Borrowing Date but prior to the Collateral Release
Date, the Borrower has good and marketable title to all Collateral free and
clear of all Liens (except as created pursuant to the Pledge Agreement). No
filings or recordings are required in order to perfect the security interests
created under the Pledge Agreement.
5.12 TAX RETURNS AND PAYMENTS. The Borrower and its Subsidiaries have
filed or have obtained valid extensions with respect to all material income
and other material tax returns which are required to be filed and have paid,
on or before the due dates thereof, all taxes shown to be due and payable on
said returns or on any assessments made against them or their property and
all other material taxes, assessments, fees or other charges imposed on them
or any of their property by any Governmental Authority (other than (x) those
not yet due and payable and (y) those contested in good faith and for which
adequate reserves have been established), and
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there are no waivers or agreements for the extension of time for the
assessment of any tax other than those not reasonably likely to have a
Material Adverse Effect. No tax Liens have been filed and no claims are
pending or, to the best knowledge of the Borrower, proposed or threatened
with respect to any such taxes, fees or other charges for any fiscal period,
which are reasonably likely to have a Material Adverse Effect.
5.13 COMPLIANCE WITH ERISA. (a) Annex IV sets forth each Plan in
effect on the Effective Date; each Plan (and each related trust, insurance
contract or fund) is in compliance with its terms and with all applicable
laws, including without limitation ERISA and the Code; each Plan (and each
related trust, if any) which is intended to be qualified under Section 401(a)
of the Code has received a determination letter from the Internal Revenue
Service to the effect that it meets the requirements of Sections 401(a) and
501(a) of the Code and/or, in the case of a Plan amendment, has timely filed
a request for such a determination letter; no Reportable Event has occurred;
no Plan which is a multiemployer plan (as defined in Section 4001(a) (3) of
ERISA) is, to the knowledge of the Borrower, insolvent or in reorganization;
no Plan has an Unfunded Current Liability; no Plan which is subject to
Section 412 of the Code or Section 302 of ERISA has an accumulated funding
deficiency, within the meaning of such sections of the Code or ERISA, or has
applied for or received a waiver of an accumulated funding deficiency or an
extension of any amortization period, within the meaning of Section 412 of
the Code or Section 303 of 304 of ERISA; all contributions required to be
made with respect to a Plan have been timely made except to the extent of any
such contribution which, if not timely made, would not result in a material
liability to the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate; neither the Borrower nor any Subsidiary of the Borrower nor any
ERISA Affiliate has incurred any liability (including any indirect,
contingent or secondary liability) to or on account of a Plan pursuant to
Section 409, 502(i), 502(1), 515, 4062, 4063, 4064, 4069, 4201, 4204, or 4212
of ERISA or Section 401(a) (29), 4971 or 4975 of the Code or expects to incur
any such liability under any of the foregoing sections with respect to any
Plan; no condition exists which presents a risk to the Borrower or any
Subsidiary of the Borrower or any ERISA Affiliate of incurring a liability to
or on account of a Plan pursuant to the foregoing provisions of ERISA and the
Code; no proceedings have been instituted by the PBGC to terminate or appoint
a trustee to administer any Plan which is subject to Title IV of ERISA in a
distress termination; no action, suit, proceeding, hearing, audit or
investigation with respect to the administration, operation or the investment
of assets of any Plan (other than routine claims for benefits or relating to
qualified domestic relations orders) is pending, expected or, to the
knowledge of the Borrower, threatened; neither the Borrower nor any
Subsidiary of the Borrower nor any ERISA Affiliate has incurred any liability
as a result of any group health plan (as defined in Section 607(1) of ERISA
or Section 4980B(g)(2) of the Code) other than a multiemployer plan described
in Section 3(37) of ERISA which covers or has covered
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employees or former employees of the Borrower, any Subsidiary of the
Borrower, or any ERISA Affiliate having not been operated in compliance with
the provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B
of the Code; no lien imposed under the Code or ERISA on the assets of the
Borrower or any Subsidiary of the Borrower or any ERISA Affiliate exists or
is likely to arise on account of any Plan; and the Borrower and its
Subsidiaries may cease contributions to or terminate any employee benefit
plan maintained by any of them without incurring any liability; PROVIDED that
the provisions of this Section 5.13 shall not be deemed to be untrue based on
circumstances which would not, individually or in the aggregate, have or
reasonably be expected to have, a Material Adverse Effect.
5.14 SUBSIDIARIES. (a) Annex V hereto lists each Subsidiary of the
Borrower (and the direct and indirect ownership interest of the Borrower
therein) and also identifies the owner thereof, in each case existing on the
Initial Borrowing Date after giving effect to the Delta Life Acquisition.
(b) There are no restrictions on the Borrower or any of its
Subsidiaries which prohibit or otherwise restrict the transfer of cash or
other assets from any Subsidiary of the Borrower to the Borrower, other than
prohibitions or restrictions existing under or by reason of (i) this
Agreement or the other Credit Documents, (ii) Legal Requirements, (iii)
non-assignment provisions in contracts entered into in the ordinary course of
business and consistent with past practices, (iv) purchase money obligations
for property acquired in the ordinary course of business, so long as such
obligations are permitted under this Agreement and (v) such restrictions with
respect to a Person which becomes a Subsidiary after the date hereof,
PROVIDED that such restrictions existed at the time such Person became a
Subsidiary and were not created in anticipation thereof.
5.15 INTELLECTUAL PROPERTY, ETC. The Borrower and each of its
Subsidiaries have obtained all material patents, trademarks, service marks,
trade names, copyrights, licenses and other rights, free from burdensome
restrictions, that are necessary for the operation of their respective
businesses as presently conducted and as proposed to be conducted.
5.16 POLLUTION AND OTHER REGULATIONS. The Borrower and each of its
Subsidiaries are in compliance with all laws and regulations relating to
pollution and environmental control, equal employment opportunity and
employee safety in all domestic and foreign jurisdictions in which the
Borrower and each of its Subsidiaries is presently doing business, and the
Borrower will comply and cause each of its Subsidiaries to comply with all
such laws and regulations which may be imposed in the future in jurisdictions
in which the Borrower or such Subsidiary may then be doing
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business; in each case other than those the non-compliance with which would
not have a Material Adverse Effect.
5.17 LABOR RELATIONS; COLLECTIVE BARGAINING AGREEMENTS. (a) Set forth
on Annex VI is a list and description (including dates of termination) of all
Collective Bargaining Agreements between or applicable to the Borrower or any
of its Subsidiaries and any union, labor organization or other bargaining
agent in respect of the employees of the Borrower and/or any Subsidiary on
the Effective Date.
(b) Neither the Borrower nor any of its Subsidiaries is engaged in any
unfair labor practice that is reasonably likely to have a Material Adverse
Effect. There is (i) no significant unfair labor practice complaint pending
against the Borrower or any of its Subsidiaries or threatened in writing
against any of them, before the National Labor Relations Board, and no
significant grievance or significant arbitration proceeding arising out of or
under any Collective Bargaining Agreement is now pending against the Borrower
or any of its Subsidiaries or threatened in writing against any of them, (ii)
no significant strike, labor dispute, slowdown or stoppage is pending against
the Borrower or any of its Subsidiaries or threatened in writing against the
Borrower or any of its Subsidiaries and (iii) to the best knowledge of the
Borrower, no union representation question exists with respect to the
employees of the Borrower or any of its Subsidiaries, except (with respect to
any matter specified in clause (i), (ii) or (iii) above, either individually
or in the aggregate) such as is not reasonably likely to have a Material
Adverse Effect.
5.18 CAPITALIZATION. As of the Effective Date, the authorized capital
stock of the Borrower consists of (i) 75,000,000 shares of Class A common
stock, no par value per share, 18,155,989 of which are issued and
outstanding, (ii) 50,000,000 shares of Class B common stock, no par value per
share, 5,000,000 of which are issued and outstanding and (iii) 20,000,000
shares of preferred stock, no par value per share, none of which are issued
and outstanding. As of the Effective Date, all such outstanding shares of
the Borrower have been duly and validly issued and are fully paid and
nonassessable. As of the Initial Borrowing Date after giving effect to the
Delta Life Acquisition, neither the Borrower nor any of its Subsidiaries has
outstanding any securities convertible into or exchangeable for its capital
stock or outstanding any rights to subscribe for or to purchase, or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, its capital stock except for options, warrants and
grants outstanding in the aggregate amounts set forth on Annex VII.
5.19 INDEBTEDNESS. Annex VIII sets forth a true and complete list of
all Indebtedness for borrowed money of the Borrower and its Subsidiaries as
of the
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Effective Date the aggregate principal amount of which equals or exceeds
$2,500,000, in each case showing the aggregate principal amount thereof, the
name of the lender in respect thereof and the name of the respective borrower
and any other entity which has directly or indirectly guaranteed such
Indebtedness.
5.20 COMPLIANCE WITH STATUTES, ETC. The Borrower and each of its
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, and has filed or
otherwise provided all material reports, data, registrations, filings,
applications and other information required to be filed with or otherwise
provided to, all governmental bodies, domestic or foreign, in respect of the
conduct of its business and the ownership of its property (including
compliance with all applicable environmental laws), except such failure(s) to
comply as would not, in the aggregate, have a Material Adverse Effect. All
required regulatory approvals are in full force and effect on the date
hereof, except where the failure of such approvals to be in full force and
effect could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
5.21 INSURANCE LICENSES. Each Regulated Insurance Company has obtained
and maintains in full force and effect all licenses and permits from all
regulatory authorities necessary to operate in the jurisdictions in which
such Regulated Insurance Company operates, in each case other than such
licenses and permits the failure to obtain or maintain which, individually or
in the aggregate, is not reasonably likely to have a Material Adverse Effect.
Annex IX sets forth a true, correct and complete list, as of the Initial
Borrowing Date after giving effect to the Delta Life Acquisition, of each of
the jurisdictions in which each Regulated Insurance Company is duly licensed
and in good standing to write insurance, the lines of insurance that each
Regulated Insurance Company is authorized to write in such jurisdictions and
the dates of expiration of each of the licenses.
5.22 INSURANCE BUSINESS. All insurance policies issued by any
Regulated Insurance Company are, to the extent required under Applicable Law,
on forms approved by the insurance regulatory authorities of the jurisdiction
where issued or have been filed with and not objected to by such authorities
within the period provided for objection, except for those forms with respect
to which a failure to obtain such approval or make such a filing without it
being objected to, could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
5.23 REINSURANCE. As of the Effective Date, the reinsurance agreements
described in Annex X are the only material contracts regarding reinsurance,
coinsurance, excess insurance, ceding of insurance (other than insurance
ceded on an
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assumption reinsurance basis), assumption of insurance or indemnification
with respect to insurance ("Reinsurance") to which any Regulated Insurance
Company is a party.
SECTION 6. AFFIRMATIVE COVENANTS. The Borrower hereby covenants and
agrees that on the Effective Date and thereafter, for so long as this
Agreement is in effect and until the Loans, together with interest, Fees and
all other Obligations incurred hereunder, are paid in full:
6.01 INFORMATION COVENANTS. The Borrower will furnish to each Bank:
(a) ANNUAL FINANCIAL STATEMENTS. (i) As soon as available and in
any event within 95 days after the close of each fiscal year of the
Borrower, (x) the consolidated balance sheet of the Borrower and its
Subsidiaries, in each case, as at the end of such fiscal year and the
related consolidated statements of income, of stockholder's equity and
of cash flows for such fiscal year and (y) the consolidating balance
sheet of the Borrower and each of its Subsidiaries as at the end of the
fiscal year and the related consolidating statements of income, of
stockholders' equity and of cash flows for such fiscal year; in each
case prepared in accordance with GAAP and setting forth comparative
figures for the preceding fiscal year, and, in the case of such
consolidated statements, examined by independent certified public
accountants of recognized national standing whose report shall not be
qualified as to the scope of audit or as to the status of the Borrower
and its Subsidiaries as a going concern.
(ii) As soon as available and in any event within 120 days after
the close of each fiscal year of each Regulated Insurance Company, the
Annual Statement (prepared in accordance with SAP) for such fiscal year
of such Regulated Insurance Company, as filed with the Applicable
Insurance Regulatory Authority in compliance with the requirements
thereof (or a report containing equivalent information for any Regulated
Insurance Company not so required to file the foregoing with the
Applicable Insurance Regulatory Authority) together with the opinion
thereon of the Chief Financial Officer or other Authorized Officer of
such Regulated Insurance Company stating that such Annual Statement
presents fairly in all material respects the financial condition and
results of operations of such Regulated Insurance Company in accordance
with SAP.
(iii) As soon as available and in any event within 120 days after
the close of each fiscal year of the Borrower, a copy of the "Statement
of Actuarial Opinion" and "Management Discussion and Analysis" for
each Regulated
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Insurance Company (prepared in accordance with SAP) for such fiscal year
and as filed with the Applicable Regulatory Insurance Authority in
compliance with the requirements thereof (or a report containing
equivalent information for any Regulated Insurance Company not so
required to file the foregoing with the Applicable Regulatory Insurance
Authority).
(b) QUARTERLY FINANCIAL STATEMENTS. (i) As soon as available and
in any event within 50 days after the close of each of the first three
quarterly accounting periods in each fiscal year of the Borrower, (x)
the consolidated balance sheet of the Borrower and its Subsidiaries,
each as at the end of such fiscal quarter and the related consolidated
statements of income, of stockholder's equity and of cash flows for such
quarterly period and for the elapsed portion of the fiscal year ended
with the last day of such quarterly period and (y) the consolidating
balance sheet of the Borrower and each of its Subsidiaries as at the end
of such fiscal quarter and the related consolidating statements of
income, of stockholders' equity and of cash flows for such quarterly
period and for the elapsed portion of the fiscal year ended with the
last day of such quarterly period; in each case setting forth
comparative figures for the related periods in the prior fiscal year,
and all of which shall be prepared in accordance with GAAP and certified
by the Chief Financial Officer or other Authorized Officer of the
Borrower, as the case may be, subject to changes resulting from normal
year-end audit adjustments.
(ii) As soon as available and in any event within 50 days after the
close of each of the first three quarterly accounting periods in each
fiscal year of each Regulated Insurance Company, the Quarterly Statement
(prepared in accordance with SAP) for such fiscal period of such
Regulated Insurance Company, as filed with the Applicable Insurance
Regulatory Authority together with the opinion thereon of the Chief
Financial Officer or other Authorized Officer of such Regulated
Insurance Company stating that such financial statements present fairly
in all material respects the financial condition and results of
operations of such Regulated Insurance Company in accordance with SAP.
(c) OFFICER'S CERTIFICATES. At the time of the delivery of the
financial statements provided for in Sections 6.01(a)(i) and (ii) and
(b)(i) and (ii), a certificate of the Chief Financial Officer or other
Authorized Officer of the Borrower to the effect that no Default or
Event of Default exists or, if any Default or Event of Default does
exist, specifying the nature and extent thereof, which certificate shall
set forth the calculations required to establish whether the Borrower
and its Subsidiaries were in compliance with the provisions of Sec-
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tions 7.10 through 7.13, inclusive, as at the end of such fiscal year or
quarter, as the case may be.
(d) NOTICE OF DEFAULT OR LITIGATION. (x) Promptly, and in any
event within three Business Days after the Borrower or any of its
Subsidiaries obtains knowledge thereof, notice of the occurrence of any
event which constitutes a Default or Event of Default, which notice
shall specify the nature thereof, the period of existence thereof and
what action the Borrower proposes to take with respect thereto and (y)
promptly after the Borrower or any of its Subsidiaries obtains knowledge
thereof, notice of any outstanding litigation or governmental or
regulatory proceeding pending against the Borrower or any of its
Subsidiaries which could have a Material Adverse Effect, or a material
adverse effect on the ability of the Borrower to perform its respective
obligations hereunder or under any other Credit Document.
(e) AUDITORS' REPORTS. Promptly upon receipt thereof, a copy of
(x) each other report or "management letter" submitted to the Borrower
or any of its Subsidiaries by their independent accountants in
connection with any annual, interim or special audit made by them of the
books of the Borrower or any of its Subsidiaries and (y) each report
submitted to the Borrower or any of its Subsidiaries by any independent
actuary to the extent that such report, in the good faith opinion of the
Borrower, identifies a condition, situation or event that has or is
reasonably likely to have a Material Adverse Effect.
(f) OTHER REGULATORY STATEMENTS AND REPORTS. Promptly (A) after
their becoming available, copies of any statutory financial statements
(including all exhibits and schedules thereto) that the Borrower or any
Regulated Insurance Company periodically files with the Applicable
Insurance Regulatory Authority of the state in which it is domiciled
and, to the extent materially different from the financial statements
filed in such state of domicile, any other state in which it is deemed
to be commercially domiciled or any governmental agency or agencies
substituted therefor, (B) after receipt thereof, copies of all regular
and periodic reports of reviews or examinations (including, without
limitation, triennial examinations and risk adjusted capital reports) of
any Regulated Insurance Company, delivered to such Person by any
Applicable Insurance Regulatory Authority, insurance commission or
similar regulatory authority, (C) after receipt thereof, written notice
of any assertion by any Applicable Insurance Regulatory Authority or any
governmental agency or agencies substituted therefor, as to a violation
of any Legal Requirement by any Regulated Insurance Company which is
likely to have a Material Adverse Effect, (D) after receipt thereof, a
copy of the final report to each Regulated Insurance Company from
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the NAIC for each fiscal year, as to such Regulated Insurance Company's
compliance or noncompliance with each of the NAIC Tests, (E) after
receipt thereof, a copy of any final rating analysis by any rating
agency (including, without limitation, A.M. Best) for each Regulated
Insurance Company for each fiscal year, (F) after receipt thereof, a
copy of any notice of termination, cancellation or recapture of any
Reinsurance Agreement or Retrocession Agreement to which a Regulated
Insurance Company is a party to the extent such termination or
cancellation is likely to have a Material Adverse Effect, (G) and in any
event not later than seven days after the making of any such filing,
copies of all insurance holding company system act filings with
governmental authorities by a Regulated Insurance Company, including,
without limitation, filings which seek approval of governmental
authorities with respect to transactions between any of the Regulated
Insurance Companies and any of their respective Affiliates, (H) and in
any event within three Business Days after receipt thereof, copies of
any notice of actual suspension, termination or revocation of any
license of any Regulated Insurance Company by any Applicable Insurance
Regulatory Authority, including any request by an Applicable Insurance
Regulatory Authority which commits a Regulated Insurance Company to take
or refrain from taking any action or which otherwise affects the
authority of such Regulated Insurance Company to conduct its business,
and (I) and in any event within 20 Business Days after the Borrower or
any of its Subsidiaries obtains knowledge thereof, notice of any actual
changes in the insurance laws enacted in any state in which any
Regulated Insurance Company is domiciled which could have a Material
Adverse Effect.
(g) OTHER INFORMATION. Promptly upon transmission thereof, copies
of any filings and registrations with, and reports to, the SEC by the
Borrower or any of its Subsidiaries (other than any registration
statement on Form S-8) and copies of all financial statements, proxy
statements, notices and reports as the Borrower or any of its
Subsidiaries shall send to analysts generally or the holders of their
capital stock or of any public subordinated debt issued by the Borrower
in their capacity as such holders (in each case to the extent not
theretofore delivered to the Banks pursuant to this Agreement) and, with
reasonable promptness, such other information or existing documents
(financial or otherwise) as the Administrative Agent or any Bank may
reasonably request from time to time.
6.02 BOOKS, RECORDS AND INSPECTIONS. The Borrower will, and will
cause each of its Subsidiaries to, permit officers and designated
representatives of the Administrative Agent or any Bank to visit and inspect any
of the properties or assets of the Borrower and any of its Subsidiaries in
whomsoever's possession (but only to the
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extent the Borrower or such Subsidiary has the right to do so to the extent
in the possession of another Person), and to examine the books of account of
the Borrower and any of its Subsidiaries and discuss the affairs, finances
and accounts of the Borrower and of any of its Subsidiaries with, and be
advised as to the same by, its and their officers and independent accountants
and independent actuaries, if any, all at such reasonable times and
intervals, upon reasonable prior notice and to such reasonable extent as the
Administrative Agent or any Bank may request.
6.03 INSURANCE. The Borrower will, and will cause each of its
Subsidiaries to, at all times maintain in full force and effect insurance in
such amounts, covering such risks and liabilities and with such deductibles
or self-insured retentions as are in accordance with normal industry practice.
6.04 PAYMENT OF TAXES. The Borrower will pay and discharge, and will
cause each of its Subsidiaries to pay and discharge, all taxes, assessments
and governmental charges or levies imposed upon it or upon its income or
profits, or upon any properties belonging to it, prior to the date on which
penalties attach thereto, and all lawful claims (other than claims relating
to the adjustment or settling, in the ordinary course of business, of claims
in respect of insurance policies or reinsurance contracts) which, if unpaid,
might become a Lien or charge upon any properties of the Borrower or any of
its Subsidiaries; PROVIDED, that neither the Borrower nor any Subsidiary
shall be required to pay any such tax, assessment, charge, levy or claim
which (i) is being contested in good faith and by proper proceedings if it
has maintained adequate reserves (in the good faith judgment of the
management of the Borrower) with respect thereto in accordance with GAAP, or
(ii) if not paid, could not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect.
6.05 CORPORATE FRANCHISES. The Borrower will do, and will cause each
Subsidiary to do, or cause to be done, all things reasonably necessary to
preserve and keep in full force and effect its corporate existence, rights
and authority; PROVIDED that any transaction permitted by Section 7.02 will
not constitute a breach of this Section 6.05.
6.06 COMPLIANCE WITH STATUTES, ETC. The Borrower will, and will cause
each Subsidiary to, comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and
the ownership of its property (including applicable statutes, regulations,
orders and restrictions relating to environmental standards and controls)
other than those the non-compliance with which would not have a Material
Adverse Effect.
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6.07 ERISA. As soon as possible and, in any event, within 10 Business
Days after the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate knows or has reason to know of the occurrence of any of the
following, the Borrower will deliver to each of the Banks a certificate of
the Chief Financial Officer of the Borrower setting forth the full details as
to such occurrence and the action, if any, that the Borrower, such Subsidiary
or such ERISA Affiliate is required or proposes to take, together with any
notices required or proposed to be given to or filed with or by the Borrower,
the Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant or the Plan
administrator with respect thereto: that a Reportable Event has occurred;
that an accumulated funding deficiency, within the meaning of Section 412 of
the Code or Section 302 of ERISA, in excess of $250,000 has been incurred or
an application may be or has been made for a waiver or modification of the
minimum funding standard (including any required installment payments) or an
extension of any amortization period under Section 412 of the Code or Section
303 or 304 of ERISA with respect to a Plan; that any contribution required to
be made with respect to a Plan has not been timely made except to the extent
that any such untimely contribution would not result in a material liability
to the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate; that
a Plan has been or may be terminated, reorganized, partitioned or declared
insolvent under Title IV of ERISA; that a Plan has an Unfunded Current
Liability in excess of $250,000; that proceedings may be or have been
instituted to terminate or appoint a trustee to administer a Plan which is
subject to Title IV of ERISA; that a proceeding has been instituted pursuant
to Section 515 of ERISA to collect a delinquent contribution to a Plan; that
the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate will or
may incur any material amount of liability (including any indirect,
contingent, or secondary liability) to or on account of the termination of or
withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or
4212 of ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975
or 4980 of the Code or Section 409 or 502(i) or 502(l) of ERISA or with
respect to a group health plan (as defined in Section 607(1) of ERISA or
Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or that the
Borrower or any Subsidiary of the Borrower may incur any material liability
pursuant to any employee welfare benefit plan (as defined in Section 3(1) of
ERISA) that provides death, health or severance benefits to retired employees
or other former employees (other than as required by Section 601 of ERISA or
applicable state law) or any Plan (other than (x) severance benefits paid
pursuant to or in connection with a merger or acquisition permitted under
Section 7.02(a) and (y) death, health and severance benefits accrued on the
books of the Borrower and its Subsidiaries). At the request of any Bank, the
Borrower will promptly deliver to such Bank a complete copy of the annual
report (on Internal Revenue Service Form 5500-series) of each Plan
(including, to the extent required, the related financial and actuarial
statements and opinions and other supporting statements, certifications,
schedules and information) required to be filed with the Internal Revenue
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Service. In addition to any certificates or notices delivered to the Banks
pursuant to the first sentence hereof, if requested by the Banks, copies of
annual reports and any material notices received by the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate with respect to any Plan
shall be delivered to the Banks no later than 10 Business Days after the date
such notice has been received by the Borrower, the Subsidiary or the ERISA
Affiliate, as applicable.
6.08 PERFORMANCE OF OBLIGATIONS. The Borrower will, and will cause
each of its Material Subsidiaries to, perform in all material respects all of
its obligations under the terms of each mortgage, indenture, security
agreement, other debt instrument and material contract by which it is bound
or to which it is a party.
6.09 GOOD REPAIR. The Borrower will, and will cause each of its
Subsidiaries to, ensure that its material properties and equipment used or
useful in its business in whomsoever's possession they may be, are kept in
good repair, working order and condition, normal wear and tear excepted, and
that from time to time there are made in such properties and equipment all
needful and proper repairs, renewals, replacements, extensions, additions,
betterments and improvements thereto, to the extent and in the manner
customary for companies in similar businesses.
6.10 END OF FISCAL YEARS; FISCAL QUARTERS. The Borrower will, for
financial reporting purposes, cause (i) each of its, and each of its
Subsidiaries', fiscal years to end on December 31 of each year and (ii) each
of its, and each of its Subsidiaries', fiscal quarters to end on March 31,
June 30, September 30 and December 31 of each year; PROVIDED, that in the
event that the Borrower or any of its Subsidiaries acquires a Subsidiary
after the Initial Borrowing Date which does not comply with the requirements
of this Section 6.10, there shall not be deemed to be a breach of this
Section 6.10 as to such Subsidiary so long as the fiscal year and fiscal
quarter ends of such Subsidiary are changed to comply with the terms of this
Section 6.10 within one year following the date of acquisition of such
Subsidiary.
6.11 MAINTENANCE OF LICENSES AND PERMITS. The Borrower will, and will
cause each of its Subsidiaries to, maintain all permits, licenses and
consents as may be required for the conduct of its business by any state,
federal or local government agency or instrumentality except where failure to
maintain the same could not reasonably be expected to have a Material Adverse
Effect.
SECTION 7. NEGATIVE COVENANTS. The Borrower hereby covenants and
agrees that on the Effective Date and thereafter, for so long as this
Agreement is in
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effect and until the Loans together with interest, Fees and all other
Obligations incurred hereunder, are paid in full:
7.01 CHANGES IN BUSINESS. The Borrower will not, and will not permit
any of its Subsidiaries to, engage in any material business other than the
life insurance business and businesses reasonably related thereto; PROVIDED,
that the foregoing covenant shall not be deemed to limit portfolio
investments by the Borrower and its Subsidiaries and shall not be deemed
violated based on any ancillary business conducted by a Person (or a
Subsidiary of such Person) who might become a Subsidiary of the Borrower
after the Effective Date.
7.02 CONSOLIDATION, MERGER, SALE OR PURCHASE OF ASSETS, ETC. The
Borrower will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs, or enter into any transaction of merger or
consolidation, or sell or otherwise dispose of any of its property or assets
(including the sale of capital stock of any of its Subsidiaries, but
excluding any sale or disposition of property or assets in the ordinary
course of business), or purchase, lease or otherwise acquire (in one
transaction or a series of related transactions) all or any part of the
property or assets of any Person (excluding any purchases, leases or other
acquisitions of property or assets in, and for use in, the ordinary course of
business) or agree to do any of the foregoing at any future time, except that
the following shall be permitted:
(a) so long as no Default or Event of Default is then in existence
or would result therefrom, the Borrower and its Subsidiaries may enter
into mergers and acquisitions, and transactions reasonably incidental
thereto, provided that (x) in the case of any merger involving the
Borrower, the Borrower shall be the surviving corporation and (y) in the
case of any merger involving a Subsidiary of the Borrower, the surviving
corporation of such merger shall be an existing or resulting
Wholly-Owned Subsidiary of the Borrower;
(b) capital expenditures by the Borrower and its Subsidiaries;
(c) the Borrower and its Subsidiaries may acquire, hold, and dispose
of portfolio investments in accordance with investment guidelines adopted
by the Borrower and its Subsidiaries from time to time;
(d) any Regulated Insurance Company may enter into any Insurance
Contract, Reinsurance Agreement or Retrocession Agreement in accordance
with its underwriting, indemnity and retention policies as in effect from
time to time;
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(e) the Borrower or any of its Subsidiaries may enter into leases
of property or assets not otherwise in violation of this Agreement;
(f) each of the Borrower and its Subsidiaries may sell assets,
PROVIDED that:
(i) such asset sale is in the ordinary course of its business;
(ii) the fair market value of any asset the subject of such
asset sale, taken together with the fair market value of all other
assets the subject of asset sales pursuant to this Section 7.02(f)(ii)
in the same fiscal year, does not exceed $10,000,000; or
(iii) such asset sale is with respect to the assets of the
Borrower or any of its Subsidiaries and the net proceeds of such sale
are either (x) employed in the business of the Borrower and its
Subsidiaries or reinvested within 180 days after receipt of such net
proceeds in assets used in the business of the Borrower or any of its
Subsidiaries (including, without limitation, in the investment
portfolio of the Borrower and its Subsidiaries) or (y) used within
180 days after receipt of such net proceeds to repay Indebtedness of
the Borrower or any of its Subsidiaries;
(g) Wholly-Owned Subsidiaries of the Borrower may be merged with
other Wholly-Owned Subsidiaries of the Borrower; PROVIDED, that prior to
the Collateral Release Date, if any shares of capital stock of any such
Subsidiary are pledged to the Collateral Agent pursuant to the Pledge
Agreement immediately prior to any such merger, then 100% (or, if less,
the maximum amount permitted under Applicable Laws to be pledged) of the
capital stock of the surviving entity shall be pledged to the Collateral
Agent pursuant to the Pledge Agreement;
(h) any Subsidiary of the Borrower which does not have any
significant assets may be wound-up, liquidated or dissolved; and
(i) the Borrower and its Wholly-Owned Subsidiaries may transfer
property or assets (including, without limitation, the capital stock of
Subsidiaries) to or among one another; PROVIDED, that prior to the
Collateral Release Date, in the case of any transfer of the capital stock
of a Subsidiary which is pledged to the Collateral Agent pursuant to the
Pledge Agreement, such Subsidiary must remain so pledged following such
transfer.
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Notwithstanding the foregoing provisions of this Section 7.02, neither
the Borrower nor any of its Subsidiaries may make a sale of or with
respect to any capital stock of a Regulated Insurance Company, but
nothing in this sentence shall prohibit (x) any such Regulated Insurance
Company from merging with another Regulated Insurance Company in a
transaction permitted under clause (g) above or (y) any transfer of the
capital stock of a Subsidiary to the Borrower or a Wholly-Owned
Subsidiary of the Borrower under clause (i) above.
7.03 LIENS. The Borrower will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon
or with respect to any property or assets of any kind (real or personal,
tangible or intangible) of the Borrower or any such Subsidiary whether
now owned or hereafter acquired, except:
(a) Liens for taxes not yet due or Liens for taxes being contested
in good faith and by appropriate proceedings for which adequate reserves
(in the good faith judgment of the management of the Borrower) have been
established;
(b) Liens in respect of property or assets of the Borrower or any
of its Subsidiaries imposed by law which were incurred in the ordinary
course of business, such as carriers', warehousemen's and mechanics'
Liens and other similar Liens arising in the ordinary course of
business, and (x) which do not in the aggregate materially detract from
the value of such property or assets or materially impair the use
thereof in the operation of the business of the Borrower or any
Subsidiary or (y) which are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the
forfeiture or sale of any material property or asset subject to such
Lien;
(c) Liens created by this Agreement or the other Credit Documents;
(d) Liens in existence on the Effective Date which are listed, and
the property subject thereto on the Effective Date described, in Annex
XI, and any extensions or renewals thereof (provided that (i) the
securities subject to any such Lien may be replaced by other securities
of no greater principal amount and (ii) no such extension or renewal
will increase the obligations secured thereby or result in any such Lien
attaching to any additional property);
(e) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.08;
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(f) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds, Reinsurance
Agreements, Retrocession Agreements and other similar obligations
incurred in the ordinary course of business (exclusive of obligations in
respect of the payment for borrowed money);
(g) Leases or subleases granted to others not interfering in any
material respect with the business of the Borrower or any of its
Material Subsidiaries and any interest or title of a lessor under any
lease not in violation of this Agreement;
(h) Easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the
business of the Borrower or any of its Material Subsidiaries;
(i) Liens arising from UCC financing statements regarding leases
not in violation of this Agreement;
(j) Liens on pledges or deposits of cash or securities made by any
Regulated Insurance Company as a condition to obtaining or maintaining
any licenses issued to it by any Applicable Insurance Regulatory
Authority;
(k) Purchase money mortgages or security interests, conditional
sale arrangements and other similar security interests, on equipment and
motor vehicles acquired by the Borrower or such Subsidiary (hereinafter
referred to individually as a "Purchase Money Security Interest");
PROVIDED, HOWEVER, that:
(i) the transaction in which any Purchase Money Security
Interest is proposed to be created is not then prohibited by any
other Section of this Agreement;
(ii) any Purchase Money Security Interest shall attach only to
the property or asset acquired in such transaction and shall not
extend to or cover any other assets or properties of the Borrower;
(iii) the Indebtedness secured or covered by any Purchase Money
Security Interest shall not exceed (at the time such Purchase
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Money Security Interest is created) the lesser of the cost or fair
market value of the property or asset acquired and shall not be
prepaid from the proceeds of any Borrowing hereunder; and
(iv) the aggregate outstanding amount of all Indebtedness of
the Borrower and all of its Subsidiaries secured by Purchase Money
Security Interests shall not at any time exceed an amount equal to
$20,000,000;
(l) Liens on the property or assets of a Person which becomes a
Subsidiary after the date hereof securing Indebtedness permitted by
subsection 7.04(i), provided that (i) such Liens existed at the time
such Person became a Subsidiary and were not created in anticipation
thereof, (ii) any such Lien shall not extend to or cover any additional
property or assets of such Person, or any property of the Borrower or
any other Subsidiary, after the time such Person becomes a Subsidiary,
and (iii) the amount of Indebtedness secured thereby is not increased;
(m) Liens securing Indebtedness permitted under Section 7.04(b);
(n) Liens on marketable securities securing the Indebtedness
permitted under Section 7.04(e); provided that the principal amount of
such Indebtedness so secured shall not exceed $5,000,000;
(o) Liens on marketable securities securing the Indebtedness
permitted under Section 7.04(j);
(p) Liens on marketable securities securing the Indebtedness
permitted under Section 7.04(n); PROVIDED, that the principal amount of
such Indebtedness so secured shall not exceed $25,000,000;
(q) Liens created in the ordinary course of business of acquiring,
holding and disposing of portfolio investments, including without
limitation investment accounts, futures accounts and deposit accounts,
in accordance with investment guidelines adopted by the Borrower and its
Subsidiaries from time to time; and
(r) Liens (of a type and/or to an extent not otherwise permitted
hereunder) which secure obligations not exceeding (as to the Borrower
and all of its Subsidiaries) $10,000,000 in aggregate amount at any time
outstanding.
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7.04 INDEBTEDNESS. The Borrower will not, and will not permit any of
its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness for borrowed money, except:
(a) Indebtedness incurred pursuant to this Agreement and the other
Credit Documents;
(b) Capitalized Lease Obligations of the Borrower and its
Subsidiaries, provided that the aggregate Capitalized Lease Obligations
under all Capital Leases, other than any Capital Leases listed in Annex
VIII, shall not exceed $15,000,000 at any time;
(c) Indebtedness in existence on the Effective Date and listed in
Part A of Annex VIII, together with any subsequent extension, renewal or
refinancing thereof;
(d) Indebtedness of any Regulated Insurance Company with respect
to (i) letters of credit securing obligations under Reinsurance
Agreements entered into in the ordinary course of business of any such
Regulated Insurance Company, (ii) letters of credit issued in lieu of
deposits to satisfy Legal Requirements or (iii) letters of credit or
surety bonds issued in lieu of depositing securities with any Applicable
Insurance Regulatory Authority to satisfy regulatory requirements in
connection with worker's compensation insurance; in any case to the
extent (x) such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than 10 days
following receipt by the Borrower or such Subsidiary of notice of
payment on such letter of credit and (y) the aggregate outstanding
amount of such obligations does not exceed $5,000,000 at any time;
(e) Indebtedness of the Borrower and its Subsidiaries under
Interest Rate Protection Agreements;
(f) Indebtedness under reimbursement obligations in respect of
letters of credit issued to guaranty or support the payment of
performance bonds, workers' compensation claims, insurance claims and
contested appeals and compliance with operational and regulatory
obligations incurred in the ordinary course of business, in an aggregate
principal amount not to exceed $5,000,000;
(g) Indebtedness secured by Liens permitted under Section 7.03(k)
and any extensions, renewals or refinancing thereof;
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(h) Indebtedness (i) of any Wholly-Owned Subsidiary of the
Borrower to the Borrower, (ii) of the Borrower to any Wholly-Owned
Subsidiary of the Borrower or (iii) of any Wholly-Owned Subsidiary of
the Borrower to any other Wholly-Owned Subsidiary of the Borrower;
(i) Indebtedness of a Person which becomes a Subsidiary after the
date hereof; PROVIDED that (i) such Indebtedness existed at the time
such Person became a Subsidiary and was not created in anticipation
thereof, (ii) immediately after giving effect to the acquisition of such
Person by the Borrower no Default or Event of Default shall have
occurred and be continuing, and (iii) the Borrower shall not become
liable therefor;
(j) Indebtedness of AmerUs Life owing to the Federal Home Loan
Bank (the "FHLB") under a liquidity facility provided by the FHLB, and
Indebtedness of AmerUs Life consisting of Federal Home Loan Bank
Community Investment Long-Term Advances, so long as the aggregate
outstanding principal amount of Indebtedness under this clause (j) does
not exceed $75,000,000 at any time;
(k) Indebtedness of any Regulated Insurance Company owing to the
Borrower under any Surplus Note, so long as, prior to the Collateral
Release Date, such Surplus Note is pledged to the Banks pursuant to the
Pledge Agreement;
(l) Indebtedness in respect of the AVLIC Guaranties;
(m) Indebtedness of the Borrower and its Subsidiaries consisting
of Contingent Obligations in respect of other Indebtedness (x)
outstanding as of the Effective Date and having an aggregate principal
amount not in excess of $10,000,000 and (y) incurred after the Effective
Date and having an aggregate principal amount not in excess of
$15,000,000;
(n) Indebtedness of the Borrower and its Subsidiaries under
letters of credit issued in the ordinary course of business so long as
the aggregate stated amount of all such letters of credit at no time
exceeds $50,000,000;
(o) Indebtedness of the Borrower and the trust formed in
connection with any Trust Preferred Offering under the Trust Preferred
Related Debt Securities, the Trust Preferred Offering and the guaranty
provided in connection therewith, when and if issued;
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(p) Indebtedness of the Borrower under any Permitted Subordinated
Debt Securities; and
(q) other Indebtedness for borrowed money of the Borrower not to
exceed $250,000,000 in aggregate outstanding principal amount at any
time; PROVIDED, that the amount of Indebtedness permitted by this clause
(q) shall be reduced dollar for dollar by the amount of any Indebtedness
which is incurred under clause (p) above, but the amount of Indebtedness
permitted under this clause (q) shall not be reduced to less than
$50,000,000 at any time.
7.05 ISSUANCE OF STOCK. The Borrower will not permit any of its
Subsidiaries directly or indirectly to issue, sell, assign, pledge, or
otherwise encumber or dispose of any shares of the capital stock or other
equity securities (or warrants, rights or options to acquire shares or other
equity securities) of such Subsidiary, except (i) to the Borrower or another
Wholly-Owned Subsidiary of the Borrower, (ii) to qualify directors if
required by applicable law, (iii) pursuant to the Pledge Agreement, (iv)
issuances of securities by special-purpose Subsidiaries pursuant to
structured asset-backed securities transactions or (v) issuances of preferred
stock by any Subsidiary constituting a business trust pursuant to any Trust
Preferred Offering.
7.06 PREPAYMENTS OF INDEBTEDNESS, MODIFICATIONS OF AGREEMENTS, ETC.
the Borrower will not, and will not permit any of its Subsidiaries to:
(a) make (or give any notice in respect thereof) any voluntary or
optional payment or prepayment or redemption or acquisition for value of
(including, without limitation, by way of depositing with the trustee with
respect thereto money or securities before due for the purpose of paying
when due) or exchange of, any Permitted Subordinated Debt Securities or
Trust Preferred Related Debt Securities after the issuance thereof; or
(b) amend, modify or change in any manner adverse to the interests
of the Banks the Certificate of Incorporation (including, without limita-
tion, by the filing of any certificate of designation) or By-Laws or other
organizational documents of the Borrower or any of its Subsidiaries.
7.07 DIVIDENDS, ETC. The Borrower will not, and will not permit
any of its Subsidiaries to, declare or pay any dividends (other than dividends
payable solely in common stock of such Person) or return any capital to, its
stockholders or authorize or make any other distribution, payment or delivery of
property or cash to its stockholders as such, or redeem, retire, purchase or
otherwise acquire, directly or indirectly, for a consideration, any shares of
any class of its capital stock now or hereafter
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outstanding (or any warrants for or options or stock appreciation rights in
respect of any of such shares), or set aside any funds for any of the
foregoing purposes, or purchase or otherwise acquire or permit any of its
Subsidiaries to purchase or otherwise acquire for consideration any shares of
any class of the capital stock of the Borrower or any other Subsidiary, as
the case may be, now or hereafter outstanding (or any options or warrants or
stock appreciation rights issued by such Person with respect to its capital
stock) (all of the foregoing "Dividends"), except that:
(i) any Subsidiary of the Borrower may pay Dividends to its parent
if such parent is the Borrower or a Wholly-Owned Subsidiary of the
Borrower;
(ii) so long as no Default or Event of Default exists or would exist
immediately after giving effect thereto, the Borrower may pay cash
Dividends on its common stock in an amount not to exceed for any fiscal
year 3% of the Borrower's Consolidated Net Worth as of the last day of the
previous fiscal year;
(iii) the payment of cash Dividends on any preferred stock issued
pursuant to a Trust Preferred Offering in accordance with the terms thereof
shall be permitted;
(iv) upon and in connection with the exercise of any options,
warrants, awards, grants, or stock appreciation rights under or pursuant to
any stock plan of the Borrower in respect of the Borrower's common stock by
any holder thereof pursuant to which the Borrower is required to deliver
shares of its common stock to such holder, the Borrower may purchase a
number of shares of its common stock sufficient to enable the Borrower to
satisfy such requirement; and
(v) the Borrower may redeem, purchase or acquire shares of capital
stock (and/or warrants, options and stock appreciation rights in respect of
such capital stock) of a Person which is acquired by the Borrower or a
Subsidiary of the Borrower pursuant to a transaction permitted under
Section 7.02(a).
7.08 LIMITATION ON CERTAIN RESTRICTIONS. The Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist any encumbrance or restriction which
prohibits or otherwise restricts (i) the ability of any Subsidiary to pay
dividends or make other distributions or pay any Indebtedness owed to the
Borrower or any of its Subsidiaries, to make loans or advances to the Borrower
or any Subsidiary, to transfer any of its properties or assets to the Borrower
or any Subsidiary or to guarantee the Obligations or (ii) the
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ability of the Borrower or any Subsidiary of the Borrower to create, incur,
assume or suffer to exist any Lien upon its property or assets to secure the
Obligations, other than prohibitions or restrictions existing under or by
reason of (w) this Agreement and the other Credit Documents, (x) Legal
Requirements, (y) provisions restricting the transfer of assets subject to
Liens permitted under Sections 7.03 and (z) restrictions contained in
Indebtedness described in Section 7.04(i).
7.09 TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will
not permit any Subsidiary to, enter into any transaction or series of
transactions with any Affiliate other than in the ordinary course of business
and on terms and conditions substantially as favorable to the Borrower or such
Subsidiary as would be obtainable by the Borrower or such Subsidiary at the time
in a comparable arm's-length transaction with a Person other than an Affiliate;
PROVIDED, HOWEVER, that:
(i) in no event may the aggregate amount of investments, advances
and loans (determined on a cost basis, exclusive of retained earnings,
write-offs and write-downs) after the Effective Date in or to Group or
Subsidiaries of Group other than the Borrower and its Subsidiaries, whether
or not on an arms-length basis, exceed $75,000,000 at any one time;
(ii) AmerUs Life may make investments, advances and/or loans in or to
AMAL Corporation, in an aggregate amount not to exceed $75,000,000 so long
as AmerUs Life retains the ability to elect at least 50% of the board of
directors of AMAL Corporation;
(iii) the Borrower may make payments or loans pursuant to the
guaranty provided in connection with any Trust Preferred Offering, and
the Borrower and its Subsidiaries may lend or borrow such amounts as
are contemplated in connection with any Trust Preferred Offering and any
Trust Preferred Related Debt Securities;
(iv) the Borrower may enter into transactions with any of its Wholly-
Owned Subsidiaries, and any such Wholly-Owned Subsidiary may enter into
transactions with the Borrower or any other such Wholly-Owned Subsidiary;
(v) the Subsidiaries of any Regulated Insurance Company may pay
dividends and make investments, advances and loans to such Regulated
Insurance Company; and
(vi) Regulated Insurance Companies may enter into reinsurance
transactions with one another.
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7.10 LEVERAGE RATIO. The Borrower will not permit the Leverage
Ratio at any time to be greater than 0.35:1.0.
7.11 INTEREST COVERAGE RATIO. The Borrower will not permit the
Interest Coverage Ratio for any Test Period to be less than 2.5:1.0.
7.12 MINIMUM ADJUSTED CONSOLIDATED SURPLUS. (a) Subject to Section
7.12(d) below, the Borrower shall not permit AmerUs Life to have at any time an
Adjusted Capital and Surplus of less than $300,000,000.
(b) Subject to Section 7.12(d) below, the Borrower shall not permit
Delta Life to have at any time an Adjusted Capital and Surplus of less than
$80,000,000.
(c) Subject to Section 7.12(d) below, the Borrower shall not permit
any Material Regulated Insurance Company acquired after the Effective Date
to have at any time an Adjusted Capital and Surplus of less than 80% of the
Adjusted Capital and Surplus of such Regulated Insurance Company on its
most recent Statutory Statement prior to such acquisition.
(d) In the event that any two or more of the Persons specified in
Sections 7.12(a)-(c) shall merge or consolidate with each other, the
minimum required Adjusted Capital and Surplus for the surviving Person
shall be an amount which equals the sum of the minimum amounts of
Adjusted Capital and Surplus required for each Person so merged or
consolidated immediately prior to such merger or consolidation;
PROVIDED, that in the case of a merger or consolidation of a Regulated
Insurance Company with and into its direct or indirect parent Regulated
Insurance Company, the minimum required Adjusted Capital and Surplus
for the surviving Person shall be equal to the minimum amount required
for such parent Regulated Insurance Company immediately prior to such
merger or consolidation.
7.13 MINIMUM RISK-BASED CAPITAL. The Borrower will not permit the
Risk-Based Capital for any Material Regulated Insurance Company to be less than
400%.
7.14 MINIMUM RATING. The Borrower will not permit any Material
Regulated Insurance Company to have a rating of below "A-" ("B++" in the
case of American Investors Life and "B" in the case of Financial Benefit
Life) from A.M. Best & Company ("A.M. Best"); PROVIDED, that the Borrower
shall not be in violation of this Section 7.14 until the earlier of (i) the
date on which the A.M. Best rating for a Material Regulated Insurance Company
falls below "B++"("B+" in the case of
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American Investors Life and "B-" in the case of Financial Benefit Life) or
(ii) the end of twelve consecutive months during which the A.M. Best rating
for a Material Regulated Insurance Company is below "A-" ("B++" in the
case of American Investors Life and "B" in the case of Financial Benefit
Life).
SECTION 8. EVENTS OF DEFAULT. Upon the occurrence of any of the
following specified events (each an "Event of Default"):
8.01 PAYMENTS. The Borrower shall (i) default in the payment when
due of any principal of any Loan or any Note, (ii) default, and such default
shall continue for two or more days, in the payment when due of any interest on
any Loan or any Note or any Fees or (iii) default in the prompt payment
following notice or demand in respect of any other amounts owing hereunder
or under any other Credit Document; or
8.02 REPRESENTATIONS, ETC. Any representation, warranty or state-
ment made or deemed made by the Borrower herein or in any other Credit Document
or in any statement or certificate delivered or required to be delivered
pursuant hereto or thereto shall prove to be untrue in any material respect on
the date as of which made or deemed made; or
8.03 COVENANTS. The Borrower shall (a) default in the due
performance or observance by it of any term, covenant or agreement contained
in Section 6.10 or 7, or (b) default in the due performance or observance by
it of any term, covenant or agreement (other than those referred to in
Section 8.01 or clause (a) of this Section 8.03) contained in this Agreement
and such default shall continue unremedied for a period of at least 30 days; or
8.04 DEFAULT UNDER OTHER AGREEMENTS. (a) The Borrower or any of
its Subsidiaries shall (i) default in any payment with respect to Indebtedness
(other than the Obligations) in excess of $5,000,000 individually or in the
aggregate, for the Borrower and its Subsidiaries, beyond the period of grace, if
any, provided in the instrument or agreement under which such Indebtedness was
created or (ii) default in the observance or performance of any agreement or
condition relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Indebtedness
(or a trustee or agent on behalf of such holder or holders) to cause (determined
without regard to whether any notice of acceleration, or any lapse of time prior
to the effectiveness of any notice of acceleration, is required), any such
Indebtedness to become due prior to its stated maturity; or (b) any such
Indebtedness of the Borrower
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or its Subsidiaries shall be declared to be due and payable in accordance
with the terms of such Indebtedness or required to be prepaid, other than by
a regularly scheduled required prepayment or as a mandatory prepayment
(unless such required prepayment or mandatory prepayment results from a
default thereunder or an event of the type that constitutes an Event of
Default), prior to the stated maturity thereof; or
8.05 BANKRUPTCY, ETC. The Borrower or any of its Subsidiaries shall
commence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy," as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or an involuntary case is commenced against
the Borrower or any of its Subsidiaries and the petition is not controverted
within 10 days, or is not dismissed within 60 days, after commencement of the
case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or
takes charge of, all or substantially all of the property of the Borrower or
any of its Subsidiaries; or the Borrower or any of its Subsidiaries commences
(including by way of applying for or consenting to the appointment of, or the
taking of possession by, a rehabilitator, receiver, custodian, trustee,
conservtor or liquidator (collectively, a "conservator") of itself or all or
any substantial portion of its property) any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency, liquidation, rehabilitation, conservatorship or similar law of any
jurisdiction whether now or hereafter in effect relating to the Borrower or any
of its Subsidiaries; or any such proceeding is commenced against (a) any
Regulated Insurance Company which is engaged in the business of underwriting
insurance and/or reinsurance in the United States, or (b) the Borrower or any of
its Subsidiaries (other than (x) any Regulated Insurance Company described in
the immediately preceding clause (a) or (y) any dissolution or liquidation
proceeding commenced against a non-Regulated Insurance Company (i) the assets of
which do not exceed an aggregate amount of $100,000 and (ii) in connection with
the winding-up of such Subsidiary) to the extent such proceeding is consented to
by such Person, and in the case of either clause (a) or (b) remains undismissed
for a period of 60 days; or the Borrower or any of its Subsidiaries is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or (a) any Regulated Insurance
Company which is engaged in the business of underwriting insurance and/or
reinsurance in the United States suffers any appointment of any conservator or
the like for it or any substantial part of its property, or (b) the Borrower or
any of its Subsidiaries (other than any Regulated Insurance Company described in
the immediately preceding clause (a)) suffers any appointment of any conservator
or the like for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the Borrower or any of its
Subsidiaries makes a general assignment for the benefit of creditors; or any
corporate action is taken by the Borrower or any of its Subsidiaries for the
purpose of effecting any of the foregoing; or
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8.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof under Section 412 of the
Code or Section 302 of ERISA or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, any Plan
which is subject to Title IV of ERISA shall have had or is likely to have a
trustee appointed by the PBGC to administer such Plan, any Plan which is subject
to Title IV of ERISA is, shall have been or is likely to be terminated or to be
the subject of termination proceedings under ERISA, any Plan shall have an
Unfunded Current Liability, a contribution required to be made with respect to a
Plan has not been timely made, the Borrower or any Subsidiary of the Borrower or
any ERISA Affiliate has incurred or is likely to incur any liability to or on
account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064,
4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the
Code or on account of a group health plan (as defined in Section 607(1) of ERISA
or Section 4980B(g)(2) of the Code) under Section 4980B of the Code, or the
Borrower or any Subsidiary of the Borrower has incurred or is likely to incur
liabilities pursuant to one or more employee welfare benefit plans (as defined
in Section 3(1) of ERISA) that provide death, health or severance benefits to
retired employees or other former employees (other than as required by Section
601 of ERISA or applicable state law) or Plans; and (b) there shall result from
any such event or events the imposition of a lien, the granting of a security
interest, or a liability; and (c) such lien, security interest or liability,
individually and/or in the aggregate, has had, or could reasonably be expected
to have, a Material Adverse Effect; or
8.07 PLEDGE AGREEMENT. Except in each case to the extent resulting
from the failure of the Collateral Agent to retain possession of the applicable
Pledged Securities, the Pledge Agreement shall, prior to the Collateral Release
Date, cease to be in full force and effect, or shall, prior to the Collateral
Release Date, cease to give the Collateral Agent the Liens, rights, powers and
privileges purported to be created thereby (including, without limitation, a
first priority perfected security interest in, and Lien on, all of the
Collateral subject thereto, in favor of the Collateral Agent, superior to and
prior to the rights of all third Persons and subject to no other Liens), or the
Borrower shall, prior to the Collateral Release Date, default in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to the Pledge Agreement; or
8.08 JUDGMENTS. One or more judgments or decrees shall be entered
against the Borrower or any of its Subsidiaries involving a liability, net of
undisputed reinsurance, of $5,000,000 or more in the case of any one such
judgment or decree or in the aggregate for all such judgments and decrees for
the Borrower and its Subsidiaries and any such judgments or decrees shall not
have been vacated, dis-
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charged, stayed or bonded pending appeal within 60 days from the entry
thereof; PROVIDED, that in the event that a judgment or decree is entered
against the Borrower or any of its Subsidiaries which by its terms provides
for its payment and satisfaction during a period of longer than 60 days, then
there shall be no Default or Event of Default under this Section 8.08 as a
result of such a judgment or decree so long as the Borrower or its
Subsidiary, as the case may be, is in compliance with the terms of such
judgment or decree; or
8.09 REVOCATION OF INSURANCE LICENSE. Any Insurance License shall
be suspended or revoked and such suspension or revocation shall continue for 30
days, or any renewal application for any Insurance License shall be disapproved
or ultimately fail to be approved, if such suspension, revocation, disapproval
or ultimate failure to win approval could reasonably be expected to have a
Material Adverse Effect; or
8.10 IOWA APPROVALS AND REGULATIONS. (a) The Department of Insurance
of the State of Iowa shall at any time withdraw or materially modify any
approvals or consents it may have granted with respect to any Pledge Agreement,
and such withdrawal or material modification shall remain in effect for a period
of 60 days or more; or (b) the State of Iowa shall enact or modify any law or
statute, or any agency or instrumentality thereof (including, without
limitation, the Department of Insurance of the State of Iowa) shall promulgate
or modify any rule or regulation, in any such case which has or is reasonably
likely to have a Material Adverse Effect; or
8.11 OWNERSHIP. A Change of Control shall occur;
then, and in any such event, and at any time thereafter, if any Event of
Default shall then be continuing, the Administrative Agent shall, upon the
written request of the Required Banks, by written notice to the Borrower,
take any or all of the following actions, without prejudice to the rights of
the Administrative Agent or any Bank to enforce its claims against the
Borrower, except as otherwise specifically provided for in this Agreement
(PROVIDED that if an Event of Default specified in Section 8.05 shall occur
with respect to the Borrower, the result which would occur upon the giving of
written notice by the Administrative Agent as specified in clauses (i) and
(ii) below shall occur automatically without the giving of any such notice):
(i) declare the Total Commitment terminated, whereupon the Commitment of each
Bank shall forthwith terminate immediately and any Commitment Fees and
Utilization Fees shall forthwith become due and payable without any other
notice of any kind; (ii) declare the principal of and any accrued interest in
respect of all Loans and all Obligations owing hereunder and under the other
Credit Documents to be, whereupon the same shall become, forthwith due and
payable without presentment, demand, protest or other notice of any kind, all
of which are hereby waived by the Borrower; and/or (iii) enforce, as
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Collateral Agent (or direct the Collateral Agent to enforce), any or all of
the Liens and security interests created pursuant to the Pledge Agreement.
SECTION 9. DEFINITIONS. As used herein, the following terms shall
have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"Adjusted Capital and Surplus" shall mean, at any time, with
respect to any Regulated Insurance Company, the sum of the following (without
duplication): (a) the amount of Capital and Surplus of such Regulated Insurance
Company at such time plus (b) the amount of any asset valuation reserve
maintained by such Regulated Insurance Company at such time in accordance with
SAP.
"Administrative Agent" shall have the meaning provided in the first
paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to Section 10.09.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling (including, but not limited to,
all directors and officers of such Person), controlled by, or under direct
or indirect common control with, such Person. A Person shall be deemed to
control a corporation if such Person possesses, directly or indirectly, the
power (i) to vote 10% or more of the securities having ordinary voting power
for the election of directors of such corporation or (ii) to direct or cause
the direction of the management and policies of such corporation, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" shall mean this Credit Agreement, as the same may be
from time to time modified, amended and/or supplemented.
"American Investors Life" shall mean American Investors Life
Insurance Company, Inc., a stock life insurance company.
"AmerUs Life" shall mean AmerUs Life Insurance Company, a stock
life insurance company.
"Annual Statement" shall mean the annual financial statement
required to be filed by any Regulated Insurance Company with the Applicable
Insurance Regulatory Authority.
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"Applicable Credit Rating" shall mean (i) the Moody's Credit Rating
and the S&P Credit Rating, if the same; (ii) if the Moody's Credit Rating and
the S&P Credit Rating differ by one rating level, the higher of such Ratings;
and (iii) if the Moody's Credit Rating and the S&P Credit Rating differ by
two or more rating levels, the Applicable Credit Rating shall be one rating
level below the higher of such Ratings.
"Applicable Commitment Fee Percentage" shall mean, for any day, the
percentage set forth below opposite the Applicable Period then in effect:
APPLICABLE PERIOD APPLICABLE COMMITMENT FEE PERCENTAGE
----------------- ------------------------------------
Category A Period 0.1250%
Category B Period 0.1375%
Category C Period 0.1500%
Category D Period 0.1750%
Category E Period 0.2500%
"Applicable Insurance Regulatory Authority" shall mean, when used with
respect to any Regulated Insurance Company, the insurance department or
similar administrative authority or agency located in (x) each state in which
such Regulated Insurance Company is domiciled or (y) to the extent asserting
regulatory jurisdiction over such Regulated Insurance Company, the insurance
department, authority or agency in each state in which such Regulated
Insurance Company is licensed, and shall include any Federal insurance
regulatory department, authority or agency that may be created and that
asserts regulatory jurisdiction over such Regulated Insurance Company.
"Applicable Laws" shall mean all applicable laws and treaties,
judgments, decrees, injunctions, writs and orders of any court, arbitrator or
governmental agency or authority and rules, regulations, orders, licenses and
permits of any governmental body, instrumentality, agency or authority.
"Applicable Leverage Ratio" shall mean, at any time, the Leverage
Ratio of the Borrower as of the last day of the then most recently ended
calendar quarter for which the Borrower has delivered financial statements
pursuant to Section 6.01(a)(i) or (b)(i) (it being understood that a Leverage
Ratio shall constitute the Applicable Leverage Ratio from and including the
date of delivery of such financial statements to but excluding the date of
the next delivery of such financial statements). Notwithstanding anything to
the contrary contained above in this definition, (i) for the period from and
including the Effective Date to but excluding the date on which the Borrower
delivers financial statements pursuant to Section 6.01(b)(i) in respect of
the fiscal quarter ending September 30, 1997, the Applicable Leverage Ratio
shall be
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deemed to be greater than or equal to 0.335 to 1.0, (ii) thereafter, but
prior to the earlier of (x) the date on which the Borrower acquires AmVestors
Financial Corporation and (y) the date on which the Borrower delivers
financial statements pursuant to Section 6.01(a)(i) in respect of the fiscal
year ending December 31, 1997, the Applicable Leverage Ratio shall be the
Leverage Ratio of the Borrower as of September 30, 1997 (determined on a PRO
FORMA basis as if the Delta Acquisition had been consummated, and all
Indebtedness incurred in connection therewith had been incurred, prior to
September 30, 1997, with such PRO FORMA Leverage Ratio to be set forth in a
certificate executed by the chief financial officer of the Borrower and
delivered to the Banks), (iii) from and including the date (if any) on which
the Borrower consummates the acquisition of AmVestors Financial Corporation
to but excluding the date on which the Borrower delivers financial statements
pursuant to Section 6.01(a)(i) in respect of the fiscal year ending December
31, 1997, the Applicable Leverage Ratio shall be the Leverage Ratio of the
Borrower as of the date of such acquisition (determined on a PRO FORMA basis
after giving effect to such acquisition, with such PRO FORMA Leverage Ratio
to be set forth in a certificate executed by the chief financial officer of
the Borrower and delivered to the Banks), and (iv) from and after the date on
which the Borrower delivers financial statements pursuant to Section
6.01(a)(i) in respect of the fiscal year ending December 31, 1997, the
Applicable Leverage Ratio shall be determined as provided in the preceding
sentence.
"Applicable Margin" shall mean, for any day, the rate per annum set
forth below opposite the Applicable Period then in effect:
APPLICABLE PERIOD APPLICABLE MARGIN
----------------- -----------------
Category A Period 0.375%
Category B Period 0.400%
Category C Period 0.450%
Category D Period 0.650%
Category E Period 0.750%
"Applicable Period" shall mean, at any time, the period set forth
below then in effect:
APPLICABLE PERIOD CRITERIA
----------------- --------
Category A Period The Applicable Leverage Ratio is less than
0.20 to 1.0 and the Applicable Credit Rating
is BBB+/Baa1 or above.
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Category B Period The Applicable Leverage Ratio is greater than
or equal to 0.20 to 1.0 but less than 0.275
to 1.0 AND the Applicable Credit Rating is
BBB/Baa2 or above, but a Category A Period is
not in effect at such time.
Category C Period The Applicable Leverage Ratio is greater than
or equal to 0.275 to 1.0 but less than 0.335
to 1.0 AND the Applicable Credit Rating is
BBB-/Baa3, but neither a Category A Period
nor a Category B Period is in effect at such
time.
Category D Period The Applicable Leverage Ratio is greater than
or equal to 0.335 to 1.0 AND the Applicable
Credit Rating is BB+/Ba1 or above, but none
of a Category A Period, a Category B Period
nor a Category C Period is in effect at such
time.
Category E Period None of a Category A Period, a Category B
Period, a Category C Period nor a Category D
Period is in effect at such time.
"Applicable Utilization Fee Percentage" shall mean, for any day, the
percentage set forth below opposite the Applicable Period then in effect:
APPLICABLE UTILIZATION
APPLICABLE PERIOD FEE PERCENTAGE
----------------- ----------------------
Category A Period 0.00%
Category B Period 0.05%
Category C Period 0.05%
Category D Period 0.05%
Category E Period 0.05%
"Authorized Control Level" shall mean "Authorized Control Level" as
defined by the NAIC from time to time and as applied in the context of the Risk
Based
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Capital Guidelines promulgated by the NAIC (or any term substituted therefor
by the NAIC).
"Authorized Officer" shall mean any senior officer of the Borrower
designated as such in writing by the Borrower to, and found acceptable by,
the Administrative Agent.
"AVLIC Guaranties" shall mean and include each of the guaranty
agreements (i) by Ameritas Life Insurance Corp. in favor of Ameritas Variable
Life Insurance Company ("AVLIC") dated as of July 8, 1991, (ii) by AMAL
Corporation for the benefit of AVLIC dated as of April 1, 1996, (iii) by
AmerUs Life (f/k/a American Mutual Life Insurance Company) in favor of AVLIC
dated as of April 1, 1996 and (iv) by the Borrower in favor of AVLIC after
the Effective Date on substantially the same terms as the foregoing.
"Bank" shall have the meaning provided in the first paragraph of this
Agreement.
"Bankruptcy Code" shall have the meaning provided in Section 8.05.
"Base Rate" at any time shall mean the higher of (x) the rate which is
1/2 of 1% in excess of the Federal Funds Effective Rate and (y) the Prime
Lending Rate as in effect from time to time.
"Base Rate Loans" shall mean each Loan bearing interest at the rates
provided in Section 1.08(a).
"Borrower" shall have the meaning provided in the first paragraph of
this Agreement.
"Borrowing" shall mean the incurrence of one Type of Loan hereunder by
the Borrower from all of the Banks on a PRO RATA basis on a given date (or
resulting from a conversion or conversions on such date), having in the case
of Eurodollar Loans the same Interest Period, PROVIDED that Base Rate Loans
incurred pursuant to Section 1.10(b) shall be considered part of any related
Borrowing of Eurodollar Loans.
"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day, excluding Saturday, Sunday and any day which
shall be in the City of New York a legal holiday or a day on which banking
institutions are authorized by law or other governmental actions to close, and
(ii) with respect to all notices and determinations in connection with, and
payments of principal and interest on,
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Eurodollar Loans, any day which is a Business Day described in clause (i) and
which is also a day for trading by and between banks in U.S. dollar deposits
in the interbank Eurodollar market.
"Capital and Surplus" shall mean, as of the last day of any calendar
quarter (including the last day of the calendar year), with respect to any
Regulated Insurance Company, the capital and surplus of such Regulated
Insurance Company as set forth in the Statutory Statement of such Regulated
Insurance Company for such date, or, if there is no such Statutory Statement
for such date, the amount computed and certified as correct by the Chief
Financial Officer of such Regulated Insurance Company, as the case may be,
that would be set forth in such a Statutory Statement for such date, based on
SAP, consistently applied.
"Capital Lease" as applied to any Person, shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is, or is required to be, accounted for as a capital
lease on the balance sheet of that Person.
"Capitalized Lease Obligations" shall mean all obligations under
Capital Leases of the Borrower or any of its Subsidiaries in each case taken
at the amount thereof accounted for as liabilities in accordance with GAAP.
"Cash Flow" shall mean, with respect to the Borrower, for any Test
Period, the difference between (a) and (b), where (a) is equal to the sum of:
(i) the sum of the amount of Dividends available to the Borrower allocable to
each of the four quarters comprising such Test Period, where such allocable
amount for each fiscal quarter is calculated as being 25% of the maximum
Dividends available to the Borrower under Applicable Laws from all Regulated
Insurance Companies for the calendar year in which such fiscal quarter occurs
(whether or not any such Dividends are or have been paid), PROVIDED that in
the event any Regulated Insurance Company has a net loss from operations (as
determined on a SAP basis) for two consecutive fiscal years, Dividends
available from such Regulated Insurance Company for such second fiscal year
shall not be included in this clause (i), plus (ii) management fees,
administrative fees, service fees, home office charges, consulting fees and
technical service charges paid to the Borrower during such Test Period plus
(iii) gross tax sharing payments received by the Borrower during such Test
Period plus (iv) all Surplus Note interest received by the Borrower during
such Test Period plus (v) net investment income of the Borrower during such
Test Period plus (vi) realized net capital gains from investments of the
Borrower during such Test Period to the extent not included in net investment
income; and (b) is equal to the sum of: (i) cash operating expenses paid by
the
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Borrower during such Test Period and (ii) taxes paid by the Borrower
during such Test Period.
"Change of Control" shall mean the occurrence of any of the following
events: (i) the Borrower shall cease to own, directly, or indirectly through
Wholly-Owned Subsidiaries, 100% of the issued and outstanding voting stock of
AmerUs Life ordinarily entitled to vote for the election of directors, or any
other class of stock of AmerUs Life of which the Borrower owns 50% or less
shall become entitled to elect a majority of AmerUs Life's board of
directors; (ii) failure of Group at any time to own a majority of the voting
shares of the Borrower as determined pursuant to Section 521A.14 of the Iowa
Code; or (iii) during any period of 25 consecutive calendar months,
individuals who at the beginning of such period constituted the Board of
Directors of the Borrower (together with any new directors whose election by
such Board of Directors or whose nomination for election by the stockholders
or members, as the case may be, of the Borrower was approved by a vote of a
majority of the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of such
Board of Directors then in office.
"Chase" shall mean The Chase Manhattan Bank.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of
this Agreement and any subsequent provisions of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" shall mean all of the Collateral as defined in the Pledge
Agreement.
"Collateral Agent" shall mean the Administrative Agent acting as
collateral agent for the Banks.
"Collateral Release Date" shall mean the first date on which the
Borrower has issued at least $100,000,000 in aggregate principal amount of
public Indebtedness, which Indebtedness has been issued a rating of at least
BBB by S&P and has been issued a rating of at least Baa2 by Moody's.
"Commitment" shall mean, with respect to each Bank, the amount set
forth opposite such Bank's name on Annex I hereto, as the same may be (x)
reduced
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or terminated pursuant to Sections 2.02, 2.03 and/or 8 or (y) adjusted from
time to time as a result of assignment to or from such Bank pursuant to
Section 11.04(b).
"Commitment Fee" shall have the meaning provided in Section 2.01(a).
"Consolidated Indebtedness" shall mean, at any time and as to any
Person, all Indebtedness for borrowed money of such Person and its
Subsidiaries at such time determined on a consolidated basis in accordance
with GAAP, PROVIDED that as to the Borrower, only 50% of any Trust Preferred
Offering shall constitute Consolidated Indebtedness.
"Consolidated Interest Expense" shall mean, for any period and as to
any Person, (i) total interest expense (including that attributable to
Capital Leases in accordance with GAAP) of such Person and its Subsidiaries
on a consolidated basis including, without limitation, all commissions,
discounts and other fees and charges owed with respect to letters of credit
and bankers' acceptance financing and net costs under Interest Rate
Protection Agreements, but excluding however, any amortization of deferred
financing costs, plus (ii) all Dividends paid or accrued during such period
in connection with the preferred stock of the Borrower or any Subsidiary of
the Borrower which is a business trust.
"Consolidated Net Worth" shall mean, with respect to any Person, the
Net Worth of such Person and its Subsidiaries determined on a consolidated
basis in accordance with GAAP after appropriate deduction for any minority
interests in Subsidiaries; PROVIDED, that for the purpose of calculating the
maximum amount of Dividends payable pursuant to Section 7.07(ii),
Consolidated Net Worth shall exclude 100% of any Trust Preferred Offering.
"Consolidated Total Capital" shall mean, at any time and as to any
Person, the sum of Consolidated Indebtedness of such Person and Consolidated
Net Worth of such Person at such time; PROVIDED, that Consolidated Total
Capital shall in any event include 100% of any Trust Preferred Offering.
"Contingent Obligations" shall mean, as to any Person, any obligation
of such Person guaranteeing or intended to guarantee any Indebtedness,
leases, dividends or other obligations ("primary obligations") of any other
Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation
or (ii) to maintain working capital or equity capital of the primary obligor
or
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otherwise to maintain the net worth or solvency of the primary obligor, (c)
to purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation or (d) otherwise
to assure or hold harmless the owner of such primary obligation against loss
in respect thereof; PROVIDED, HOWEVER, that the term Contingent Obligation
shall not include (x) endorsements of instruments for deposit or collection
in the ordinary course of business or (y) obligations of any Regulated
Insurance Company under Insurance Contracts, Reinsurance Agreements or
Retrocession Agreements. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Contingent Obligation is made or,
if not stated or determinable, the maximum reasonably anticipated liability
in respect thereof (assuming such Person is required to perform thereunder)
as determined by such Person in good faith.
"Credit Documents" shall mean this Agreement, the Notes, the Pledge
Agreement and all other documents, instruments and agreements executed or
delivered to the Administrative Agent and/or the Banks in connection herewith
or therewith.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Delta Holdings" shall mean Delta Life Corporation, a Delaware
corporation.
"Delta Life" shall mean Delta Life and Annuity Company, a Tennessee
stock life corporation and a Wholly-Owned Subsidiary of Delta Holdings.
"Delta Life Acquisition" shall mean the merger of Delta Holdings and a
Wholly-Owned Subsidiary of the Borrower, after giving effect to which merger
Delta Holdings shall be a Wholly-Owned Subsidiary of the Borrower.
"Dividends" shall have the meaning provided in Section 7.07.
"Effective Date" shall have the meaning provided in Section 11.10.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time and the regulations promulgated and
rulings issued thereunder. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
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"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with the Borrower or a Subsidiary of the Borrower
would be deemed to be a "single employer" within the meaning of Section
414(b),(c), (m) or (o) of the Code.
"Eurodollar Loans" shall mean each Loan bearing interest at the rates
provided in Section 1.08(b).
"Eurodollar Rate" shall mean, with respect to each Interest Period for
a Eurodollar Loan, (i) the arithmetic average (rounded to the nearest 1/100
of 1%) of (a) for Interest Periods of one, two, three or six months, the
offered rates for U.S. dollar deposits having a term comparable to such
Interest Period and of amounts in same day funds comparable to the
outstanding principal amount of such Eurodollar Loan which appear on the
Reuters Screen LIBO Page, or (b) for an Interest Period of one week, the
offered quotation to first-class banks in the interbank Eurodollar market by
Chase for U.S. dollar deposits having a term comparable to such Interest
Period and of amounts in same day funds comparable to the outstanding
principal amount of such Eurodollar Loan for which an interest rate is then
being determined by Chase, in the case of each of clauses (a) and (b) above
determined as of 10:00 A.M. (New York time) on the date which is two Business
Days prior to the commencement of such Interest Period divided (and rounded
upward to the next whole multiple of 1/16 of 1%) by (ii) a percentage equal
to 100% minus the then stated maximum rate of all reserve requirements
(including, without limitation, any marginal, emergency, supplemental,
special or other reserves) applicable to any member bank of the Federal
Reserve System in respect of Eurocurrency liabilities as defined in
Regulation D (or any successor category of liabilities under Regulation D).
"Event of Default" shall have the meaning provided in Section 8.
"Existing Credit Agreement" shall mean the Credit Agreement, dated as
of December 11, 1996, among the Borrower, various lending institutions and
The Chase Manhattan Bank, as Administrative Agent, as amended, modified or
supplemented prior to the Effective Date.
"Expiration Date" shall mean November 18, 1997.
"Federal Funds Effective Rate" shall mean for any period, a
fluctuating interest rate equal for each day during such period to the
weighted average of the rates on overnight Federal Funds transactions with
members of the Federal Reserve System arranged by Federal Funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of
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New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by the Administrative Agent from three Federal Funds brokers of
recognized standing selected in good faith by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to, or referred to in,
Section 2.01.
"FHLB" shall have the meaning provided in Section 7.04(j).
"Financial Benefit Life" shall mean Financial Benefit Life Insurance
Company, a stock life insurance company.
"GAAP" shall mean generally accepted accounting principles in the
United States of America; it being understood and agreed that determinations
in accordance with GAAP for purposes of Section 7, including defined terms as
used therein, are subject (to the extent provided therein) to Section
11.07(a).
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"Group" shall mean AmerUs Group Co., an Iowa corporation.
"Indebtedness" of any Person shall mean (i) all indebtedness of such
Person for borrowed money, (ii) the deferred purchase price of assets or
services which in accordance with GAAP would be shown on the liability side
of the balance sheet of such Person, (iii) the face amount of all letters of
credit issued for the account of such Person and, without duplication, all
drafts drawn thereunder, (iv) all Indebtedness of a second Person secured by
any Lien on any property owned by such first Person, whether or not such
Indebtedness has been assumed, (v) all Capitalized Lease Obligations of such
Person, (vi) all obligations of such Person under Interest Rate Protection
Agreements and (vii) all Contingent Obligations of such Person with respect
to any of the foregoing; PROVIDED, that Indebtedness shall not include (x)
trade payables (including payables under insurance contracts and reinsurance
payables) and accrued expenses, in each case arising in the ordinary course
of business and (y) obligations with respect to Policies.
"Initial Borrowing Date" shall mean the date of the incurrence of the
initial Loans hereunder.
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"Initial Offering" shall mean, collectively, a transaction
involving the sale of Trust Preferred Related Debt Securities of the Borrower
to a Delaware statutory business trust which constitutes a Subsidiary of the
Borrower and the concurrent sale by such Subsidiary of preferred equity
securities, which transaction was consummated on February 3, 1997.
"Insurance Business" shall mean one or more aspects of the
business of selling, issuing or underwriting insurance or reinsurance.
"Insurance Contract" shall mean any insurance contract or policy
issued by a Regulated Insurance Company but shall not include any Reinsurance
Agreement or Retrocession Agreement.
"Insurance Licenses" shall mean each of the insurance licenses
listed on Annex IX and any other insurance license necessary for the conduct
of business by any Regulated Insurance Company.
"Interest Coverage Ratio" shall mean, for any Test Period, the
ratio of Cash Flow for such Test Period to Consolidated Interest Expense of
the Borrower for such Test Period.
"Interest Period" shall mean, with respect to any Eurodollar Loan,
the interest period applicable thereto, as determined pursuant to Section
1.09.
"Interest Rate Protection Agreement" shall mean any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedging agreement or other similar agreement or arrangement.
"Legal Requirements" shall mean all applicable laws, rules and
regulations made by any governmental body or regulatory authority (including,
without limitation, any Applicable Insurance Regulatory Authority) having
jurisdiction over the Borrower or a Subsidiary of the Borrower.
"Leverage Ratio" shall mean the ratio of (i) Consolidated
Indebtedness of the Borrower to (ii) Consolidated Total Capital of the
Borrower.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any
of the foregoing, any conditional sale or other title retention agreement or
any lease in the nature thereof), or any understanding or agreement to
repurchase any property or assets sold by the Borrower or any of its
Subsidiaries (including sales of accounts receivable or notes with
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recourse to the Borrower or any of its Subsidiaries), or the
assignment of any right to receive income, or the filing of any financing
statement under the UCC or any other similar notice under any similar
recording or notice statute relating to any property.
"Loan" shall have the meaning provided in Section 1.01.
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on
the business, property, assets, liabilities, condition (financial or
otherwise) or prospects of the Borrower or of the Borrower and its
Subsidiaries taken as a whole.
"Material Regulated Insurance Company" shall mean each Regulated
Insurance Company which has a statutory surplus equal to or greater than
$5,000,000; PROVIDED that (i) American Vanguard Life Insurance Company shall
not be considered a Material Regulated Insurance Company unless and until it
has a statutory surplus equal to or greater than $15,000,000, and (ii) CLA
Assurance Company shall not be considered a Material Regulated Insurance
Company unless and until it has a statutory surplus equal to or greater than
$7,500,000.
"Material Subsidiary" shall mean any Subsidiary of the Borrower
the fair market value of whose assets constitutes 1% or more of the fair
market value of the consolidated assets of the Borrower and its Subsidiaries.
"Maturity Date" shall mean the date five years from the Effective
Date.
"Moody's" shall mean Moody's Investors Service, Inc. and its
successors.
"Moody's Credit Rating" shall mean the rating level (it being
understood that a rating level shall include numerical modifiers and (+) and
(-) modifiers) assigned by Moody's to the senior unsecured long-term debt of
the Borrower, PROVIDED that if at any time Moody's does not rate the senior
unsecured long-term debt of the Borrower, the "Moody's Credit Rating" shall
be three rating levels below the claims paying rating assigned by Moody's to
AmerUs Life. If either of the foregoing ratings shall be changed by Moody's,
such change shall be effective for purposes of this definition on the
Business Day following the day on which Moody's announces such change.
"NAIC" shall mean the National Association of Insurance
Commissioners or any successor organization thereto.
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"NAIC Tests" shall mean the ratios and other financial
measurements developed by the NAIC under its Insurance Regulatory Information
System, as in effect from time to time.
"Net Worth" shall mean, as to any Person, the sum of its capital
stock (including, without limitation, its preferred stock), capital in excess
of par or stated value of shares of its capital stock (including, without
limitation, its preferred stock), retained earnings and any other account
which, in accordance with GAAP, constitutes stockholders equity, but
excluding (i) any treasury stock and (ii) the effects of Financial Accounting
Statement No. 115.
"Note" shall have the meaning provided in Section 1.05.
"Notice of Borrowing" shall have the meaning provided in Section
1.03.
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Administrative Agent
at 270 Park Avenue, New York, New York 10017 or such other office as the
Administrative Agent may designate to the Borrower and the Banks from time to
time.
"Obligations" shall mean all amounts, direct or indirect,
contingent or absolute, of every type or description, and at any time
existing, owing to the Administrative Agent, the Collateral Agent or any Bank
pursuant to the terms of this Agreement or any other Credit Document.
"Other Hedging Agreements" shall mean any foreign exchange
contracts, currency swap agreements or other similar agreements or
arrangements designed to protect against fluctuations in currency values.
"Payment Office" shall mean the office of the Administrative Agent
at One Chase Manhattan Plaza, New York, New York 10081 or such other office
as the Administrative Agent may designate to the Borrower and the Banks from
time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Subordinated Debt Securities" shall mean unsecured
subordinated debt of the Borrower the terms and conditions of which are
reasonably satisfactory to the Administrative Agent and the Required Banks.
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"Person" shall mean any individual, partnership, joint venture,
firm, corporation, association, trust or other enterprise or any government
or political subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any pension plan as defined in Section 3(2) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Borrower or a Subsidiary of the Borrower or
an ERISA Affiliate, and each such plan for the five year period immediately
following the latest date on which the Borrower, or a Subsidiary of the
Borrower or an ERISA Affiliate maintained, contributed to or had an
obligation to contribute to such plan.
"Pledge Agreement" shall have the meaning provided in Section
4.01(h).
"Pledged Securities" shall mean all the Pledged Securities as
defined in the Pledge Agreement.
"Policies" shall mean all insurance policies, annuity contracts,
guaranteed interest contracts and funding agreements (including riders to any
such policies or contracts, certificates issued with respect to group life
insurance or annuity contracts and any contracts issued in connection with
retirement plans or arrangements) and assumption certificates issued or to be
issued (or filed pending current review by applicable Governmental
Authorities) by any Regulated Insurance Company and any coinsurance
agreements entered into or to be entered into by any Regulated Insurance
Company.
"Prime Lending Rate" shall mean the rate which Chase announces
from time to time as its prime commercial lending rate, the Prime Lending
Rate to change when and as such prime commercial lending rate changes. The
Prime Lending Rate is a reference rate and does not necessarily represent the
lowest or best rate actually charged to any customer. Chase may make
commercial loans or other loans at rates of interest at, above or below the
Prime Lending Rate.
"Purchase Money Security Interest" shall have the meaning provided
in Section 7.03(k).
"Quarterly Statement" shall mean the quarterly financial
statements required to be filed by any Regulated Insurance Company with the
Applicable Regulatory Insurance Authority.
"Rating Agencies" shall mean S&P and Moody's.
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"Register" shall have the meaning provided in Section 11.17.
"Regulated Insurance Company" shall mean any Subsidiary of the
Borrower, whether now owned or hereafter acquired, that is authorized or
admitted to carry on or transact Insurance Business in any jurisdiction and
is regulated by any Applicable Insurance Regulatory Authority.
"Regulation D" shall mean Regulation D of the Board of Governors
of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.
"Regulation U" shall mean Regulation U of the Board of Governors
of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing margin requirements.
"Reinsurance Agreement" shall mean any agreement, contract, treaty
or other arrangement whereby one or more insurers, as reinsurers, assume
liabilities under insurance policies or agreements issued by another
insurance or reinsurance company or companies.
"Reportable Event" shall mean an event described in Section
4043(c) of ERISA with respect to a Plan other than those events as to which
the 30-day notice period is waived under subsection .13, .14, .16, .18, .19
or .20 of 40 C.F.R. 4043.
"Required Banks" shall mean Banks whose Commitments (or, after the
Commitments have terminated, outstanding Loans) constitute at least 66-2/3%
of the Total Commitment (or, after the Commitments have terminated, all
outstanding Loans) at such time.
"Retrocession Agreement" shall mean any agreement, contract,
treaty or other arrangement whereby one or more insurers or reinsurers, as
retrocessionaires, assume liabilities of reinsurers under a Reinsurance
Agreement or other retrocessionaires under another Retrocession Agreement.
"Risk-Based Capital" shall mean for any Regulated Insurance
Company, the ratio (expressed as a percentage), at any time, of the Total
Adjusted Capital of such entity to the Authorized Control Level of such
entity.
"S&P" shall mean Standard & Poor's Ratings Group and its
successors.
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"S&P Credit Rating" shall mean the rating level (it being
understood that a rating level shall include numerical modifiers and (+) and
(-) modifiers) assigned by S&P to the senior unsecured long-term debt of the
Borrower, PROVIDED that if at any time S&P does not rate the senior unsecured
long-term debt of the Borrower, the "S&P Credit Rating" shall be three
rating levels below the claims paying rating assigned by S&P to AmerUs Life.
If either of the foregoing ratings shall be changed by S&P, such change shall
be effective for purposes of this definition on the Business Day following
the day on which S&P announces such change.
"SAP" shall mean, with respect to any Regulated Insurance Company,
the accounting procedures and practices prescribed or permitted by the
Applicable Insurance Regulatory Authority of the state in which such
Regulated Insurance Company is domiciled; it being understood and agreed that
determinations in accordance with SAP for purposes of Section 7, including
defined terms as used therein, are subject (to the extent provided therein)
to Section 11.07(a).
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"SEC Regulation D" shall mean Regulation D as promulgated under
the Securities Act of 1933, as amended, as the same may be in effect from
time to time.
"Section 3.04(b)(ii) Certificate" shall have the meaning provided
in Section 3.04(b)(ii).
"Secured Creditors" shall have the meaning provided in the Pledge
Agreement.
"Statutory Statement" shall mean, as to any Regulated Insurance
Company, a statement of the condition and affairs of such Regulated Insurance
Company, prepared in accordance with SAP and filed with the Applicable
Insurance Regulatory Authority.
"Subsidiary" of any Person shall mean and include (i) any
corporation more than 50% of whose stock of any class or classes having by
the terms thereof ordinary voting power to elect a majority of the directors
of such corporation (irrespective of whether or not at the time stock of any
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time owned by such
Person directly or indirectly through Subsidiaries and (ii) any partnership,
association, joint venture or other entity in which such Person directly or
indirectly through Subsidiaries has more than a 50% equity or voting interest
at the
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time. Unless otherwise expressly provided, all references herein to
"Subsidiary" shall mean a Subsidiary of the Borrower.
"Surplus Note" shall mean a surplus note issued by any Regulated
Insurance Company to the Borrower.
"Syndication Date" shall mean that date upon which the
Administrative Agent determines (and notifies the Borrower and the Banks)
that the primary syndication (and resulting addition of Persons as Banks
pursuant to Section 11.04(b)) has been completed.
"Taxes" shall have the meaning provided in Section 3.04(a).
"Termination Date" shall have the meaning provided in Section 2.01(a).
"Test Period" shall mean the four consecutive fiscal quarters of
the Borrower ended on the last day of the most recently ended fiscal quarter
of the Borrower (taken as one accounting period). The first Test Period
shall end on December 31, 1997.
"Total Adjusted Capital" shall mean "Total Adjusted Capital" as
defined by the NAIC as of December 31, 1996 and as applied in the context of
the Risk Based Capital Guidelines promulgated by the NAIC.
"Total Commitment" shall mean the sum of the Commitments of each
Bank.
"Total Unutilized Commitment" shall mean, at any time, an amount
equal to the remainder of (x) the Total Commitment then in effect less (y)
the aggregate principal amount of Loans then outstanding.
"Trust Preferred Offering" shall mean (i) the Initial Offering and
(ii) any subsequent issuance of Trust Preferred Related Debt Securities by
the Borrower to a business trust, together with the concurrent issuance by
such trust of preferred equity securities on substantially the same terms as
the Initial Offering.
"Trust Preferred Related Debt Securities" shall mean unsecured,
fixed-rate subordinated debt issued or to be issued by the Borrower in
connection with any Trust Preferred Offering, provided that such Indebtedness
issued after the Effective Date, and the agreements and other documents
entered into by the Borrower and/or any of its Subsidiaries in connection
therewith shall contain terms and conditions (including,
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without limitation, with respect to the obligor and guarantors, if any, in
respect of such Indebtedness, amortization schedules, interest rates
(including pay-in-kind provisions) (subject to normal fluctuations and
changes in methods of interest calculations), covenants, defaults, remedies
and subordination provisions) in form and substance substantially the same as
the terms and conditions of the Trust Preferred Related Debt Securities
issued in connection with the Initial Offering.
"Type" shall mean any type of Loan determined with respect to the
interest option applicable thereto, I.E., a Base Rate Loan or a Eurodollar
Loan.
"UCC" shall mean the Uniform Commercial Code.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits
under the Plan as of the close of its most recent plan year exceeds the fair
market value of the assets allocable thereto, each determined in accordance
with Statement of Financial Accounting Standards No. 87, based upon the
actuarial assumptions used by the Plan's actuary in the most recent annual
valuation of the Plan.
"Unutilized Commitment" with respect to any Bank, at any time,
shall mean such Bank's Commitment at such time less the aggregate outstanding
principal amount of Loans made by such Bank.
"Utilization Fee" shall have the meaning provided in Section
2.01(b).
"Wholly-Owned Subsidiary" of any Person shall mean any Subsidiary
of such Person to the extent all of the capital stock or other ownership
interests in such Subsidiary, other than directors' or nominees' qualifying
shares, is owned directly or indirectly by such Person.
"Written" or "in writing" shall mean any form of written
communication or a communication by means of telex, facsimile device,
telegraph or cable.
SECTION 10. THE ADMINISTRATIVE AGENT.
10.1 APPOINTMENT. Each Bank hereby irrevocably designates and
appoints Chase as Administrative Agent (such term as used in this Section 10
to include Chase acting as Collateral Agent) to act as specified herein and
in the other Credit Documents, and each such Bank hereby irrevocably
authorizes Chase as the Administrative Agent for such Bank, to take such
action on its behalf under the provisions of this
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Agreement and the other Credit Documents and to exercise such powers and
perform such duties as are expressly delegated to the Administrative Agent by
the terms of this Agreement and the other Credit Documents, together with
such other powers as are reasonably incidental thereto. The Administrative
Agent agrees to act as such upon the express conditions contained in this
Section 10. Notwithstanding any provision to the contrary elsewhere in this
Agreement, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein or in the other
Credit Documents, nor any fiduciary relationship with any Bank, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against the
Administrative Agent. The provisions of this Section 10 are solely for the
benefit of the Administrative Agent and the Banks, and the Borrower shall not
have any rights as a third party beneficiary of any of the provisions hereof.
In performing its functions and duties under this Agreement, the
Administrative Agent shall act solely as agent of the Banks and does not
assume and shall not be deemed to have assumed any obligation or relationship
of agency or trust with or for the Borrower.
10.2 DELEGATION OF DUTIES. The Administrative Agent may execute
any of its duties under this Agreement or any other Credit Document by or
through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agents
or attorneys-in-fact selected by it with reasonable care except to the extent
otherwise required by Section 10.03.
10.3 EXCULPATORY PROVISIONS. Neither the Administrative Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement (except
for its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Banks for any recitals, statements,
representations or warranties made by the Borrower or any Subsidiary or any
of their respective officers contained in this Agreement, any other Credit
Document or in any certificate, report, statement or other document referred
to or provided for in, or received by the Administrative Agent under or in
connection with, this Agreement or any other Credit Document or for any
failure of the Borrower or any of its Subsidiaries or any of their respective
officers to perform its obligations hereunder or thereunder. The
Administrative Agent shall not be under any obligation to any Bank to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement, or to inspect the
properties, books or records of the Borrower or any of its Subsidiaries. The
Administrative Agent shall not be responsible to any Bank for the
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of this Agreement or any Credit Document
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or for any representations, warranties, recitals or statements made herein or
therein or made in any written or oral statement or in any financial or other
statements, instruments, reports, certificates or any other documents in
connection herewith or therewith furnished or made by the Administrative
Agent to the Banks or by or on behalf of the Borrower to the Administrative
Agent or any Bank or be required to ascertain or inquire as to the
performance or observance of any of the terms, conditions, provisions,
covenants or agreements contained herein or therein or as to the use of the
proceeds of the Loans or of the existence or possible existence of any
Default or Event of Default.
10.4 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, facsimile transmission, telex or teletype message,
statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower), independent accountants and
other experts selected by the Administrative Agent. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Credit Document unless it shall first receive such
advice or concurrence of the Required Banks as it deems appropriate or it
shall first be indemnified to its satisfaction by the Banks against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Administrative Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement and the other Credit Documents in accordance with a request of the
Required Banks, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Banks.
10.5 NOTICE OF DEFAULT. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event
of Default hereunder unless the Administrative Agent has received notice from
a Bank or the Borrower referring to this Agreement, describing such Default
or Event of Default and stating that such notice is a "notice of default."
In the event that the Administrative Agent receives such a notice, the
Administrative Agent shall give prompt notice thereof to the Banks. The
Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Banks,
PROVIDED that unless and until the Administrative Agent shall have received
such directions, the Administrative Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the best interests
of the Banks.
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10.06 NON-RELIANCE. Each Bank expressly acknowledges that neither the
Administrative Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates have made any representations or warranties
to it and that no act by the Administrative Agent hereinafter taken,
including any review of the affairs of the Borrower or any of its
Subsidiaries, shall be deemed to constitute any representation or warranty by
the Administrative Agent to any Bank. Each Bank represents to the
Administrative Agent that it has, independently and without reliance upon the
Administrative Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, assets, operations, property, financial and
other conditions, prospects and creditworthiness of the Borrower and its
Subsidiaries and made its own decision to make its Loans hereunder and enter
into this Agreement. Each Bank also represents that it will, independently
and without reliance upon the Administrative Agent or any other Bank, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement, and to make such
investigation as it deems necessary to inform itself as to the business,
assets, operations, property, financial and other conditions, prospects and
creditworthiness of the Borrower and its Subsidiaries. The Administrative
Agent shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning the business, operations, assets,
property, financial and other conditions, prospects or creditworthiness of
the Borrower or any Subsidiary which may come into the possession of the
Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
10.07 INDEMNIFICATION. Each Bank agrees to indemnify the Administrative
Agent and the Collateral Agent in its respective capacities as such ratably
according to such Bank's respective Commitment (or, if the Total Commitment
has terminated, according to such Bank's respective Commitment immediately
prior to such termination), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
reasonable expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following the payment of the
Obligations) be imposed on, incurred by or asserted against the
Administrative Agent in its capacity as such in any way relating to or
arising out of this Agreement or any other Credit Document, or any documents
contemplated by or referred to herein or the transactions contemplated hereby
or any action taken or omitted to be taken by the Administrative Agent under
or in connection with any of the foregoing, but only to the extent that any
of the foregoing is not paid by the Borrower or any of its Subsidiaries,
PROVIDED that no Bank shall be liable to the Administrative Agent for the
payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the Administrative Agent's gross negligence or willful
misconduct. If any
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indemnity furnished to the Administrative Agent for any purpose shall, in the
opinion of the Administrative Agent, be insufficient or become impaired, the
Administrative Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity
is furnished. The agreements in this Section 10.07 shall survive the payment
of all Obligations.
10.08 THE ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. The
Administrative Agent and its affiliates may make loans to, accept deposits
from and generally engage in any kind of business with the Borrower and its
Subsidiaries as though not acting as Administrative Agent hereunder. With
respect to the Loans made by it and all Obligations owing to it, the
Administrative Agent shall have the same rights and powers under this
Agreement as any Bank and may exercise the same as though it were not the
Administrative Agent, and the terms "Bank" and "Banks" shall include the
Administrative Agent in its individual capacity.
10.09 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may
resign as the Administrative Agent upon 20 days' notice to the Banks and the
Borrower. Upon such resignation, the Required Banks shall, with the consent
of the Borrower (such consent not to be unreasonably withheld), appoint from
among the Banks a successor Administrative Agent for the Banks, whereupon
such successor agent shall succeed to the rights, powers and duties of the
Administrative Agent, and the term "Administrative Agent" shall include
such successor agent effective upon its appointment, and the resigning
Administrative Agent's rights, powers and duties as the Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent or any of the parties to this Agreement.
After the retiring Administrative Agent's resignation hereunder as the
Administrative Agent, the provisions of this Section 10 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
SECTION 11. MISCELLANEOUS.
11.01 PAYMENT OF EXPENSES, ETC. The Borrower hereby agrees to: (i)
whether or not the transactions herein contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Administrative Agent in
connection with the negotiation, preparation, syndication, execution and
delivery of the Credit Documents and the documents and instruments referred
to therein (including, without limitation, the reasonable fees and
disbursements of White & Case, subject to the limitations agreed to by the
Administrative Agent and the Borrower); (ii) whether or not the transactions
herein contemplated are consummated, pay all reasonable out-of-pocket costs
and expenses of the Administrative Agent in connection with any
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amendment, waiver or consent relating to this Agreement or any other Credit
Document; (iii) whether or not the transactions herein contemplated are
consummated, pay all reasonable out-of-pocket costs and expenses of the
Administrative Agent and each of the Banks in connection with the enforcement
of the Credit Documents and the documents and instruments referred to therein
(including, without limitation, the reasonable fees and disbursements of
counsel for the Administrative Agent and for each of the Banks); (iv) pay and
hold each of the Banks harmless from and against any and all present and
future stamp and other similar taxes with respect to the foregoing matters
and save each of the Banks harmless from and against any and all liabilities
with respect to or resulting from any delay or omission to pay such taxes;
and (v) indemnify the Administrative Agent and each Bank, and their
respective officers, directors, employees, representatives and agents (each,
an "indemnified person") from and hold each of them harmless against any
and all losses, liabilities, claims, damages or expenses (collectively,
"Claims") incurred by any of them as a result of, or arising out of, or in
any way related to, or by reason of, any investigation, litigation or other
proceeding (whether or not the Administrative Agent or any Bank is a party
thereto) related to the entering into and/or performance of any Credit
Document or the use of the proceeds of any Loans hereunder or the
consummation of any other transactions contemplated in any Credit Document,
including, without limitation, the reasonable fees and disbursements of
counsel incurred in connection with any such investigation, litigation or
other proceeding (but excluding any such losses, liabilities, claims, damages
or expenses to the extent incurred by reason of the gross negligence or
willful misconduct of the Person to be indemnified).
11.02 RIGHT OF SETOFF. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of
any such rights, upon the occurrence and continuance of an Event of Default,
each Bank is hereby authorized at any time or from time to time, without
presentment, demand, protest or other notice of any kind to the Borrower or
to any other Person, any such notice being hereby expressly waived, to set
off and to appropriate and apply any and all deposits (general or special)
and any other Indebtedness at any time held or owing by such Bank (including,
without limitation, by branches and agencies of such Bank wherever located)
to or for the credit or the account of the Borrower against and on account of
the Obligations and liabilities of the Borrower to such Bank or any other
Bank under this Agreement or under any of the other Credit Documents,
including, without limitation, all interests in Obligations of the Borrower
purchased by such Bank or any other Bank pursuant to Section 11.06(b), and
all other claims of any nature or description arising out of or connected
with this Agreement or any other Credit Document, irrespective of whether or
not such Bank shall have made any demand hereunder and although said
Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured. Each Bank is hereby designated the agent of all other Banks for
purposes of effecting
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set off pursuant to this Section 11.02 and the Borrower hereby grants to each
Bank for such Bank's own benefit and as agent for all other Banks a
continuing security interest in any and all deposits, accounts or moneys of
the Borrower maintained from time to time with such Bank.
11.03 NOTICES. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered, if to the Borrower, at
the address specified opposite its signature below; if to any Bank, at its
address specified for such Bank on Annex II hereto; or, at such other address
as shall be designated by any party in a written notice to the other parties
hereto. All such notices and communications shall be mailed, telegraphed,
telexed, telecopied, cabled or sent by overnight courier and shall be
effective when received.
11.04 BENEFIT OF AGREEMENT. (a) This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto; PROVIDED, HOWEVER, the Borrower may not
assign or transfer any of its rights or obligations hereunder without the
prior written consent of the Banks. Each Bank may at any time grant
participations in any of its rights hereunder or under any of its Notes to
any bank or other financial institution; PROVIDED that in the case of any
such participation, the participant shall not have any rights under this
Agreement or any of the other Credit Documents, including rights of consent,
approval or waiver (the participant's rights against such Bank in respect of
such participation to be those set forth in the agreement executed by such
Bank in favor of the participant relating thereto) and all amounts payable by
the Borrower hereunder shall be determined as if such Bank had not sold such
participation, except that the participant shall be entitled to receive the
additional amounts under Sections 1.10, 1.11 and 3.04 of this Agreement to,
and only to, the extent that such Bank would be entitled to such benefits if
the participation had not been entered into or sold; and PROVIDED FURTHER,
that no Bank shall transfer, grant or assign any participation under which
the participant shall have rights to approve any amendment to or waiver of
this Agreement or any other Credit Document except to the extent such
amendment or waiver would (i) extend the final scheduled maturity of any Loan
or Note in which such participant is participating or reduce the rate or
extend the time of payment of interest thereon or Fees, or reduce the
principal amount thereof, or increase such participant's participating
interest in any Commitment or Loan over the amount thereof then in effect (it
being understood that a waiver of any Default or Event of Default or of a
mandatory reduction in the Total Commitment shall not constitute a change in
the terms of any Commitment and that an increase in any Commitment shall be
permitted without the consent of any participant if such participant's
participation is not increased as a result thereof), (ii) release all or
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any material portion of the Collateral (except as expressly provided in the
Credit Documents) or (iii) consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement or any
other Credit Document except in accordance with the terms hereof and thereof.
(b) Notwithstanding the foregoing, any Bank may assign all or a portion
of its rights and obligations hereunder to a bank or other financial
institution with the prior written consent of the Administrative Agent, which
consent shall not be unreasonably withheld. No assignment of less than all
of a Bank's rights and obligations hereunder pursuant to the immediately
preceding sentence shall, to the extent such transaction represents an
assignment to an institution other than one or more Banks hereunder, be in an
aggregate amount less than the minimum of $5,000,000 unless otherwise agreed
to by the Administrative Agent and the Borrower in writing. If any Bank so
sells or assigns all or a part of its rights hereunder or under the Notes,
any reference in this Agreement or the Notes to such assigning Bank shall
thereafter refer to such Bank and to the respective assignee to the extent of
their respective interests and the respective assignee shall have, to the
extent of such assignment (unless otherwise provided therein), the same
rights and benefits as it would if it were such assigning Bank. Each
assignment pursuant to this Section 11.04(b) shall be effected by the
assigning Bank and the assignee Bank executing an Assignment and Assumption
Agreement substantially in the form of Exhibit G (appropriately completed).
At the time of any such assignment, (i) Annex I shall be deemed to be amended
to reflect the Commitments, if any, and outstanding Loans of the respective
assignee (which shall result in a direct reduction to the Commitments, if
any, and outstanding Loans of the assigning Bank) and of the other Banks,
(ii) if any such assignment occurs after the Effective Date, at the request
of the assignor or the assignee the Borrower will issue new Notes to the
respective assignee and to the assigning Bank in conformity with the
requirements of Section 1.05 and (iii) the Administrative Agent shall receive
from the assigning Bank and/or the assignee Bank or financial institution at
the time of each assignment the payment of a nonrefundable assignment fee of
$3,500, PROVIDED that such transfer or assignment will not be effective until
recorded by the Administrative Agent on the Register pursuant to Section
11.17 hereof. At the time of each assignment pursuant to this Section
11.04(b) to a Person which is not already a Bank hereunder and which is not a
United States person (as such term is defined in Section 7701(a)(30) of the
Code) for Federal income tax purposes, the respective assignee Bank shall
provide to the Borrower and the Administrative Agent the appropriate Internal
Revenue Service forms (and, if applicable a Section 3.04(b)(ii) Certificate)
described in Section 3.04(b). Each Bank and the Borrower agrees to execute
such documents (including, without limitation, amendments to this Agreement
and the other Credit Documents) as shall be necessary to effect the
foregoing. Promptly following any assignment pursuant to this Section
11.04(b), the assigning Bank shall promptly notify the Borrower and the
Administrative
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Agent thereof. Nothing in this Section 11.04 shall prevent or prohibit any
Bank from pledging its Loans or Notes hereunder to a Federal Reserve Bank in
support of borrowings made by such Bank from such Federal Reserve Bank.
(c) Notwithstanding any other provisions of this Section 11.04, no
transfer or assignment of the interests or obligations of any Bank hereunder
or any grant of participations therein shall be permitted if such transfer,
assignment or grant would require the Borrower to file a registration
statement with the SEC or to qualify the Loans under the "Blue Sky" laws of
any State.
(d) Each Bank initially party to this Agreement hereby represents, and
each Person that becomes a Bank pursuant to an assignment permitted by clause
(b) above will upon its becoming party to this Agreement represent, that it
is a commercial lender, other financial institution or other "accredited
investor" (as defined in SEC Regulation D) which makes loans in the ordinary
course of its business or is acquiring the Loans without a view to
distribution of the Loans within the meaning of the federal securities laws,
and that it will make or acquire Loans for its own account in the ordinary
course of such business, PROVIDED that, subject to the preceding clauses (a)
through (c), the disposition of any promissory notes or other evidences of or
interests in Indebtedness held by such Bank shall at all times be within its
exclusive control.
11.05 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part
of the Administrative Agent or any Bank in exercising any right, power or
privilege hereunder or under any other Credit Document and no course of
dealing between the Borrower and the Administrative Agent or any Bank shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under any other Credit Document
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder or thereunder. The rights and remedies
herein expressly provided are cumulative and not exclusive of any rights or
remedies which the Administrative Agent or any Bank would otherwise have. No
notice to or demand on the Borrower in any case shall entitle the Borrower to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Administrative Agent or the Banks to
any other or further action in any circumstances without notice or demand.
11.06 PAYMENTS PRO RATA. (a) The Administrative Agent agrees that
promptly after its receipt of each payment from or on behalf of the Borrower
in respect of any Obligations of the Borrower, it shall distribute such
payment to the Banks (other than any Bank that has consented in writing to
waive its PRO RATA share of such payment) PRO RATA based upon their
respective shares, if any, of the Obligations with respect to which such
payment was received.
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(b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or
interest on, the Loans or Fees, of a sum which with respect to the related
sum or sums received by other Banks is in a greater proportion than the total
of such Obligation then owed and due to such Bank bears to the total of such
Obligation then owed and due to all of the Banks immediately prior to such
receipt, then such Bank receiving such excess payment shall purchase for cash
without recourse or warranty from the other Banks an interest in the
Obligations of the Borrower to such Banks in such amount as shall result in a
proportional participation by all of the Banks in such amount, PROVIDED that
if all or any portion of such excess amount is thereafter recovered from such
Bank, such purchase shall be rescinded and the purchase price restored to the
extent of such recovery, but without interest.
11.07 CALCULATIONS; COMPUTATIONS. (a) The financial statements to be
furnished to the Banks pursuant hereto shall be made and prepared in
accordance with GAAP or SAP, as the case may be, consistently applied
throughout the periods involved (except as set forth in the notes thereto or
as otherwise disclosed in writing by the Borrower to the Banks). In
addition, except as otherwise specifically provided herein, all computations
determining compliance with Section 7, including definitions used therein,
shall utilize accounting principles and policies in effect from time to time;
PROVIDED that (i) if any such accounting principle or policy (whether GAAP or
SAP or both) shall change after the Effective Date, the Borrower shall give
reasonable notice thereof to the Administrative Agent and each of the Banks
and if within 30 days following such notice the Borrower, the Administrative
Agent or the Required Banks shall elect by giving written notice of such
election to the other parties hereto, such computations shall not give effect
to such change unless and until this Agreement shall be amended pursuant to
Section 11.12 to give effect to such change, and (ii) if at any time the
computations determining compliance with Section 7 utilize accounting
principles different from those utilized in the financial statements then
being furnished to the Banks pursuant to Section 6.01, such financial
statements shall be accompanied by reconciliation work-sheets.
(b) All computations of interest on Loans and Fees hereunder shall be
made on the actual number of days elapsed over a year of 360 days.
11.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. (a) THIS
AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
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BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN
THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE
BORROWER AND EACH BANK HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF
ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS. THE BORROWER AND EACH BANK HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM
THAT ANY SUCH COURTS LACK JURISDICTION OVER THE BORROWER OR SUCH BANK, AND
AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN ANY OF THE AFORESAID
COURTS, THAT ANY SUCH COURT LACKS JURISDICTION OVER THE BORROWER OR SUCH BANK.
THE BORROWER AND EACH BANK FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO THE BORROWER OR SUCH BANK, AS THE CASE MAY BE, AT ITS ADDRESS FOR
NOTICES PURSUANT TO SECTION 11.03, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS
AFTER SUCH MAILING. THE BORROWER AND EACH BANK, AS THE CASE MAY BE, HEREBY
IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING
HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY
WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE
ADMINISTRATIVE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE
BORROWER IN ANY OTHER JURISDICTION.
(b) THE BORROWER AND EACH BANK HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF
THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
CLAUSE (A) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES
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NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
11.09 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Administrative Agent.
11.10 EFFECTIVENESS. This Agreement shall become effective on the
date (the "Effective Date") on which the Borrower, the Administrative Agent and
each of the Banks shall have signed a copy hereof (whether the same or different
copies) and shall have delivered the same to the Administrative Agent at the
Administrative Agent's Notice Office or, in the case of the Banks, shall have
given to the Administrative Agent telephonic (confirmed in writing), written,
telex or telecopy notice (actually received) at such office that the same has
been signed and mailed to it. The Administrative Agent will give the Borrower
and each Bank prompt written notice of the occurrence of the Effective Date.
11.11 HEADINGS DESCRIPTIVE. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
11.12 AMENDMENT OR WAIVER. Neither this Agreement nor any other
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the Borrower and the Required Banks, PROVIDED that no such
change, waiver, discharge or termination shall, without the consent of each Bank
affected thereby, (i) extend the scheduled final maturity of any Loan or Note or
reduce the rate or extend the time of payment of interest thereon or Fees or
reduce the principal amount thereof, (ii) increase the Commitment of any Bank
over the amount thereof then in effect (it being understood that a waiver of any
Default or Event of Default or of a mandatory reduction in the Total Commitment
shall not constitute a change in the terms of any Commitment of any Bank), (iii)
release all or any material portion of the Collateral (except as expressly
provided in the Credit Documents), (iv) amend, modify or waive any provision of
this Section 11.12, (v) reduce any percentage specified in, or otherwise modify,
the definition of Required Banks or (vi) consent to the assignment or transfer
by the Borrower of any of its rights and obligations under this Agreement. No
provision of Section 10 or any other provision relating to the rights and/or
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obligations of the Administrative Agent may be amended without the consent of
the Administrative Agent.
11.13 SURVIVAL. All indemnities set forth herein including, without
limitation, in Section 1.10, 1.11, 3.04, 10.07 or 11.01 shall survive the
execution and delivery of this Agreement and the making of the Loans, the
repayment of the Obligations and the termination of the Total Commitment.
11.14 DOMICILE OF LOANS. Subject to Section 11.04, each Bank may
transfer and carry its Loans at, to or for the account of any branch office,
subsidiary or affiliate of such Bank, PROVIDED that the Borrower shall not be
responsible for costs arising under Section 1.10 or 3.04 resulting from any such
transfer to the extent not otherwise applicable to such Bank prior to such
transfer.
11.15 CONFIDENTIALITY. Each Bank shall hold all non-public
information furnished by or on behalf of the Borrower in connection with such
Bank's evaluation of whether to become a Bank hereunder or obtained by such
Bank pursuant to the requirements of this Agreement ("Confidential Information")
in accordance with its customary procedure for handling confidential information
of this nature and in accordance with safe and sound banking or lending
practices; PROVIDED that any Bank and/or its affiliates may disclose any such
Confidential Information (a) as has become generally available to the public
other than as a result of disclosure in violation of this Section 11.15, (b) as
has become available to such Bank or any such affiliate on a non-confidential
basis from a source other than the Borrower and its affiliates, provided that
the source is not known by such Bank to be prohibited from transmitting such
information to such Bank by a contractual, legal or fiduciary obligation, (c) as
may be required or appropriate in any report, statement or testimony submitted
to any municipal, state or Federal regulatory body having or claiming to have
jurisdiction over such Bank and/or its affiliates, (d) as may be required or
appropriate in respect to any summons or subpoena or in connection with any
litigation or other judicial process (it being understood that, to the extent
reasonably practicable under the circumstances, the Borrower shall be given
prior notice and an opportunity to contest any proposed disclosure pursuant to
this clause (d)), (e) in order to comply with any law, order, regulation or
ruling applicable to such Bank and/or its affiliates, and (f) to any permitted
prospective or actual syndicate member or participant in the Loans, provided
that such prospective or actual syndicate member or participant agrees with the
respective assigning Bank to be bound by the provisions of this Section 11.15.
The provisions of this Section 11.15 shall survive any termination of this
Agreement.
11.16 WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS AGREEMENT
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL
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BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING
TO THIS AGREEMENT, THE CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.
11.17 REGISTER. The Borrower hereby designates the Administrative
Agent to serve as its agent, solely for purposes of this Section 11.17, to
maintain a register (the "Register") on which it will record the Commitments
from time to time of each of the Banks, the Loans made by each of the Banks and
each repayment in respect of the principal amount of the Loans of each Bank.
Failure to make any such recordation, or any error in such recordation shall not
affect the obligations of the Borrower in respect of such Loans. With respect
to any Bank, the transfer of the Commitments of such Bank and the rights to the
principal of, and interest on, any Loan made pursuant to such Commitments shall
not be effective until such transfer is recorded on the Register maintained by
the Administrative Agent with respect to ownership of such Commitments and Loans
and prior to such recordation all amounts owing to the transferor with respect
to such Commitments and Loans shall remain owing to the transferor. The
registration of assignment or transfer of all or part of any Commitments and
Loans shall be recorded by the Administrative Agent on the Register only upon
the acceptance by the Administrative Agent of a properly executed and delivered
Assignment and Assumption Agreement pursuant to Section 11.04(b). Coincident
with the delivery of such an Assignment and Assumption Agreement to the
Administrative Agent for acceptance and registration of assignment or transfer
of all or part of a Loan, or as soon thereafter as practicable, the assigning or
transferor Bank shall surrender the Note evidencing such Loan, and thereupon one
or more new Notes in the same aggregate principal amount shall be issued to the
assigning or transferor Bank and/or the new Bank. The Borrower agrees to
indemnify the Administrative Agent from and against any and all losses, claims,
damages and liabilities of whatsoever nature which may be imposed on, asserted
against or incurred by the Administrative Agent in performing its duties under
this Section 11.17 (but excluding any such losses, liabilities, claims, damages
or expenses to the extent incurred by reason of the gross negligence or willful
misconduct of the Administrative Agent).
11.18 COLLATERAL RELEASE. On the Collateral Release Date, so long as
no Default or Event of Default shall exist at such time, the Pledge Agreement
shall be terminated and no longer be of any force or effect and the Collateral
Agent is hereby authorized and directed at such time to take such actions as are
appropriate to give effect to such termination and release.
* * *
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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Agreement to be duly executed and delivered as of the date first
above written.
ADDRESS:
418 Sixth Avenue AMERUS LIFE HOLDINGS, INC.
Des Moines, Iowa 50309
Tel: (515) 283-2371
Fax: (515) 283-3402 By /s/ Roger K. Brooks
Attention: Michael Fraizer --------------------
Title: President & CEO
<PAGE>
The Chase Manhattan Bank THE CHASE MANHATTAN BANK,
270 Park Avenue Individually and as Administrative Agent
New York, New York 10017
Tel: (212) 270-7527
Fax: (212) 270-1511 By /s/Peter Platten
Attention: Peter Platten -----------------
Title: Vice-President
<PAGE>
Bank One Center/Tower; IN1-0192 BANK ONE, INDIANA, NA,
111 Monument Circle Individually and as a Co-Arranger
Suite 1921
Indianapolis, Indiana 46204
Tel: (317) 321-3074
Fax: (317) 592-5269 By /s/ Peter S. Little
Attention: Peter Little -------------------
Title: Vice-President
<PAGE>
500 Park Avenue ABN AMRO BANK, N.V.,
New York, New York 10022 Individually and as a Co-Arranger
Tel: (212) 446-4230
Fax: (212) 446-4335
Attention: Victor S. Fennon By /s/ Victor J. Fennon
---------------------
Title: Vice-President
By /s/ Joshua Landau
------------------
Title: Corporate Banking Officer
<PAGE>
COINSURANCE AGREEMENT
EFFECTIVE FEBRUARY 1, 1996
BETWEEN
DELTA LIFE AND ANNUITY COMPANY
OF
MEMPHIS, TENNESSEE,
HEREINAFTER REFERRED TO AS THE "REINSURED", AND
LONDON LIFE REINSURANCE COMPANY
OF
BLUE BELL, PENNSYLVANIA,
HEREINAFTER REFERRED TO AS THE "REINSURER"
A. RECITALS
1. REINSURED desires to cede, and REINSURER desires to accept, reinsurance of
the certain deferred annuity policies as specified in this Agreement,
subject to the terms and conditions set forth herein.
2. To facilitate the profitable performance of the policies reinsured
hereunder for the mutual benefit of the REINSURED and the REINSURER, the
REINSURED and the REINSURER desire that the same investment manager manage
the investment and reinvestment of the assets underlying the reinsured
policies according to a common investment policy.
<PAGE>
3. To facilitate the profitable performance of the policies reinsured
hereunder for the mutual benefit of the REINSURED and the REINSURER, the
REINSURED and the REINSURER desire that the companies establish a
management committee to oversee the investment policy for the assets
underlying the reinsured policies, to review investment performance and to
review other matters of mutual interest.
B. REINSURANCE COVERAGE
1. All of the deferred annuity policies (referred to herein as "the policies")
issued by the REINSURED during the term of this Agreement on the forms
listed in Schedule I shall be reinsured with the REINSURER automatically in
accordance with the REINSURED'S underwriting rules applicable to such
policies.
2. The reinsurance shall cover the quota share of the policies as specified in
Schedule II. All benefits provided by the policies shall be reinsured
hereunder in the portion specified in Schedule II.
3. The liability of the REINSURER shall begin simultaneously with that of the
REINSURED but in no event prior to the effective date of this Agreement.
Reinsurance with respect to any policy shall not be in force and binding
unless the insurance issued directly by the REINSURED is in force and
unless the issuance and delivery of such insurance constituted the doing of
business in a state of the United States of America (including the District
of Columbia) in which the REINSURED was properly licensed.
4. Reinsurance under this Agreement shall be on the coinsurance plan and shall
follow the forms of the REINSURED.
5. The reinsurance under this Agreement with respect to any policy shall be
maintained in force without reduction so long as the liability of the
REINSURED under such policy reinsured hereunder remains in force without
reduction, unless reinsurance is terminated or reduced as provided herein.
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6. Internal Replacements - Any internal program for the replacement of
reinsured contracts must be approved by the Management Committee.
Replacement business shall continue to be subject to this Coinsurance
Agreement unless the REINSURER decides not to reinsure the replaced
business.
C. PLACING REINSURANCE IN EFFECT
Reinsurance shall become effective simultaneously with the liability of the
REINSURED, provided however, that the REINSURED shall give notification of
such reinsurance to the REINSURER no later than the monthly report set out in
Schedule III.
D. PAYMENTS BY REINSURED
The REINSURED shall pay the REINSURER reinsurance premiums equal to the
REINSURER's quota share of the gross contributions or premiums the REINSURED
receives on the policies on and after the effective date of this Agreement.
E. PAYMENTS BY REINSURER
1. BENEFITS
The REINSURER shall pay the REINSURED the REINSURER's quota share of:
(a) the death benefits (including interest paid beyond the date of death)
paid by the REINSURED, without deduction for reserves (after taking
into account surrender charges, if any); and
(b) the net cash surrender values paid by the REINSURED;
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(c) the net cash surrender calculated on anuitizing policies as if they
had been surrendered for cash;
(d) the return of premiums, net policy expense allowances, to the
policyholder of a canceled policy paid by the REINSURED.
2. POLICY EXPENSE ALLOWANCES
The REINSURER shall pay the REINSURED the allowances and expense
reimbursements as defined in Schedule VI on the REINSURER's quota share of
the policies. These allowances and expense reimbursements shall be netted
on at least a weekly basis from cash flow, if sufficient, before the
balance is transferred to the trust account. If insufficient, the
REINSURER shall be billed for the net amount due.
3. PROFIT SHARING
The REINSURER shall pay to REINSURED an experience refund at the end of
each seven year policy term if statutory profits earned during a given 7
year term, calculated assuming all in force policies surrender at the end
of the term, exceed 10% of the premium at the beginning of the term. Fifty
percent (50%) of any excess profit above 10% of premium on the REINSURER's
quota share of the business will be refunded to the REINSURED by the
REINSURER as an experience refund at the end of a given 7 year term. The
experience refund calculation will be done for all policies issued in a
given calendar year and paid within 30 days after the end of the year for
which it is being calculated.
F. TERMS OF REINSURANCE
1. AMOUNTS DUE REINSURED OR REINSURER
Except as otherwise specifically provided herein, all amounts due to be
paid to the REINSURER or the REINSURED shall be determined on a net basis
as of the issue day of every calendar week to which such amount is
attributable. The issue day for issues of
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<PAGE>
a given week will initially be the Thursday of the following week
subject to modifications by the REINSURED upon agreement by the
REINSURER. If the Thursday is a bank holiday or if the REINSURED feels
another day should be used, the REINSURED will notify the REINSURER and
they will mutually define another day of the week as the issue day. All
amounts shall be due and accrued as of such date. The payment of such
amounts shall be submitted in accordance with the provisions of Section
F, paragraph 2. All settlements of account between the REINSURER and
the REINSURED shall be made in cash or its equivalent. Book value and
statutory reserves shall be determined in accordance with the
REINSURED's standard practices.
2. PAYMENT DATES
(a) The REINSURED shall submit a Periodic Report substantially in accord
with the reports listed in Schedule III. Any amounts indicated in the
Periodic Report as due the REINSURER shall accompany such report.
(b) Not later than fifteen (15) days after the receipt of the Periodic
Report, any amounts indicated in the Periodic Report as due the
REINSURED shall be paid by the REINSURER.
(c) Not later than twenty (20) days after the end of each calendar
quarter, the REINSURED shall submit to the REINSURER a Quarterly
Report substantially in accord with Schedule IV.
(d) Not later than twenty (20) days after the end of each calendar year,
the REINSURED shall submit to the REINSURER an Annual Report
substantially in accord with Schedule V.
In the event that actual numbers are not available, reasonable estimates will
be used and appropriate adjustments will be made within 30 days or on the
next report whichever is sooner.
In addition the REINSURED agrees to work with the REINSURER and the REINSURER
agrees to work with the REINSURED to perform cash flow analysis as required.
This would
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<PAGE>
include providing copies of any work (e.g. New York Regulation 126 actuarial
opinion) performed by the REINSURED and the REINSURER to analyze reserve
adequacy as this work is being developed.
3. SECTION 1.848-2(g)(8) ELECTION
If the Business reinsured hereunder includes for U.S. Federal income tax
purposes Specified Insurance Contracts pursuant to Section 848 of the
Internal Revenue Code or the Final Income Tax Regulations thereunder, the
REINSURED and the REINSURER, with respect to this Agreement, agree to make
the election provided in Section 1.848-2(g)(8) of the Final Income Tax
Regulations issued December 28, 1992 under Section 848 of the Internal
Revenue Code of 1986. The specifics on this election are set forth in
Schedule IX.
4. OFFSET
Any debits or credits, matured or unmatured, liquidated or unliquidated,
regardless of when they arose or were incurred, in favour of or against
either the REINSURED or the REINSURER with respect to this Agreement are
deemed mutual debits or credits, as the case may be, and shall be set off,
and only the balance shall be allowed or paid.
G. TRUST AGREEMENT AND ASSET MANAGEMENT
1. The REINSURER shall enter into a trust agreement with the REINSURED and
State Street Bank and Trust Company, as trustee for establishment of a
trust.
2. The REINSURED shall deposit premium payments as described in Section D,
less Payments by REINSURER as described in Section E, directly into the
trust account. Deposit by the REINSURED of amounts calculated pursuant to
this Agreement directly into the trust shall constitute payment by the
REINSURED of each premium to the REINSURER and shall satisfy the
REINSURED's obligation hereunder to pay such premium to the REINSURER.
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<PAGE>
3. The assets in the trust account shall be invested and reinvested pursuant
to the investment policy ("Investment Policy") set forth in Addendum I as
such policy may be modified from time to time by the Management Committee
as provided in Section J.
4. If this Agreement is terminated with respect to new policies pursuant to
Section W, and all reinsured policies have passed their second anniversary,
the trust account shall be managed to maintain the aggregate book value of
assets in the trust account at a level at least equal to the statutory
reserve of the policies supported by the assets in the account.
5. The REINSURED and the REINSURER shall share all trustee/custodial fees and
expenses paid for the trust account.
6. The REINSURED and REINSURER agree that the assets in the trust account,
notwithstanding any other provisions in this Agreement, shall be utilized
and applied by the REINSURED or any successor by operation of law of the
REINSURED, including, without limitation, any liquidator, rehabilitator,
receiver or conservator of the REINSURED, without diminution because of
insolvency on the part of the REINSURED or the REINSURER to satisfy the
obligations of the REINSURED, including expenses, with respect to the
policies reinsured under this Agreement.
7. At anytime when the book value of assets in the trust exceed the statutory
reserve required for the policies supported by the assets in the account,
the REINSURED and the REINSURER, upon mutual agreement, can withdraw their
respective quota share of assets exceeding the statutory reserves from such
account.
If, at the end of any calendar quarter, the statutory reserve required for
the policies supported by the assets in the trust account exceeds the book
value of assets in that account by an amount equal to or greater than
one-quarter of one percent (.25%) of the required reserve amount, the
REINSURER and the REINSURED shall immediately deposit cash in an amount
equal to their respective quota share of the shortfall into that account.
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For purposes of this section, book value and statutory reserves shall be
determined in accordance with the REINSURED's standard practice, unless the
parties agree otherwise in writing.
8. In the event that any amount is withdrawn from the trust account pursuant
to Paragraph 6 of this Section, the REINSURED shall promptly return to the
trust account any amounts that are subsequently determined not to be
withdrawn in compliance with the provisions of this Agreement.
9. Transfer to the REINSURED by the trustee of the assets withdrawn from the
trust account pursuant to Paragraph 6 above, shall constitute payment by
the REINSURER pursuant to this Agreement and shall discharge the REINSURER
of the obligation which gave rise to the withdrawal to the extent of the
amount withdrawn, provided however, the REINSURER may later contest whether
it had failed to reimburse or pay the REINSURED as required by this
Agreement.
10. The REINSURER shall not retrocede any portion of its quota share of the
policies in a manner which would require the transfer of assets from the
trust to the retrocessionaire.
H. PORTFOLIO MANAGEMENT AGREEMENT
1. The REINSURER shall enter into an Portfolio Management Agreement with Delta
Life and Annuity Company ("DLAC") pursuant to which DLAC shall manage the
investment and reinvestment of the assets in the trust account. DLAC shall
invest the assets pursuant to the terms of the Investment Policy (Addendum
I) as such policy may be modified from times to times by the Management
Committee as provided in Section J hereof and the terms and conditions of
the Portfolio Management Agreement.
2. The REINSURER shall be responsible for paying DLAC a monthly fee as
specified in the Portfolio Management Agreement.
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<PAGE>
3. If reinsurance pursuant to this Agreement terminates and there is no
reinsurance in force between the REINSURED and the REINSURER hereunder,
DLAC (or any successor Portfolio Manager) and the REINSURER each shall have
the right to terminate the Portfolio Management Agreement immediately. The
Portfolio Management Agreement shall contain such additional termination
provisions as the REINSURER and DLAC may agree.
4. If the Management Committee determines that the performance of the
Portfolio Manager is not satisfactory to support the business reinsured
hereunder, the REINSURER shall have the right to terminate the Portfolio
Management Agreement upon 30 days prior written notice to the Portfolio
Manager.
5. In the event the Portfolio Management Agreement terminates while
reinsurance remains in force hereunder, a successor Portfolio Manager shall
be proposed by the REINSURED subject to approval by the REINSURER.
I. SPREADS DEDUCTED FROM THE INDEX OR INDICES ON THE POLICIES
First year and renewal spreads on the policies shall be set in accordance with
the provisions of Schedule VII.
J. MANAGEMENT COMMITTEE
1. A Management Committee consisting of four representatives from the
REINSURED and the REINSURER shall be established. Two representatives from
each company shall be elected by the Presidents of the respective companies
for one year terms. The Management Committee shall function as a general
communication vehicle and decision maker as set out below.
2. The Management Committee shall meet no less frequently than annually. Any
member of the Management
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Committee may call a meeting upon ten (10) days prior written notice unless
waived in writing.
3. In addition to functioning as a general communication vehicle, the role of
the Management Committee is to deal with issues that arise in connection
with the following items:
1. To determine any adjustments to be made to the option price formula.
2. To decide upon modification of the Investment Policy as referred to in
Section H.
3. To approve any material changes in products, product pricing, or
market approach.
4. To periodically establish portfolio management guidelines with respect
to the realization of net capital gains and losses during defined
periods.
5. To establish a change in strategy and guidelines with respect to the
use of options, futures, caps and other derivative investment products
including inclusion or exclusion of counterparties for the call
options.
Decisions of the Management Committee shall require the unanimous agreement
of all members of the committee.
4. In the event the Management Committee fails to reach unanimous agreement on
items, there shall be no change in those items or the treatment under the
terms of this Agreement of the issues and matters which are subject of
those items.
K. CLAIMS, LITIGATION, UNUSUAL EXPENSES AND ADJUSTMENTS
1. Any Unusual Expenses incurred by the REINSURED in defending or
investigating a claim for policy liability or rescinding a policy reinsured
hereunder shall be participated in by the REINSURER in the
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<PAGE>
same proportion as its reinsurance bears to the total insurance under
such policy.
2. For purposes of this Agreement, it is agreed that expenses, attorney's
fees, and interest imposed against the REINSURED and arising solely out of
a settlement or a judgement rendered against the REINSURED in a suit for
policy benefits reinsured hereunder shall be considered Unusual Expenses.
3. In no event, however, shall the following categories of expenses or
liabilities be considered for purposes of this Agreement as "Unusual
Expenses":
(a) routine investigative or administrative expenses; and
(b) expenses, fees, settlements, or judgments arising out of or in
connection with claims against the REINSURED for punitive or exemplary
damages; and
(c) expenses, fees, settlements, or judgments arising out of or in
connection with claims made against the REINSURED and based on alleged
or actual bad faith, or willful misconduct;
and the REINSURER shall have no liability under this Agreement for expenses
or liabilities described in the above subparagraphs 3(a), (b) and (c).
4. Litigation. If the REINSURED contests a claim which results in actual or
threatened litigation, the REINSURED shall notify the REINSURER. The
REINSURER may elect not to participate in the contest and pay its quota
share of the liabilities on the policy being contested within 20 days of
such notice. In such event, the REINSURED shall be solely responsible for
the conduct of the litigation and for all expenses and liabilities incurred
in connection with such claim and the REINSURER shall have no further
liability or responsibility to pay or share in such expenses or
liabilities.
In all cases, the REINSURED shall be solely responsible for the management
of each and every claim or litigation arising out of or in connection with
the
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policies reinsured hereunder, and shall have all power and authority to
settle or dispute any claim and to direct the course of any such
litigation. Consistent with the terms of this paragraph K, REINSURER shall
be bound by the terms of any such settlement or the outcome of any such
litigation.
In the event REINSURED shall become aware of any actual or threatened
litigation in which the claimant or adverse party is asserting direct
liability of the REINSURER with respect to a policy reinsured hereunder,
the REINSURED shall promptly notify REINSURER. The expenses incurred by
the REINSURER with respect to such litigation shall be shared by the
REINSURED in the same proportion as its quota share of the insurance
liability under such policy.
L. ANNUITIZATION
The REINSURED shall recapture reinsurance with respect to all reinsured
policies upon their annuitization. The REINSURER shall pay the REINSURED the
cash surrender value less any surrender charges according to the terms of the
respective policy being recaptured by the REINSURED upon annuitization
pursuant to this Section. Such payment shall reflect the entire
consideration to be paid in regard to such recapture.
M. ERRORS
If either the REINSURED or the REINSURER shall fail to perform an obligation
under this Agreement and such failure shall be the result of an error on the
part of the REINSURED or the REINSURER, such error shall be corrected by
restoring both the REINSURED and the REINSURER to the positions they would
have occupied had no such error occurred; an "error" is a clerical mistake
made inadvertently and excludes errors of judgment and all other forms of
error.
N. AUDIT OF RECORDS AND PROCEDURES
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The REINSURER and the REINSURED each shall have the right to audit, at the
office of the other, all records and procedures relating to reinsurance under
this Agreement. The expenses of any such audit shall be born by the party
initiating the audit.
O. CONFIDENTIALITY
The REINSURED and REINSURER each agree that all information, including but
not limited to customer information, is proprietary in nature. Such
information shall be received by the REINSURER in strict confidence, shall be
used for the purpose of this Agreement only and no such information shall be
disclosed to a third party by the recipient party, its agents, or employees
without the prior written consent of the REINSURED. Except as may be
necessary by reason of legal or regulatory requirements, each party hereto
agrees to take all reasonable precautions to prevent the disclosure to
outside parties of such information.
P. ARBITRATION
1. If the REINSURED and the REINSURER cannot mutually resolve a dispute which
arises out of or relates to this Agreement, the dispute shall be decided
through arbitration as set forth in Schedule VIII. The arbitrators shall
be impartial and shall base their decision on the terms and conditions of
this Agreement. In the event that an interpretation of the terms and
conditions of this Agreement does not explicitly dispose of an issue in
dispute between the parties, then the arbitrators may base their decision
on the customs and practices of the insurance and reinsurance industry
rather than solely on a strict interpretation of applicable law. There
shall be no appeal from the arbitrators' decision. Any court having
jurisdiction over the subject matter and the parties may reduce the
arbitrators' decision to judgment.
2. The parties intend this Section to be enforceable in accordance with the
Federal Arbitration Act (9
13
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U.S.C. Section 1 et seq.), including any amendments to that Act which are
subsequently adopted. The parties further intend that the issue of
arbitrability of any dispute hereunder shall be resolved pursuant to the
Federal Arbitration Act and federal court decisions construing the Federal
Arbitration Act, and not pursuant to the law of any state. In the event
that either party refuses to submit to arbitration as required by
Paragraph 1, the other party may request a United States Federal District
Court to compel arbitration in accordance with the Federal Arbitration Act.
Both parties consent to the jurisdiction of such court to enforce this
Section and to confirm and enforce the performance of any award of the
arbitrators.
3. The obligations of the parties to arbitrate disputes hereunder pursuant to
this Section shall survive the termination of this Agreement.
Q. INSOLVENCY
1. The portion of any risk or obligation assumed by the REINSURER, when such
portion is ascertained, shall be payable on demand of the REINSURED at the
same time as the REINSURED shall pay its net retained portion of such risk
or obligation, with reasonable provision for verification before payment,
and the reinsurance shall be payable by the REINSURER, on the basis of the
liability of the REINSURED under the policies reinsured hereunder without
diminution because of the insolvency of the REINSURED. In the event of
insolvency and the appointment of a conservator, liquidator or statutory
successor of the REINSURED, such portion shall be payable to such
conservator, liquidator or statutory successor immediately upon demand,
with reasonable provision for verification, on the basis of claims allowed
against the REINSURED by any court of competent jurisdiction or by any
conservator, liquidator or statutory successor of the REINSURED having
authority to allow such claims, without diminution because of such
insolvency or because such conservator, liquidator or statutory successor
has failed to pay all or a portion of any claims.
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2. The REINSURED's conservator, liquidator, or statutory successor shall give
the REINSURER written notice of the pendency of a claim against the
REINSURED indicating the policy reinsured, within a reasonable time after
such claim is filed. The REINSURER may interpose, at its own expense, in
the proceeding where such claim is to be adjudicated, any defense or
defenses which the REINSURER may deem available to the REINSURED, or its
conservator, liquidator or statutory successor.
3. Any expense incurred by the REINSURER pursuant to paragraph 2, above, shall
be payable subject to court approval out of the estate of the REINSURED as
part of the expense of conservation or liquidation to the extent of the
REINSURER's quota share of the benefit which may accrue to the REINSURED in
conservation or liquidation, solely as a result of the defense undertaken
by the REINSURER. Where two or more reinsurers are participating in the
same claim and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the terms of
this Agreement as though such expense had been incurred by the REINSURED.
R. PARTIES TO AGREEMENT
This is an agreement for indemnity reinsurance solely between the REINSURED and
the REINSURER. The acceptance of reinsurance hereunder shall not create any
right or legal relation whatever between the REINSURER and the insured or the
beneficiary under any policy reinsured hereunder, and the REINSURED shall be and
remain solely liable to such insured or beneficiary under any such policy.
S. ASSIGNMENT
None of the rights and obligations under this Agreement may be assigned by
either the REINSURED or the REINSURER, without the prior written consent of the
other party.
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T. EFFECTIVE DATE
The effective date of this Agreement is 12:01 a.m., February 1, 1996.
U. DURATION OF AGREEMENT
1. Except as otherwise provided herein, this Agreement shall be unlimited in
duration.
2. Except in the case mentioned in Schedule VII, this Agreement may be
terminated with respect to new policies by either the REINSURER or the
REINSURED any time after the earlier of (a) or (b), where (a) is February
1, 1999, and (b) is when the amount of the gross contributions and premiums
received by the REINSURER pursuant to the policies exceeds $300 million.
Such termination shall be effective immediately upon receipt of written
notice of termination by one party from the other party.
3. The REINSURED shall have the right to terminate this Agreement and
recapture the reinsured business as to any policy reinsured hereunder at
any time after such reinsured policy has been in force for a period of
fourteen (14) years. Recapture shall be based upon terms to be negotiated
at the time of termination. Several general principles shall be followed
at any recapture negotiation.
(a) Recapture must be elected with respect to all policies issued from a
same calendar year then in force which are reinsured under this
Agreement.
(b) The consideration to be paid shall reflect the present value of
profits on the Recaptured Business.
(c) The profit projection shall reflect the cost of all significant risks.
These risks are primarily risks associated with defaults, interest
rate movements, and the index movements.
4. The REINSURED shall have the right to terminate this Agreement and
recapture all reinsurance hereunder in
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the event the REINSURER becomes subject to any insolvency or similar
proceeding. In the event the REINSURED exercises this right to
terminate and recapture reinsurance, the REINSURED shall reimburse the
REINSURER for any unamortized excess first-year expense allowances, and
the REINSURER shall transfer the assets in the trust to the REINSURED,
after first having deposited or withdrawn (with the REINSURED's consent)
sufficient assets to or from the trust such that the statutory book
value of assets in the trust is equal to the statutory liability
(statutory reserve plus interest maintenance reserve) recaptured.
5. The termination of this Agreement or of the reinsurance in effect under
this Agreement shall not extend to or affect any of the rights or
obligations of the REINSURED and the REINSURER applicable to any period
prior to the effective date of such termination. In the event that,
subsequent to the termination of this Agreement, an adjustment is made
necessary with respect to any accounting hereunder, a supplementary
accounting shall take place. Any amount owed to either party by reason of
such supplementary accounting shall be paid promptly upon the completion
thereof.
6. After the effective date of any recapture, the REINSURER shall no longer
share in the experience on the block, including profits and/or losses.
V. REGULATORY COMPLIANCE
If the overall structure or a particular clause of this Agreement causes a
regulatory issue with any of the states in which the REINSURED or the REINSURER
are licensed, both parties agree to make their best effort to resolve the
situation.
W. AGREEMENT
This Agreement, together with the trust agreement established pursuant to
Section G and the Portfolio Management
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Agreement established pursuant to Section H constitutes the entire agreement
between the REINSURED and the REINSURER with respect to the business being
reinsured hereunder; they supersede any prior oral or written agreements with
respect to the business being reinsured hereunder other than as expressed in
this Agreement, together with the trust agreement pursuant to Section G and
the Portfolio Management Agreement established pursuant to Section H. Any
change or modification to this Agreement shall be null and void unless made
by amendment to the Agreement signed by both the REINSURED and the REINSURER.
Governing Law. This agreement shall be governed by and construed in accordance
with the laws of the State of Tennessee without regard to principles of
conflicts of law contained therein.
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X. EXECUTION
IN WITNESS WHEREOF the said
DELTA LIFE AND ANNUITY COMPANY
of
Memphis, Tennessee,
and the said
LONDON LIFE REINSURANCE COMPANY
of
Blue Bell, Pennsylvania
have by their respective officers executed this Agreement in duplicate on the
dates shown below to be effective as of February 1, 1996.
DELTA LIFE AND ANNUITY COMPANY
By: Witness:
------------------------------ ------------------------------
Senior Vice President and Senior Vice President, Secretary
Title: Chief Actuary Title: and General Counsel
--------------------------- ------------------------------
Date: June 26, 1996 Date: June 26, 1996
--------------------------- ------------------------------
LONDON LIFE REINSURANCE COMPANY
By: Witness:
------------------------------ ------------------------------
Title: President Title: Vice President
--------------------------- ------------------------------
Date: June 24, 1996 Date: June 24, 1996
--------------------------- ------------------------------
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ADDENDUM I
INVESTMENT POLICY - INDEX PRODUCTS
PORTFOLIO OBJECTIVES
The indexed deferred annuity account is managed to provide a guaranteed
minimum return with additional interest rate guarantees liked to the
performance of the index or indices as defined by the respective policy forms
reinsured under this Agreement. The product is designed with significant
surrender charges and a fixed maturity (rollover) period. The goal will be a
fixed income portfolio that closely matches projected guaranteed minimum
liability cash flows. The index linked additional interest rate guarantees
will be hedged using a combination of custom index call and put options.
PERMITTED INVESTMENTS
(1) Debentures issued, secured or guaranteed by the U.S. Government,
government agencies or instrumentalities (including original issue zero
coupon and stripped principal or interest payments from original coupon
bearing debentures).
(2) Public corporate and taxable municipal securities rated A3/A- or higher.
(3) Custom options (calls and puts) with approved counterparties designed to
hedge index linked additional interest liability under the annuity contracts.
MATURITY, LIQUIDITY & DURATION GUIDELINES
(1) A target fixed income portfolio modified duration will be established by
the Management Committee using periodic cash flow testing and assuming all
policies are redeemed at the end of each 7 year term. The fixed income
portfolio's actual duration will not vary from the target by more than one
half year.
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(2) Notwithstanding the fixed income portfolio duration constraint described
in (1) above, no fixed income investments will be made which have a final
maturity date exceeding the next renewal date of the underlying liabilities
by more than one year.
(3) The Management Committee will direct periodic cash flow testing of the
block of business with projections utilizing various interest rate and
indices scenarios.
(4) Liquidity requirements will be defined by the Management Committee from
time to time. It is understood that DLAC will make every effort to be fully
invested at all times. To facilitate trades, there will be times where DLAC
will have to use additional cash or will not make full use of all of the
available cash to purchase bulk amounts of bonds in a given week. The
REINSURER will pay an overnight rate to the REINSURED on cash borrowed to
complete a trade. The net amount will be computed and settled quarterly.
DLAC may, subject to approval from the Management Committee, establish
collateral (REPO) credit lines to provide temporary liquidity in lieu of the
disposition of assets.
ADDITIONAL INVESTMENT CONSTRAINTS
- - Overall credit quality of the fixed income portfolio to be "AA3/AA-" or
better.
- - All fixed income investments to be U.S. dollar denominated.
- - Minimum liquidity provisions to be maintained as defined by the Management
Committee.
- - From time to time, DLAC may present revised guidelines to the Management
Committee for consideration.
- - Asset Class Weightings (based on market value):
U.S. Government and Agency bonds 20 - 100%
Public taxable municipal bonds 0 - 15%
Public corporate bonds 0 - 80%
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- - Corporate Sector Weightings (based on market value):
Industrials maximum of 40%
Finance maximum of 30%
Utilities maximum of 30%
Yankees maximum of 10%
Foreign Governments maximum of 10%
- - Issuer Limitations (other than U.S. Government and Agencies):
Rating minimum rating of A3/A-
Issuer Concentration (based on market value)
Aaa/AAA 3.00%
Aa3/AA- and above 2.00%
A3/A- and above 1.25%
For the first 3 months of the Agreement, the reinsured share of the
portfolio will have an assumed growth level of $100 million. This means
that on the REINSURER's share of the assets, the maximum amount to be
invested in a A3 bond from the same issuer is $1.25 million. This $100
million assumed growth level will be estimated again by the REINSURER and
the REINSURED at the end of the first 3 months based on the business volume
issued at that time.
- - Taxable municipal bonds must be general obligations or essential service
revenue bonds. If insured, the underlying rating must be investment grade,
the insurer must be rated Aa3/AA- or higher, and all other issuer
limitations apply.
- - All hedging activity will be conducted with counterparties (or guarantors)
with a minimum rating of A3 from Moody's or A- from S&P and approved by the
Management Committee. All hedging activity will be governed by the
policies and procedures outlined in Exhibit I of this Agreement.
- - It is understood that, as this is a new and growing portfolio, compliance
with all the guidelines outlined above will not be possible immediately
from inception. While best efforts will be made to
22
<PAGE>
achieve and maintain compliance as soon as possible, with respect to issuer
concentration, asset class weightings, and corporate sector weightings,
compliance requirements will be waived for a period not exceeding one year
from inception.
- - The assets held in the fixed income portfolio shall be classified as
"Available for Sale" as defined under FASB 115 for GAAP accounting
purposes.
23
<PAGE>
SCHEDULE I
BUSINESS REINSURED
The business to be reinsured is all of the indexed annuity contracts written by
the REINSURED during the term of the Agreement.
Only annuity contracts issued on or after February 1, 1996 shall be reinsured.
The following product codes identify the policies to be reinsured:
PRODUCE CODE: INA
24
<PAGE>
SCHEDULE II
AMOUNT OF REINSURANCE
The amount of reinsurance under this Agreement shall be the REINSURER'S quota
share percentage shown below of the liability of the REINSURED on all
policies in the forms listed in Schedule I. All benefits provided by such
policies shall be reinsured.
Quota Share = 50%
25
<PAGE>
SCHEDULE III
PERIODIC REPORTS
The REINSURED shall provide the REINSURER a variety of management reports. The
reports shall be faxed to:
Jeff Poulin, London Life Reinsurance Company
Fax: 215-542-1295
and Melanie Blue, London Life Insurance Company
Fax: 519-432-7447
1. Weekly reports
A liability report showing the number of new policies issued with premium
amounts and reserve for each week of issue during the year. This report
will also show surrendered policies along with the respective amounts
surrendered.
2. Monthly Reports
a. A reinsurance settlement report detailing premium, expense allowances,
benefits, reserve changes, etc. This report will show the net cash
transferred to the trust account. It will show the information for
each buy date and also inception to date numbers.
b. An inception to date report showing reserves, index values and cash
surrender values for all in force business split by buy date.
c. Assets and liabilities shown for each buy date.
In addition to the reports mentioned above, the REINSURED will submit the
investment information required by the REINSURER in the investment section of
the procedure manual attached as Exhibit I.
26
<PAGE>
SCHEDULE IV
QUARTERLY PERIODIC REPORT
A report showing the DAC tax adjustment.
27
<PAGE>
SCHEDULE V
ANNUAL REPORT
The annual report shall provide reserve and inforce detail as may be required
to complete the Pennsylvania prescribed life and health annual statement,
including, but not limited to:
(a) Exhibit 8, Part B
(b) withdrawal characteristic of the annuity contract and Life and Annuity
Reserve, Page 30.1, Footnotes 9 and 10
(c) Page 7, "Analysis of Increase in Reserves"
(d) Page 27, "Exhibit of Annuities"
(e) an actuarial opinion that the reported reserves equal or exceed those
required by the Commissioners Annuity Reserve Valuation Method
(f) United States federal income tax reserves and required interest
(g) GAAP Benefit reserves and DAC factors.
(h) Risk Based Capital - Interest Risk
28
<PAGE>
SCHEDULE VI
ALLOWANCES AND EXPENSE REIMBURSEMENTS
The REINSURER shall pay to the REINSURED the following expense allowances:
1. Commission of 7% of premium on the initial policy term. This is
consistent with the pricing assumption of the REINSURED and what is actually
paid on new sales. These commissions are fully charged back on surrenders
occurring in the first year of issue and will be paid back to the REINSURER
on surrenders.
2. Agent Travel Commission of 0.35% of initial policy term premium.
If the REINSURED decides to change the commission rate or the bonus rate, the
Management Committee would have to review the expense allowances and the
spread management for this Agreement.
3. Commission of 3.5% of premium for a subsequent ("renewed") policy term in
the first renewal year and 0.6% of premium in the renewal years after the
first renewal year of each subsequent policy term.
4. Quota share of issue expense of $358 per policy.
5. Quota share of annual administrative expenses of $140.00 per policy in
force.
The initial policy term allowances shall be netted from cash flows, if
sufficient, before the balance is transferred to the trust account. If the
cash flows are insufficient, the REINSURER shall be billed for the net amount
due. The annual allowances are to be taken out of the trust account on a
monthly basis. Each renewal allowance is to be charged against all reinsured
policies issued on the same date.
29
<PAGE>
SCHEDULE VII
Spread Management
Definition of Terms for Schedule VII:
Expense reimbursed is expressed as a percentage of premium and it
includes commission and other issue expenses. At inception of the
Agreement, it is equal to 8.245% of premium.
Yield is the effective annual yield that can be earned on a AA- rated
7 year bond purchased to comply with the Investment Policy. The yield
can be viewed as being the 7 year Treasury yield plus an average
spread earned on a 7 year "AA-" rated corporate bond.
A bucket is defined as all policies issued on the same date.
The Portfolio is defined as all policies issued since the inception of
this Agreement.
The Investment Policy is the investment policy set forth in Addendum I
hereto.
1. REINSURED POLICIES IN INITIAL POLICY TERM
a) Each Bucket
For each bucket, the REINSURED shall manage the spread deducted from
the effective yield calculated using the index defined in the
underlying policy such that the dollar amount remaining after paying
for the options and other issue expenses reimbursed under this
Agreement be invested in bonds with an effective yield large enough to
grow to 115.2% of the original premium at the end of a 7 year period.
In all instances, these bonds will be purchased in compliance with the
Investment Policy.
The formula for the maximum price to paid on the option is:
30
<PAGE>
Option Price less than/or equal to 1- expense reiumbursed -
115.2%
-------------
((1+Yield)^7)
If the price of the option is greater than 20% of the premium, the
REINSURED will require prior approval from the REINSURER before
issuing more new business.
b) Entire Portfolio
Similarly for the entire portfolio, the REINSURED shall manage the
spread deducted from the effective yield calculated using the index
defined in the underlying policy such that the dollar amount remaining
after paying for the options and other issue expenses reimbursed under
this Agreement be invested in bonds with an average effective yield
large enough to grow to 116.25% of the original premiums at the end of
a 7 year period.
The formula for the average price to be paid on the option is:
Average Option Prices less than/or equal to 1- expense reiumbursed -
116.25%
----------------
((1+Avge Yld)^7)
where, the average option price is weighted by the premium volume and
the average yield is weighted by the initial book value of the bonds.
If the REINSURED does not comply to the above formula, the REINSURER
reserves the right to terminate this Agreement with respect to new
business with 10 days prior written notice.
2. REINSURED POLICIES IN SUBSEQUENT POLICY TERMS
The REINSURED shall set renewal spread under the same conditions as
the initial policy term spreads unless a different method is set by
the Management Committee.
31
<PAGE>
SCHEDULE VIII
ARBITRATION SCHEDULE
To initiate arbitration, either the REINSURED or the REINSURER shall notify
the other party in writing of its desire to arbitrate, stating the nature of
its dispute and the remedy sought. The party to which the notice is sent
shall respond to the notification in writing within ten (10) days of its
receipt.
The arbitration hearing shall be before a panel of three arbitrators, each of
whom must be a present or former officer of an insurance or reinsurance
company. An arbitrator may not be a present or former officer, attorney, or
consultant of the REINSURED or the REINSURER or either's affiliates.
The REINSURED and the REINSURER shall each name five (5) candidates to serve
as an arbitrator. The REINSURED and the REINSURER shall each choose one
candidate from the other party's list, and these two candidates shall serve
as the first two arbitrators. If one or more candidates so chosen shall
decline to serve as an arbitrator, the party which named such candidate shall
add an additional candidate to its list, and the other party shall again
choose one candidate from the list. This process shall continue until two
arbitrators have been chosen and have accepted. The REINSURED and the
REINSURER shall each present their initial lists of five (5) candidates by
written notification to the other party within twenty-five (25) days of the
date of the mailing of the notification initiating the arbitration. Any
subsequent additions to the list which are required shall be presented within
ten (10) days of the date the naming party receives notice that a candidate
that has been chosen declines to serve.
The two arbitrators shall then select the third arbitrator from the eight (8)
candidates remaining on the lists of the REINSURED and the REINSURER within
fourteen (14) days of the acceptance of their positions as arbitrators. If
the two arbitrators cannot agree on the choice of a third, then this choice
shall be referred back to the REINSURED and the REINSURER. The REINSURED and
the REINSURER shall take turns striking the name of one of the remaining
candidates from the initial eight (8)
32
<PAGE>
candidates until only one candidate remains. If the candidate so chosen shall
decline to serve as the third arbitrator, the candidate whose name was
stricken last shall be nominated as the third arbitrator. This process shall
continue until a candidate has been chosen and has accepted. This candidate
shall serve as the third arbitrator. The first turn at striking the name of a
candidate shall belong to the party that is responding to the other party's
initiation of the arbitration. Once chosen, the arbitrators are empowered to
decide all substantive and procedural issues by a majority of votes.
It is agreed that each of the three arbitrators should be impartial regarding
the dispute and should resolve the dispute on the basis described in the
"ARBITRATION" section of this Agreement. Therefore, at no time will either the
REINSURED or the REINSURER contact or otherwise communicate with any person who
is to be or has been designated as a candidate to serve as an arbitrator
concerning the dispute, except upon the basis of jointly drafted communications
provided by both the REINSURED and the REINSURER to inform those candidates
actually chosen as arbitrators of the nature and facts of the dispute.
Likewise, any written or oral arguments provided to the arbitrators concerning
the dispute shall be coordinated with the other party and shall be provided
simultaneously to the other party or shall take place in the presence of the
other party. Further, at no time shall any arbitrator be informed that the
arbitrator has been named or chosen by one party or the other.
The arbitration shall be held on the date fixed by the arbitrators. In no
event shall this date be later than six (6) months after the appointment of
the third arbitrator. As soon as possible, the arbitrators shall establish
prearbitration procedures as warranted by the facts and issues of the
particular case. In establishing such procedures the arbitrators shall make
provision for reasonable pre-hearing examinations of officers, employees or
agents of the parties and for the production of relevant documentation. At
least ten (10) days prior to the arbitration hearing, each party shall
provide the other party and the arbitrators with a detailed statement of the
facts and arguments it will present at the arbitration hearing. The
arbitrators may consider any relevant evidence; they shall give the evidence
such weight as they deem it entitled to after consideration of any
33
<PAGE>
objections raised concerning it. The party initiating the arbitration shall
have the burden of proving its case by a preponderance of the evidence. Each
party shall be entitled to call as witnesses any officers, employees or
agents of the other party and such other party shall do everything reasonable
to ensure the attendance and cooperation of any such witnesses. Each party
may examine any witnesses who testify at the arbitration hearing. Within
twenty (20) days after the end of the arbitration hearing, the arbitrators
shall issue a written decision that sets forth their findings and any award
to be paid as a result of the arbitration, except that the arbitrators may
not award punitive or exemplary damages. In their decision, the arbitrators
shall also apportion the costs of arbitration, which shall include, but not
be limited to, their own fees and expenses.
34
<PAGE>
SCHEDULE IX
DAC TAX ARTICLE
The REINSURED and the REINSURER hereby agree to the following pursuant to
Section 1.848-2(g)(8) of the Income Tax Regulations issued December 1992,
under Section 848 of the Internal Revenue Code of 1986, as amended. This
election shall be effective for 1992 and for all subsequent taxable years for
which this Agreement remains in effect.
1. The term "party" will refer to either the REINSURED or the REINSURER as
appropriate.
2. The terms used in this Article are defined by reference to Regulation
Section 1.848-2 in effect December 1992.
3. The party with the net positive consideration for this Agreement for each
taxable year will capitalize specified policy acquisition expenses with
respect to this Agreement without regard to the general deductions
limitation of Section 848(c)(1).
4. Both parties agree to exchange information pertaining to the amount of net
consideration under this Agreement each year to ensure consistency or as
otherwise required by the Internal Revenue Service.
5. The REINSURED will submit a schedule to the REINSURER by May 1 of each year
of its calculation of the net consideration for the preceding calendar
year. This schedule of calculations will be accompanied by a statement
signed by an officer of the REINSURED stating that the REINSURED will
report such net consideration in its tax return for the preceding calendar
year.
6. The REINSURER may contest such calculation by providing an alternative
calculation to the REINSURED in writing within 30 days of the REINSURER's
receipt of the REINSURED's calculation. If the REINSURER does not so
notify the REINSURED, the REINSURER will report the net consideration as
determined by the
35
<PAGE>
REINSURED in the REINSURER'S tax return for the previous calendar year.
7. If the REINSURER contests the REINSURED's calculation of the net
consideration, the parties will act in good faith to reach an agreement as
to the correct amount within thirty (30) days of the date the REINSURER
submits its alternative calculation. If the REINSURED and the REINSURER
reach agreement on an amount of net consideration, each party shall report
such amount in their respective tax returns for the previous calendar year.
36
<PAGE>
SCHEDULE X
Counterparty Agreements
37
<PAGE>
EXHIBIT I
Index Annuities
Procedures Manual
Investments Section
1. New Business will provide Investments with the dollar amount of verified
new business as of 9:00 a.m. (CST) each Thursday for premium received through
the previous Friday.
2. MIS will supply Investments with a report detailing the dollar amount of
verified new business as of 9:00 a.m. (CST) each Thursday.
3. Investments will analyze the data from New Business and MIS to verify the
integrity of the final dollar amount (program notional).
4. Investments will verify with Actuary to confirm the final dollar amount
against Actuary's calculations.
5. Actuary will fax a copy of the Actuarial Summary report and the verified
program notional amount to the coinsurer by 12:00 p.m. (CST).
All faxes should be sent to the attention of Jeff Poulin, Vice President
(215) 542-1295.
6. On a weekly basis, Actuary will fax to the coinsurer summary liability
information on outstanding policies to date. Detailed information will be
supplied as requested by the coinsurer.
7. Investments will wire transfer premium received through the previous
Friday from the depository bank, Nations Bank, Nashville, account 1800688044,
to the segregated trust account at State Street Bank and Trust, Boston,
Massachusetts.
8. Investments will notify the approved dealer by 10:00 a.m. (CST) with an
estimate of the program notional amount of options to be purchased that
afternoon. Unless mutually agreed by the parties, if premium exceeds
38
<PAGE>
$5,000,000 in a week, Investments will be purchasing European put options and
will require an additional price estimate. The structure of the put options
will be as follows:
Put 1 Original value of the call option - expires at the end of year 1
Put 2 6/7th of the original value of the call option - expires at the end
of year 2
Put 3 5/7th of the original value of the call option - expires at the end
of year 3
Put 4 4/7th of the original value of the call option - expires at the end
of year 4
Put 5 3/7th of the original value of the call option - expires at the end
of year 5
9. The approved dealer will supply Investments with a pricing estimate for
that day's option(s) purchase by 11:00 a.m. (CST).
10. Investments will review the current option(s) pricing estimate(s) with
Actuary.
11. An authorized trader will execute the option(s) trade with the approved
dealer for Thursday's index closing value by 12:00 p.m. (CST).
12. An authorized trader will execute fixed income securities trades as
determined by Investments (fixed income securities may be purchased
throughout the week as estimates of premium become available from New
Business).
13. The authorized trader will submit a pencil trade ticket for the option(s)
trade to the financial analyst in Investments and a detailed trade blotter
will be delivered to Accounting before 12:30 p.m. (CST).
14. The authorized trader will submit a pencil trade ticket on trade date for
fixed income securities to the financial analyst in Investments. The
financial analyst will provide a trade blotter detailing the trade
specifications to Accounting no later than 2:30 p.m. (CST) or as
39
<PAGE>
soon as possible if trade execution is later than 2:30 p.m. (CST).
15. Accounting will verify the option(s) trade with approved dealer by 1:00
p.m. (CST). Accounting will report any discrepancies to Investments
immediately so that an authorized trader can contact the approved broker to
adjust the trade before the close of the Euro-dollar futures market at 1:45
p.m. (CST).
16. Accounting will verify any fixed income security trades with the approved
dealer. Any determined discrepancies will be reported to Investments. An
authorized trader will contact the approved dealer to correct any specific
information regarding the trade.
17. Investments will telephone Standard & Poor's 1-800 line to verify the
index closing value by 4:45 p.m. (CST) and enter this verified closing value
into the AS400 computer system.
18. The new option position will be entered into the Hedge Position Report
along with the previously outstanding option positions valuation levels
(provided on Fridays).
19. Investments will fax a copy of the option pencil trade ticket and a copy
of the trade blotter (detailing all trades from the previous Friday through
the current Thursday) to the coinsurer after the close of the index on
Thursday.
20. Investments will distribute the following reports to the President, Chief
Actuary, Chief Investment Officer, and coinsurer each Friday afternoon after
the option(s) valuation is received from the approved dealer:
Hedge Position Report
Counter Party Security Collateral Reporter
Counter Party Security Collateral List
These reports will also be made available at all meetings of the Delta Life
and Annuity Company Investment Committee.
40
<PAGE>
21. On a monthly basis, Investments will distribute the following reports to
the President, Chief Actuary, Chief Investment Officer, and coinsurer within
25 days of month end:
Total Portfolio Holdings Report
Total Portfolio Holdings Report by Sector
Total Portfolio Holdings Report by Credit Rating
These reports will also be made available at all meetings of the Delta Life
and Annuity Company Investment Committee.
22. Each Friday, the approved dealer will fax to Investments and to the
coinsurer the bid side option valuation levels for all outstanding option
positions as of the previous day's closing index value (also on all quarter
end dates).
23. On Friday afternoon (t+1), Investments will reprice the current
collateral as of the previous day's close and will notify the approved dealer
of any collateral adjustments due as a result of the new option(s) position.
The approved dealer will have two business days to deliver in new approved
collateral securities. If collateral is to be returned to the approved
dealer, Investments will return these securities within two business days.
24. On Friday (t+1), the approved dealer will fax four copies of the
option(s) trade confirmation. One copy will be faxed to the trustee, State
Street Bank and Trust, the second to the attention of Investments, and the
third to the attention of Accounting, and the fourth to the coinsurer.
25. If no discrepancies are found on the faxed copy of the option(s) trade
confirmation, an approved officer will sign and fax back to the approved
dealer the copy of the option(s) trade confirmation.
26. The approved dealer will overnight mail two signed copies of the
option(s) trade confirmation to Delta Life and Annuity Company. Both copies
will be signed by an
41
<PAGE>
approved officer. One copy will be returned to the approved broker and one
will be retained by the trustee.
27. The approved dealer will mail three copies of the fixed income securities
trades. The original will be sent to the trustee, State Street Bank and
Trust, with duplicate copies to the attention of Investments, to the
attention of Accounting.
28. As copies of mailed confirmations for fixed income securities trades are
received, Investments will review and contact the approved dealer if
corrections to the confirmation are warranted.
29. If no discrepancies are found on the faxed copy of the option trade
confirmation, Delta Life and Annuity Company will deliver each Tuesday (t+3)
the cash settlement by fed wire to the approved dealer's custodian bank.
30. On the specific settlement date, Delta Life and Annuity Company will
deliver cash settlement via fed wire versus book entry of the fixed income
securities purchased. These securities will be held by the trustee, State
Street Bank and Trust in Boston, Massachusetts.
42
<PAGE>
AMERUS LIFE HOLDINGS, INC.
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
PRO FORMA WEIGHTED AVERAGE NUMBER OF SHARES (IN THOUSANDS)
<TABLE>
<S> <C>
Class A Common Stock owned by AmerUs Group....................... 11,707
Class A Common Stock owned by the public......................... 6,449
Class B Common Stock owned by AmerUs Group....................... 5,000
---------
23,156
---------
---------
</TABLE>
- --------------
* The issuance of Class A and Class B Common Stock is considered to have
occurred as of January 1, 1995 for pro forma purposes; therefore, the
weighted average number of shares outstanding is 23,156. The Company has no
dilution of shares.
PRIMARY PRO FORMA EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- --------------------
1997 1996 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Primary Pro Forma Earnings Per Common Share $ 1.25 $ 2.44 $ 3.20 $ 2.99
</TABLE>
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES
NAME JURISDICTION
- ---- ------------
AmerUs Life Insurance Company Iowa
Delta Life Corporation* Delaware
Delta Life and Annuity Company* Tennessee
* Acquired in 1997.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
AmerUs Life Holdings, Inc.:
We consent to the use of our reports included the Registration Statement of
AmerUs Life Holdings, Inc. ON Form S-4 and to the reference to our firm under
the headings "EXPERTS," "AMERUS LIFE HOLDINGS, INC. SUMMARY CONSOLIDATED
FINANCIAL AND OPERATING DATA," and "AMERUS SELECTED CONSOLIDATED HISTORICAL
FINANCIAL DATA," in the Joint Proxy Statement/Prospectus, which is part of
the Registration Statement.
KMPG Peat Marwick LLP
Des Moines, Iowa
November 12, 1997
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration
Statement of AmerUs Life Holdings, Inc. on Form S-4 of our report dated
February 28, 1997, appearing in the Annual Report on Form 10-K of AmVestors
Financial Corporation for the year ended December 31, 1996 and to the
references to us under the headings "EXPERTS," "AMVESTORS SELECTED
CONSOLIDATED HISTORICAL FINANCIAL DATA," and "AMVESTORS FINANCIAL CORPORATION
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA" in the Joint Proxy
Statement/Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
November 12, 1997
<PAGE>
Exhibit 23.3
Consent of Person About to Become a Director
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Ralph W. Laster, Jr., hereby consent to be named as a person about
to become a director of AmerUs Life Holdings, Inc. in the Registration Statement
on Form S-4 of AmerUs Life Holdings, Inc.
/s/ Ralph W. Laster, Jr.
------------------------------
Ralph W. Laster, Jr.
November 12, 1997
<PAGE>
CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
We hereby consent to (i) the inclusion of our opinion letter, dated
September 19, 1997, to the Board of Directors of AmerUs Life Holdings, Inc.
(the "Company") as Annex II to the Joint Proxy Statement/Prospectus of the
Company relating to the proposed acquisition by merger of AmVestors Financial
Corporation by the Company and (ii) all references to DLJ in the sections
captioned "Summary", "Background of the Merger", "AmerUs' Reasons for the
Merger and the Stock Issuance; Recommendation of the AmerUs Board" and
"Opinion of the Financial Advisor to the AmerUs Board", of the Joint Proxy
Statement/Prospectus of AmerUs Life Holdings, Inc. and AmVestors Financial
Corporation which forms a part of this Registration Statement on Form S-4. In
giving such consent, we do not admit that we come within the category of
persons whose consent is required under, and we do not admit that we are
"experts" for purposes of, the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:/s/David M. Platter
----------------------------
David M. Platter
Managing Director
New York, New York
November 11, 1997
<PAGE>
Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004
Tel: 212-902-1000
Exhibit 23.8
[Letterhead]
PERSONAL AND CONFIDENTIAL
November 12, 1997
Board of Directors
AmVestors Financial Corporation
555 S. Kansas Avenue
Topeka, KS 66601
Re: Registration Statement on Form S-4 of AmerUs Life Holdings, Inc. ("AmerUs"),
dated November 12, 1997, including the Prospectus of AmerUs and the Joint
Proxy Statement of AmerUs and AmVestors Financial Corporation (the
"Company")
Ladies and Gentlemen:
Reference is made to our opinion letter dated September 19, 1997, with respect
to the fairness to the holders of the outstanding shares of Common Stock, no par
value (the "Shares"), of the Company of the Exchange Ratio (as defined below)
pursuant to the Agreement and Plan of Merger, dated as of September 19, 1997,
among AmerUs, AFC Corp., a wholly-owned subsidiary of AmerUs (formerly Joe
Corp.), and the Company (the "Agreement"). Pursuant to the Agreement, the
Company will merge with AFC Corp. and each outstanding Share will be converted
into the right to receive a number of shares of Series A Common Stock (the
"AmerUs Common Stock"), no par value, of AmerUs, computed, subject to
adjustment, such that each Share will be exchanged for at least 0.6724 shares of
AmerUs Common Stock, as set forth in the Agreement (the "Exchange Ratio").
The foregoing opinion letter is for the information and assistance of the Board
of Directors of the Company in connection with their consideration of the
transaction contemplated therein and is not to be used, circulated, quoted or
otherwise referred to for any other purpose, nor is it to be filed with,
included in or referred to in whole or in part in any registration statement,
proxy statement or any other document, except in accordance with our prior
written consent. In that regard, we understand that the Company has determined
to include our opinion in the above-referenced Registration Statement.
We hereby consent to the references to the opinion of our Firm dated September
19, 1997 in the cover letter to stockholders of the Company, under the captions
"SUMMARY -- Opinions of Financial Advisors," "THE MERGER -- AmVestors' Reasons
for the Merger; Recommendation of the AmVestors Board" and "THE MERGER --
Opinion of the Financial Advisor to the AmVestors Board," and to the inclusion
of the foregoing opinion in the Prospectus/Joint Proxy Statement included in the
above-mentioned Registration Statement. In giving such consent,
<PAGE>
November 12, 1997
Page Two
we do not thereby admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933 and the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Goldman, Sachs & Co.
- ----------------------------
GOLDMAN, SACHS & CO.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERUS LIFE
HOLDINGS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<DEBT-HELD-FOR-SALE> 2,414,807 2,405,580
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 64,033 63,008
<MORTGAGE> 225,743 230,368
<REAL-ESTATE> 4,561 4,417
<TOTAL-INVEST> 2,901,652 2,877,160
<CASH> 1,814 7,752
<RECOVER-REINSURE> 1,329 1,964
<DEFERRED-ACQUISITION> 120,481 138,455
<TOTAL-ASSETS> 4,384,229 4,450,501
<POLICY-LOSSES> 2,053,740 1,999,838
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 7,039 5,412
<POLICY-HOLDER-FUNDS> 55,369 66,974
<NOTES-PAYABLE> 188,381 81,548
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 457,510 534,986
<TOTAL-LIABILITY-AND-EQUITY> 4,384,229 4,450,501
187,823 41,215
<INVESTMENT-INCOME> 228,625 99,226
<INVESTMENT-GAINS> 65,983 9,523
<OTHER-INCOME> 2,711 630
<BENEFITS> 261,869 83,875
<UNDERWRITING-AMORTIZATION> 40,160 10,973
<UNDERWRITING-OTHER> 59,710 29,029
<INCOME-PRETAX> 116,988 39,954
<INCOME-TAX> 43,859 11,586
<INCOME-CONTINUING> 74,173 29,022
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
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<NET-INCOME> 74,173 29,022
<EPS-PRIMARY> 0 0
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<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
<PAGE>
AMERUS LIFE HOLDINGS, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS FOR THE SPECIAL
MEETING OF SHAREHOLDERS TO BE HELD DECEMBER 18, 1997
P The undersigned shareholder of AmerUs Life Holdings, Inc., an Iowa
corporation (the "Company"), hereby appoints Roger K. Brooks, Sam C.
Kalainov and James A. Smallenberger, of any of them, as the
R undersigned's true and lawful agents and proxies, with full power of
substitution in each of them, to represent and vote all shares of
Class A Common Stock of the Company which the undersigned is entitled to
0 vote at the Special Meeting of shareholders of the Company to be held in
offices of AmerUs Life Insurnance Company at 611 Fifth Avenue, Des Moines,
Iowa, on December 18, 1997 at 10:00 a.m., local time, and any postponement
X or adjournment thereof, as fully as the undersigned could if personally
present, upon the proposals set forth on the reverse side hereof and to
transact such other business as may properly come before the meeting.
Y The undersigned acknowledges receipt of the Notice of the Special
Meeting of shareholders and of the accompanying Proxy
Statement/Prospectus dated November 12, 1997 and revokes any proxy
heretofore given with respect to such meeting.
You are encouraged to specify your choice by marking the appropriate box
on the reverse side of this card. IF YOU SIGN AND RETURN THIS CARD BUT
DO NOT MARK ANY BOXES, YOUR SHARES OF CLASS A COMMON STOCK OF THE
COMPANY WILL BE VOTED FOR THE PROPOSAL TO APPROVE THE STOCK ISSUANCE AS
MORE FULLY DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS
DATED NOVEMBER 12, 1997, AND IN THEIR DISCRETION ON ANY OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING.
IMPORTANT -- this proxy must be signed and dated on the reverse side.
<PAGE>
PLEASE MARK YOUR 0444
/X/ VOTES AS IN THIS
EXAMPLE.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ITEM 1
Item 1 -- The Proposal to Approve the Stock Issuance of shares of Class
A Common Stock of the Company pursuant to the Amended and
Restated Agreement and Plan of Merger among AmVestors Financial
Corporation, the Company and a wholly owned subsidiary of the
Company, all as more fully described in the accompanying Proxy
Statement/Prospectus.
FOR AGAINST ABSTAIN
/ / / / / /
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPSOAL 1.
Please mark the following box if you plan to attend the Special
Meeting. / /
Please Mark, Sign, Date and Return this Proxy Card Promptly Using
the Enclosed Envelope.
Please sign name exactly as it appears hereon. If joint tenants,
both should sign. Give full title if signing as attorney, executor,
administrator, trustee or guardian. If a corporation, sign full
corporate name by authorized officer. If a partnership, sign
partnership name by authorized person.
---------------------------------------
---------------------------------------
Signature of Shareholder(s)
Date ----------------------------, 1997
<PAGE>
AMVESTORS FINANCIAL CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS FOR THE SPECIAL
MEETING OF STOCKHOLDERS TO BE HELD DECEMBER 18, 1997
PROXY
The undersigned hereby appoints Ralph W. Laster, Jr. and Mark V. Heltz, and
each of them, with full power of substitution, the true and lawful attorneys
in fact, agents and proxies of the undersigned to vote at the Special Meeting
of Stockholders of AmVestors Financial Corporation (the "Company"), to be
held on December 18, 1997, commencing at 10:00 a.m. local time, at the Kansas
City Airport Marriott, 775 Brasilia Street, Kansas City, Missouri, and at any
and all adjournment or postponements thereof, according to the number of
votes which the undersigned would possess if personally present, for the
purpose of considering and taking action upon the following, as more fully
set forth in the Joint Proxy Statement/Prospectus of the Company dated
November 12, 1997.
You are encouraged to specify your choice by marking the appropriate box on
the reverse side of this card. IF YOU SIGN AND RETURN THIS PROXY CARD BUT DO
NOT MARK ANY BOXES, YOUR SHARES OF COMMON STOCK OF THE COMPANY WILL BE VOTED
FOR THE PROPOSALS AS MORE FULLY DESCRIBED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS DATED NOVEMBER 12, 1997, AND IN THE ABOVE NAMED
PROXIES' DISCRETION ON ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
SPECIAL MEETING.
IMPORTANT - this proxy card must be signed and dated on the reverse side.
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ITEM 1 AND ITEM 2
Item 1 - Approval of the Amended and Restated Agreement and Plan of Merger
dated as of September 19, 1997 and amended and restated as of
October 8, 1997 (the "Merger Agreement") by and among the Company,
AmerUs Life Holdings, Inc. ("AmerUs") and a wholly owned subsidiary
of AmerUs ("Merger Sub") and the transactions contemplated thereby,
including the merger of Merger Sub with and into the Company,
pursuant to which the Company would become a wholly owned subsidiary
of AmerUs.
FOR AGAINST ABSTAIN
/ / / / / /
Item 2 - In their discretion with respect to such other business as properly
may come before the meeting (including, without limitation,
adjournment or postponement of such meeting in order to allow for
additional solicitation of stockholder votes in order to obtain a
quorum or in order to obtain more votes in favor of the Merger
Agreement) or any adjournments or postponements thereof.
FOR AGAINST ABSTAIN
/ / / / / /
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ABOVE PROPOSALS.
Please mark the following box if you plan to attend the Special Meeting: / /
Date
------------------------, 1997
-----------------------------------
-----------------------------------
Signature of Shareholder(s)
Please sign name(s) exactly as it appears hereon. If joint tenants, both
should sign. Give full title if signing as attorney, executor, administrator,
personal representative, trustee or guardian. If a corporation, sign full
corporate name by authorized officer. If a partnership, sign partnership name
by authorized person.
Please Mark, Sign, Date and Return this Proxy Card
Promptly Using the Enclosed Envelope.
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into this 19th day
of September, 1997, by and between AMVESTORS FINANCIAL CORPORATION
(hereinafter referred to as "AmVestors"), AMERICAN INVESTORS LIFE INSURANCE
COMPANY, INC. (hereinafter referred to as "American"), AMVESTORS INVESTMENT
GROUP, INC. and AMERICAN INVESTORS SALES GROUP, INC., all Kansas corporations
(the latter three hereinafter collective referred to as "Affiliates"),
parties of the first part (hereinafter referred to as "Companies"), and MARK
V. HEITZ (hereinafter referred to as "Mr. Heitz"), an individual, party of
the second part. AmerUs Life Holdings, Inc., an Iowa corporation
(hereinafter referred to as "ALH") joins this Agreement for the purposes set
forth herein.
WITNESSETH:
WHEREAS, Mr. Heitz has been employed for many years by AmVestors and
its affiliates and has been employed since 1986 as President and General
Counsel of the Board of AmVestors and as Chairman and General Counsel of
American since 1988; and
WHEREAS, Mr. Heitz has also been employed by, associated with or has
acted as a consultant to, and may in the future, at the request of AmVestors,
be
<PAGE>
employed by, associated with or act as a consultant to, the affiliates of
AmVestors; and
WHEREAS, as of the Effective Date (as defined in Section 3 hereof)
AmVestors shall have been acquired by ALH as described in that certain Agreement
and Plan of Merger dated September 19th, 1997 (hereinafter referred to as
"Merger Agreement");
WHEREAS, ALH desires for the Company to continue to have the benefit
of Mr. Heitz's knowledge and experience and considers such a vital element in
protecting and enhancing the best interests of ALH and its shareholders and
in providing management for AmVestors.
NOW, THEREFORE, in consideration of the mutual agreements and
conditions contained herein, the parties hereto agree as follows:
1. FULL-TIME EMPLOYMENT OF EXECUTIVE.
a. DUTIES AND STATUS.
(1) AmVestors hereby employs Mr. Heitz as its President and
Chief Executive Officer and American hereby employs Mr. Heitz as its President
and Chief Executive Officer to provide certain services set forth herein and to
provide certain other employment services to affiliates for the employment
period as defined in paragraph 3(a), and Mr. Heitz accepts such employment, on
the terms and conditions set forth in this Agreement. During the employment
period, Mr.
2
<PAGE>
Heitz shall perform such managerial duties and responsibilities for
AmVestors and affiliates as may be assigned to him in accordance with the
bylaws.
(2) During the employment period, Mr. Heitz shall devote
his full time and efforts to the business of AmVestors and its affiliates and
shall not engage in consulting work or any trade or business for his own
account or for or on behalf of any other person, firm or corporation which
competes, conflicts or interferes with the performance of his duties
hereunder in any way. Mr. Heitz shall be entitled to reasonable vacations and
to such personal and sick leave as may be established by AmVestors' and
affiliates corporate policies. Mr. Heitz shall perform his duties while
employed in good faith and shall observe faithfully the covenants and
agreements made by him herein.
b. COMPENSATION AND GENERAL BENEFITS.
(1) During the employment period, AmVestors shall pay Mr.
Heitz a base salary to be established annually by the Board of Directors,
payable in twice monthly installments (or on such other basis as may be mutually
agreed upon). The salary shall be reviewed annually by the Board of Directors
and may be increased, but not diminished, during the employment period.
(2) In addition to the salary provided by subparagraph (1)
of this paragraph 1(b), AmVestors and affiliates shall provide benefits and
other perquisites reasonably comparable to, and no less favorable than, those
3
<PAGE>
provided by AmVestors and its affiliates to Mr. Heitz during 1997, including,
but not limited to, an automobile suitable for the business and personal use of
Mr. Heitz.
(3) Attached hereto is a copy of a letter from ALH setting
forth the compensation and general benefits to be payable to Mr. Heitz during
the employment period. ALH guarantees performance by the Company of its
obligations under this paragraph 1(b) throughout the entire term of this
Agreement.
2. COMPETITION: CONFIDENTIAL INFORMATION.
The parties recognize that, due to the nature of Mr. Heitz's prior
association with the Companies and of his engagement hereunder, and as a
consequence of his relationship to Companies, both in the past and in the
future, Mr. Heitz has had access to and has acquired, and has assisted in and
may assist in developing confidential and proprietary information relating to
the business and operations of the Companies. Mr. Heitz recognizes that such
information has been and will continue to be of central importance to the
business of the Companies and that disclosure of such information to others or
its use by others could cause substantial irreparable loss to the Companies.
Mr. Heitz and Companies also recognize that an important part of Mr. Heitz's
duties will be to develop good will for the Companies through his personal
contact with others having business relationships with Companies and within the
insurance industry, and that there is a danger that this good will, a
propri-
4
<PAGE>
etary asset of the Companies, may follow him if and when his relationship
with the Companies is terminated. Mr. Heitz accordingly agrees as follows:
a. NON-COMPETITION DURING EMPLOYMENT PERIOD. During the
employment period he will not directly or indirectly, either individually or as
owner, partner, agent, employee, consultant or otherwise, except for the account
of and on behalf of Companies, engage in any activity competitive with the
business of Companies, nor will he be in competition with Companies, solicit or
otherwise attempt to establish any business relationships with any person, firm
or corporation which was, at any time during the employment period, a customer
or supplier of Companies. However, nothing in this Section 2 shall be construed
to prevent him from owning, as an investment, up to one percent (1%) of a class
of equity securities issued by any competitor of Companies.
b. NON-COMPETITION AFTER PERIOD OF EMPLOYMENT. Mr. Heitz
agrees that during the term of this Agreement and for a period of two years
following termination of this Agreement, if payments are being made to Mr. Heitz
pursuant to paragraph 3.c., he will not, without the Companies prior written
permission, attempt to entice away from the Companies or affiliates or
subsidiaries on behalf of any party whatsoever, or employ or otherwise engage,
contract with or retain directly or indirectly; (i) any employee then employed
by the Companies, affiliates or subsidiaries or employed by them at any time
during the previous two (2)
5
<PAGE>
years; or (ii) any individual or entity under engagement by the Companies
during the previous two yeas, by contract or otherwise, for the purpose of
marketing, distributing or selling insurance and annuity products or
developing clients or customers on behalf of the Companies. Mr. Heitz further
agrees that during such period (if such payments are being made), he will not
do anything to impair the Companies or their affiliates or subsidiaries'
prospects of sales or business retention, and shall not solicit for any
reason any of the Companies or its employees, agency personnel, insureds or
applicants, nor knowingly accept commissions directly or indirectly on any
policy written in replacement of any policy produced or written by the
Companies or any of their affiliates or subsidiaries nor shall Mr. Heitz in
any way derogate the Companies, its products or personnel.
c. CONFIDENTIAL INFORMATION. Mr. Heitz will not disclose any
confidential information of Companies which is now known to him or which
hereafter may become known to him as a result of his employment or association
with Companies and shall not at any time directly or indirectly disclose any
such information to any person, firm or corporation, or use the same in any way
other than in connection with the business of Companies and at all times after
the expiration of the employment period.
d. COMPANIES' REMEDIES FOR BREACH. It is recognized that
damages in the event of breach of this Section 2 by Mr. Heitz would be
difficult, if
6
<PAGE>
not impossible, to ascertain and it is, therefore, agreed that each of the
Companies, in addition to and without limiting any other remedy or right it
may have, shall have the right to an injunction or other equitable relief in
any court of competent jurisdiction, enjoining any such breach, and Mr. Heitz
hereby waives any and all defenses he may have on the ground of lack of
jurisdiction or competence of the court to grant such an injunction or other
equitable relief. The existence of this right shall not preclude Companies
from pursuing any other rights and remedies at law or in equity which
Companies may have.
3. EMPLOYMENT PERIOD.
a. DURATION. The employment period shall commence on the date
of the closing of the acquisition of AmVestors as described in the Merger
Agreement (the "Effective Date") and shall end on December 31, 2000 unless
otherwise terminated as provided in this Agreement.
b. PERFORMANCE AND TERMINATION. Subject to the performance of
the covenants and agreements made by Companies herein, Mr. Heitz shall perform
his duties during the employment period in good faith and will observe
faithfully the covenants and agreements made by him herein. Mr. Heitz shall not
be discharged during the employment period except for cause involving
dishonestly, moral turpitude, or material breach of any express or implied
condition under this
7
<PAGE>
Agreement. The discharge of Mr. Heitz for reasons other than those specified
in the preceding sentence shall be deemed to be a discharge without cause.
c. MR. HEITZ'S REMEDIES. If the Companies shall take any
action with respect to Mr. Heitz's employment as set forth in paragraph 3(d)
thereby entitling him to terminate his employment as provided in paragraph 3(d),
or discharges him without cause then Mr. Heitz shall be entitled to be paid a
sum equal to two (2) years salary based on the base salary level in effect on
the date of termination or discharge. Payments shall be made bimonthly in 48
equal installments and shall commence on the effective date of discharge or
termination. The parties agree that, the payments provided hereunder shall be
deemed to constitute payment for the non-compete provisions contained in
paragraph 2(b) and not a penalty for breach by Companies and Companies agree
that Mr. Heitz shall not be required to mitigate his damages. This paragraph
shall constitute Mr. Heitz's sole remedy for compensation upon the cessation of
his employment and/or breach of this Agreement.
In the event Mr. Heitz materially violates the non-compete provisions
of paragraph 2(b) after his employment has ceased then Companies shall have the
right to cease all payments required under the provisions of paragraph 3(c).
d. TERMINATION FOR GOOD REASON. Mr. Heitz shall be entitled to
terminate his employment for good reason. Any termination of employ-
8
<PAGE>
ment under the following circumstances shall be for good reason and shall be
deemed to be a breach of this Agreement by the Companies:
(1) Without the express written consent of Mr. Heitz, he is
assigned any duties inconsistent with his positions, duties, responsibilities
and status with the Companies since the Effective Date, or his reporting
responsibilities, titles or offices as in effect during the period of this
Agreement are changed or he is removed from or not reelected to any of such
positions, except in connection with the termination of his employment for
cause, or as a result of his substantial disability or death;
(2) The annual base salary of Mr. Heitz as in effect on the
Effective Date, as the same hereafter may be increased from time to time, is
reduced; or
(3) Any of the Companies require Mr. Heitz without his
agreement to be based anywhere other than the Topeka offices except for required
travel on Companies' business to an extent substantially consistent with his
business travel obligations in effect immediately prior to the date of this
Agreement.
4. DEATH OR DISABILITY.
In the event Mr. Heitz shall become so disabled during the term
of this Agreement that he is unable to reasonably perform his duties for a
period of ninety 90 days, either Mr. Heitz or AmVestors and its Affiliates shall
have the
9
<PAGE>
right to terminate this Agreement upon written notice given at the end
of such ninety (90) days period; provided that, at the time of delivery of such
notice, such disability shall be continuing. In the event of a disagreement
between Companies and/or Mr. Heitz regarding the question of whether Mr. Heitz
is disabled as defined herein, the question shall be referred to the Companies
physician whose decision will be conclusive and binding. In the event of
termination for disability, Mr. Heitz shall be entitled to receive as a
settlement of this contract, an annual sum equal to the annual base salary as
such may be increased from time to time which shall be payable semimonthly, for
a period of three (3) years from the date of termination. If Mr. Heitz dies
during the term of this Agreement, and his employment has been terminated as a
result of disability his estate or beneficiary shall receive the remaining
payments under this paragraph payable semimonthly. There shall be no further
obligations on the part of the Companies under this Agreement.
5. GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Kansas.
6. BINDING EFFECT. This Agreement shall be binding upon the parties
hereto, their successors, assigns, heirs, legatees and personal representatives.
7. ASSIGNABILITY. This Agreement shall not be assignable by the
Companies, nor may his duties hereunder be delegated by Mr. Heitz.
10
<PAGE>
8. NOTICES. Any notice required or desired to be given under this
Agreement shall be sent by certified mail to Mr. Heitz's resident in Topeka,
Kansas and to AmVestors or its Affiliates at their principal place of business
in Topeka, Kansas.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements (including the Employment Agreement between
Companies and Mr. Heitz dated April 1, 1997), proposals and other
communications, oral or written, between the parties hereto relating to such
subject matter.
10. SEVERABILITY. If any term or provision of this Agreement or the
application thereof to any circumstances shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term of provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable any remaining terms or
provisions of this Agreement or the application of such term or provision to
circumstances other than those as to which it is invalid or unenforceable. To
the extent permitted by applicable law, the parties hereto hereby waive any
provision of law that renders any term or provision of this Agreement invalid or
unenforceable in any respect.
11. INTENT OF AGREEMENT. The Companies intend by this Agreement to
provide for the employment of Mr. Heitz. While this Agreement provides
11
<PAGE>
for Mr. Heitz's employment, this Agreement shall in no manner ever be deemed
or construed as limiting the power of stockholders to elect Mr. Heitz as a
director of Companies or limiting the power of the Companies to elect its
Chairman or officer(s). In like manner, if stockholders or some future Board
of Directors of the Companies shall not reelect Mr. Heitz, such failure to so
elect Mr. Heitz shall not be deemed or considered as a condition precedent to
the continued obligation of the Companies to pay Mr. Heitz the compensation
as provided for in this Agreement.
12. RECOVERY OF LEGAL FEES, COSTS AND EXPENSES. In the event that
Mr. Heitz is terminated by the Companies and Mr. Heitz retains legal counsel to
commences legal action, the costs and expenses, including legal fees shall be
paid by the Companies or their affiliates in the event Mr. Heitz prevails in
such action either by verdict or judgment. In the event Mr. Heitz prevails as
defined above, the Companies or their affiliate shall pay the reasonable
attorney fees, costs and expenses within thirty (30) days after the conclusion
of the litigation.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Employment
Agreement the day and year first above written.
PARTIES OF THE FIRST PART:
AMVESTORS FINANCIAL CORPORATION
By: /s/ Ralph W. Laster, Jr.
------------------------------------
Ralph W. Laster, Jr., Chairman
and Chief Executive Officer
ATTEST:
/s/ Lynn Hammes
- ----------------------------------
CORPORATE SECRETARY
13
<PAGE>
AMERICAN INVESTORS LIFE
INSURANCE COMPANY, INC.
By: /s/ Ralph W. Laster, Jr.
---------------------------------------
Ralph W. Laster, Jr., President
and Chief Executive Officer
ATTEST:
/s/ Lynn Hammes
- ----------------------------------
CORPORATE SECRETARY
AMVESTORS INVESTMENT GROUP, INC.
AMERICAN INVESTORS SALES GROUP INC.
By: /s/ Ralph W. Laster, Jr.
----------------------------------------
Ralph W. Laster, Jr., Chief
Executive Officer
COMPENSATION COMMITTEE--
AMVESTORS FINANCIAL CORPORATION and
AMERICAN INVESTORS LIFE INSURANCE
COMPANY, INC.
By: /s/ R. Rex Lee
---------------------------------------
R. Rex Lee, Chairman
14
<PAGE>
PARTY OF THE SECOND PART:
/s/ Mark V. Heitz
-------------------------------------
Mark V. Heitz
AMERUS LIFE HOLDINGS, INC.
By: /s/ Roger K. Brooks
---------------------------------
Roger K. Brooks, Chairman, President
and Chief Executive Officer
15
<PAGE>
AGREEMENT OF SALE
THIS AGREEMENT OF SALE is made and entered into this 22 day of October,
1997, by and between R. Rex Lee, M.D. ("Seller") and AmerUs Group Co., an
Iowa corporation ("Buyer").
WITNESSETH
WHEREAS, Seller desires to sell and Buyer desires to purchase all of
Seller's rights, title and interest in 63,675 shares of common stock, no par
value ("Common Stock") of AmVestors Financial Corporation, a Kansas
corporation ("AmVestors") held by Seller (individually a "Share,"
collectively the "Shares").
NOW, THEREFORE, in consideration of the above premises, the mutual
covenants and agreements states herein, the Purchase Price (as defined below)
paid by Buyer to Seller, and other good valuable consideration, receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. SALE OF SHARES. Seller does hereby irrevocably sell, assign,
transfer and deliver unto Buyer, its successors and assigns, all of Seller's
right, title, and interest in and to the Shares.
2. PURCHASE PRICE. Buyer hereby agrees to pay to Seller this day, in
immediately available funds, the amount equal to $20 per Share ($1,273,500.00
in the aggregate of all the Shares). In addition:
(a) Upon timely consummation of the merger pursuant to that certain
Amended and Restated Agreement and Plan of Merger dated as of
September 19, 1997, amended and restated on October 8, 1997 (the
"Merger Agreement"), by and among AmVestors, AmerUs Life
Holdings, Inc., an Iowa corporation ("AmerUs") and AFC Corp., a
Kansas corporation and wholly owned subsidiary of AmerUs, Buyer
agrees to pay Seller additional consideration equal to the
positive amount, if any, of (i) the product of (x) the Merger
Consideration (as defined in the Merger Agreement) multiplied by
the Average Parent Share Price (as defined in the Merger
Agreement) multiplied by (y) 63,675; minus (ii) $1,273,500;
provided, however, that any such payment shall be subject to
maximum of $0.625 multiplied by 63,675 (the "Maximum Amount").
<PAGE>
(b) In the event the Merger Agreement is terminated pursuant to
Article IX of the Merger Agreement, Buyer agrees to pay Seller an
amount equal to the positive amount, if any, of (i) the product
of (x) 63,675 multiplied by (y) the closing price per share of
AmVestors Common Stock as reported on the New York Stock Exchange
on the fifth trading day following the date of the first public
announcement by Buyer of the termination; minus (ii) $1,273,500;
provided, however, that any such payment shall be subject to a
maximum of $0.625 multiplied by 63,675 (the "Maximum Amount").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. Seller does
hereby represent, warrant and covenant to Buyer as follows:
(a) Seller is the lawful owner of the Shares and has and is hereby
transferring to Buyer good and marketable title to the Shares, free and clear of
any and all encumbrances, liens, security interests, pledges, and charges of any
kind whatsoever.
(b) Seller has the power to enter into this Agreement of Sale and to
sell, assign and transfer all of his right, title and interest in the Shares.
(c) Seller covenants and agrees that in the event the Shares cannot
be transferred or assigned without the consent of or notice to a third party,
such third party consent has preciously been obtained, or notice has been
previously given (as the case may be), by Seller.
(d) Neither the execution and delivery of this Agreement of Sale nor
compliance with the terms hereof by Seller will breach any governmental law,
statute or regulation, or conflict with or result in the breach of any of the
terms, conditions, or provisions of any agreement or instrument to which the
Seller is a party or by which it is or may be bound or result in the creation or
imposition of any encumbrance, lien, security interest, pledge or charge.
(e) This Agreement of Sale is enforceable against Seller in
accordance with its terms.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER. Buyer does
hereby represent and warrant to Seller as follows:
(a) Neither the execution and delivery of this Agreement of Sale nor
compliance with the terms hereof by the Buyer will violate the articles of
incorporation or bylaws of Buyer, will breach any governmental statute or
regulation, or conflict with or result in the breach of any of the terms,
conditions or provisions of any agreement or
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instrument to which Buyer is a party or by which it is or may be bound or
result in the creation or imposition of any encumbrance, lien, security
interest, pledge or charge.
(b) Buyer has the corporate power and authority to enter into this
Agreement of Sale and this Agreement of Sale is enforceable against Buyer in
accordance with its terms.
(c) Buyer covenants and agrees that in the event the Shares cannot be
purchased without the consent of or notice to a third party, such third party
consent has previously been obtained, or notice has been previously given (as
the case may be), by Buyer.
(d) Buyer is acquiring the Shares for its own account for investment
purposes, and not with a view to distribution thereof within the meaning of the
Securities Act of 1933, as amended (the "Securities Act").
(e) Buyer is an "Accredited Investor" as defined in the Securities
Act.
5. GENERAL.
(a) This Agreement of Sale cancels and supersedes all previous
agreements relating to the subject matter of this Agreement of Sale, written or
oral, between the parties hereto and contains the entire understanding of the
parties hereto and shall not be amended, modified or supplemented in any manner
whatsoever except in a writing signed by each of the parties hereto.
(b) This Agreement of Sale shall be binding upon, and inure to the
benefit of, and be enforceable by, the parties hereto and their respective
successors and permitted assigns.
(c) This Agreement of Sale may be executed in any number or
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one agreement which is binding upon all the parties hereto,
notwithstanding that all parties are not signatories to the same counterpart.
(d) This Agreement of Sale and all rights and obligations of the
parties hereunder shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Kansas applicable to agreements made
and to be performed entirely within such State, including all matters of
enforcement, validity and performance.
(e) Both parties acknowledge and agree that Seller may be deemed an
"Affiliate" of AmVestors under federal and state securities laws, that therefore
the Shares
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may be deemed restricted under Rule 144 of the Securities Act and that the
certificates for such Shares may bear an appropriate restrictive legend.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement of
Sale to be executed as of the date and year first set forth above.
R. Rex Lee, M.D.
/s/ R. Rex Lee
--------------------------------
AmerUs Group Co.
By: /s/ Joseph Haggerty
-----------------------------
Name: Joseph Haggerty
---------------------------
Title: General Counsel
--------------------------
