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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-K
Annual Report Pursuant To Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999 Commission File Number: 0-21459
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AMERUS LIFE HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
699 WALNUT STREET
DES MOINES, IOWA 50309-3948
(Address of principal executive offices, including zip code)
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IOWA 42-1459712
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (515) 362-3600
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Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EXCHANGE
TITLE OF CLASS ON WHICH REGISTERED
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Class A Common Stock (no par value)......................... New York Stock Exchange
7.00% Adjustable Conversion-rate Equity Security Units
issued by AmerUs Capital II, a subsidiary trust............. New York Stock Exchange
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Securities registered pursuant to section 12(g) of the Act:
TITLE OF EACH CLASS
8.85% Capital Securities, Series A issued by
AmerUs Capital I, a subsidiary trust
Class A Common Stock Warrants
6.95% Senior Notes
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of the
Registrant as of February 29, 2000: $255,600,922.
Number of shares outstanding of each of the Registrant's classes of common
stock on February 29, 2000 was as follows:
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Class A, Common Stock....................................... 25,072,902 shares
Class B, Common Stock....................................... 5,000,000 shares
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DOCUMENTS INCORPORATED BY REFERENCE
Notice of 2000 Annual Meeting of Shareholders and Proxy Statement
(incorporated into Part III)
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......... 11
PART II
Market for Registrant's Common Equity and Related
Item 5. Stockholder Matters......................................... 12
Item 6. Selected Financial Data..................................... 13
Management's Discussion and Analysis of Results of
Item 7. Operations and Financial Condition.......................... 15
Quantitative and Qualitative Disclosures About Market
Item 7A. Risk........................................................ 32
Item 8. Financial Statements and Supplementary Data................. 33
Changes in and disagreements with Accountants on Accounting
Item 9. and Financial Disclosure.................................... 33
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 34
Item 11. Executive Compensation...................................... 34
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................. 34
Item 13. Certain Relationships and Related Transactions.............. 34
PART IV
Exhibits, Financial Statement Schedules, and Reports on Form
Item 14. 8-K......................................................... 34
Index to Exhibits......................................................... 35
Signatures................................................................ 41
Index to Consolidated Financial Statements................................ F-1
Index to Consolidated Financial Statement Schedules....................... S-1
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SAFE HARBOR STATEMENT
All statements, trend analyses and other information contained in this
report relative to markets for the Company's products and trends in the
Company's operations or financial results, as well as other statements including
words such as "anticipate", "believe", "plan", "estimate", "expect", "intend",
and other similar expressions, constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors which may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: (1) general economic conditions and other factors, including
prevailing interest rate levels and stock market performance, which may affect
the ability of the Company to sell its products, the market value of the
Company's investments and the lapse rate and profitability of policies; (2) the
Company's ability to achieve anticipated levels of operational efficiencies and
cost-saving initiatives and to meet cash requirements based upon projected
liquidity sources; (3) customer response to new products, distribution channels
and marketing initiatives; (4) mortality, morbidity, and other factors which may
affect the profitability of the Company's insurance products; (5) changes in the
Federal income tax laws and regulations which may affect the relative tax
advantages of some of the Company's products; (6) increasing competition in the
sale of insurance and annuities; (7) regulatory changes or actions, including
those relating to regulation of insurance products and of insurance companies;
(8) ratings assigned to the Company and its subsidiaries by independent rating
organizations which the Company believes are particularly important to the sale
of its products; and (9) unanticipated litigation. There can be no assurance
that other factors not currently anticipated by management will not also
materially and adversely affect the Company's results of operations.
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PART I
ITEM 1. BUSINESS
GENERAL
AmerUs Life Holdings, Inc. (the Company) 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, the District of Columbia and the U.S.
Virgin Islands. The Company was formed in 1996 as a result of the creation of
the first mutual insurance holding company in the United States, the American
Mutual Holding Company (AMHC). AMHC owns approximately 58% of the Company. The
Company's principal subsidiaries are AmerUs Life Insurance Company (AmerUs
Life), Delta Life Corporation (Delta) and AmVestors Financial Corporation
(AmVestors).
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 American Mutual Life Insurance Company into Central Life Assurance
Company. On June 30, 1996, American Mutual Life Insurance Company was converted
into a stock life insurance company pursuant to a plan of reorganization
involving the formation of AMHC (the Reorganization) and its name was changed to
AmerUs Life. AmerUs Life is licensed to do business in the District of Columbia
and in all states except New Hampshire and New York.
On October 23, 1997, the Company acquired all of the outstanding capital
stock of Delta for approximately $165 million in cash (the Delta Acquisition).
The principal asset of Delta is its wholly-owned subsidiary, Delta Life and
Annuity Company (Delta Life), an Iowa domiciled life insurance company formed in
1955 that is licensed in the District of Columbia and in all states except New
York.
On December 19, 1997, the Company acquired AmVestors in a stock exchange
valued at approximately $350 million (the AmVestors Acquisition). AmVestors'
principal operating subsidiaries are American Investors Life Insurance Company,
Inc. (American), a Kansas domiciled life insurance company licensed in 49 states
and the District of Columbia; and Financial Benefit Life Insurance Company
(FBL), a Kansas domiciled life insurance company doing business in 43 states,
the District of Columbia and the U.S. Virgin Islands.
The Company also participates in a joint venture with Ameritas Life
Insurance Corp. (Ameritas) (Ameritas Joint Venture) through AmerUs Life's 34%
ownership interest in AMAL Corporation, a Nebraska corporation (AMAL). AMAL's
operations are conducted through Ameritas Variable Life Insurance Company
(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 47 states and the District of Columbia. AIC is a
registered broker-dealer which is licensed to do business in all states except
New York. AmerUs Life's partner in the Ameritas Joint Venture, Ameritas, is a
Nebraska mutual life insurance company which has been in existence for more than
100 years.
On December 20, 1999, the Company and the Company's controlling
shareholder, AMHC, announced that their respective boards of directors had
approved plans for the demutualization of AMHC and the merger of the Company
into AMHC following the demutualization. Upon completion of the demutualization,
AMHC would be a public company. AMHC will change its name to AmerUs Group Co.
(AmerUs Group) and be traded on the New York Stock Exchange under the symbol
"AMH". Members of AMHC will receive approximately 17 million shares of AmerUs
Group and cash or policy credits in excess of $300 million as a result of the
demutualization. Shareholders of the Company will receive shares in AmerUs Group
in a one-for-one exchange. To complete the demutualization and merger, approval
is needed from the members of AMHC, the Iowa Commissioner of Insurance and
shareholders of the Company. Members of AMHC and shareholders of the Company
will be asked to approve the proposed demutualization and merger plans during
the second quarter of 2000.
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On February 18, 2000, the Company, AMHC and Indianapolis Life Insurance Co.
(ILICO) entered into a definitive agreement for a combination of the companies.
Under these terms, AMHC will proceed with its previously announced
demutualization. ILICO will demutualize separately and ILICO's members will
receive cash, policy credits and stock equivalent to the value of 11.25 million
shares of stock of AmerUs Group. Upon demutualization, ILICO will become a
subsidiary of AmerUs Group and will continue operations as a stock life
insurance company. As part of the transaction, AMHC made an initial investment
of $100 million in a downstream holding company of ILICO on February 18, 2000.
ILICO is a 95-year old mutual life insurance and annuity company based in
Indianapolis, Indiana. ILICO and its subsidiaries are licensed to do business in
all 50 states and the District of Columbia. At December 31, 1999, ILICO had
total assets of $6.1 billion and insurance in force of $30.3 billion. The
contemplated transactions are subject to normal closing conditions, including
appropriate policyholder/member, shareholder and regulatory approvals. The
Company expects the demutualization of ILICO and combination with AmerUs Group
to take place in the fourth quarter of 2000.
OPERATIONS
The Company has two operating segments: Life Insurance and Annuities.
Products generally distinguish a segment. The life insurance segment's primary
product offerings consist of whole life, universal life and term life insurance
policies. The annuity segment product offerings consist primarily of fixed
annuities.
Additional information concerning the Company's segments may be found in
"Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition" and Note 20 of the Consolidated Financial Statements that
begin on page F-1, both of which are incorporated herein by reference.
LIFE INSURANCE SEGMENT
PRODUCTS
The Company's individual life insurance premiums are from traditional life
insurance products and universal life insurance products, as set forth in the
following table:
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SALES ACTIVITY BY PRODUCT
DIRECT FIRST YEAR ANNUALIZED PREMIUMS
FOR THE YEARS ENDED DECEMBER 31,
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1999 1998 1997
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($ IN THOUSANDS)
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Traditional life insurance:
Participating whole life............................... $16,409 $17,943 $16,843
Term Life.............................................. 7,012 6,111 4,751
Universal Life........................................... 14,314 10,005 8,916
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Total (A).............................................. $37,735 $34,059 $30,510
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Traditional Life Insurance Products. The Company's traditional life
insurance products have a long history of being highly competitive within the
industry. 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. The Company
also offers a second to die whole life insurance product which insures two lives
and provides benefits upon the death of the second insured. The Company targets
its second to die products primarily to potential customers seeking to achieve
estate planning goals. Sales of participating whole life insurance decreased in
1999, which was consistent with the general industry decline of sales of this
product.
Term life insurance provides 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. Term life insurance
is a highly competitive and quickly changing market. Term life insurance sales
increased
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approximately 15% in 1999 primarily as a result of product repricing completed
in mid-1999 along with an increase in consumer demand for the product. Consumer
demand for term products was generally up in 1999 as a result of legislative
changes taking effect in January, 2000 which were anticipated to impact product
pricing. The increase in 1998 term life insurance sales was primarily due to the
introduction of three new term products in the first quarter of 1998.
Since 1989, the Company 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. 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 year ended December 31, 1999, sales of participating whole life and
term life insurance products represented 43% and 19%, respectively, of first
year annualized premiums for all individual life insurance products sold by the
Company.
Universal Life Insurance Products. The Company 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 the
Company. Specific charges are made against the account for the cost of insurance
and for expenses. The universal life policy provides flexibility as to the
amount and timing of premium payments and the level of death benefits provided.
The Company's universal life insurance products provide benefits for the
life of the insured. Within limits established by the Company 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. Increased sales of universal life in
1999, 1998 and 1997 were primarily attributable to new universal life products
introduced in each year. The weighted average crediting rate for universal life
insurance liabilities was 5.67% for the year 1999, 6.08% for the year 1998 and
6.23% for the year 1997. For the year ended December 31, 1999, sales of
universal life insurance products represented 38% of first year annualized
premiums for all individual life insurance products sold by the Company.
The following table sets forth the Company's collected individual life
premiums, including collected individual life premiums associated with the
Closed Block, for the periods indicated:
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COLLECTED PREMIUMS BY PRODUCT
FOR THE YEARS ENDED DECEMBER 31,
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1999 1998 1997
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($ IN THOUSANDS)
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Individual life premiums collected:
Traditional life:
First year and single............................... $ 84,044 $ 82,219 $ 74,132
Renewal............................................. 179,780 173,079 166,847
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Total............................................... 263,824 255,298 240,979
Universal life:
First year and single............................... 24,371 18,987 14,089
Renewal............................................. 72,192 73,410 73,779
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Total............................................... 96,563 92,397 87,868
Total individual life.................................... 360,387 347,695 328,847
Reinsurance assumed................................. 1,589 1,224 1,502
Reinsurance ceded................................... (17,571) (14,224) (13,155)
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Total individual life, net of reinsurance................ $344,405 $334,695 $317,194
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The following table sets forth information regarding the Company's life
insurance in force for each date presented:
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LIFE INSURANCE IN FORCE
AS OF DECEMBER 31,
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1999 1998 1997
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($ IN THOUSANDS)
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Individual life insurance:
Traditional life
Number of policies.............................. 249,282 254,033 258,087
GAAP life reserves.............................. $ 1,645,945 $ 1,554,681 $ 1,473,240
Face amounts.................................... $21,458,000 $19,559,000 $18,077,000
Universal life
Number of policies.............................. 112,906 115,056 117,824
GAAP life reserves.............................. $ 920,010 $ 897,159 $ 867,988
Face amounts.................................... $12,244,000 $12,153,000 $12,115,000
Total life insurance
Number of policies.............................. 362,188 369,089 375,911
GAAP life reserves.............................. $ 2,565,955 $ 2,451,840 $ 2,341,228
Face amounts.................................... $33,702,000 $31,712,000 $30,192,000
</TABLE>
DISTRIBUTION SYSTEMS
The Company sells life insurance in 49 states, the District of Columbia and
the U.S. Virgin Islands. The states with the highest geographic concentration of
sales, based on statutory premiums, are California, Iowa, Minnesota, Texas and
Illinois. These states account for approximately 44% of the Company's statutory
premiums.
The Company's target customers are individuals in the middle and upper
income brackets and small businesses. The Company markets its life insurance
products on a national basis primarily through a Preferred Producer agency
system and a Personal Producing General Agent (PPGA) distribution system. The
Company currently employs 14 regional vice presidents who are responsible for
supervising the Preferred Producer agencies and/or PPGA agents within their
assigned geographic regions.
Under the Preferred Producer agency system, a contractual arrangement is
entered into with the Preferred Producer general agent for the sale of insurance
products by the Preferred Producer agents and brokers assigned to the Preferred
Producer general agent's agency. The Preferred Producer general agents are
primarily compensated by receiving a percentage of the first year commissions
paid to Preferred Producer agents and brokers in the Preferred Producer general
agent's agency and by renewal commissions on premiums subsequently collected on
that business. In addition, the Preferred Producers receive certain fringe
benefits and other allowances.
The Preferred Producer 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 Preferred Producer agents and brokers in their
agency. Currently, the Company has 40 Preferred Producer general agents in 23
states, through which approximately 750 Preferred Producer agents sell the
Company's products. While Preferred Producer agents in the Preferred Producer
agency system are non-exclusive, most agents use the Company's products for a
majority of their new business of the type of products offered by the Company.
No single Preferred Producer general agency accounts for more than 7% of the
total first year life commissions paid by the Company.
Preferred Producer agents are also independent contractors and are
primarily compensated by commissions on first year and renewal premiums
collected on business written by them plus certain fringe benefits and other
allowances. In addition, Preferred Producer agents can earn bonus commissions,
graded by production and persistency on their business.
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Under the PPGA system, the Company 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 the Company
rather than the Company's full line of insurance products. The PPGA system is
comprised of approximately 900 PPGA's, with approximately 1,100 agents.
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.
The Company has also developed programs to sell life insurance through
select banks and brokerages. The customers targeted and the products sold are
similar to those of the Preferred Producer agency system and the PPGA system,
with an emphasis on wealth distribution and deferred compensation products in
the bank channel and an emphasis on universal life products in the brokerage
channel.
Under the bank distribution system, the Company contracts with banks and
marketing organizations for the sale of insurance products by agents who are
employees of the banks. Commissions are paid to the banks. Currently, the
Company has approximately 23 banks and 3 marketing organizations under contract
through which approximately 240 agents sell the Company's products. The Company
provides training and servicing support to the banks and marketing
organizations.
Under the brokerage distribution system, a contractual arrangement is
entered into with an independent brokerage general agent to promote the
Company's insurance products to their network of agents and brokers. The agent
receives a commission and the general agent receives an override commission on
the business produced. The Company currently has 19 brokerage general agents
under contract.
ANNUITY SEGMENT
PRODUCTS
The Company's annuity premiums consisted of approximately 89% from fixed
annuity products and 11% from equity-index annuity products in 1999. Annuity
premiums increased significantly in 1998 due to the Company's acquisition of
Delta and AmVestors in the fourth quarter of 1997. The following table sets
forth annuity collected premiums for the periods indicated:
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COLLECTED PREMIUMS BY PRODUCT
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
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($ IN THOUSANDS)
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Fixed annuities.......................................... $834,636 $756,106 $ 70,298
Equity-index annuities................................... 104,265 36,418 11,755
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Total.................................................. 938,901 792,524 82,053
Reinsurance assumed...................................... 59,561 -- --
Reinsurance ceded........................................ (273) (1,247) (2,276)
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Total annuities, net of reinsurance...................... $998,189 $791,277 $ 79,777
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Fixed Annuity Products. The Company offers a broad portfolio of fixed
annuity products. Annuities provide for the payment of periodic benefits over 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.
The Company offers a variety of interest rate crediting strategies on its
fixed annuity products. These strategies include initial interest crediting
rates with guarantees for periods of one to five years. Following the initial
guarantee period, the Company may adjust the credited interest rate annually,
subject to the minimum interest rates specified in the contracts. Such minimum
guarantee rates currently range from 3% to 5%. The
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Company also offers an interest rate crediting strategy that credits the policy
with a return generally based upon the interest rates it earns on assets
supporting the respective policies less management fees.
Equity-Index Annuities. The Company offers equity-index annuity products
that are based on Standard & Poor's 500 Composite Stock Price
Index -- Registered Trademark. Earnings credited to these products generally are
linked to increases in the anniversary date values of the applicable index, less
management fees.
In the third quarter of 1999, the Company entered into a reinsurance
agreement for the assumption of a block of equity-index annuities totaling $59.6
million from its joint venture partner, AVLIC. In conjunction with this
transaction, the Company now directly issues this equity-index product, which
contributed to the increased sales in 1999. In addition, the Company introduced
a new equity-linked product in mid-1999 which had a positive impact on sales.
In December 1999, the Company introduced a multi-choice annuity product
which provides for various earnings strategies under one product, such as a
long-term equity index, an annual equity index, an investment grade bond index,
and a guaranteed one-year rate. Earnings are credited to this product based on
the increases in the applicable indexes, less management fees, and funds may be
moved between investment alternatives.
The following table sets forth information regarding annuities in force for
each date presented:
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ANNUITIES IN FORCE
AS OF DECEMBER 31,
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1999 1998 1997
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($ IN THOUSANDS)
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Deferred fixed and immediate annuities
Number of policies................................. 169,854 179,294 191,680
GAAP reserves...................................... $5,951,002 $5,975,320 $5,971,225
Equity-index annuities
Number of policies................................. 9,099 5,040 5,202
GAAP reserves...................................... $ 437,862 $ 239,934 $ 162,995
Total annuities
Number of policies................................. 178,953 184,334 196,882
GAAP reserves...................................... $6,388,864 $6,215,254 $6,134,220
</TABLE>
DISTRIBUTION SYSTEMS
The Company sells annuities in 49 states, the District of Columbia and the
U.S. Virgin Islands. The states with the highest geographic concentration of
sales, based on statutory premiums, are Iowa, California, Illinois, Florida and
Texas. These states account for approximately 54% of the Company's statutory
premiums.
The Company directs its marketing efforts towards the asset accumulation,
conservative savings, and retirement markets. The Company markets its annuity
products on a national basis primarily through networks of independent agents.
The independent agents are supervised by regional vice presidents and regional
directors or Independent Marketing Organizations (IMOs). In addition, the
Preferred Producer Agency and PPGA systems discussed previously are utilized to
market select annuity products.
The regional vice presidents and regional directors are primarily
responsible for recruiting agents and servicing those agents in an effort to
promote the Company's products. The regional vice presidents' and regional
directors' marketing support activities include informational mailings,
seminars, and case consultations, all of which are designed to educate agents
about annuities in general and the Company in particular. Regional vice
presidents and regional directors are paid a base salary plus incentive
compensation based on the business produced by agents within their territory.
There are currently four regional vice presidents and regional directors
covering the southeastern, western, southwestern and midwestern regions of the
United States.
The Company's IMOs consist of approximately 70 contracted organizations,
two wholly-owned organizations and one partially-owned organization. The IMOs
are responsible for recruiting, servicing and educating
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agents in an effort to promote the Company's products. The IMOs receive an
override commission based on the business produced by their agents.
The Company currently has approximately 8,300 independent agents licensed
to sell its products. The Company also maintains contact with approximately
56,000 agents that are not currently licensed, but have either sold the
Company's annuities in the past or have expressed an interest in doing so. These
agents continue to receive periodic mailings related to interest rate and
commission changes, and new product introductions, and are reappointed as
required in order to represent the Company in selling its products. However, in
order to save costs associated with reappointing agents, the Company does not
automatically relicense an agent that has not written business for twelve
months.
No single agent accounted for more than 0.9% of the Company's annuity sales
in 1999. The Company does not have exclusive agency agreements with its agents
and management believes most of these agents sell products similar to those sold
by the Company for other insurance companies.
The Company also sells annuities through the bank channel discussed
previously in the Life Insurance Segment section. The customers targeted and the
products sold are similar to those sold by the independent agent networks.
Subsequent to year end, the Company purchased an 80% ownership interest in an
independent marketing organization that is associated with over 700 community
banks in the southeast region of the United States. Fixed annuity products are
the primary product focus of this organization.
AMERITAS JOINT VENTURE
The Company's investment in the Ameritas Joint Venture affords the Company
access to a line of existing variable life insurance and annuity products while
providing a lower-cost entry into an established business, thereby eliminating
significant start-up costs and allowing for immediate potential earnings.
The Ameritas Joint Venture offers through AVLIC fixed annuity products,
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, owners of variable annuities
and life insurance policies are able to choose from a range of investment funds
offered by each manager.
Under the terms of the joint venture agreement, AmerUs Life and Ameritas
write their new single and flexible premium deferred fixed annuities and
variable annuities and variable life insurance through the Ameritas Joint
Venture. AmerUs Life 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. AmerUs Life also offers equity-index annuity
products directly.
The variable life insurance products and the fixed and variable annuities
offered by the Ameritas Joint Venture are distributed through the Company's
Preferred Producer general agency, PPGA, and Bank distribution systems, as well
as through the distribution systems of Ameritas and AVLIC.
Under the terms of the joint venture agreement, AmerUs Life has an option
to purchase an additional 5% to 15% of AMAL if certain premium growth targets
are met. AmerUs Life and Ameritas each have guaranteed the policyholder
obligations of AVLIC. The guarantee of each party is joint and several, and will
remain in effect until certain conditions are met.
As of December 31, 1999, AMAL had total consolidated assets of $2,756.0
million and total consolidated shareholder's equity of $86.8 million on a GAAP
basis. AVLIC had $5.4 billion of insurance in force and $41.6 million in surplus
as of December 31, 1999, on a statutory basis.
COMPETITION
The Company operates in a highly competitive industry. Numerous life
insurance companies and other entities, including banks and other financial
institutions, compete with the Company, many of which have greater financial and
other resources as compared to the Company. The Company believes that the
principal competitive factors in the sale of insurance products are product
features, price, commission structure,
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perceived stability of the insurer, financial strength ratings, value-added
service and name recognition. Many other companies are capable of competing for
sales in the Company's target markets (including companies that do not presently
compete in such markets). The Company's ability to compete for sales is
dependent upon its ability to address the competitive factors described above.
In addition to competing for sales, the Company 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 the Company 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.
As of December 31, 1999, AmerUs Life's financial strength rating was: rated
"A" (Excellent) by A.M. Best Company; rated "Baa1" (Adequate) by Moody's
Investors Service; and rated "A" (Strong) by Standard & Poor's.
Delta Life's financial strength rating was: rated "A" (Excellent) by A.M.
Best Company; rated "Baa1" (Adequate) by Moody's Investors Service; and rated
"BBB" (Good) by Standard & Poor's.
American's financial strength rating was: rated "A-" (Excellent) by A.M.
Best Company; rated "Baa1" (Adequate) by Moody's Investors Service; and rated
"A" (Strong) by Standard & Poor's.
FBL's financial strength rating was "B+" (Very Good) at A.M. Best Company
and "BBB" (Good) by Standard & Poor's.
INSURANCE UNDERWRITING
The Company follows detailed, uniform underwriting practices and procedures
in its insurance business which are designed to assess risks before issuing
coverage to qualified applicants. The Company has professional underwriters who
evaluate policy applications on the basis of information provided by applicants
and others.
REINSURANCE
In accordance with industry practices, the Company reinsures portions of
its life insurance and disability income exposure with unaffiliated insurance
companies under traditional indemnity reinsurance arrangements. Such reinsurance
arrangements are in accordance with standard reinsurance practices within the
industry. The Company enters into these arrangements to assist in diversifying
their risks and to limit the maximum loss on risks that exceed policy retention
limits. The Company's maximum retention limit for life insurance policies was
$1,000,000 per life insured. Effective January 1, 2000, the Company entered into
additional reinsurance agreements which effectively reduced the Company's
retention limit to $100,000 for the majority of policies issued since July 1,
1996 and for the majority of new business going forward. Indemnity reinsurance
does not fully discharge the Company's obligation to pay claims on business it
reinsures. The Company, as the ceding company, remains responsible for policy
claims to the extent the reinsurer fails to pay such claims. The Company
annually monitors the creditworthiness of its primary reinsurers, and has
experienced no material reinsurance recoverability problems in recent years.
As of December 31, 1999, the Company had reinsurance arrangements in place
for life insurance having a face amount of approximately $5.6 billion with 19
unaffiliated reinsurers. All but one of the companies with which the Company had
life reinsurance arrangements as of such date were rated "A" or better by A.M.
Best. As of December 31, 1999, the Company's top five reinsurers (by face amount
reinsured) constituted approximately 87% of the total face amount reinsured by
the Company as of such date. Of these top five reinsurers, three are rated "A+"
and the other two "A" by A.M. Best.
The Company reinsures 25% of its equity-index annuity reserves with an
unaffiliated reinsurer which is rated "A+" by A.M. Best. The Company also
reinsures approximately 1% of its deferred annuities with an unaffiliated
company which is rated "A" by A.M. Best.
9
<PAGE> 12
EMPLOYEES
As of December 31, 1999, the Company had 694 full-time employees. None of
these employees are covered by a collective bargaining agreement and the Company
believes that its relations with employees are satisfactory.
SUBSIDIARIES
The Company was formed in August, 1996 in connection with the creation of
the first mutual insurance holding company in the United States. The Company has
primarily four wholly-owned subsidiaries: AmerUs Life, an Iowa life insurance
company; Delta, an Iowa corporation; AmVestors, a Kansas corporation and AmerUs
Capital Management Group, Inc. (ACM), an Iowa corporation. AmerUs Life has two
wholly-owned subsidiaries: CLA Assurance Company, an Iowa life insurance
company; and American Vanguard Life Insurance Company, an Iowa life insurance
company. In addition, AmerUs Life currently owns a 34% interest in AMAL
Corporation, through whose wholly-owned subsidiaries the Ameritas Joint Venture
operates. Delta primarily has one wholly-owned subsidiary, Delta Life, an Iowa
life insurance company. AmVestors primarily has two wholly-owned subsidiaries:
American, a Kansas life insurance company; and FBL, a Kansas life insurance
company. ACM has one wholly-owned subsidiary, ACM Properties, Inc.
REGULATION
The Company is indirectly controlled by a mutual insurance holding company,
AMHC. Mutual insurance holding companies are subject to regulation by the Iowa
Insurance Division. This includes compliance with the Iowa Insurance Holding
Company Systems Act. The Iowa Commissioner of Insurance also has jurisdiction
over an intermediate holding company, such as the Company, as if it were a
mutual insurance holding company.
AMHC and the Company are also each subject to the Iowa Insurer Supervision,
Rehabilitation and Liquidation Act, Iowa Code Chapter 507C. In addition, the
assets of AMHC and the Company are available to satisfy claims of AmerUs Life in
the event the Iowa Commissioner initiates a proceeding under Chapter 507C. AMHC
and the Company may not merge with or be acquired by another entity without
approval of the Iowa Commissioner. In addition, in the case of a merger of AMHC
with another mutual company, separate approval by the Iowa Attorney general is
required.
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
a reorganization pursuant to Iowa law, the Iowa Commissioner has adopted rules
that limit the activities and affiliations that are permissible for a mutual
insurance holding company. The Iowa Commissioner also has issued rules which,
under certain circumstances, require prior approval by the Iowa Commissioner of
the issuance of stock by the Company.
Shares of the capital stock of the Company which carry the right to cast a
majority of the votes entitled to be cast by all of the outstanding shares of
the Company 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.
AmerUs Life, Delta Life, American and FBL 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 sales practices, 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 the Company's insurance companies are licensed
administers a guaranty fund, which provides for assessments of licensed insurers
for the protection of policyowners of insolvent insurance
10
<PAGE> 13
companies. Assessments can be partially recovered through a reduction in future
premium taxes in some states.
Risk-based capital ("RBC") standards for life insurance companies were
adopted by the National Association of Insurance Commissioners ("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 and Kansas. 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 December 31, 1999, AmerUs
Life's, Delta Life's, American's and FBL's RBC levels were 508%, 541%, 441% and
473%, respectively, of each of their respective authorized control level RBC
thresholds.
ITEM 2. PROPERTIES
The Company leases approximately 69,000 square feet at 699 Walnut Street,
Des Moines, Iowa from an unaffiliated party. The Company's executive offices and
corporate operations, including legal, tax, finance, human resources,
investments, communications and technology, are at this location.
The Company also leases approximately 103,000 square feet at 611 Fifth
Avenue, Des Moines, Iowa from an unaffiliated party. The life insurance segment
and the annuity segment occupy approximately 70,000 square feet and 10,000
square feet, respectively, of this space. The remaining space is primarily
utilized for technology and cafeteria facilities.
The Company owns a 105,000 square foot office building in Topeka, Kansas.
The annuity segment occupies approximately 60,000 square feet of this facility
and the remaining space is leased to third parties.
The Company also leases approximately 48,000 square feet from unaffiliated
parties for special technology projects, such as administration system
conversions, and for records and supply storage.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company has been publicly traded since 1997. On February 20, 1998, the
AmerUs Class A Common Stock was listed and trading began on the New York Stock
Exchange (NYSE) under the symbol "AMH." Prior to such listing, the Company's
Class A Common Stock was listed and traded on the Nasdaq National Market System
(the Nasdaq) under the symbol "AMRS." 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 or the NYSE, as applicable, and the quarterly
dividends per share declared during such quarter.
<TABLE>
<CAPTION>
AMERUS
CLASS A COMMON STOCK (A)
----------------------------
HIGH LOW DIVIDENDS
---- --- ---------
<S> <C> <C> <C>
1998
First Quarter............................................... 36 1/4 30 7/8 .10
Second Quarter.............................................. 34 7/16 30 5/8 .10
Third Quarter............................................... 33 1/16 21 15/16 .10
Fourth Quarter.............................................. 24 1/8 14 3/4 .10
1999
First Quarter............................................... 24 11/16 16 13/16 .10
Second Quarter.............................................. 28 21 5/16 .10
Third Quarter............................................... 28 3/4 21 3/16 .10
Fourth Quarter.............................................. 25 3/4 20 1/2 .10
</TABLE>
HOLDERS
As of February 29, 2000, the number of holders of record of each class of
common equity of the Company was as follows:
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS
---------
<S> <C>
Class A Common stock........................................ 2,381
Class B Common stock........................................ 1
</TABLE>
DIVIDENDS
The Company's Board of Directors has declared and paid a quarterly dividend
of $0.10 per share of Common Stock, beginning in the second quarter of 1997. The
Board of Directors has approved moving from a quarterly dividend to an annual
dividend beginning in 2000. The declaration and payment of dividends in the
future is subject to the discretion of the Company's Board of Directors and will
be dependent upon the Company's financial condition, results of operations, cash
requirements, future prospects, regulatory restrictions on the payment of
dividends by the Company's life insurance subsidiaries and other factors deemed
relevant by the Company's Board of Directors.
The Company is an insurance holding company whose principal assets consist
of all of the outstanding shares of the common stock of its life insurance
subsidiaries. The Company's ongoing ability to pay dividends to its shareholders
and meet its other obligations, including operating expenses and any debt
service, primarily depends upon the receipt of sufficient funds from its life
insurance subsidiaries in the form of dividends, interest payments or loans.
Based on statutory insurance regulations and 1998 results, the Company's
subsidiaries could have paid an estimated $60.7 million in dividends in 1999
without obtaining regulatory approval. Of this amount, the Company's
subsidiaries paid the Company $48 million in dividends in 1999. Based on 1999
results, the
12
<PAGE> 15
Company's subsidiaries can pay an estimated $61.1 million in dividends in 2000
without obtaining regulatory approval.
Under its bank credit facility, the Company is prohibited from paying
dividends on its Common Stock in excess of an amount equal to 3% of the
Company's consolidated net worth as of the last day of the preceding fiscal
year.
In connection with the 8.85% Capital Securities, Series A (the "Capital
Securities"), issued in 1997 by AmerUs Capital I, the Company's subsidiary
trust, and the 7.00% Adjustable Conversion-rate Equity Security Units (ACES),
issued in 1998 by AmerUs Capital II, the Company's subsidiary trust, the Company
has agreed not to declare or pay any dividends on the Company's capital stock
(including the Class A Common Stock) during any period for which the Company
elects to extend interest payments on its junior subordinated debentures, except
for stock dividends paid by the Company where the dividend stock is the same
stock as that on which the dividend is being paid. Dividends on the Company's
capital stock cannot be paid until all accrued interest on the Capital
Securities and ACES has been paid.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain financial and operating data of the
Company. The selected consolidated financial data below for each of the five
years ending December 31, 1999 are derived from the Consolidated Financial
Statements of the Company, which financial statements have been audited by KPMG
LLP, independent auditors.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 (A) 1996 (B) 1995
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Revenues:
Insurance premiums................. $ 89.5 $ 81.2 $ 48.1 $ 138.5 $ 244.1
Product charges.................... 74.7 73.0 47.3 52.2 57.3
Net investment income.............. 540.1 503.4 224.5 228.6 285.2
Realized gains (losses) on
investments..................... 3.2 (0.1) 13.8 66.0 51.4
Other income....................... 1.4 1.7 -- -- --
Contributions form the Closed Block
(B)............................. 25.2 31.4 31.0 19.9 --
--------- --------- --------- --------- ---------
Total revenues....................... 734.1 690.6 364.7 505.2 638.0
--------- --------- --------- --------- ---------
Benefits and expenses:
Policyowner benefits............... 442.4 430.8 196.0 264.7 374.6
Total expenses..................... 161.7 141.5 73.7 95.1 101.1
Dividends to policyowners.......... 4.5 2.6 1.6 26.3 49.4
--------- --------- --------- --------- ---------
Total benefits and expenses.......... 608.6 574.9 271.3 386.1 525.1
--------- --------- --------- --------- ---------
Income from operations............... 125.5 115.7 93.4 119.1 112.9
Interest expense..................... 28.3 27.1 15.0 2.1 2.4
--------- --------- --------- --------- ---------
Income before income tax expense and
equity in earnings of
unconsolidated subsidiary.......... 97.2 88.6 78.4 117.0 110.5
Income tax expense................... 32.1 28.4 22.0 43.8 41.2
--------- --------- --------- --------- ---------
Income before equity in earnings of
unconsolidated subsidiary.......... 65.1 60.2 56.4 73.2 69.3
Equity in earnings of unconsolidated
subsidiary......................... 1.6 2.6 1.7 1.0 --
--------- --------- --------- --------- ---------
Net Income........................... $ 66.7 $ 62.8 $ 58.1 $ 74.2 $ 69.3
========= ========= ========= ========= =========
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 (A) 1996 (B) 1995
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Earnings per common share:
Basic (C).......................... $ 2.20 $ 1.88 $ 2.47 $ 3.20 $ 2.99
Diluted (D)........................ $ 2.20 $ 1.86 $ 2.46 $ 3.20 $ 2.99
Dividends declared per common
share.............................. $ 0.40 $ 0.40 $ 0.30 $ -- $ --
CONSOLIDATED BALANCE SHEET DATA:
Total invested assets.............. $ 7,691.2 $ 7,684.8 $ 7,695.5 $ 2,880.8 $ 3,965.0
Total assets....................... $10,719.4 $10,424.5 $10,254.0 $ 4,384.2 $ 4,371.9
Total liabilities.................. $ 9,771.6 $ 9,357.6 $ 9,240.0 $ 3,926.7 $ 3,832.0
Company-obligated mandatorily
redeemable preferred
securities...................... $ 214.8 $ 216.7 $ 86.0 $ -- $ --
Total stockholders' equity (E)..... $ 733.0 $ 850.2 $ 928.0 $ 457.5 $ 539.9
OTHER OPERATING DATA (UNAUDITED):
Adjusted net operating income (F).... $ 74.3 $ 68.9 $ 49.1 $ 37.6 $ 38.5
Adjusted net operating income per
common share:
Basic (G).......................... $ 2.46 $ 2.06 $ 2.08 $ 1.62 $ 1.66
Diluted (H)........................ $ 2.45 $ 2.04 $ 2.08 $ 1.62 $ 1.66
</TABLE>
- ---------------
(A) Consolidated Income Statement Data for 1997 includes the results for Delta,
subsequent to the acquisition date of October 23, 1997 and the results for
AmVestors, subsequent to the acquisition date of December 19, 1997, and
Consolidated Balance Sheet Data includes year-end data for Delta and
AmVestors.
(B) The Company formed the Closed Block on June 30, 1996. 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 1999, 1998 and 1997 are not fully comparable with those of 1996 and 1995
due to the establishment of the Closed Block on June 30, 1996.
(C) Retroactively reflects the pro forma effect of the issuance of 23.16 million
shares of common stock at the beginning of 1995. The 1999, 1998, 1997 and
1996 calculations reflect 30.23 million, 33.46 million, 23.54 million and
23.16 million of weighted average common shares outstanding, respectively.
(D) Retroactively reflects the pro forma effect of the issuance of 23.16 million
shares of common stock at the beginning of 1995. The 1999, 1998, 1997 and
1996 calculations reflect 30.31 million, 33.70 million, 23.57 million and
23.16 million of weighted average diluted common shares outstanding,
respectively.
(E) Amounts reported prior to June 30, 1996 reflect policyowners' equity.
(F) Adjusted net operating income 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 warrant adjustment. The adjusted net operating income shown does
not constitute net income computed in accordance with GAAP.
(G) Basic adjusted net operating income per common share is calculated using the
number of shares reflected in (C) above.
(H) Diluted adjusted net operating income per common share is calculated using
the number of shares reflected in (D) above.
14
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following analysis of the consolidated results of operations and
financial condition of the Company should be read in conjunction with the
Selected Consolidated Financial and Operating Data and Consolidated Financial
Statements and related notes.
OVERVIEW
The Company 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,
the District of Columbia and the U.S. Virgin Islands. The Company has two
reportable operating segments: Life Insurance and Annuities. The Life Insurance
segment's primary product offerings consist of whole life, universal life and
term life insurance policies. The primary product offerings of the Annuity
segment are fixed annuities.
In accordance with Generally Accepted Accounting Principals (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. The Company 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 deferred. The
method of amortizing deferred policy acquisition costs for life insurance
products varies, 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 statutory surplus. Non-participating life insurance deferred policy
acquisition costs are 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. Deferred acquisition costs for participating
policies are amortized as an expense primarily 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
the Company 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. The Company has the ability to mitigate adverse experience through
adjustments to credited interest rates, policyowner dividends or cost of
insurance charges.
15
<PAGE> 18
ADJUSTED NET OPERATING INCOME
The following table reflects net income adjusted to eliminate certain items
(net of applicable income taxes) which management believes do not necessarily
indicate overall operating trends. For example, net realized capital gains or
losses on investments, excluding gains or losses on convertible debt which are
considered core earnings, are eliminated. Net realized capital gains or losses
on investments may be realized at the sole discretion of management and are
often realized in accordance with tax planning strategies. Therefore, net
realized capital gains or losses do not reflect the Company's ongoing earnings
capacity. Different items are likely to occur in each period presented and
others may have different opinions as to which items may warrant adjustment.
Adjusted net operating income is the basis used by the Company in assessing
overall performance. Adjusted net operating income as described here may not be
comparable to similarly titled measures reported by other companies. The
adjusted operating income shown below does not constitute net income computed in
accordance with GAAP.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net Income.................................. $66,654 $62,829 $58,059 $74,173 $69,348
Net non-core realized (gains) losses
calculated as follows:
Total net realized (gains) losses on
investments (A)........................ (2,108) 72 (9,431) (43,221) (33,349)
Add back net core realized gains (losses)
(B).................................... 6,608 6,110 -- -- --
------- ------- ------- ------- -------
Net non-core realized (gains) losses... 4,500 6,182 (9,431) (43,221) (33,349)
Net amortization of deferred policy
acquisition costs due to non-core realized
gains or losses (C)....................... 1,387 (129) 423 669 1,105
Reorganization costs (D).................... 1,762 -- -- 1,522 1,426
Equity add-on tax (E)....................... -- -- -- 4,480 --
------- ------- ------- ------- -------
Adjusted Net Operating Income............... $74,303 $68,882 $49,051 $37,623 $38,530
======= ======= ======= ======= =======
Adjusted Net Operating Income per common
share:
Basic (F)................................. $ 2.46 $ 2.06 $ 2.08 $ 1.62 $ 1.66
Diluted (G)............................... $ 2.45 $ 2.04 $ 2.08 $ 1.62 $ 1.66
</TABLE>
- ---------------
(A) Represents total realized gains or losses (core and non-core) on investments
adjusted for income taxes on such amounts. Realized gains or losses 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 gains on the convertible preferred stock and bond portfolio, net
of income taxes. Such amounts are included in the total realized gains or
losses adjustment in footnote (A). As these gains or losses are reflective
of the Company's operating activities, they are added back to net income.
(C) Represents amortization of deferred policy acquisition costs due to non-core
realized gains or losses being included in product margins adjusted for
income taxes on such amounts.
(D) Represents costs in 1999 directly related to the Company's proposed merger
with its controlling shareholder, AMHC, following the proposed
demutualization of AMHC. These costs consist primarily of legal and
consulting expenses. See further discussion of the proposed reorganization
plans in Item 1. The 1996 and 1995 costs were directly related to the
conversion of AmerUs Life into a stock company and consisted primarily of
printing, postage, legal and consulting costs. These costs each year were
not of a continuing nature and were not expected to have any effect on
future operations.
16
<PAGE> 19
(E) Represents the mutual life insurance company equity add-on tax, which is
applicable only to mutual life insurance companies and which is not
applicable to the Company after June 30, 1996, due to AmerUs Life's
conversion into a stock company.
(F) Basic adjusted operating income per common share for 1999, 1998 and 1997 is
calculated using 30.23 million, 33.46 million and 23.54 million shares,
respectively. Basic adjusted operating income per common share for 1996 and
1995 is calculated using 23.16 million shares.
(G) Diluted adjusted operating income per common share for 1999, 1998 and 1997
is calculated using 30.31 million, 33.70 million and 23.57 million shares,
respectively. Diluted adjusted operating income per common share for 1996
and 1995 is calculated using 23.16 million shares.
ACQUISITIONS
The Company acquired all of the outstanding stock of Delta on October 23,
1997, for approximately $165 million in cash. The transaction was accounted for
as a purchase and accordingly, the Company's results of operations include Delta
from the date of purchase. The Company acquired all of the outstanding stock of
AmVestors on December 19, 1997, in a stock exchange valued at approximately $350
million. This transaction was also accounted for as a purchase and the Company's
results of operations include AmVestors from the date of purchase. (See Note 15
of the Consolidated Financial Statements for the discussion of the Company's
acquisitions.)
THE CLOSED BLOCK
The Closed Block was established on June 30, 1996. 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 reorganization of AmerUs
Life, assets would be available to maintain the dividend scales and interest
credits in effect prior to the Reorganization if the experience underlying such
scales and credits continues.
The contribution to the operating income of the Company 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 "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 titled
"Closed Block Assets". Likewise, all liabilities attributable to the Closed
Block are combined and disclosed as the "Closed Block Liabilities".
OPERATING SEGMENTS
The Company has two reportable operating segments: Life Insurance and
Annuities. Products generally distinguish a segment. The Company uses the same
accounting policies and procedures to measure operating segment income as it
uses to measure its consolidated income from operations with the exception of
the elimination of certain items which management believes are not necessarily
indicative of overall operating trends. These items are explained further in the
Adjusted Net Operating Income section of Management's Discussion and Analysis of
Results of Operations and Financial Condition. Revenues and benefits and
expenses are primarily attributed directly to each operating segment. Net
investment income and core realized gains (losses) on investments are allocated
based on the directly-related asset portfolios. Other revenues and expenses
which are deemed not to be associated with any specific reportable segment are
grouped together in the All Other category. These items primarily consist of
discontinued product lines such as group and health and holding company revenues
and expenses. The Company assesses the performance of its operating
17
<PAGE> 20
segments before interest expense, income taxes, and equity in earnings of its
unconsolidated subsidiary, AMAL.
RESULTS OF OPERATIONS
A summary of the Company's revenue follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Insurance premiums
Life insurance -- traditional.......................... $ 64,263 $ 51,261 $ 30,733
Annuities -- Immediate annuity & supplementary contract
premiums............................................ 25,122 29,610 17,238
All other.............................................. 136 326 156
-------- -------- --------
Total insurance premiums............................... 89,521 81,197 48,127
Product charges
Life insurance -- universal life....................... 46,841 46,224 45,637
Annuities.............................................. 27,835 26,757 1,669
-------- -------- --------
Total product charges.................................. 74,676 72,981 47,306
Net investment income
Life insurance......................................... 93,350 70,952 73,407
Annuities.............................................. 442,851 432,299 147,924
All other.............................................. 3,871 121 3,100
-------- -------- --------
Total net investment income............................ 540,072 503,372 224,431
Realized gains (losses) on investments
Life insurance -- core................................. -- -- --
Annuities -- core...................................... 10,166 9,400 --
All other -- non-core.................................. (6,922) (9,512) 13,791
-------- -------- --------
Total realized gains (losses) on investments........... 3,244 (112) 13,791
Other income............................................. 1,467 1,700 --
Contribution from the Closed Block....................... 25,166 31,478 31,044
-------- -------- --------
Total revenues......................................... $734,146 $690,616 $364,699
======== ======== ========
</TABLE>
Traditional life insurance premiums increased by $13.0 million to $64.3
million in 1999 compared to $51.3 million in 1998 and $30.7 million in 1997. The
increase in traditional life insurance premiums was primarily the result of the
growth of the business since the formation of the Closed Block in June, 1996 and
continued favorable persistency.
Immediate annuity and supplementary contract premiums were $25.1 million in
1999 compared to $29.6 million in 1998 and $17.2 million in 1997. The decrease
in premiums in 1999 was primarily due to decreased immediate annuity sales while
the increase in annuity and supplementary contract premiums in 1998 was
primarily due to the acquisitions of Delta and AmVestors. Without these
acquisitions, immediate annuity and supplementary contract premiums increased by
$2.5 million in 1998 due to increased immediate annuity sales.
Universal life product charges increased by $0.6 million in 1999 to $46.8
million compared to $46.2 million in 1998 and $45.6 million in 1997. The
increase in product charges each year was primarily due to increased cost of
insurance charges as a result of the normal aging of the block of business,
partially offset by higher reinsurance costs.
Annuity product charges increased by $1.0 million in 1999 to $27.8 million
compared to $26.8 million in 1998 and $1.7 million in 1997. Increased surrender
charges and expense loads on deferred annuities primarily contributed to the
increase in 1999 while the increase in 1998 was primarily due to the
acquisitions of Delta
18
<PAGE> 21
and AmVestors. Annuity product charges for 1998 and 1997 included $23.5 million
and $0.7 million, respectively, from Delta and AmVestors.
Total net investment income was $540.1 million in 1999 compared to $503.4
million in 1998 and $224.4 in 1997. The increase in 1999 net investment income
was primarily attributable to higher average invested assets (excluding market
value adjustments) and a higher effective yield compared to 1998. Average
invested assets (excluding market value adjustments) increased approximately
$343.7 million in 1999 compared to 1998 primarily due to the Company's increased
investment funds from two structured asset-backed commercial paper vehicles. See
further discussion of these vehicles in the Liquidity and Capital Resources
section. The increase in 1998 net investment income was primarily due to the
acquisitions of Delta and AmVestors. Net investment income in 1998 and 1997
included $322.0 million and $30.2 million, respectively, from Delta and
AmVestors. The effective yield of the entire portfolio in 1999 was 7.15%
compared to 6.98% in 1998 and 7.49% in 1997. Yields in 1998 were impacted by a
decline in value on hedge funds and long-term private partnership investments
resulting in lower net investment income in both the life insurance and annuity
segments in that year. The effective yield of the annuity portion of the
portfolio decreased 10 basis points to 6.68% in 1999 compared to 6.78% in 1998
and 7.24% in 1997. The decrease in the 1999 effective yield primarily resulted
from lower reinvestment rates throughout 1998 and the majority of 1999 compared
to the portfolio rate at the beginning of the prior year period.
Realized gains on investments were $3.2 million in 1999 compared to
realized losses of $0.1 million and realized gains of $13.8 million in 1998 and
1997, respectively. The level of realized gains and losses will fluctuate from
period to period depending on the prevailing interest rate and economic
environment and the timing of the sale of investments.
All other income primarily consists of structured finance fees from
affordable housing programs.
The Contribution from the Closed Block was $25.2 million in 1999 compared
to $31.5 million in 1998 and $31.0 million in 1997. The following table sets
forth the operating results of the Closed Block for the years ended December 31,
1999, 1998 and 1997:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Insurance premiums..................................... $189,444 $198,178 $206,145
Universal life and annuity product charges............. 12,463 13,695 13,599
Net investment income.................................. 108,117 115,762 113,759
Realized gains (losses) on investments................. (380) 10,324 718
-------- -------- --------
Total revenues...................................... 309,644 337,959 334,221
Benefits and expenses
Policyowner benefits................................... 193,482 200,783 206,638
Underwriting, acquisition and insurance expenses....... 4,408 5,042 5,477
Amortization of deferred policy acquisition costs...... 20,337 26,286 31,471
Dividends to policyowners.............................. 66,251 74,370 59,591
-------- -------- --------
Total benefits and expenses......................... 284,478 306,481 303,177
-------- -------- --------
Contribution from the Closed Block....................... $ 25,166 $ 31,478 $ 31,044
======== ======== ========
</TABLE>
Closed Block insurance premiums decreased by $8.8 million in 1999 to $189.4
million compared to $198.2 million in 1998 and $206.1 million in 1997. The
decrease in insurance premiums each year is consistent with the reduction of the
Closed Block's life insurance in force that is expected to continue over the
life of the Block. Similarly, the 1999 decrease in product charges or universal
life policies included in the Closed Block is primarily the result of the
reduction of such business in force.
19
<PAGE> 22
Net investment income for the Closed Block decreased by $7.7 million in
1999 to $108.1 million compared to $115.8 million in 1998 and $113.8 million in
1997. The decrease in 1999 was primarily attributable to lower effective yields,
partially offset by higher average invested assets (excluding market value
adjustments) while the increase in 1998 was primarily attributable to the growth
in average invested assets (excluding market value adjustments) resulting from
the reinvestment of investment earnings.
Realized losses on investments of the Closed Block were $0.4 million in
1999 compared to realized gains of $10.3 million in 1998 and $0.7 million in
1997. The level of realized gains and losses will fluctuate from period to
period depending on the prevailing interest rate and economic environment and
the timing of the sale of investments.
Closed Block policyowner benefits decreased by $7.3 million in 1999 to
$193.5 million compared to $200.8 million in 1998 and $206.6 million in 1997.
The decrease in policyowner benefits each year is primarily due to lower death
benefits and to the reduction of life reserves which is consistent with the
reduction of the Closed Block's life insurance in force that is expected over
the life of the Block.
The amortization of deferred policy acquisition costs for the Closed Block
decreased by $6.0 million in 1999 to $20.3 million compared to $26.3 million in
1998 and $31.5 million in 1997. The decrease in the amortization of deferred
policy acquisition costs each year is consistent with the projected reduction in
the gross margins of the Closed Block as the life insurance in force declines.
Closed Block dividends to policyowners decreased by $8.1 million to $66.3
million in 1999 compared to $74.4 million in 1998 and $59.6 million in 1997. The
decrease in 1999 was primarily due to the decrease in deferred dividends
resulting from lower realized gains while the increase in 1998 primarily
resulted from increased deferred dividends associated with the higher realized
gains that year.
A summary of the Company's policyowner benefits follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Life Insurance
Traditional:
Death benefits...................................... $ 9,398 $ 4,475 $ 1,401
Change in liability for future policy benefits and
other policy benefits............................. 41,306 31,773 19,968
-------- -------- --------
Total traditional................................. 50,704 36,248 21,369
Universal:
Death benefits in excess of cash value.............. 21,978 17,928 20,254
Interest credited on policyowner account balances... 30,365 34,317 32,750
Other............................................... 1,107 2,949 3,452
-------- -------- --------
Total universal................................... 53,450 55,194 56,456
-------- -------- --------
Total life insurance benefits....................... 104,154 91,442 77,825
Annuities
Interest credited to deferred annuity account
balances............................................ 281,063 282,465 81,834
Other annuity benefits................................. 56,920 56,828 35,739
-------- -------- --------
Total annuity benefits.............................. 337,983 339,293 117,573
All other benefits....................................... 291 21 578
-------- -------- --------
Total policyowner benefits............................... $442,428 $430,756 $195,976
======== ======== ========
</TABLE>
Total life insurance benefits increased by $12.8 million in 1999 to $104.2
million compared to $91.4 million in 1998 and $77.8 million in 1997. An increase
in life insurance benefits is expected as the traditional block of business
continues to grow and as the universal block of business ages. However, in the
last half of 1999 the Company experienced higher than expected death benefits.
The Company does not believe
20
<PAGE> 23
that this is an indication of a change in long-term mortality trends but more of
a fluctuation which is not unusual from time to time. Partially offsetting the
increases in death benefits and higher policy reserves in 1999 was a reduction
in interest credited. Interest credited on universal policyowner account
balances decreased $3.9 million in 1999 to $30.4 million compared to $34.3
million in 1998 primarily due to a reduction in crediting rates. The weighted
average interest crediting rate on policyowner account balances for 1999 was
5.67% compared to 6.08% for 1998. Interest credited on universal policyowner
account balances in 1998 was $1.5 higher than 1997. The increase was primarily
due to higher account values, partially offset by lower interest crediting
rates. The weighted average interest crediting rate decreased 15 basis points to
6.08% for 1998 compared to 6.23% for 1997.
Annuity benefits were $338.0 million in 1999 compared to $339.3 million in
1998 and $117.6 million in 1997. The decrease in 1999 was primarily attributable
to a lower weighted average crediting rate on annuity balances in 1999 compared
to 1998, partially offset by higher average liabilities. The weighted average
crediting rate on deferred annuity account balances was decreased 24 basis
points to 4.95% for 1999 compared to 5.19% for 1998 and 5.25% for 1997.
Crediting rates were decreased in response to the decrease in effective yields
on the annuity investment portfolio resulting in GAAP spreads widening 14 basis
points in 1999 as compared to 1998. Other annuity benefits increased in 1999 as
compared to 1998. Other annuity benefits in 1999 included approximately $13.1
million of interest expense on two insurance contracts issued to two commercial
paper conduits during the year. See further discussion of these conduits in the
Liquidity and Capital Resources section. Partially offsetting this increased
expense was a decrease in immediate annuity reserves and benefit payments on
immediate annuities, which corresponds with the reduction in immediate annuity
sales. The increase in annuity benefits in 1998 was primarily due to the
acquisitions of Delta and AmVestors.
A summary of the Company's expenses follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- -------- -------
($ IN THOUSANDS)
<S> <C> <C> <C>
Life Insurance
Underwriting, acquisition and other expenses............ $ 53,376 $ 43,376 $38,496
Amortization of deferred policy acquisition costs and
value of business acquired (VOBA), net of non-core
adjustment of $282, $1,038 and $892 for the years
ended December 31, 1999, 1998 and 1997,
respectively......................................... 17,268 21,360 16,423
-------- -------- -------
Total life insurance................................. 70,644 64,736 54,919
Annuities
Underwriting, acquisition and other expenses............ 30,900 35,592 7,365
Amortization of deferred policy acquisition costs and
value of business acquired (VOBA), net of non-core
adjustment of $1,852, ($1,237) and ($242) for the
years ended December 31, 1999, 1998 and 1997,
respectively......................................... 48,378 39,053 6,703
-------- -------- -------
Total annuities...................................... 79,278 74,645 14,068
Amortization of deferred policy acquisition costs due to
non-core realized gains or losses....................... 2,134 (199) 650
All other expenses........................................ 7,843 2,448 4,138
Reorganization costs...................................... 1,762 -- --
-------- -------- -------
Total expenses............................................ $161,661 $141,630 $73,775
======== ======== =======
</TABLE>
Total life insurance expenses were $70.6 million in 1999 compared to $64.7
million in 1998 and $54.9 million in 1997. Underwriting, acquisition and
insurance expenses increased each year, primarily due to costs related to the
Year 2000 Compliance Project and costs associated with the Company's enhancement
of its administration and distribution systems. Amortization of deferred policy
acquisition costs and value of
21
<PAGE> 24
business acquired (VOBA) decreased $4.1 million in 1999 and increased $5.0
million in 1998. Deferred policy acquisition costs are generally amortized in
proportion to gross margins. In 1999, modifications were made to the dividend
scale of traditional products to coincide with the decline in investment yields,
resulting in increased estimated future gross margins. These modifications
primarily contributed to the decreased amortization in 1999. Lower death
benefits in 1998 on those policies for which deferred costs are amortized
contributed to higher gross margins in 1998, resulting in the increased
amortization that year.
Total annuity expenses increased by $4.7 million in 1999 to $79.3 million
compared to $74.6 million in 1998 and $14.1 million in 1997. Underwriting,
acquisition and insurance expenses decreased $4.7 million in 1999 primarily due
to cost savings realized from the consolidation of acquired subsidiary
operations. Amortization of deferred policy acquisition costs and VOBA increased
$9.3 million in 1999. Gross margins increased due to higher interest spreads and
the reduced expenses, resulting in the increased amortization. The increase in
annuity expenses in 1998 was primarily attributable to the acquisitions of Delta
and AmVestors.
All other expenses increased by $5.4 million in 1999 and decreased by $1.7
million in 1998. Expenses in 1998 were reduced by certain one-time benefits and
1999 expenses included the amortization of the debt issuance costs on the
capital securities and senior notes issued in mid-1998 and additional holding
company expenses primarily related to air transportation, conferences, incentive
compensation and corporate development programs. The 1997 other expenses
included a $1.3 million write-off of expenses related to a former bank credit
facility which was replaced by a new agreement in 1997.
The 1999 reorganization costs consist of legal and consulting expenses
associated with the Company's proposed merger with its controlling shareholder,
AMHC, following the proposed demutualization of AMHC. See further discussion of
these proposed reorganization plans in Item 1. As these costs are not of a
continuing nature, they have been excluded from the operating segment amounts.
A summary of the Company's adjusted pre-tax operating income by operating
segment follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
Life Insurance
Open Block:
Revenues......................................... $ 204,454 $ 168,437 $ 149,777
Benefits and Expenses............................ (174,798) (156,178) (132,744)
Dividends to policyowners........................ (4,526) (2,558) (1,587)
Closed Block contribution........................... 25,166 31,478 31,044
--------- --------- ---------
Adjusted pre-tax operating income................... 50,296 41,179 46,490
Annuities
Revenues............................................ 505,974 498,066 166,831
Benefits and Expenses............................... (417,261) (413,938) (131,641)
--------- --------- ---------
Adjusted pre-tax operating income................... 88,713 84,128 35,190
All other adjusted pre-tax operating (loss)........... (2,660) (322) (1,460)
--------- --------- ---------
Total adjusted pre-tax operating income............... $ 136,349 $ 124,985 $ 80,220
========= ========= =========
</TABLE>
Adjusted pre-tax operating income from Life Insurance operations increased
by $9.1 million in 1999 to $50.3 million compared to $41.2 million in 1998 and
$46.5 million in 1997. The increase in 1999 compared to 1998 was primarily due
to increased investment income and decreased deferred policy acquisition cost
amortization which was partially offset by a decreased contribution from the
Closed Block and increased costs related to the Year 2000 Compliance Project and
enhancement of the Company's administration and distribution systems. The
decrease in 1998 was primarily due to lower net investment income and increased
costs related to the Year 2000 Compliance Project and costs associated with the
Company's development of alternative distribution systems.
22
<PAGE> 25
Adjusted pre-tax operating income from Annuity operations increased by $4.6
million in 1999 to $88.7 million compared to $84.1 million in 1998 and $35.2
million in 1997. The increase in 1999 was primarily due to increased spreads
while the increase in 1998 was primarily due to the acquisitions of Delta and
AmVestors.
All other adjusted pre-tax operating losses increased $2.4 million in 1999
and decreased $1.2 million in 1998. The changes from year to year primarily
related to the changes in expenses discussed previously.
Interest expense increased by $1.2 million in 1999 to $28.3 million
compared to $27.1 million in 1998 and $15.0 million in 1997. The increased
interest expense in 1999 was primarily due to higher interest rates on the
senior notes and adjusted conversion-rate equity security units outstanding
during 1999 as compared to the revolving credit agreement borrowings outstanding
during 1998. The increased interest expense in 1998 was primarily due to
increased debt levels from the 1997 fourth quarter acquisitions of Delta and
AmVestors.
Income tax expense increased by $3.7 million in 1999 to $32.1 million
compared to $28.4 million in 1998 and $22.0 million in 1997. The effective tax
rate in 1999 was 32.5% compared to 31.2% in 1998 and 27.5% in 1997. The increase
in the effective rate in 1999 was primarily due to a $0.3 million decrease in
tax credits generated by affordable housing and historic rehabilitation
investments and the capitalization of $1.8 million of demutualization costs for
income tax purposes. The increase in the effective tax rate in 1998 was
primarily due to a $2.4 million increase in goodwill amortization and a $0.8
million decrease in tax credits generated by affordable housing and historic
rehabilitation investments. Tax credits generated from these investments totaled
$5.2 million in 1999 compared to $5.5 million in 1998 and $6.3 million in 1997.
The equity in earnings of unconsolidated subsidiary represents 34% of the
net income of AMAL Corporation, net of goodwill amortization. AMAL Corporation
is the joint venture partner through which the Company markets variable life and
variable annuity products and selected fixed annuity products.
Net income increased by $3.9 million to $66.7 million in 1999 compared to
$62.8 million in 1998 and $58.1 million in 1997. The increase in 1999 net income
resulted from the increased pre-tax adjusted operating income from the Life
Insurance operations and Annuity operations, which was partially offset by
reorganization costs, increased interest expense, higher effective income tax
rates, and lower income from AMAL Corporation. The increase in net income in
1998 was primarily from increased annuity operating income which was partially
offset by lower realized gains on investments and increased interest expense and
a higher effective income tax rate.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
The Company's 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 the Company by AmerUs Life),
investment income on assets held by the Company and fees which the Company
charges its subsidiaries and certain other of its affiliates for services,
offset by the expenses incurred for debt service, salaries and other expenses.
The Company intends to rely primarily on dividends and interest income from
its life insurance subsidiaries in order to make dividend payments to its
shareholders. The payment of dividends by its life insurance subsidiaries is
regulated under various state laws. Under Iowa law, AmerUs Life and Delta Life
may pay dividends only from the earned surplus arising from their respective
businesses and must receive the prior approval of the Iowa Insurance
Commissioner to pay any dividend that would exceed certain statutory
limitations. The current statute limits any dividend, together with dividends
paid out within the preceding 12 months, to the greater of (i) 10% of the
respective company's policyowners' 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. The payment of dividends by AmVestors' subsidiaries,
American and FBL is regulated under Kansas law, which has statutory limitations
similar to those in place in Iowa. Based on these limitations and 1998 results,
the Company's subsidiaries could have paid an estimated $60.7 million in
dividends in 1999 without obtaining regulatory
23
<PAGE> 26
approval. Of this amount, the Company's subsidiaries paid the Company $48
million in dividends in 1999. Based on 1999 results, the Company's subsidiaries
could pay an estimated $61.1 million in dividends in 2000 without obtaining
regulatory approval.
The Company and its subsidiaries generated cash flows from operating
activities of $632.3 million, $479.4 million and $224.4 million for the years
ended December 31, 1999, 1998 and 1997, respectively. Excess operating cash
flows were primarily used to increase the Company's investment portfolio, fund
policyowner account withdrawals and purchase common stock for the treasury.
The Company has a $150 million revolving credit facility with a syndicate
of lenders (the "Bank Credit Facility"). As of December 31, 1999, there was a
$32 million outstanding loan balance under the facility. The Bank Credit
Facility provides for typical events of default and covenants with respect to
the conduct of the business of the Company and its subsidiaries and requires the
maintenance of various financial levels and ratios. Among other covenants, the
Company (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 Life and Delta Life, to maintain
certain ratings from A.M. Best and certain levels of adjusted capital and
surplus and risk-based capital.
During 1999, the Company entered into two $250 million separate account
funding agreements, of which one remained outstanding as of December 31, 1999.
Under this agreement, a five-year floating rate insurance contract is issued to
a commercial paper conduit. The funding agreement is secured by assets in the
Company's separate account and is further backed by the general account assets.
The separate account assets are legally segregated and are not subject to the
claims that arise out of any other business of the Company. The separate account
assets and liabilities are included with general account assets in the financial
statements. The funding agreement may not be cancelled by the commercial paper
conduit unless there is a default under the agreement, but the Company may
terminate at any time.
During 1999 and 1998, the Company purchased 385,200 shares and 4,325,019
shares of common stock for the treasury at a total cost of $8.9 million and
$102.1 million, respectively.
LIFE INSURANCE SUBSIDIARIES
The cash flows of the Company's 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, payment of debt, income
taxes and current operating expenses. Life insurance companies generally produce
a positive cash flow from operations, as measured by the amount by which cash
flows 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 the Company's life insurance subsidiaries.
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. The Company continuously monitors
benefits and surrenders to provide projections of future cash requirements. As
part of this monitoring process, the Company performs cash flow testing of its
assets and liabilities under various scenarios to evaluate the adequacy of
reserves. In developing its investment strategy, the Company establishes a level
of cash and securities which, combined with expected net cash inflows from
operations, maturities of
24
<PAGE> 27
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 the
Company's life insurance subsidiaries.
The Company takes into account asset/liability management considerations in
the product development and design process. Contract terms for the Company's
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 liabilities for interest-sensitive life products
and annuities by their contractual withdrawal provisions at December 31, 1999
(including liabilities in both the Closed Block and the general account):
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
Not subject to discretionary withdrawal..................... $ 366.5
Subject to discretionary withdrawal with adjustments:
Specified surrender charges(A)............................ 4,378.4
Market value adjustments.................................. 1,474.3
--------
Subtotal.................................................. 5,852.7
--------
Subject to discretionary withdrawal without adjustments..... 1,400.8
--------
Total....................................................... $7,620.0
========
</TABLE>
- ---------------
(A) Includes $1,216.3 million of statutory liabilities with a contractual
surrender charges of less than five percent of the account balance.
AmerUs Life and its joint venture partner are contingently liable in the
event the joint venture, AVLIC, cannot meet its policyholder obligations. At
December 31, 1999, AVLIC had statutory assets of $2,559.1 million, liabilities
of $2,517.5 million, and surplus of $41.6 million.
Through its membership in the Federal Home Loan Bank (FHLB) of Des Moines,
AmerUs Life is eligible to borrow on a line of credit available to provide it
additional liquidity. Interest is payable at a current rate at the time of any
advance. As of December 31, 1999, AmerUs Life had a $25 million open secured
line of credit against which there were no borrowings. In addition to the line
of credit, AmerUs Life has long-term advances from the FHLB outstanding of $16.1
million at December 31, 1999.
The Company's life insurance subsidiaries may also obtain liquidity through
sales of investments. The Company's investment portfolio as of December 31, 1999
had a carrying value of $9 billion, including Closed Block investments.
At December 31, 1999, the statutory surplus of the Company's subsidiaries
was approximately $425.0 million. The Company believes that this level of
statutory capital is more than adequate as each life insurance subsidiary's
risk-based capital is significantly in excess of required levels.
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 the Company as the Company will have access to the
public debt and equity markets.
INVESTMENT PORTFOLIO
GENERAL
The Company maintains a diversified portfolio of investments which is
supervised by an experienced in-house staff of investment professionals. The
Company employs sophisticated asset/liability management techniques in order to
achieve competitive yields, while maintaining risk at acceptable levels. The
asset
25
<PAGE> 28
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 Investment Committee of the Board of
Directors of each of the life insurance companies and are overseen by the
Investment Committee of the Board of Directors of the Company. Management
regularly monitors individual assets and asset groups, in addition to monitoring
the overall asset mix. In addition, the insurance company boards and the
Investment Committee review investment guidelines and monitor internal controls.
INVESTMENT STRATEGY
The Company's 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.
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. The
Company utilizes analytical systems to establish an optimal asset mix for each
line of business. The Company 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.
INVESTED ASSETS
The Company maintains a diversified portfolio of investments, including
public and private fixed maturity securities, commercial mortgage loans and
equity real estate. The Company's 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 the Company's
earnings goals.
The Closed Block was formed to give certain policyowners additional
assurances as to the dividend policies of the Company. As a result of
establishing the Closed Block on June 30, 1996, the Company allocated certain
assets from its investment portfolio to the Closed Block (see Note 1 to the
Consolidated Financial Statements for further discussion). The following table
summarizes consolidated invested assets by asset category as of December 31,
1999 and 1998, and sets forth the allocation of such assets between the Closed
Block and the general account. The remaining information relating to the
Company's investment portfolio presents information about the investment
portfolio on a combined basis (including invested assets in both the Closed
Block and the general account).
26
<PAGE> 29
<TABLE>
<CAPTION>
CONSOLIDATED INVESTED ASSETS
DECEMBER 31,
-------------------------------------------------------------------------------
1999 1998
-------------------------------------- --------------------------------------
CARRYING CARRYING CARRYING CARRYING
VALUE VALUE VALUE VALUE
CLOSED GENERAL % OF CLOSED GENERAL % OF
BLOCK ACCOUNT COMBINED TOTAL BLOCK ACCOUNT COMBINED TOTAL
-------- -------- -------- ----- -------- -------- -------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturity securities
Public.......................... $1,002.3 $5,953.2 $6,955.5 77.5% $ 948.8 $6,343.8 $7,292.6 81.1%
Private......................... 85.4 727.5 812.9 9.1% 167.7 402.7 570.4 6.3%
-------- -------- -------- ----- -------- -------- -------- -----
Subtotal...................... 1,087.7 6,680.7 7,768.4 86.6% 1,116.5 6,746.5 7,863.0 87.4%
Equity securities................. -- 14.6 14.6 0.2% -- 32.2 32.2 0.4%
Mortgage loans.................... -- 615.2 615.2 6.9% -- 566.4 566.4 6.3%
Policy loans...................... 188.0 109.9 297.9 3.3% 181.9 110.8 292.7 3.3%
Real estate investments........... -- 1.5 1.5 0.0% -- 0.6 0.6 0.0%
Other invested assets............. 0.6 269.2 269.8 3.0% 3.0 205.8 208.8 2.3%
Short-term investments............ -- 0.1 0.1 0.0% 8.9 22.5 31.4 0.3%
-------- -------- -------- ----- -------- -------- -------- -----
Total invested assets......... $1,276.3 $7,691.2 $8,967.5 100.0% $1,310.3 $7,684.8 $8,995.1 100.0%
======== ======== ======== ===== ======== ======== ======== =====
</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 December 31, 1999 fixed maturity
securities were $7,768.4 million, or 86.6% of the carrying value of invested
assets with public and private fixed maturity securities constituting $6,955.5
million, or 89.5%, and $812.9 million, or 10.5%, of total fixed maturity
securities, respectively.
The following table summarizes the composition of the fixed maturity
securities by category as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
COMPOSITION OF FIXED MATURITY SECURITIES
DECEMBER 31,
-----------------------------------------
1999 1998
------------------- -------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
--------- ------- --------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. government/agencies.............................. $ 349.2 4.5% $ 76.3 1.0%
State and political subdivisions...................... 45.4 0.6% 49.5 0.6%
Foreign government bonds.............................. 159.3 2.1% 128.8 1.6%
Corporate bonds....................................... 4,442.0 57.1% 4,209.3 53.6%
Redeemable preferred stocks........................... 261.1 3.4% 113.1 1.4%
Asset-backed bonds.................................... 737.3 9.5% 877.2 11.2%
MBS
U.S. government/agencies............................ 1,420.6 18.2% 2,110.0 26.8%
Non-government/agencies............................. 353.5 4.6% 298.8 3.8%
-------- ------ -------- ------
Subtotal-MBS........................................ 1,774.1 22.8% 2,408.8 30.6%
-------- ------ -------- ------
Total............................................ $7,768.4 100.0% $7,863.0 100.0%
======== ====== ======== ======
</TABLE>
27
<PAGE> 30
The following table summarizes fixed maturity securities by remaining
maturity as of December 31, 1999:
REMAINING MATURITY OF FIXED MATURITY SECURITIES
<TABLE>
<CAPTION>
CARRYING % OF
VALUE TOTAL
---------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Due:
In one year or less (2000)................................ $ 108.9 1.4%
One to five years (2001-2005)............................. 2,119.8 27.3%
Five to 10 years (2006-2010).............................. 2,157.8 27.8%
10 to 20 years (2011-2020)................................ 892.2 11.5%
Over 20 years (2021 and after)............................ 715.6 9.2%
-------- ------
Subtotal............................................... 5,994.3 77.2%
MBS....................................................... 1,774.1 22.8%
-------- ------
Total.................................................. $7,768.4 100.0%
======== ======
</TABLE>
The Company's portfolio of investment grade fixed maturity securities is
diversified by number and type of issuer. As of December 31, 1999, investment
grade fixed maturity securities included the securities of over 627 issuers,
with 2,213 different issues of securities. No non-government/agency issuer
represents more than 0.5% of investment grade fixed maturity securities.
Below-investment grade fixed maturity securities as of December 31, 1999,
included the securities of 113 issuers representing 6.1% of total invested
assets, with the largest being a $16.9 million investment.
As of December 31, 1999, 80.5% 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 December 31, 1999:
FIXED MATURITY SECURITIES BY NAIC DESIGNATION
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PUBLIC PRIVATE TOTAL
----------------- ----------------- -----------------
NAIC CARRYING % OF CARRYING % OF CARRYING % OF
DESIGNATION STANDARD & POOR'S EQUIVALENT DESIGNATION VALUE TOTAL VALUE TOTAL VALUE TOTAL
----------- ---------------------------------------- -------- ------ -------- ------ -------- ------
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C> <C> <C> <C>
A- or higher......................
1 $4,485.5 64.4% $618.6 76.2% $5,104.1 65.7%
BBB- to BBB+......................
2 1,942.6 27.9% 175.1 21.5% 2,117.7 27.2%
-------- ------ ------ ------ -------- ------
Total investment grade............ 6,428.1 92.3% 793.7 97.7% 7,221.8 92.9%
-------- ------ ------ ------ -------- ------
BB- to BB+........................
3 332.0 4.8% 17.5 2.1% 349.5 4.5%
B- to B+..........................
4 184.3 2.7% -- 0.0% 184.3 2.4%
CCC or lower......................
5 & 6 11.1 0.2% 1.7 0.2% 12.8 0.2%
-------- ------ ------ ------ -------- ------
Total below investment grade......................... 527.4 7.7% 19.2 2.3% 546.6 7.1%
-------- ------ ------ ------ -------- ------
Total................................................ $6,955.5 100.0% $812.9 100.0% $7,768.4 100.0%
======== ====== ====== ====== ======== ======
</TABLE>
MBS investments are mortgage-related securities including commercial
mortgage-backed securities (CMBS), collateralized mortgage obligations (CMOs),
and pass-through mortgage securities. Asset-backed securities are both
residential and non-residential including exposure to home equity loans, home
improvement loans, manufactured housing loans as well as securities backed by
loans on automobiles, credit cards, and other collateral or collateral bond
obligations. Residential mortgage pass-through and CMOs total $1,630.5 million
or 18.2% of total invested assets. Asset-backed residential mortgages total
$361.3 million or 4.0% of total invested assets. As of December 31, 1999, MBS
were $1,774.1 million or 19.8%, of total invested
28
<PAGE> 31
assets of which $1,420.6 million or 80.0% of MBS were from government sponsored
enterprises. Other MBS were $353.5 million or 20.0%, of MBS as of December 31,
1999. Management believes that the quality of assets in the MBS portfolio is
generally high, with 94% of such assets representing agency backed or "AAA"
rated securities.
The Company uses interest rate swaps, caps, and options to reduce its
exposure to changes in interest rates and to manage duration mismatches. The
Company also uses call options to hedge equity-indexed annuities. Although the
Company is subject to the risk that counterparties will fail to perform, credit
standings of counterparties are monitored regularly. The Company only enters
into transactions with highly rated counterparties. The Company 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, caps, and
options, which represent the extent of the Company's involvement in such
contracts but not the risk of loss, at December 31, 1999, amounted to $640.9
million. The swaps had no carrying value at December 31, 1999 and a fair value
which amounted to a net receivable position of $3.3 million at December 31,
1999. The carrying value and fair value of options amounted to $91.9 million and
$121.7 million, respectively. The interest rate caps and options are reflected
as "other investments" on the Company's consolidated financial statements as of
December 31, 1999. The net amount payable or receivable from interest rate swaps
and caps are accrued as an adjustment to interest income.
MORTGAGE LOANS
As of December 31, 1999, mortgage loans in the Company's investment
portfolio were $615.2 million, or 6.9% of the aggregate carrying value of
invested assets, including the Closed Block. As of December 31, 1999, commercial
mortgage loans and residential mortgage loans comprised 73.2% and 26.8%,
respectively, of the mortgage loans in the Company's investment portfolio.
Commercial mortgage loans consist primarily of fixed-rate mortgage loans.
As of December 31, 1999, the Company held 380 individual commercial mortgage
loans with an average balance of $1.2 million.
As of December 31, 1999, no loans in the Company's loan portfolio (as
measured by principal balance) were classified as delinquent or in foreclosure.
As of the same date, only two loans aggregating $2.5 million, or 0.4%, of the
Company's loan portfolio (as measured by principal balance) were classified as
restructured. During 1999, the Company had no foreclosures.
EQUITY REAL ESTATE
In recent years the Company has significantly reduced its equity real
estate portfolio. As of December 31, 1999, the carrying value of investment real
estate, including the Closed Block, was $1.5 million.
OTHER
The Company held $297.9 million of policy loans on individual insurance
products as of December 31, 1999. Policy loans are permitted to the extent of a
policy's contractual limits and are fully collateralized by policy cash values.
As of December 31, 1999, the Company held equity securities of $14.6
million. The largest holding of equity securities, Federal Home Loan Bank, had a
carrying value of $12.3 million as of December 31, 1999.
The Company held $269.9 million of other invested assets (including
short-term investments) on December 31, 1999. Other invested assets consist
primarily of various joint venture and limited partnership investments and
derivatives.
EFFECTS OF INFLATION AND INTEREST RATE CHANGES
The Company does not believe that inflation has had a material effect on
its consolidated results of operations.
29
<PAGE> 32
Interest rate changes may have temporary effects on the sale and
profitability of the annuities and life insurance products offered by the
Company. For example, if interest rates rise, competing investments (such as
annuities or life insurance products offered by the Company's competitors,
certificates of deposit, mutual funds, and similar instruments) may become more
attractive to potential purchasers of the Company's products until the Company
increases the interest rate credited to owners of its annuities and life
insurance products. In contrast, as interest rates fall, the Company attempts to
adjust its credited rates to compensate for the corresponding decline in
reinvestment rates. The Company monitors interest rates and sells annuities and
life insurance policies that permit flexibility to make interest rate changes as
part of its management of interest spreads. However, the profitability of the
Company's products is based upon persistency, mortality and expenses, as well as
interest rate spreads.
The Company manages its investment portfolio in part to reduce its exposure
to interest rate fluctuations. In general, the market value of its fixed
maturity portfolio increases or decreases in an inverse relationship with
fluctuations in interest rates, and net investment income increases or decreases
in a direct relationship with interest rate changes.
The Company 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. The Company utilizes analytical systems to establish an
optimal asset mix for each line of business. The Company 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 on a
regular basis 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.
The Company invests in 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. For a further discussion and disclosure of the nature and
extent of the Company's use of derivatives, see Note 14 to the Consolidated
Financial Statements.
FEDERAL INCOME TAX MATTERS
The Company and its non-life subsidiaries file a consolidated federal
income tax return. The life insurance subsidiaries file separate federal income
tax returns. 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 MATTERS
SFAS 133 AND 137
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 defines derivative instruments
and provides comprehensive accounting and reporting standards for the
recognition and measurement of derivative and hedging activities (including
certain instruments embedded in other contracts). It requires derivatives to be
recorded in the consolidated balance sheet at fair value and establishes
criteria for hedges of changes in the fair value of assets, liabilities or firm
commitments, hedges or variable cash flows or forecasted transactions, and
hedges of foreign currency exposures of net investments in foreign operations.
Changes in the fair value of derivatives not meeting specific hedge accounting
criteria would be recognized in the consolidated statement of operations. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of
30
<PAGE> 33
the Effective Date of FASB Statement No. 133." SFAS No. 137 delays the effective
date of SFAS No. 133 for all fiscal quarters until fiscal years beginning after
June 15, 2000. The Company is evaluating SFAS No. 133 and has not determined its
effect on the consolidated financial statements.
SOP 97-3
On January 1, 1999, the Company adopted the American Institute of Certified
Public Accountants (AICPA) Statement of Position (SOP) 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments." This
statement provides guidance on when an insurance or other enterprise should
recognize a liability for guaranty fund and other assessments and on how to
measure such liability. The adoption of SOP 97-3 had no material impact on the
financial position or results of operations as the Company currently estimates
assessment liabilities when a determination of an insolvency has occurred.
SOP 98-1
On January 1, 1999, the Company adopted AICPA SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." This SOP
provides guidance for determining whether costs of software developed or
obtained for internal use should be capitalized or expensed as incurred. In the
past, the Company has expensed such costs as they were incurred. The adoption of
SOP 98-1 had no material impact on the financial position or results of
operations of the Company.
STATUTORY ACCOUNTING CODIFICATION
The NAIC has codified statutory accounting practices, which are expected to
constitute the only source of prescribed statutory accounting practices and are
effective in 2001. Codification will change prescribed statutory accounting
practices and may result in changes to the accounting practices that insurance
enterprises use to prepare their statutory financial statements. The changes of
codification will not have a material impact on statutory surplus.
YEAR 2000 COMPLIANCE
In connection with the year 2000, an important business issue emerged
regarding how existing application software programs and operating systems could
accommodate the date value "2000". Many existing application software products
were designed to accommodate only a two-digit date position which represents the
year (i.e., 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
information technology systems will be able to process accurately.
The Company formed a Year 2000 working group to address potential problems
posed by this development to assure that the Company was prepared for the year
2000. The Company's overall Year 2000 compliance initiatives included the
following components: (i) assessment of all business critical systems (business
critical systems include computer and embedded systems); processes and external
interfaces and dependencies; (ii) remediation or upgrading of business critical
systems; (iii) testing of both modified and updated systems as well as
integrated systems testing; (iv) implementation of modified and updated systems;
and (v) contingency planning.
The Company completed the Year 2000 modifications, conversions and testing
and, to date, has not experienced any significant operational difficulties in
2000.
Total costs associated with Year 2000 modifications and conversions were
approximately $8.5 million, with approximately $4.3 million incurred for the
year ended December 31, 1999. These costs were expensed as incurred.
31
<PAGE> 34
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The main objectives in managing the investment portfolios of the Company
and its insurance subsidiaries are to maximize investment income and total
investment returns while minimizing credit risks in order to provide maximum
support to the insurance underwriting operations. Investment strategies are
developed based on many factors including asset liability management, regulatory
requirements, fluctuations in interest rates and consideration of other market
risks. Investment decisions are centrally managed by investment professionals
based on guidelines established by management and approved by the boards of
directors.
Market risk represents the potential for loss due to adverse changes in the
fair value of financial instruments. The market risks related to financial
instruments of the Company and its subsidiaries primarily relate to the
investment portfolio, which exposes the Company to risks related to interest
rates and, to a lesser extent, credit quality and prepayment variation.
Analytical tools and monitoring systems are in place to assess each of these
elements of market risk.
Interest rate risk is the price sensitivity of a fixed income security to
changes in interest rates. Management views these potential changes in price
within the overall context of asset and liability management. Company actuaries
estimate the payout pattern of our liabilities, primarily the Company's
lapsation, to determine duration, which is the present value of the fixed income
investment portfolios after consideration of the duration of these liabilities
and other factors, which management believes mitigates the overall effect of
interest rate risk for the Company.
The table below provides information about the Company's fixed maturity
investments and mortgage loans at December 31, 1999. The table presents cash
flows of principal amounts and related weighted average interest rates by
expected maturity dates. The cash flows are based on the earlier of the call
date or the maturity date or, for mortgage-backed securities, expected payment
patterns. Actual cash flows could differ from the expected amounts.
<TABLE>
<CAPTION>
EXPECTED CASH FLOWS
AMORTIZED 2000 2001 2002 2003 2004 THEREAFTER COST
--------- ---- ---- ---- ---- ---- ---------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed maturity securities...... $321 $381 $457 $826 $669 $ 4,353 $7,007
Average interest rate.......... 7.0% 6.9% 7.0% 6.5% 6.4% 7.3%
Mortgage loans................. $ 55 $ 49 $ 35 $ 38 $ 48 $ 390 $ 615
Average interest rate.......... 9.4% 9.5% 9.5% 9.2% 9.3% 8.4%
Total..................... $376 $430 $492 $864 $717 $ 4,743 $7,622
==== ==== ==== ==== ==== ========== ======
</TABLE>
The Company and its subsidiaries have consistently invested in high quality
marketable securities. As a result, management believes that the Company has
minimal credit quality risk. Fixed maturity securities are comprised of U.S.
Treasury, government agency, mortgage-backed and corporate securities.
Approximately 72% of fixed maturity securities are issued by the U.S. Treasury
or U.S. government agencies or are rated A or better by Moody's, Standard and
Poor's, or the NAIC. Less than 8% of the bond portfolio is below investment
grade. Fixed maturity securities have an average maturity of approximately 7.64
years.
Prepayment risk refers to the changes in prepayment patterns that can
either shorten or lengthen the expected timing of the principal repayments and
thus the average life and the effective yield of a security. Such risk exists
primarily within the Company's portfolio of mortgage-backed securities.
Management monitors such risk regularly. The Company invests primarily in those
classes of mortgage-backed securities that are less subject to prepayment risk.
The Company's use of derivatives is generally limited to hedging purposes
and has principally consisted of using interest rate swaps, caps, swaptions and
options. These instruments, viewed separately, subject the Company to varying
degrees of market and credit risk. However when used for hedging, the
expectation is that these instruments would reduce overall market risk. Credit
risk arises from the possibility that counterparties
32
<PAGE> 35
may fail to perform under the terms of the contracts. (See Note 14 of the
Consolidated Financial Statements for additional information).
Equity price risk is the potential loss arising from changes in the value
of equity securities. In general, equities have more year-to-year price
variability than intermediate term grade bonds. However, returns over longer
time frames have been consistently higher. The Company's equity securities are
high quality and readily marketable.
All of the above risks are monitored on an ongoing basis. A combination of
in-house systems and proprietary models and externally licensed software are
used to analyze individual securities as well as each portfolio. These tools
provide the portfolio managers with information to assist them in the evaluation
of the market risks of the portfolio.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated financial statements begin on page F-1.
Reference is made to the Index to Financial Statements on page F-1 herein.
Additional financial statement schedules begin on page S-1. Reference is
made to the Index to Financial Statement Schedules on page S-1 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
33
<PAGE> 36
PART III
The Notice of 2000 Annual Meeting of Shareholders and Proxy Statement,
which, when filed pursuant to Regulation 14A under the Securities Exchange Act
of 1934, are incorporated by reference in this Annual Report on Form 10-K
pursuant to General Instruction G(3) of Form 10-K, provides the information
required under Part III (Items 10. Directors and Executive Officers of the
Registrant, 11. Executive Compensation, 12. Security Ownership of Certain
Beneficial Owners and Management and 13. Certain Relationships and Related
Transactions).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. Reference is made to the index on page F-1 of
the report.
2. Financial Statement Schedules. Reference is made to the Index on page
S-1 of the report.
3. Exhibits Reference is made to the Index to Exhibits on page 35 of the
report.
(b) Reports on Form 8-K
1. Form 8-K dated December 17, 1999, announcing the board of directors
approval of plans for the demutualization of AMHC.
2. Form 8-K dated January 12, 2000, announcing the combination of the
Company, AMHC and ILICO.
3. Form 8-K/A dated January 13, 2000, amending Form 8-K dated January
12, 2000, to include conformed signature page.
4. Form 8-K dated February 21, 2000, announcing the definitive agreement
between the Company, AMHC and ILICO.
5. Form 8-K/A dated March 6, 2000, amending Form 8-K dated February 21,
2000, to include Combination and Investment Agreement among AMHC, the
Company, ILICO and The Indianapolis Life Group of Companies, Inc. and
the Investment Advisory Agreements between AmerUs Capital Management
Group, Inc. and ILICO, Bankers Life Insurance Company of New York, IL
Annuity and Insurance Company and Western Security Life Insurance
Company.
34
<PAGE> 37
AMERUS LIFE HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
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"), filed as
Exhibit 2.2 to the Registration Statement of the Registrant
on Form S-4, Registration Number 333-40065 is hereby
incorporated by reference.
2.3 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 Form 8-K of
the Registrant dated October 8, 1997, is hereby incorporated
by reference.
2.4 Combination and Investment Agreement, dated February 18,
2000, among American Mutual Holding Company, the Registrant,
Indianapolis Life Insurance Company and The Indianapolis
Life Group of Companies, Inc., filed as Exhibit 2.1 to the
Registrant's report on Form 8-K/A on March 6, 2000, is
hereby incorporated by reference.
2.5* Purchase Agreement, dated as of February 18, 2000, by and
between American Mutual Holding Company and the Registrant.
2.6* Agreement and Plan of Merger, dated December 17, 1999, by
and between American Mutual Holding Company and the
Registrant.
2.7* Amendment No. 1 to Agreement and Plan of Merger, dated
February 18, 2000, by and between American Mutual Holding
Company and the Registrant.
2.8* Letter agreement, dated December 17, 1999, by and between
American Mutual Holding Company and the Registrant.
2.9* Notification Agreement, dated as of February 18, 2000, by
and among American Mutual Holding Company, the Registrant
and Bankers Trust Company.
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.
3.3 Articles of Amendment of the Registrant dated September 25,
1998, filed as Exhibit 3.3 on Form 10-K, dated March 30,
1999, is 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
Company'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
Number, 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.
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
4.4 Common Stock Purchase Warrant, filed as Exhibit (10)(v) to
Form 10-Q of AmVestors Financial Corporation dated May 13,
1992, is hereby incorporated by reference.
4.5 Amended and Restated Declaration of Trust of AmerUs Capital
II, dated as of July 27, 1998, among the Registrant, First
Union Trust Company and the administrative trustees named
therein, relating to the Registrant's 7.0% ACES Units, filed
as Exhibit 4.5 on Form 10-Q, dated August 13, 1998, is
hereby incorporated by reference.
4.6 Certificate of Trust of AmerUs Capital III filed as Exhibit
4.7 to the registration statement of the Registrant, AmerUs
Capital II and AmerUs Capital III, on Form S-3 (No.
333-50249), is hereby incorporated by reference.
4.7 Common Trust Securities Guarantee Agreement, dated as of
July 27, 1998, by the Registrant, relating to the
Registrant's 7.0% ACES Units, filed as Exhibit 4.7 on Form
10-Q, dated August 13, 1998, is hereby incorporated by
reference.
4.8 QUIPS Guarantee Agreement, dated as of July 27, 1998, by the
Registrant, relating to the Registrant's 7.0% ACES Units,
filed as Exhibit 4.8 on Form 10-Q, dated August 13, 1998, is
hereby incorporated by reference.
4.9 Master Unit Agreement, dated as of July 27, 1998, between
the Registrant and First Union National Bank relating to the
Registrant's 7.0% ACES Units, filed as Exhibit 4.9 on Form
10-Q, dated August 13, 1998, is hereby incorporated by
reference.
4.10 Call Option Agreement, dated as of July 27, 1998, between
Goldman, Sachs & Co. and First Union National Bank relating
to the Registrant's 7.0% ACES Units, filed as Exhibit 4.10
on Form 10Q, dated August 13, 1998, is hereby incorporated
by reference.
4.11 Pledge Agreement, dated as of July 27, 1998, among the
Registrant, Goldman, Sachs & Co. and First Union National
Bank relating to the Registrant's 7.0% ACES Units, filed as
Exhibit 4.11 on Form 10-Q, dated August 13, 1998, is hereby
incorporated by reference.
4.12 Senior Indenture, dated as of June 16, 1998, by and between
the Registrant and First Union National Bank, as Indenture
Trustee, relating to the Registrant's 6.95% Senior Notes,
filed as Exhibit 4.14 on Form 10-Q, dated August 13, 1998,
is hereby incorporated by reference.
4.13 Subordinated Indenture, dated as of July 27, 1998, by and
between the Registrant and First Union National Bank, as
Indenture Trustee, relating to the Registrant's 6.86% Junior
Subordinated Deferrable Interest Debentures, filed as
Exhibit 4.15 on Form 10-Q, dated August 13, 1998, is hereby
incorporated by reference.
10.1 Amended and Restated Intercompany Agreement dated as of
December 1, 1996, among American Mutual Holding Company,
AmerUs Group Co. and the Company. Filed as Exhibit 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 June 30, 1996, between
American Mutual Insurance Company and Ameritas Life
Insurance Corp., filed as Exhibit 10.2 on Form 10-K, dated
March 25, 1998, 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 AmerUs Life Holdings, Inc. Executive Stock Purchase Plan,
dated November 13, 1998, filed as Exhibit 4.11 to the
registration statement of the Registrant on Form S-8,
Registration Number 333-72237, is hereby incorporated by
reference.
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
10.10 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.
10.11 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.
10.12 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 report on Form 8-K on October 8, 1997, is
hereby incorporated by reference.
10.13 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, filed
as Exhibit 10.84 to the registration statement of the
Registrant on Form S-4, Registration Number 333-40065, is
incorporated by reference.
10.14 Coinsurance Agreement, effective February 1, 1996, between
Delta Life and Annuity Company and London Life Reinsurance
Company, filed as Exhibit 10.85 to the registration
statement of the Registrant on Form S-4, Registration Number
333-40065, is incorporated by reference.
10.15 AmVestors Financial Corporation 1996 Incentive Stock Option
Plan, filed as Exhibit (4)(a) to Registration Statement of
AmVestors Financial Corporation on Form S-8, Registration
Number 333-14571 dated October 21, 1996, is hereby
incorporated by reference.
10.16 1989 Non-Qualified Stock Option Plan adopted March 17, 1989,
filed as Exhibit (10)(q) to Form 10-K of AmVestors Financial
Corporation, dated April 12, 1989, is hereby incorporated by
reference.
10.17 Lease -- Business Property, dated December 1, 1996, between
AmerUs Properties, Inc. and AmerUs Life Insurance Company,
property 611 Fifth Avenue, Des Moines, Iowa, filed as
Exhibit 10.58 on Form 10-K, dated March 25, 1998, is hereby
incorporated by reference.
10.18 First Amendment dated February 1, 1998 to Lease Agreement
dated December 1, 1996 between AmerUs Properties, Inc. and
AmerUs Life Insurance Company, property 611 Fifth Avenue,
Des Moines, Iowa, filed as Exhibit 10.59 on Form 10-K, dated
March 25, 1998, is hereby incorporated by reference.
10.19* Lease -- Business Property, dated December 1, 1999, between
AmerUs Properties, Inc. and AmerUs Life Insurance Company,
property 611 Fifth Avenue, Des Moines, Iowa.
10.20* Lease -- Assignment & Assumption Agreement -- Business
Property, dated December 15, 1999, between AmerUs
Properties, Inc. and 611 Fifth Avenue, L.L.C., property 611
Fifth Avenue, Des Moines, Iowa.
</TABLE>
37
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.21 Lease -- Business Property, dated December 1, 1996, between
AmerUs Properties, Inc. and AmerUs Life Insurance Company,
1213 Cherry Street, Des Moines, Iowa, filed as Exhibit 10.60
on Form 10-K, dated March 25, 1998, is hereby incorporated
by reference.
10.22 Lease -- Business Property, dated December 1, 1996, between
AmerUs Properties, Inc. and the Registrant, property 418
Sixth Avenue Moines, Iowa, filed as Exhibit 10.61 on Form
10-K, dated March 25, 1998, is hereby incorporated by
reference.
10.23 Revised and Restated Lease -- Business Property, dated May
28, 1998, between AmerUs Properties, Inc. and the Registrant
property, 699 Walnut Street, Des Moines, Iowa, filed as
Exhibit 10.26 on Form 10-K, dated March 30, 1999, is hereby
incorporated by reference.
10.24 Addendum, dated May 28, 1998 to lease dated May 28, 1998
between AmerUs Properties and the Registrant, filed as
Exhibit 10.27 on Form 10-K, dated March 30, 1999, is hereby
incorporated by reference.
10.25 Addendum II, dated July 21, 1998, to lease dated May 28,
1998 between AmerUs Properties and the Registrant, filed as
Exhibit 10.28 on Form 10-K, dated March 30, 1999, is hereby
incorporated by reference.
10.26 Servicing Agreement, dated March 5, 1997, between AmerUs
Life Insurance Company and AmerUs Properties, Inc., filed as
Exhibit 10.64 on Form 10-K, dated March 25, 1998, is hereby
incorporated by reference.
10.27 Consent dated as of May 20, 1998 to the 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, filed as Exhibit
10.72 on Form 10-Q, dated November 12, 1998, is hereby
incorporated by reference.
10.28 First Amendment dated as of May 30, 1997 to the 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, filed as Exhibit
10.73 on Form 10-Q, dated November 12, 1998, is hereby
incorporated by reference.
10.29 Second Amendment dated as of June 22, 1998 to the 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, filed as Exhibit
10.74 on Form 10-Q, dated November 12, 1998, is hereby
incorporated by reference.
10.30 Second Consent and Amendment dated as of October 2, 1998 to
the 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, filed
as Exhibit 10.75 on Form 10-Q, dated November 12, 1998, is
hereby incorporated by reference.
10.31 MIP Deferral Plan dated as of September 1, 1998, filed as
Exhibit 10.76 on Form 10-Q, dated November 12, 1998, is
hereby incorporated by reference.
10.32 Open Line of Credit Application and Terms Agreement, dated
March 5, 1999, between Federal Home Loan Bank of Des Moines
and AmerUs Life Insurance Company, filed as Exhibit 10.34 on
Form 10-Q dated May 14, 1999, is hereby incorporated by
reference.
10.33 Origination Agreement, dated August 1, 1998, between AmerUs
Home Equity, Inc. and AmerUs Life Insurance Company, filed
as Exhibit 10.36 on Form 10-K, dated March 30, 1999, is
hereby incorporated by reference.
10.34 Third Waiver to Credit Agreement dated as of November 16,
1998 to the 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, filed as Exhibit 10.37 on Form 10-K, dated March 30,
1999, is hereby incorporated by reference.
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.35 Fourth Consent and Amendment, dated as of December 4, 1998
to the 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, filed as Exhibit 10.38 on Form 10-K, dated March 30,
1999, is hereby incorporated by reference.
10.36 Administrative Services Agreement, dated as of August 1,
1998, among American Mutual Holding Company, Registrant,
AmerUs Group, AmerUs Home Equity, Inc., AmerUs Mortgage,
Inc., AmerUs Properties, Inc., American Capital Management
Group, Inc., AmerUs Life Insurance Company, AmVestors
Financial Corporation, American Investors Life Insurance
Company, Inc., and Delta Life and Annuity Company, filed as
Exhibit 10.39 on Form 10-K, dated March 30, 1999, is hereby
incorporated by reference.
10.37 Facility and Guaranty Agreement, dated February 12, 1999,
among The First National Bank of Chicago and the Registrant,
filed as Exhibit 10.39 on Form 10-Q dated May 14, 1999, is
hereby incorporated by reference.
10.38 Form of Reimbursement Agreement, dated February 15, 1999,
among the Registrant and Roger K. Brooks, Victor N. Daley,
Michael G. Fraizer, Thomas C. Godlasky, Marcia S. Hanson,
Mark V. Heitz and Gary R. McPhail, filed as Exhibit 10.40 on
Form 10-Q dated May 14, 1999, is hereby incorporated by
reference.
10.39 Amendment No. 1 to Facility Agreement, dated March 23, 1999,
among The First National Bank of Chicago and the Registrant,
filed as Exhibit 10.41 on Form 10-Q dated May 14, 1999, is
hereby incorporated by reference.
10.40 1999 Non-Employee Stock Option Plan, dated April 19, 1999,
filed on Form S-3, Registration Number 333-72643, is hereby
incorporated by reference.
10.41 Fifth Waiver and Amendment to Credit Agreement dated as of
October 1, 1998 to the 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, filed as Exhibit 10.43 on Form 10-Q
dated August 13, 1999, is hereby incorporated by reference.
10.42 Sixth Amendment to Credit Agreement dated as of May 18, 1999
to the 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, filed as Exhibit 10.44 on Form 10-Q dated August 13,
1999, is hereby incorporated by reference.
10.43* Administrative Services Agreement, dated as of January 1,
2000, among American Mutual Holding Company, the Registrant,
AmerUs Group Co., AmerUs Home Equity, Inc. AmerUs Mortgage,
Inc., AmerUs Properties, Inc., American Capital Management
Group, Inc., AmerUs Life Insurance Company, AmVestors
Financial Corporation, and Delta Life and Annuity Company.
10.44* Amendment No. 2 to Facility Agreement, dated January 25,
2000, among The First National Bank of Chicago and the
Registrant.
10.45* Irrevocable Standby Letter of Credit Application and Terms
Agreement, dated February 1, 2000, between Federal Home Loan
Bank of Des Moines and AmerUs Life Insurance Company.
10.46* Seventh Amendment to Credit Agreement dated as of December
23, 1999 to the 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.
10.47 Investment Advisory Agreements, dated as of February 18,
2000, by and between Indianapolis Life Insurance Company,
Bankers Life Insurance Company of New York, IL Annuity and
Insurance Company, Western Security Life Insurance Company
and AmerUs Capital Management Group, Inc. filed as Exhibits
10.1, 10.3, 10.4 and 10.2, respectively, to the Registrant's
report on Form 8-K/A on March 6, 2000, are hereby
incorporated by reference.
12* Computation of Ratios of Earnings to Fixed Charges.
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
21.1* List of Subsidiaries of the Registrant.
23.1* Consent of KPMG LLP.
27.1* Financial Data Schedule.
99.1 Retirement Agreement, dated June 27, 1997, by and between
Victor N. Daley and Registrant filed as Exhibit 99.5 on Form
10-K, dated March 30, 1999, is hereby incorporated by
reference.
99.2 First Amendment to Employment Agreement, dated as of April
15, 1999, to the 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., American Investors
Sales Group, Inc., and the Registrant, filed as Exhibit 99.4
on Form 10-Q dated August 13, 1999, is hereby incorporated
by reference.
99.3 Supplemental Benefit Agreement, dated as of April 15, 1999,
among Roger K. Brooks and the Registrant, filed as Exhibit
99.5 on Form 10-Q dated August 13, 1999, is hereby
incorporated by reference.
99.4 Form of Supplemental Benefit Agreement, dated as of April
15, 1999, among the Registrant and Victor N. Daley, Michael
G. Fraizer, Thomas C. Godlasky and Gary R. McPhail, filed as
Exhibit 99.6 on Form 10-Q dated August 13, 1999, is hereby
incorporated by reference.
99.5 Amended and Restated Employment Agreement, dated as of April
15, 1999, among Marcia S. Hanson and the Registrant, filed
as Exhibit 99.7 on Form 10-Q dated August 13, 1999, is
hereby incorporated by reference.
99.6* Agreement and Release, dated as of December 31, 1999, by and
between Marcia S. Hanson, Registrant, AmerUs Group Co.,
American Mutual Holding Company, and all of their respective
subsidiaries and affiliates.
99.7* Form of Supplemental Benefit Agreement, dated as of February
7, 2000, among the Registrant and Victor N. Daley, Michael
G. Fraizer, Thomas C. Godlasky and Gary R. McPhail.
</TABLE>
- ---------------
* included herein
40
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERUS LIFE HOLDINGS, INC.
/s/ ROGER K. BROOKS
--------------------------------------
Roger K. Brooks
Chairman, President and Chief
Executive Officer
Date: March 8, 2000
POWER OF ATTORNEY
We, the undersigned officers and directors of AmerUs Life Holdings, Inc.,
hereby severally and individually constitute and appoint Michael G. Fraizer,
Brenda J. Cushing and James A. Smallenberger, and each of them, the true and
lawful attorneys and agents of each of us to execute in the name, place and
stead of each of us (individually and in any capacity stated below) any and all
amendments to this Annual Report on Form 10-K and all instruments necessary or
advisable in connection therewith and to file the same with the Securities and
Exchange Commission, each of said attorneys and agents to have the power to act
with or without the others and to have full power and authority to do and
perform in the name and on behalf of each of the undersigned every act
whatsoever necessary or advisable to be done on the premises as fully and to all
intents and purposes as any of the undersigned might or could do in person, and
we hereby ratify and confirm our signatures as they may be signed by or said
attorneys and agents or each of them to any and all such amendments and
instruments.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
<TABLE>
<C> <S>
/s/ ROGER K. BROOKS Chairman, President and Chief Executive Officer
- ------------------------------------------ (principal executive officer) and Director
Roger K. Brooks
/s/ MICHAEL G. FRAIZER Executive Vice President and Chief Financial Officer
- ------------------------------------------ (principal financial officer)
Michael G. Fraizer
/s/ BRENDA J. CUSHING Vice President and Controller
- ------------------------------------------ (principal accounting officer)
Brenda J. Cushing
/s/ JOHN R. ALBERS Director
- ------------------------------------------
John R. Albers
/s/ MALCOLM CANDLISH Director
- ------------------------------------------
Malcolm Candlish
/s/ MAUREEN M. CULHANE Director
- ------------------------------------------
Maureen M. Culhane
/s/ THOMAS F. GAFFNEY Director
- ------------------------------------------
Thomas F. Gaffney
</TABLE>
41
<PAGE> 44
<TABLE>
<C> <S>
/s/ SAM C. KALAINOV Director
- ------------------------------------------
Sam C. Kalainov
/s/ RALPH W. LASTER, JR. Director
- ------------------------------------------
Ralph W. Laster, Jr.
/s/ JOHN W. NORRIS, JR. Director
- ------------------------------------------
John W. Norris, Jr.
/s/ JACK C. PESTER Director
- ------------------------------------------
Jack C. Pester
/s/ JOHN A. WING Director
- ------------------------------------------
John A. Wing
</TABLE>
42
<PAGE> 45
AMERUS LIFE HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-3 through F-4
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997.......................... F-5
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1999, 1998 and 1997.............. F-6
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997.............. F-7
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.......................... F-8 through F-10
Notes to Consolidated Financial Statements.................. F-11 through F-50
</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> 46
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
AmerUs Life Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of AmerUs Life
Holdings, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, comprehensive income, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1999. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Des Moines, Iowa
February 2, 2000, except as to Note 19,
which is as of February 21, 2000
F-2
<PAGE> 47
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Investments:
Securities available for sale at fair value (note 2 and
6):
Fixed maturity securities.............................. $ 6,680,755 $ 6,746,544
Equity securities...................................... 14,585 32,185
Short-term investments................................. 155 22,428
Mortgage loans on real estate (note 3).................... 615,186 566,403
Real estate............................................... 1,538 633
Policy loans.............................................. 109,864 110,786
Other investments......................................... 269,158 205,790
----------- -----------
Total investments.................................... 7,691,241 7,684,769
Cash and cash equivalents................................... 23,090 60,090
Accrued investment income................................... 91,591 79,921
Premiums and fees receivable................................ 6,910 4,385
Reinsurance receivables..................................... 17,535 6,174
Deferred policy acquisition costs (note 4).................. 529,663 246,030
Value of business acquired (note 5)......................... 230,542 224,540
Investment in unconsolidated subsidiary..................... 30,683 29,602
Goodwill.................................................... 206,324 215,506
Property and equipment...................................... 23,046 23,249
Deferred income taxes (note 7).............................. 72,691 --
Other assets................................................ 383,415 396,947
Closed Block assets......................................... 1,412,622 1,453,305
----------- -----------
Total assets........................................... $10,719,353 $10,424,518
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 48
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy reserves and policyowner funds:
Future life and annuity policy benefits................... $ 7,390,991 $ 7,185,417
Policyowner funds......................................... 282,026 98,019
----------- -----------
7,673,017 7,283,436
Accrued expenses............................................ 36,309 41,323
Dividends payable to policyowners........................... 2,248 2,104
Policy and contract claims.................................. 12,221 10,452
Income taxes payable........................................ 16,532 5,282
Deferred income taxes (note 7).............................. -- 11,398
Other liabilities........................................... 102,083 159,350
Debt (note 6)............................................... 173,088 141,051
Closed Block liabilities.................................... 1,756,064 1,703,195
----------- -----------
Total liabilities...................................... 9,771,562 9,357,591
----------- -----------
Company-obligated mandatorily redeemable preferred capital
securities of subsidiary trusts holding solely junior
subordinated debentures of the Company (note 6)........... 214,791 216,729
----------- -----------
Stockholders' equity (note 12):
Preferred Stock, no par value, 20,000,000 shares
authorized, none issued................................ -- --
Common Stock, Class A, no par value, 180,000,000 shares
authorized: issued and outstanding; 25,070,854 shares
(net of 4,662,305 treasury shares) in 1999 and
25,425,983 shares (net of 4,308,936 treasury shares) in
1998................................................... 25,071 25,426
Common Stock, Class B, no par value, 50,000,000 shares
authorized; 5,000,000 shares issued and outstanding.... 5,000 5,000
Paid-in capital........................................... 282,831 290,091
Accumulated other comprehensive income (loss)............. (135,964) 26,711
Unearned compensation..................................... (323) (240)
Unallocated ESOP shares (note 8).......................... (1,378) --
Retained earnings......................................... 557,763 503,210
----------- -----------
Total stockholders' equity........................... 733,000 850,198
----------- -----------
Total liabilities and stockholders' equity........... $10,719,353 $10,424,518
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 49
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Insurance premiums.............................. $ 89,521 $ 81,197 $ 48,127
Universal life and annuity product charges...... 74,676 72,981 47,306
Net investment income (note 2).................. 540,072 503,372 224,431
Realized gains (losses) on investments (note
2)........................................... 3,244 (112) 13,791
Other income.................................... 1,467 1,700 --
Contribution from the Closed Block.............. 25,166 31,478 31,044
----------- ----------- -----------
734,146 690,616 364,699
----------- ----------- -----------
Benefits and expenses:
Policyowner benefits............................ 442,428 430,756 195,976
Underwriting, acquisition, and other expenses... 93,881 81,416 49,999
Amortization of deferred policy acquisition
costs and value of business acquired (notes 4
and 5)....................................... 67,780 60,214 23,776
Dividends to policyowners....................... 4,526 2,558 1,587
----------- ----------- -----------
608,615 574,944 271,338
----------- ----------- -----------
Income from operations............................ 125,531 115,672 93,361
Interest expense (note 6)......................... 28,320 27,075 14,980
----------- ----------- -----------
Income before income tax expense and equity in
earnings of unconsolidated subsidiary........... 97,211 88,597 78,381
Income tax expense (note 7)....................... 32,115 28,422 22,022
----------- ----------- -----------
Income before equity in earnings of unconsolidated
subsidiary...................................... 65,096 60,175 56,359
Equity in earnings of unconsolidated subsidiary... 1,558 2,654 1,700
----------- ----------- -----------
Net income................................... $ 66,654 $ 62,829 $ 58,059
=========== =========== ===========
Earnings per common share (note 16):
Basic........................................... $ 2.20 $ 1.88 $ 2.47
=========== =========== ===========
Diluted......................................... $ 2.20 $ 1.86 $ 2.46
=========== =========== ===========
Weighted average common shares outstanding
Basic........................................... 30,229,682 33,458,140 23,536,666
=========== =========== ===========
Diluted......................................... 30,306,649 33,695,752 23,572,259
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 50
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Net Income.............................................. $ 66,654 $ 62,829 $ 58,059
Other comprehensive income (loss), before tax
Unrealized gains (losses) on securities
Unrealized holding gains (losses) arising during
period........................................... (254,937) (36,716) 51,717
Less: reclassification adjustment for gains
(losses) included in net income.................. (3,190) 6,477 18,531
Minimum pension liability adjustment............... 1,478 (1,478) --
--------- -------- --------
Other comprehensive income (loss), before tax......... (250,269) (44,671) 33,186
Income tax (expense) benefit related to items of other
comprehensive income (note 7)...................... 87,594 15,635 (12,739)
--------- -------- --------
Other comprehensive income (loss), net of tax........... (162,675) (29,036) 20,447
--------- -------- --------
Comprehensive income (loss)............................. $ (96,021) $ 33,793 $ 78,506
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 51
AMERUS LIFE HOLDINGS, INC .
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER UNALLOCATED TOTAL
----------------- PAID-IN COMPREHENSIVE UNEARNED ESOP RETAINED SHAREHOLDERS
CLASS A CLASS B CAPITAL INCOME (LOSS) COMPENSATION SHARES EARNINGS EQUITY
------- ------- ---------- ------------- ------------ ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................... $14,500 $5,000 $ -- $ 35,300 $ -- $ -- $402,710 $457,510
1997:
Net income................ -- -- -- -- -- -- 58,059 58,059
Net unrealized gain on
securities.............. -- -- -- 20,447 -- -- -- 20,447
Issuance of common
stock................... 15,235 -- 383,686 -- -- -- -- 398,921
Dividends declared on
common stock............ -- -- -- -- -- -- (6,946) (6,946)
------- ------ -------- --------- ----- ------- -------- --------
Balance at December 31,
1997.................... $29,735 $5,000 $383,686 $ 55,747 $ -- $ -- $453,823 $927,991
1998:
Net income................ -- -- -- -- -- -- 62,829 62,829
Net unrealized (loss) on
securities.............. -- -- -- (28,076) -- -- -- (28,076)
Minimum pension liability
adjustment.............. -- -- -- (960) -- -- -- (960)
Stock issued under various
incentive plans, net of
forfeitures............. 14 -- 635 -- (240) -- -- 409
Purchase of treasury
stock................... (4,325) -- (97,810) -- -- -- -- (102,135)
Issuance of treasury
stock................... 2 -- 661 -- -- -- -- 663
Retirement of
company-obligated
mandatorily redeemable
preferred capital
securities (note 6)..... -- -- 2,919 -- -- -- -- 2,919
Dividends declared on
common stock............ -- -- -- -- -- -- (13,442) (13,442)
------- ------ -------- --------- ----- ------- -------- --------
Balance at December 31,
1998.................... $25,426 $5,000 $290,091 $ 26,711 $(240) $ -- $503,210 $850,198
1999:
Net income................ -- -- -- -- -- -- 66,654 66,654
Net unrealized (loss) on
securities.............. -- -- -- (163,635) -- -- -- (163,635)
Minimum pension liability
adjustment.............. -- -- -- 960 -- -- -- 960
Stock issued under various
incentive plans, net of
forfeitures............. 30 -- 788 -- (83) -- -- 735
Purchase of treasury
stock................... (385) -- (8,531) -- -- -- -- (8,916)
Retirement of
company-obligated
mandatorily redeemable
preferred capital
securities (note 6)..... -- -- 355 -- -- -- -- 355
Dividends declared on
common stock............ -- -- -- -- -- -- (12,101) (12,101)
Adoption of leveraged ESOP
(note 8)................ -- -- -- -- -- (1,778) (1,778)
Allocation of shares in
leveraged ESOP (note
8)...................... -- -- 128 -- -- 400 -- 528
------- ------ -------- --------- ----- ------- -------- --------
Balance at December 31,
1999.................... $25,071 $5,000 $282,831 $(135,964) $(323) $(1,378) $557,763 $733,000
======= ====== ======== ========= ===== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 52
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income........................................ $ 66,654 $ 62,829 $ 58,059
Adjustments to reconcile net income to net cash
provided by operating activities:
Policyowner assessments on universal life and
annuity products............................. (54,944) (71,104) (43,441)
Interest credited to policyowner account
balances..................................... 311,428 316,782 114,584
Realized investment (gains) losses.............. (3,244) 112 (13,791)
Goodwill amortization........................... 7,403 7,531 602
VOBA amortization............................... 32,604 32,932 2,790
Change in:
Accrued investment income.................... (11,670) 4,792 (351)
Reinsurance receivables...................... (11,361) 29 (1,548)
Deferred policy acquisition costs............ (118,078) (117,452) (30,365)
Liabilities for future policy benefits....... 329,948 104,303 (8,966)
Policy and contract claims and other
policyowner funds.......................... (291) 8,885 (2,727)
Income taxes:
Current.................................... 11,250 (1,607) (1,552)
Deferred................................... 11,478 2,619 2,156
Other, net...................................... 1,537 22,849 12,970
Change in Closed Block assets and liabilities,
net.......................................... 59,548 105,911 135,970
------------ ------------ ------------
Net cash provided by operating activities......... 632,262 479,411 224,390
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed maturities available-for-sale... (11,253,044) (3,449,439) (1,473,579)
Maturities, calls and principal reductions of
fixed maturities available for sale............. 10,865,639 3,544,178 1,356,762
Purchase of equity securities..................... (213,935) (323,295) (53,850)
Proceeds from sale of equity securities........... 229,101 331,641 67,794
Proceeds from repayment and sale of mortgage
loans........................................... 132,257 118,947 171,082
</TABLE>
F-8
<PAGE> 53
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Purchase of mortgage loans........................... (175,909) (231,004) (137,222)
Purchase of real estate and other invested assets.... (119,037) (266,416) (22,524)
Proceeds from sale of real estate and other invested
assets............................................. 53,642 232,494 --
Change in policy loans, net.......................... 922 7,079 (9,625)
Other assets, net.................................... 2,469 (5,978) 89,109
Acquisitions, net of cash acquired................... -- -- (153,798)
Change in Closed Block investments, net.............. (54,373) (93,364) (103,401)
----------- ----------- -----------
Net cash (used in) investing activities............ (532,268) (135,157) (269,252)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits to policyowner account balances............. 1,023,252 855,181 122,531
Withdrawals from policyowner account balances........ (1,169,228) (1,087,856) (233,537)
Change in debt, net.................................. 32,037 (125,384) 78,054
Purchase of treasury stock........................... (8,916) (102,135) --
Issuance of treasury stock........................... 735 663 --
Dividends to shareholders............................ (12,101) (13,442) (6,946)
Issuance of company-obligated mandatorily redeemable
capital securities................................. -- 144,963 86,000
Retirement of company-obligated mandatorily
redeemable capital securities...................... (1,523) (14,235) --
Adoption and allocation of shares in leveraged
ESOP............................................... (1,250) -- --
Net proceeds from initial public stock offering...... -- -- 55,027
----------- ----------- -----------
Net cash provided by (used in) financing
activities...................................... (136,994) (342,245) 101,129
----------- ----------- -----------
Net increase (decrease) in cash.................... (37,000) 2,009 56,267
Cash and cash equivalents at beginning of period..... 60,090 58,081 1,814
----------- ----------- -----------
Cash and cash equivalents at end of period........... $ 23,090 $ 60,090 $ 58,081
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH ACTIVITIES
Interest paid........................................ $ 28,424 $ 26,641 $ 10,420
=========== =========== ===========
Income taxes paid.................................... $ 9,267 $ 17,566 $ 42,801
=========== =========== ===========
</TABLE>
F-9
<PAGE> 54
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Details of acquisitions
Fair value of assets acquired...................... $ -- $ -- $ 5,744,191
Liabilities assumed................................ -- -- 5,190,829
----------- ----------- -----------
Carrying value of acquisitions..................... -- -- 553,362
Common stock issued................................ -- -- (343,894)
Warrants, options and SAR's rolled over............ -- -- (23,184)
Payments made on liabilities included above........ -- -- 25,800
----------- ----------- -----------
Cash paid.......................................... -- -- 212,084
Less: Cash acquired................................ -- -- 58,286
----------- ----------- -----------
Net cash paid for acquisitions..................... $ -- $ -- $ 153,798
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 55
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 Preferred Producer agency system, a Personal Producing General
Agents (PPGA) system and national networks of independent agents. The life
insurance and annuity operations are the Company's two operating segments.
ORGANIZATION
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 this Reorganization which became
effective on June 30, 1996, 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.
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 of the Class B shares are adjusted to ensure that votes of the Class B
shares together with the votes of Class A shares held by the Class B
shareholders will always have a majority of the votes. AMHC must directly or
indirectly control a majority of the voting shares of the Company. In addition,
as long as the members of AMHC own directly or indirectly more than 50 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.
CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company and its
wholly-owned subsidiaries have been prepared in conformity with Generally
Accepted Accounting Principles (GAAP) which, as to the insurance company
subsidiaries, differ from statutory accounting practices prescribed or permitted
by regulatory authorities.
The accompanying consolidated financial statements include the accounts and
operations of the Company and its wholly-owned subsidiaries, principally, AmerUs
Life, AmVestors Financial Corporation (AmVestors), Delta Life Corporation
(Delta) and AmerUs Capital Management Group, Inc. (ACM). All significant
intercompany transactions and balances have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
F-11
<PAGE> 56
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Certain balances for 1997 and 1998 have been reclassified to conform to the
1999 presentation format.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company includes cash and amounts
due from other financial institutions and interest-bearing deposits in other
financial institutions purchased with original maturities of three months or
less in cash and cash equivalents. Amounts of interest-bearing deposits included
as cash equivalents at December 31, 1999 and 1998 were $48.9 million and $86.5
million, respectively.
CLOSED BLOCK
The Reorganization contained an arrangement, known as a closed block (the
Closed Block), to provide for dividends on policies that were generally in force
on June 30, 1996 and were within the classes of individual policies for which
AmerUs Life had a dividend scale in effect at the time of the Reorganization.
The primary products included in the Closed Block are whole life, certain
universal life policies and term life insurance policies. 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 Closed Block until the Closed Block is no longer in effect. The
Company will not be required to support the payment of dividends and interest
credits on the Closed Block policies from its general funds, although it could
choose to provide such support. The Company will continue to pay guaranteed
benefits under all policies, including policies included in the Closed Block, in
accordance with their terms. In the event that the Closed Block assets were
insufficient to meet the benefits of the Closed Block guaranteed benefits,
general assets would be utilized to meet the contractual benefits of the Closed
Block policyholders.
The estimated net cash flows assumed in determining the Closed Block
funding consist of premiums from policies included in the Closed Block,
investment income from Closed Block assets, proceeds from maturities and
dispositions of Closed Block assets, less benefits paid on Closed Block
policies, certain expenses funded in the Closed Block, and dividends on Closed
Block policies based on current payable dividend scales. To the extent that the
actual cash flows from the assets allocated to the Closed Block are, in the
aggregate, more favorable than assumed in establishing the Closed Block, total
dividends paid to the Closed Block policyholders in future years will be greater
than the total dividends that would have been paid to such policyholders if the
current payable dividend scales had been continued. Conversely, to the extent
that the actual cash flows from the assets allocated to the Closed Block are, in
the aggregate, less favorable than assumed in establishing the Closed Block,
total dividends paid to the Closed Block policyholders in future years will be
less than the total dividends that would have been paid to such policyholders if
the current payable dividend scales had been continued.
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. Closed Block underwriting, acquisition and
insurance expenses include premium taxes and guarantee fund assessments. All
other underwriting, acquisition and insurance expenses related to the Closed
Block operations are charged to operations outside 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. Unrealized gains and losses on investments
are included outside of the Closed Block as a component of other comprehensive
income and will be included in the Closed Block operations upon their
realization. Unrealized gains and losses are not included in the determination
of the policyholder obligation.
F-12
<PAGE> 57
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information of the Closed Block as of December 31,
1999, 1998 and 1997 and for the years ended December 31, 1999, 1998 and 1997, is
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS:
Securities available for sale at fair value
Fixed maturity securities (amortized cost
1999 -- $1,133,717; 1998 -- $1,074,208;
1997 -- $1,004,976)................................ $1,087,672 $1,116,540 $1,053,066
Short-term investments................................ -- 8,875 660
Policy loans............................................ 188,035 181,866 168,368
Other investments....................................... 602 3,027 591
Cash and cash equivalents............................... 5,910 4 21
Accrued investment income............................... 14,949 14,445 12,617
Premiums and fees receivable............................ 957 3,385 3,591
Deferred policy acquisition costs....................... 97,141 117,479 143,765
Other assets............................................ 17,356 7,684 9,169
---------- ---------- ----------
Total Assets....................................... $1,412,622 $1,453,305 $1,391,848
========== ========== ==========
LIABILITIES:
Future life and annuity policy benefits................. $1,581,923 $1,517,162 $1,448,725
Policyowner funds....................................... 8,905 6,350 6,786
Accrued expenses........................................ -- 3,887 5,980
Dividends payable to policyowners....................... 152,984 149,487 135,985
Policy and contract claims.............................. 4,670 8,395 5,966
Other liabilities....................................... 7,582 17,914 19,990
---------- ---------- ----------
Total Liabilities.................................. $1,756,064 $1,703,195 $1,623,432
========== ========== ==========
REVENUES AND EXPENSES:
Insurance premiums...................................... $ 189,444 $ 198,178 $ 206,145
Universal life and annuity product charges.............. 12,463 13,695 13,599
Net investment income................................... 108,117 115,762 113,759
Realized gains (losses) on investments.................. (380) 10,324 718
Policyowner benefits.................................... (193,482) (200,783) (206,638)
Underwriting, acquisition and other expenses............ (4,408) (5,042) (5,477)
Amortization of deferred policy acquisition costs....... (20,337) (26,286) (31,471)
Dividends to policyowners............................... (66,251) (74,370) (59,591)
---------- ---------- ----------
Contribution from the Closed Block before income
taxes................................................. $ 25,166 $ 31,478 $ 31,044
========== ========== ==========
</TABLE>
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, except for certain policies of Delta Life which have
specific investments identified and for which valuation changes and related
unrealized gains and losses are included in future life and annuity policy
benefits. These unrealized gains or losses in stockholders' equity, excluding
certain Delta Life unrealized gains or losses as described above, are reported
net of taxes and adjustments to deferred policy acquisition costs and value of
business acquired.
F-13
<PAGE> 58
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The Company has one $250 million separate account funding agreement. Under
this agreement, a five-year floating rate insurance contract is issued to a
commercial paper conduit. The funding agreement is secured by assets in the
Company's separate account and is further backed by the general account assets.
The separate account assets are legally segregated and are not subject to claims
that arise out of any other business of the Company. The separate account assets
and liabilities are included with general account assets in the financial
statements. The funding agreement may not be cancelled by the commercial paper
conduit unless there is a default under the agreement, but the Company may
terminate at any time.
Investments in partnerships and joint ventures are accounted for under the
equity method whereby the Company initially records the investment at cost.
Subsequently, the Company increases or decreases the carrying amount of the
investment for its share of income or loss, respectively, of the investee. The
Company is primarily a limited partner in such investments.
MORTGAGE LOANS
Loans are stated at the principal amounts outstanding, net of unearned
income, deferred loan fees, discounts, and allowances for possible losses.
Unearned income, net deferred loan fees, premiums, and discounts on loans which
are probable of collection are amortized over the terms of the loans using a
method that approximates the interest method. A loan is considered impaired if
it is probable that contractual amounts due will not be collected. Impaired
loans are valued at the fair value of the underlying collateral. Accrued
interest receivable in arrears which management believes is doubtful of
collection is charged against income. Subsequent interest income is not
recognized on such loans until collected or until determined by management to be
collectible.
REAL ESTATE
Real estate is stated at cost less accumulated depreciation. Depreciation
is calculated over the estimated useful lives using primarily accelerated
depreciation methods.
INTEREST RATE SWAPS, CAPS, SWAPTIONS AND OPTIONS
The Company uses interest rate swaps, caps, swaptions and options as part
of its overall interest rate risk management strategy for certain life insurance
and annuity products. The book values of the underlying hedged investments or
anticipated investment transactions are amortized over the remaining lives of
the
F-14
<PAGE> 59
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
The Company has equity-indexed annuity products that guarantee the return
of principal to the customer and credits interest based on a percentage of the
gain in the S&P 500 Index -Registered Trademark-. A portion of the premium from
each customer is invested in investment grade fixed income securities to cover
the minimum guaranteed value due the customer at the end of the term. A portion
of the premium is used to purchase S&P 500 call options to hedge the growth in
interest credited to the customer as a direct result of increases in the S&P 500
Index -Registered Trademark-. The amounts to be paid or received pursuant to
these agreements are accrued and recognized in income over the life of the
agreements. The initial cost of an option agreement is amortized to 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 method of
amortizing deferred policy acquisition costs for traditional life insurance
products varies, 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 statutory surplus. Deferred policy acquisition costs for participating
traditional life insurance are generally amortized over the life of the policies
in proportion to the present value of estimated gross margins. Non-participating
traditional life insurance deferred policy acquisition costs are 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
generally amortized 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
margins on the underlying policies vary from previous estimates. The deferred
policy acquisition cost asset is adjusted for the impact on estimated gross
profits of net unrealized gains and losses on securities.
VALUE OF BUSINESS ACQUIRED
Value of Business Acquired (VOBA) from insurance companies acquired
represents the portion of the purchase price allocated to the right to receive
future cash flows from insurance contracts existing at the date of the
acquisition. This cost of policies purchased represents the actuarially
determined present value of the projected future cash flows from the acquired
policies.
F-15
<PAGE> 60
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The expected future cash flows used in determining such value are based on
actuarially determined projections of future premium receipts, mortality,
surrenders, operating expenses, changes in insurance liabilities, investment
yields on the assets retained to support the policy liabilities and other
factors. These projections take into account all factors known or expected at
the valuation date, based on the judgment of management. The actual experience
on purchased business may vary from projections due to differences in renewal
premium, investment spread, investment gains or losses, mortality and morbidity
costs and other factors.
The discount rate used to determine the value of policies purchased is the
rate of return required in order to invest in the business being acquired.
Factors in determining this rate include the cost of capital required to fund
the acquisition; the acquired company's compatibility with other Company
activities that may impact future cash flows; the complexity of the acquired
company; and recent discount rates used by others to determine valuations to
acquire similar blocks of business.
VOBA is amortized based on the incidence of the expected cash flows using
the interest rate credited to the underlying policies. If cash flows differ from
expectations, the amortization of the VOBA is adjusted. The VOBA asset is
adjusted for the impact on estimated gross profits of net unrealized gains and
losses on securities. Each year, the recoverability of the VOBA is evaluated and
if the evaluation indicates that the existing insurance liabilities, together
with the present value of future net cash flows from the blocks of business
acquired, is insufficient to recover the VOBA, the difference is charged to
expense as an additional write-off of the VOBA.
GOODWILL
Goodwill represents the excess of the amount paid to acquire a company over
the fair value of its net assets. Goodwill is amortized on a straight-line basis
over a thirty year period. The value of goodwill is monitored based on the
estimates of future earnings. If it is determined that future earnings do not
support the recoverability of goodwill, its carrying value is reduced by a
corresponding charge to expense.
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 7.50 percent.
The weighted average assumed interest rate for all traditional life policy
reserves was 4.33 percent in 1999, 4.30 percent in 1998 and 4.27 percent in
1997. 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.
F-16
<PAGE> 61
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 rates for universal life products were 5.67 percent in 1999, 6.08
percent in 1998 and 6.23 percent in 1997. The range of interest crediting rates
for annuity products, excluding bonus interest payouts, was 4.00 to 7.00 percent
in 1999, 1998 and 1997.
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 approximately 64 percent of
the Company's individual life policies in force (based on face amounts).
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and is depreciated principally
under the straight-line method.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) 123, "Accounting for
Stock-Based Compensation," requires increased disclosure of compensation expense
arising from stock compensation plans. SFAS 123 encourages rather than requires
companies to adopt a new method of accounting for stock compensation awards
based on their estimated fair value at the date they are granted. Companies are
permitted to continue accounting under APB Opinion 25 which requires
compensation cost be recognized based on the difference, if any, between the
quoted market price of the stock on the date of grant and the amount an employee
must pay to acquire the stock. The Company has elected to continue to apply APB
Opinion 25 in its consolidated financial statements and has disclosed proforma
net income and earnings per share information.
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, 1999, 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.
F-17
<PAGE> 62
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company and its non-life insurance subsidiaries file a consolidated
federal income tax return. The life insurance subsidiaries file separate federal
income tax returns. 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.
EARNINGS PER SHARE
Basic earnings per share of common stock are computed by dividing net
income by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share assumes the issuance of common shares
applicable to stock options and warrants and is calculated using the treasury
stock method.
TREASURY STOCK
The Company accounts for its treasury stock using the par value method.
Shares purchased for treasury are not retired and are reissued as needed.
EMERGING ACCOUNTING MATTERS
SFAS 133 AND 137
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 defines derivative instruments
and provides comprehensive accounting and reporting standards for the
recognition and measurement of derivative and hedging activities (including
certain instruments embedded in other contracts). It requires derivatives to be
recorded in the consolidated balance sheet at fair value and establishes
criteria for hedges of changes in the fair value of assets, liabilities or firm
commitments, hedges of variable cash flows or forecasted transactions, and
hedges of foreign currency exposures of net investments in foreign operations.
Changes in the fair value of derivatives not meeting specific hedge accounting
criteria would be recognized in the consolidated statement of operations. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133." SFAS No. 137 delays the effective date of SFAS No. 133 for all fiscal
quarters until fiscal years beginning after June 15, 2000. The Company is
evaluating SFAS No. 133 and has not determined its effect on the consolidated
financial statements.
SOP 97-3
On January 1, 1999, the Company adopted the American Institute of Certified
Public Accountants (AICPA) Statement of Position (SOP) 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments." This
statement provides guidance on when an insurance or other enterprise should
recognize a liability for guaranty fund and other assessments and on how to
measure such liability. The adoption of SOP 97-3 had no material impact on the
financial position or results of operations as the Company currently estimates
assessment liabilities when a determination of an insolvency has occurred.
SOP 98-1
On January 1, 1999, the Company adopted AICPA SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." This SOP
provides guidance for determining whether costs of software developed or
obtained for internal use should be capitalized or expensed as incurred. In the
past, the Company has expensed such costs as they were incurred. The adoption of
SOP 98-1 had no material impact on the financial position or results of
operations of the Company.
F-18
<PAGE> 63
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATUTORY ACCOUNTING CODIFICATION
The NAIC has codified statutory accounting practices, which are expected to
constitute the only source of prescribed statutory accounting practices and are
effective in 2001. Codification will change prescribed statutory accounting
practices and may result in changes to the accounting practices that insurance
enterprises use to prepare their statutory financial statements. The changes of
codification will not have a material impact on statutory surplus.
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 attempts to minimize 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.
F-19
<PAGE> 64
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) INVESTMENTS
The Company's investments at December 31, 1999 and 1998 classified as
available-for-sale securities are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturity securities available-for-sale at
December 31, 1999
Corporate bonds.............................. $3,903,988 $18,332 $212,372 $3,709,948
U.S. government bonds........................ 360,808 44 11,679 349,173
State and political subdivisions............. 47,208 -- 1,761 45,447
Foreign government bonds..................... 157,460 6,078 4,175 159,363
Asset-backed bonds........................... 660,399 32 47,899 612,532
Mortgage-backed bonds........................ 1,608,846 3,382 58,780 1,553,448
Redeemable preferred stock................... 267,795 5,144 22,095 250,844
---------- ------- -------- ----------
Total fixed maturities
available-for-sale...................... $7,006,504 $33,012 $358,761 $6,680,755
========== ======= ======== ==========
Equity securities available-for-sale........... $ 13,440 $ 1,735 $ 590 $ 14,585
========== ======= ======== ==========
Short-term investments available-for-sale...... $ 155 $ -- $ -- $ 155
========== ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturity securities available-for-sale at
December 31, 1998
Corporate bonds.............................. $3,405,967 $121,783 $ 21,032 $3,506,718
U.S. government bonds........................ 73,661 2,639 12 76,288
State and political subdivisions............. 47,347 2,134 -- 49,481
Foreign government bonds..................... 130,557 6,455 8,218 128,794
Asset-backed bonds........................... 726,991 5,382 17,258 715,115
Mortgage-backed bonds........................ 2,141,129 29,595 1,719 2,169,005
Redeemable preferred stock................... 105,843 2,613 7,313 101,143
---------- ------- -------- ----------
Total fixed maturities
available-for-sale...................... $6,631,495 $170,601 $ 55,552 $6,746,544
========== ======= ======== ==========
Equity securities available-for-sale........... $ 47,446 $ 1,690 $ 16,951 $ 32,185
========== ======= ======== ==========
Short-term investments available-for-sale...... $ 22,428 $ -- $ -- $ 22,428
========== ======= ======== ==========
</TABLE>
F-20
<PAGE> 65
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated fair value of investments in fixed
maturity securities at December 31, 1999, are summarized by stated maturity as
follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Fixed maturities available-for-sale
Due in 2000............................................... $ 96,137 $ 96,420
Due in 2001 -- 2005....................................... 1,904,087 1,849,422
Due in 2006 -- 2010....................................... 1,961,843 1,833,885
Due after 2010............................................ 1,435,591 1,347,580
Mortgage-backed securities................................ 1,608,846 1,553,448
---------- ----------
$7,006,504 $6,680,755
========== ==========
</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, 1999
are summarized as follows (in thousands):
<TABLE>
<S> <C>
Treasuries and AAA.......................................... $2,473,459
AA.......................................................... 451,471
A........................................................... 1,633,532
BBB......................................................... 1,596,128
BB.......................................................... 366,656
Less than BB................................................ 159,509
----------
$6,680,755
==========
</TABLE>
Ratings are those assigned primarily by Standard & Poor's when available,
with remaining ratings as assigned by Moody's and converted to a generally
comparable Standard & Poor's rating. Bonds not rated by either organization are
included based on the rating prescribed by the Securities Valuation Office of
the National Association of Insurance Commissioners (NAIC). NAIC Class 1 is
considered equivalent to an A or higher rating; Class 2, BBB; Class 3, BB; and
Classes 4-6, less than BB.
Major categories of investment income are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities................................... $490,123 $456,338 $185,433
Equity securities........................................... 821 1,340 2,118
Mortgage loans on real estate............................... 53,996 45,999 30,373
Real estate................................................. 36 1,629 1,048
Policy loans................................................ 6,580 6,632 5,215
Other....................................................... (2,171) 817 10,036
-------- -------- --------
Gross investment income..................................... 549,385 512,755 234,223
Investment expenses......................................... 9,313 9,383 9,792
-------- -------- --------
Net investment income....................................... $540,072 $503,372 $224,431
======== ======== ========
</TABLE>
F-21
<PAGE> 66
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investment expenses include depreciation on real estate of none, $0.9
million and $0.3 million in the years ended December 31, 1999, 1998 and 1997,
respectively.
Realized gains and losses on investments and provisions for loan losses are
summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Securities available-for-sale
Fixed maturity securities
Gross realized gains................................... $ 57,194 $ 45,897 $15,862
Gross realized losses.................................. (44,944) (32,003) (9,335)
Equity securities
Gross realized gains................................... 3,841 7,800 3,670
Gross realized losses.................................. (18,296) (7,771) (57)
Other investments........................................... 1,052 (3,661) 8,219
Provision for loan losses................................... 4,397 (10,374) (4,568)
-------- -------- -------
$ 3,244 $ (112) $13,791
======== ======== =======
</TABLE>
The unrealized appreciation on invested assets available-for-sale is
reported as a separate component of stockholders' equity, reduced by adjustments
to deferred acquisition costs, VOBA, and a provision for deferred income taxes.
A summary of the components of the net unrealized appreciation on invested
assets carried at fair value is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Unrealized appreciation
Fixed maturity securities................................ $(283,908) $104,676 $119,507
Equity securities........................................ 1,145 (15,261) 1,218
Other investments........................................ (76) 674 304
Closed Block investments................................. (46,045) 42,332 48,090
Deferred policy acquisition costs and value of business
acquired................................................. 119,961 (82,286) (83,426)
Deferred income taxes...................................... 72,959 (22,464) (29,946)
--------- -------- --------
$(135,964) $ 27,671 $ 55,747
========= ======== ========
</TABLE>
The change in unrealized appreciation on fixed maturity securities was a
decrease of $389 million, a decrease of $15 million and an increase of $41
million for the years ended December 31, 1999, 1998 and 1997, respectively; the
corresponding amounts for equity securities were a $16 million increase, a $16
million decrease and a $3 million decrease, respectively.
At December 31, 1999, investments in fixed maturity securities with a
carrying amount of $26.3 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, 1999.
F-22
<PAGE> 67
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) MORTGAGE LOANS ON REAL ESTATE
Mortgage loans on real estate consist of commercial and residential
mortgage loan investments as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Commercial loans............................................ $463,707 $393,842 $460,591
Residential and other mortgage loans........................ 169,525 194,860 17,166
Valuation allowance......................................... (18,046) (22,299) (15,284)
-------- -------- --------
Total mortgage loans...................................... $615,186 $566,403 $462,473
======== ======== ========
</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 states with
the highest concentration of mortgage loans were Florida, Texas, and Tennessee
with principal balances of $93.6 million, $84.5 million and $38.4 million,
respectively.
At December 31, 1999 and 1998, the Company's investment in mortgage loans
included $1.7 million and $15.4 million, respectively, in loans that are
considered to be impaired, for which the related allowance for credit losses are
$0.9 million and $4.0 million, respectively. The average recorded investment in
impaired loans during the years ended December 31, 1999 and 1998 was $8.5
million and $18.9 million, respectively. For the years ended December 31, 1999
and 1998, the Company recorded $1.9 million and $0.3 million, respectively, in
interest income on those impaired loans.
The amounts the Company will ultimately realize from these loans could
differ materially from their carrying values because of future developments
affecting the underlying collateral or the borrower's ability to repay the loans
and leases. As of December 31, 1999, there were no material commitments to lend
additional funds to customers whose loans were classified as nonaccrual or
restructured.
No mortgage loan on any one individual property exceeded $13 million at
December 31, 1999.
Provisions for losses are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................................ $22,299 $15,284 $11,622
Charge offs, net of recoveries............................ 144 (2,259) (855)
Write down on mortgages sold/transferred to real estate... -- (1,100) (51)
------- ------- -------
Net increase (decrease) for year............................ 144 (3,359) (906)
Provision for losses...................................... (4,397) 10,374 4,568
------- ------- -------
Balance at end of year...................................... $18,046 $22,299 $15,284
======= ======= =======
</TABLE>
Write downs on loans sold or transferred to real estate fluctuate between
periods in relation to foreclosure activity and the related underlying
collateral values.
F-23
<PAGE> 68
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) DEFERRED POLICY ACQUISITION COSTS
A summary of the policy acquisition costs deferred and amortized are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year............................. $319,774 $202,322 $171,957
Policy acquisition costs deferred........................ 153,254 144,734 51,351
Policy acquisition costs amortized....................... (35,176) (27,282) (20,986)
-------- -------- --------
437,852 319,774 202,322
Unrealized (gain) loss on available-for-sale
securities............................................. 91,811 (73,744) (83,426)
-------- -------- --------
Balance at end of year................................... $529,663 $246,030 $118,896
======== ======== ========
</TABLE>
The components of the deferred policy acquisition costs are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Universal life insurance................................. $123,425 $116,734 $117,673
Annuity products......................................... 207,396 127,115 39,783
Participating traditional life insurance................. 84,265 58,403 36,006
Non-participating traditional life insurance............. 22,766 17,522 8,860
-------- -------- --------
437,852 319,774 202,322
Unrealized (gain) loss on available-for-sale
securities............................................. 91,811 (73,744) (83,426)
-------- -------- --------
$529,663 $246,030 $118,896
======== ======== ========
</TABLE>
Commissions represent approximately 79 percent of deferred policy
acquisition costs.
(5) VALUE OF BUSINESS ACQUIRED
A summary of VOBA established and amortized is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of the year............................ $233,082 $266,014 $ --
Value of business acquired during the year.................. 1,914 -- 268,804
Amortization of VOBA asset.................................. (32,604) (32,932) (2,790)
-------- -------- --------
202,392 233,082 266,014
Unrealized (gain) loss on available-for-sale securities..... 28,150 (8,542) --
-------- -------- --------
Balance at end of year...................................... $230,542 $224,540 $266,014
======== ======== ========
</TABLE>
F-24
<PAGE> 69
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 4.05% to 7.61% for 1999 and over the next five years. Interest
accrued on the unamortized VOBA amounted to $13.0 million and $14.6 million in
1999 and 1998, respectively, which is netted with the VOBA amortization expense.
The estimated amortization for the next five years is as follows:
<TABLE>
<S> <C>
2000.................................................. 36,468
2001.................................................. 32,855
2002.................................................. 28,119
2003.................................................. 23,472
2004.................................................. 18,116
</TABLE>
(6) DEBT AND CAPITAL SECURITIES
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Federal Home Loan Bank community investment long-term
advances with a weighted average interest rate of 6.29% at
December 31, 1999, maturing at various dates through
January, 2014 (A)......................................... $ 16,088 $ 16,051
Revolving credit agreement (B).............................. 32,000 --
Senior notes bearing interest at 6.95% due June, 2005....... 125,000 125,000
-------- --------
$173,088 $141,051
======== ========
</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, 1999. The carrying
value of the securities pledged to the FHLB under all agreements was $17.7
million at December 31, 1999.
(B) The revolving credit agreement provides for a maximum borrowing of $150
million in 1999 with the balance maturing in October, 2002. The interest
rate is variable, however, the Company may elect to fix the rate for periods
from 30 days to six months. The loan agreement contains various financial
and operating covenants which, among other things, limit future indebtedness
and restrict the amount of future dividend payments.
F-25
<PAGE> 70
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capital securities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
AmerUs Capital I 8.85% Capital
Securities Series A due February 1, 2007 (A).............. $ 86,000 $ 86,000
AmerUs Capital II 7.00% Adjustable
Conversion-rate Equity Security Units are due July 27,
2003 (B).................................................. 128,791 130,729
-------- --------
$214,791 $216,729
======== ========
</TABLE>
- ---------------
(A) The Capital Securities were issued through a wholly-owned subsidiary trust,
AmerUs Capital I. 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.
(B) The Adjustable Conversion-rate Equity Security Units were issued through a
wholly-owned subsidiary trust, AmerUs Capital II. Each unit consists of a
forward common stock purchase contract for a share at a price of $31.5625
per share on July 27, 2001, and a quarterly income preferred security
bearing interest at 6.86% and due July 27, 2003. The Company repurchased
451,000 units on December 31, 1998 at an average unit price of $22.89. On
September 10, 1999, the Company repurchased 61,400 units at an average unit
price of $24.80. These transactions resulted in gains of $2.9 million and
$0.4 million, respectively, which have been reflected as additions to
paid-in capital as the gains are primarily attributable to the change in
value of the forward common stock purchase contract. The Company is
obligated to mandatorily redeem the capital securities on July 27, 2003. At
December 31, 1999, 4,080,500 units were outstanding.
Maturities of debt and capital securities are as follows for each of the
five years ending December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Year ending December 31,
2000................................................... $ 461
2001................................................... 491
2002................................................... 32,524
2003................................................... 129,349
2004................................................... 595
Thereafter................................................ 224,459
--------
$387,879
========
</TABLE>
Interest expense on the debt and capital securities totaled $28.3 million,
$27.1 million and $14.9 million in the years ended December 31, 1999, 1998 and
1997, respectively.
F-26
<PAGE> 71
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) INCOME TAXES
Comprehensive federal income tax expense is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense (benefit) on:
Operations............................................... $ 32,115 $28,422 $22,022
Other comprehensive income............................... (87,594) (15,635) 12,739
-------- ------- -------
$(55,479) $12,787 $34,761
======== ======= =======
</TABLE>
The effective income tax rate on pre-tax income varies from the prevailing
corporate federal income tax rate and is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Corporate federal income tax rate........................... 35.00% 35.00% 35.00%
Tax-exempt investment income................................ (0.72%) (0.34%) (0.54%)
Acquisitions costs and reorganization expenses.............. 0.62% -- 0.22%
Goodwill amortization....................................... 2.62% 3.01% 0.39%
Net benefit of tax credits.................................. (5.28%) (6.04%) (7.88%)
Other items, net............................................ 0.28% (0.48%) 0.31%
------ ------ ------
Effective tax rate.......................................... 32.52% 31.15% 27.50%
====== ====== ======
</TABLE>
The Company's federal income tax expense (benefit) is summarized as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current..................................................... $17,140 $25,803 $19,866
Deferred.................................................... 14,975 2,619 2,156
------- ------- -------
Total federal income tax expense............................ $32,115 $28,422 $22,022
======= ======= =======
</TABLE>
F-27
<PAGE> 72
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of net deferred income tax assets (liabilities)
are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets
Policy reserves and policyholder funds.................... $292,533 $248,011
Policy acquisition costs capitalized for tax.............. 49,188 14,920
Deferred policy acquisition costs related to unrealized
appreciation........................................... -- 23,953
Net unrealized depreciation on available-for-sale
securities............................................. 114,945 --
Deferred compensation..................................... 9,085 14,881
Credit carryover.......................................... 14,412 --
Other invested assets..................................... 2,407 --
Other..................................................... 17,636 31,617
-------- --------
Total gross deferred income tax asset.................. 500,206 333,382
-------- --------
Deferred income tax liabilities
Deferred policy acquisition costs......................... (182,489) (123,205)
Net unrealized appreciation on available-for-sale
securities............................................. -- (71,510)
Deferred policy acquisition costs related to unrealized
depreciation........................................... (41,986) --
Reinsurance receivable.................................... (113,521) (50,743)
Value of business acquired................................ (70,837) (81,579)
Other..................................................... (18,682) (17,743)
-------- --------
Total gross deferred income tax liability.............. (427,515) (344,780)
-------- --------
Net deferred income tax asset (liability).............. $ 72,691 $(11,398)
======== ========
</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.
Federal income tax returns for the Company for years through 1992 are
closed to further assessment of taxes. The Internal Revenue Service is examining
federal income tax returns of the Company for 1993 through 1996. Management
believes adequate provisions have been made for any additional taxes which may
become due with respect to open years.
(8) EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS
The Company has defined benefit pension plans which covered substantially
all of the Company's employees, as well as employees of certain other subsidiary
companies of AMHC. The plans provided for benefits based upon years of service
and the employee's compensation. The Company froze the defined benefit pension
plans effective December 31, 1995, and has recognized its portion of a
curtailment gain amounting to $6.2 million. Effective January 1, 1996, the
defined benefit pension plans were replaced by a defined contribution savings
and retirement plan which also replaced the Company's defined contribution
pension plans.
F-28
<PAGE> 73
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year................... $ 42,202 $ 40,865
Interest cost............................................. 2,690 2,916
Amendments................................................ 1,141 799
Actuarial (gain)/loss..................................... (3,987) 627
Settlements............................................... 632 --
Actual benefits paid...................................... (10,640) (3,005)
-------- --------
Benefit obligation at end of year...................... $ 32,038 $ 42,202
======== ========
Change in plan assets
Fair value of plan assets at beginning of year............ $ 43,591 $ 43,392
Actual return on plan assets.............................. (2,399) 3,250
Company contribution...................................... 5,898 348
Benefits paid and transfers............................... (10,640) (3,399)
-------- --------
Fair value of plan assets at end of year............... $ 36,450 $ 43,591
======== ========
Reconciliation of funded status
Accumulated benefit obligation............................ $(32,038) $(42,202)
Projected benefit obligation.............................. (32,038) (42,202)
Market value of plan assets............................... 36,450 43,591
-------- --------
Funded status............................................. 4,412 1,389
Unrecognized transition obligation........................ (16) (55)
Unrecognized prior service cost........................... 421 248
Unrecognized net (gain)/loss.............................. 1,122 812
-------- --------
Prepaid benefit cost...................................... $ 5,939 $ 2,394
======== ========
Amounts recognized in the consolidated balance sheet consist
of
Liabilities
Accrued pension cost................................... $ (3,374) $ (7,158)
Additional minimum liability........................... -- (1,898)
-------- --------
Total accrued pension liability...................... $ (3,374) $ (9,056)
======== ========
Assets
Prepaid pension cost................................... $ 9,313 $ 9,312
Intangible asset....................................... -- 420
-------- --------
Total assets......................................... $ 9,313 $ 9,732
======== ========
Other comprehensive income
Accumulated other comprehensive income.................... $ -- $ 1,718
Prepaid pension cost...................................... $ 5,939 $ 2,394
Weighted-average assumptions as of end of year
Discount rate............................................. 8.00% 6.75%
Expected return on plan assets............................ 8.00% 8.00%
Rate of compensation increase............................. N/A N/A
</TABLE>
F-29
<PAGE> 74
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost.............................................. $ -- $ -- $ 784
Interest cost............................................. 2,690 2,916 3,457
Expected return on plan assets............................ (3,368) (3,463) (4,006)
Amortization of transition obligation..................... (5) (6) (61)
Amortization of prior service cost........................ (32) 769 (30)
Recognized actuarial loss................................. 27 40 22
-------- -------- --------
Net periodic benefit cost................................. $ (688) $ 256 $ 166
Settlement cost........................................... 2,408 -- 141
-------- -------- --------
Total expense.......................................... $ 1,720 $ 256 $ 307
======== ======== ========
</TABLE>
DEFINED CONTRIBUTION PENSION PLANS
The Company has a defined contribution savings and retirement plan. Company
contributions are non-discretionary and consist of a matching contribution of an
amount equal to 125 percent of employee contributions, up to 4 percent of annual
employee compensation, and an annual contribution of an amount equal to 4
percent of annual employee compensation. Beginning in 1999, the Company uses a
combination of cash and Company common stock for the annual contribution. The
shares for this purpose are provided by the Company's leveraged Employee Stock
Ownership Plan. Compensation expense for the employer match and annual
contribution amounted to $4.1 million, $3.1 million and $3.7 million in 1999,
1998 and 1997, respectively, including $0.5 million of ESOP compensation expense
in 1999.
LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN
In connection with the acquisition of AmVestors, the Company has a
leveraged Employee Stock Ownership Plan (ESOP) which was sponsored by AmVestors
for all AmVestors full-time employees with one year of service. The ESOP
acquired AmVestors stock, which was subsequently exchanged for the Company's
stock, through the proceeds of a note payable to American Investors Life
Insurance Company, a subsidiary of AmVestors. The note bears interest at 7.0%
and is payable in annual installments through December 30, 2002. The note had an
unpaid principal balance of $1.4 million and $1.8 million at December 31, 1999
and 1998, respectively.
The Company makes annual contributions to the ESOP equal to the ESOP's debt
service less dividends received by the ESOP. All dividends received by the ESOP
are used to pay debt service. The ESOP shares initially were pledged as
collateral for its debt. As the debt is repaid, shares are released from
collateral and allocated to active employees of the Company and certain other
subsidiaries of AMHC, based on the proportion of debt service paid in the year.
Beginning in 1999, the released shares are used to fund a portion of the
Company's annual defined contribution savings and retirement plan contribution.
The Company accounts for its ESOP in accordance with Statement of Position
93-6. Accordingly, as shares are released from collateral, compensation expense,
or a reduction in the annual defined contribution savings and retirement plan
liability, is reported equal to the current market price of the shares, and the
shares become outstanding for earnings-per-share (EPS) computations. ESOP
compensation expense was $0.5 million, $0.4 million and $0.3 million for the
years ended December 31, 1999, 1998 and 1997, respectively.
F-30
<PAGE> 75
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The ESOP shares were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Allocated shares............................................ 169,439 148,336 152,149
Unallocated shares.......................................... 79,307 102,362 123,909
-------- -------- --------
Total ESOP shares........................................... 248,746 250,698 276,058
======== ======== ========
Fair market value of unallocated shares (in thousands)...... $ 1,824 $ 2,250 $ 4,570
</TABLE>
NONQUALIFIED PENSION PLAN
The Company has a nonqualified pension plan covering substantially all of
AmerUs Life's career and general agents. Accumulated benefits of the plan are
unfunded and have been included in other liabilities at December 31, 1999 and
1998, amounting to $21.2 million, and $16.9 million, respectively. Total
nonqualified pension expense amounted to $0.9 million, $0.5 million, and $0.7
million for the years ended December 31, 1999, 1998 and 1997, respectively.
POSTRETIREMENT PLANS
The Company has postretirement benefit plans which provide 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.
F-31
<PAGE> 76
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year................... $ 7,585 $ 8,918
Service cost.............................................. 166 268
Interest cost............................................. 481 536
Plan participants' contributions.......................... 58 52
Actuarial (gain)/loss..................................... (964) (519)
Settlements............................................... -- (904)
Actual benefits paid...................................... (651) (766)
------- -------
Benefit obligation at end of year...................... $ 6,675 $ 7,585
======= =======
Change in plan assets
Fair value of plan assets at beginning of year............ $ -- $ --
Company contribution...................................... 593 714
Plan participant contribution............................. 58 52
Benefits paid............................................. (651) (766)
------- -------
Fair value of plan assets at end of year............... $ -- $ --
======= =======
Reconciliation of funded status
Accumulated postretirement benefit obligation............. $(6,675) $(7,585)
Market value of plan assets............................... -- --
------- -------
Funded status............................................. $(6,675) $(7,585)
Unrecognized prior service cost........................... 740 823
Unrecognized net (gain)/loss.............................. (2,723) (1,470)
------- -------
Prepaid/(accrued) benefit cost............................ $(8,658) $(8,232)
======= =======
Weighted-average assumptions as of end of year
Discount rate............................................. 8.00% 6.75%
Initial weighted health care cost trend rate.............. 7.20% 7.50%
Ultimate health care cost trend rate...................... 5.00% 5.00%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost.............................................. $ 166 $ 268 $ 363
Interest cost............................................. 481 536 592
Amortization of prior service cost........................ 83 83 83
Recognized actuarial loss................................. (68) (62) (59)
----- ----- -----
Net periodic benefit cost................................. 662 825 979
Settlement (gain)......................................... -- (904) --
----- ----- -----
Total (income) expense................................. $ 662 $ (79) $ 979
===== ===== =====
</TABLE>
F-32
<PAGE> 77
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in the
assumed health care cost trend rates would have the following effects in 1999:
<TABLE>
<CAPTION>
1% POINT 1% POINT
INCREASE (DECREASE)
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Effect on total of service and interest cost components..... $ 4.3 $ (6.3)
Effect on postretirement benefit obligation................. $46.4 $(48.6)
</TABLE>
(9) RELATED PARTY TRANSACTIONS
The following summarizes transactions of the Company with affiliates:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Dividend to AmerUs Group.................................... $6,953 $ 6,948 $ 5,012
Management, administrative, data processing, rent and other
services fee income from affiliates....................... 7,412 10,750 10,983
Interest income from financings of affiliates............... 1,350 3,154 5,300
Interest expense paid to an affiliate on capital
securities................................................ 1,699 1,387 --
Commissions paid to affiliates for the sale of insurance
products.................................................. -- 877 1,833
Rent paid to an affiliate................................... 3,525 3,205 1,790
Real estate management and mortgage servicing fees paid to
an affiliate.............................................. 1,213 1,421 1,050
Investments in partnerships and joint ventures in which an
affiliate has an interest................................. 5,788 7,149 11,987
Investments in mortgages and other loans from affiliated
companies and joint ventures.............................. 22,088 20,873 46,004
Contribution of joint venture interests and sale of
partnership interests to partnerships in which an
affiliate has an interest................................. -- 4,739 10,979
Purchase of limited partnership interests and notes
receivable from an affiliate.............................. 8,756 -- --
Purchase of mortgage loans from affiliates.................. 13,100 175,496 111,361
Sale of limited partnership interest to an affiliate........ -- 11,933 --
Redemption of adjustable conversion-rate equity security
units from an affiliate................................... -- 10,324 --
Assumption of equity-index annuities from an affiliate...... 59,561 -- --
</TABLE>
(10) REINSURANCE
At December 31, 1999, the Company's maximum retention limit for acceptance
of risk on life insurance was $1 million. The Company has indemnity reinsurance
agreements with various companies whereby life insurance in excess of its
retention limits are reinsured. Insurance in force ceded to nonaffiliated
companies under risk sharing arrangements at December 31, 1999, 1998 and 1997,
totaled approximately $5,616 million, $3,779 million and $4,102 million,
respectively.
In January, 2000, the Company's maximum retention limit was reduced to $0.1
million for the majority of policies issued since July 1, 1996 and for the
majority of new business going forward.
F-33
<PAGE> 78
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net premiums and amounts earned were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums and amounts assessed against
policyholders............................................ $101,622 $89,848 $56,307
Reinsurance assumed........................................ 1,750 1,036 1,375
Reinsurance ceded.......................................... (13,851) (9,687) (9,555)
-------- ------- -------
Net premiums and amounts earned............................ $ 89,521 $81,197 $48,127
======== ======= =======
</TABLE>
At December 31, 1999 and 1998, the Company reinsured 25% and 39%,
respectively, of its equity index annuity reserves amounting to $108.6 million
and $92.6 million, respectively, with an unaffiliated reinsurer. As of the same
dates, the Company also reinsured approximately 1% in each year of its deferred
annuity reserves amounting to $44.2 million and $59.3 million, respectively,
with an unaffiliated reinsurer.
In the third quarter of 1999, the Company entered into a reinsurance
agreement for the assumption of a block of equity-index annuities of its joint
venture partner, AVLIC. The Company received assets of approximately $57 million
and assumed liabilities of approximately $59 million. A value of business
acquired asset of approximately $2 million was recorded in connection with this
transaction.
The Company is contingently liable for the portion of the policies
reinsured under each of its existing reinsurance agreements in the event the
reinsurance companies are unable to pay their portion of any reinsured claim.
Management believes that any liability from this contingency is unlikely.
However, to limit the possibility of such losses, the Company evaluates the
financial condition of its reinsurers and monitors concentration of credit risk.
(11) COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements with various partnerships in which
a subsidiary of AMHC has an interest. Pursuant to these agreements the Company
is obligated to make future capital contributions to the partnerships of up to
$58.3 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, guarantees 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. The Company has also guaranteed
two loans for a fee. At December 31, 1999, outstanding commitments to extend
credit totaled approximately $25.7 million and loan guarantees totaled
approximately $6.6 million.
The Company has an agreement with Bank One, N.A. whereby the Company
guarantees the payment of loans made to certain of the Company's managers and
executives for the purpose of purchasing Common Stock and ACES pursuant to the
Stock Purchase Program. The liability of the Company in respect of the principal
amount of loans is limited to $25 million. The Company has also guaranteed
interest and all other fees and obligations owing on the loans. Each participant
in the program has agreed to repay the Company for any amounts paid by the
Company under the guarantee in accordance with a reimbursement agreement entered
into between the participant and the Company.
AmerUs Life 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,
F-34
<PAGE> 79
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999, AVLIC had statutory assets of $2,559.1 million, liabilities of $2,517.4
million, and surplus of $41.6 million.
In the ordinary course of business, the Company and its subsidiaries are
engaged in certain litigation, none of which management believes is material to
the Company's results of operations.
(12) STOCKHOLDERS' EQUITY
Generally, the stockholders' equity of the Company's insurance subsidiaries
available for distribution to the Company is 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 2000, the Company's insurance subsidiaries can distribute
approximately $61.1 million in the form of dividends to the Company without
prior approval of such regulatory authorities.
STOCK OPTION PLANS
The Company has two stock incentive plans authorizing the issuance of
incentive and non-qualified stock options to employees, officers and
non-employee directors of the Company. The Company has reserved 1,400,000 shares
and 150,000 shares of Class A Common Stock for issuance under these plans.
In conjunction with the acquisition of AmVestors, the Company has two
additional plans in which no additional shares may be granted. They are a
non-qualified stock option plan and an incentive stock option plan.
The Company also has a non-employee stock option plan authorizing the
issuance of stock options or SARs to insurance agents and other non-employees of
the Company. The Company has reserved 100,000 shares of Class A Common Stock for
issuance under this plan. The terms and conditions under this plan are the same
as under the employee stock incentive plans.
The option price per share under all plans may not be less than the fair
value of the Company's common stock on the date of grant and the term of the
option may not be longer than ten years. Generally, all options have a
three-year vesting schedule with one-third of the options granted vesting at the
end of each of the three years.
A summary of the Company's stock option plan follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year................... 1,327,473 $25.02 1,485,709 $23.57 -- $ --
Granted at market price.......................... 275,750 21.61 163,550 31.19 684,000 28.09
Conversion of Amvestors stock options............ -- -- -- -- 801,709 19.72
Exercised........................................ (10,442) 19.15 (268,786) 20.51 -- --
Forfeited........................................ (83,017) 28.04 (53,000) 28.19 -- --
--------- ------ --------- ------ --------- ------
Outstanding, end of year......................... 1,509,764 $24.27 1,327,473 $25.02 1,485,709 $23.57
========= ====== ========= ====== ========= ======
Exercisable, end of year......................... 940,543 $23.62 700,381 $22.03 801,709 $19.72
========= ====== ========= ====== ========= ======
</TABLE>
F-35
<PAGE> 80
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
under the Company's option plan as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------
WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
OPTIONS CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE IN YEARS PRICE
- ------------------------ ----------- ------------- --------
<S> <C> <C> <C>
$10.88-$14.50.............................................. 13,448 4.9 $13.01
$14.51-$18.12.............................................. 105,225 4.3 15.17
$18.13-$21.75.............................................. 417,954 7.2 19.66
$21.76-$23.37.............................................. 243,604 5.1 23.35
$23.38-$29.00.............................................. 590,333 7.5 27.88
$29.01-$32.62.............................................. 99,200 8.5 31.19
$32.63-$36.25.............................................. 40,000 8.0 35.63
--------- --- ------
1,509,764 6.9 $24.27
========= === ======
</TABLE>
The following table summarizes information about stock options exercisable
under the Company's option plan as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
-----------------------
WEIGHTED
AVERAGE
OPTIONS EXERCISE
RANGE OF EXERCISE PRICES EXERCISABLE PRICE
- ------------------------ ----------- --------
<S> <C> <C>
$10.88-$14.50............................................... 13,448 $13.01
$14.51-$18.12............................................... 105,225 15.17
$18.13-$21.75............................................... 240,541 19.12
$21.76-$23.37............................................... 133,082 23.24
$23.38-$29.00............................................... 394,833 27.88
$29.01-$32.62............................................... 33,409 31.19
$32.63-$36.25............................................... 20,005 35.42
------- ------
940,543 $23.62
======= ======
</TABLE>
The estimated weighted average fair value of options granted in 1999, 1998
and 1997 was $9.63, $13.03 and $11.68 per share, respectively. The Company
applies Accounting Principles Board Opinion 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation expense has
been recognized for its option plans. Had compensation expense for the Company's
option plans been determined based on the fair value at the grant dates for
awards under those plans consistent with the method prescribed by SFAS 123, the
Company's net earnings and diluted earnings per share for the years ended
December 31, 1999, 1998 and 1997 would have been reduced to the pro forma
amounts indicated below:
F-36
<PAGE> 81
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net earnings (in thousands):
As reported............................................... $66,654 $62,829 $58,059
Pro forma................................................. $64,461 $61,051 $57,357
Basic earnings per share:
As reported............................................... $ 2.20 $ 1.88 $ 2.47
Pro forma................................................. $ 2.13 $ 1.82 $ 2.44
Diluted earnings per share:
As reported............................................... $ 2.20 $ 1.86 $ 2.46
Pro forma................................................. $ 2.13 $ 1.81 $ 2.43
</TABLE>
The fair value of options granted was estimated on the date of grant using
the Black-Scholes pricing model with an expected life equal to the contractual
expiration and the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Expected Volatility......................................... 37.00% 25.00% 25.00%
Risk-free Interest Rate..................................... 5.39% 5.69% 6.29%
Dividend Yield.............................................. 1.86% 1.26% 1.43%
</TABLE>
RESTRICTED STOCK
The Company has awarded common stock to eligible employees and non-employee
directors under the two stock incentive plans. The plans have restriction
periods of two to three years tied to employment and/or service. A portion of
the awards were recorded at the market value on the date of the grant as
unearned compensation since common shares were legally issued on that date. The
initial values of these grants are amortized over the restriction periods, net
of forfeitures. The remaining awards, for which common shares will not be issued
until the end of the restriction period, are being accrued net of forfeitures
over the required service period at the market value on the date of issuance.
Restricted stock and compensation expense information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year........................... 17,899 $31.07 -- $ -- -- $ --
Granted at market price.................................. 18,946 23.01 19,949 31.17 -- --
Exercised................................................ -- -- -- -- -- --
Forfeited................................................ (600) 31.56 (2,050) 31.56 -- --
------ ------ ------ ------ ------ ------
Outstanding, end of year................................. 36,245 $26.85 17,899 $31.07 -- $ --
====== ====== ====== ====== ====== ======
Compensation expense (in thousands)...................... $ 335 $ 264 $ --
====== ====== ======
</TABLE>
STOCK APPRECIATION RIGHTS
As part of the stock incentive plans and the non-employee stock option
plan, the Board of Directors is authorized to grant stock appreciation rights
("SARs") to employees, officers, agents and other non-employees in tandem with
stock options. A SAR can be exercised only to the extent the option with respect
to
F-37
<PAGE> 82
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which it is granted is not exercised, and is subject to the same terms and
conditions as the option to which it relates. Issuance of SARs is made at the
sole discretion of the Board of Directors.
The Company's SARs are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997
----------------- ------------------ -----------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Rights outstanding, beginning of year....................... -- $ -- 81,024 $21.94 -- $ --
Granted at market price..................................... 13,500 23.31 -- -- -- --
Conversion of Amvestors rights.............................. -- -- -- -- 81,024 21.94
Exercised................................................... -- -- (81,024) 21.94 -- --
------ ------ ------- ------ ------ ------
Rights outstanding, end of year............................. 13,500 $23.31 -- $ -- 81,024 $21.94
====== ====== ======= ====== ====== ======
Compensation expense (in thousands)......................... $ -- $ -- $ --
====== ====== ======
</TABLE>
STOCK WARRANTS
In conjunction with the acquisition of AmVestors, the Company has
outstanding warrants to purchase shares of the Company's Class A common stock.
The Company's stock warrant activity is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Warrants outstanding, beginning of year..................... 473,596 477,770 --
Acquisition of AmVestors warrants........................... -- -- 477,770
Exercise of warrants........................................ -- (4,174) --
-------- -------- --------
Warrants outstanding, end of year........................... 473,596 473,596 477,770
======== ======== ========
Compensation expense (in thousands)......................... $ -- $ -- $ --
======== ======== ========
</TABLE>
The remaining warrants are exercisable at $24.42 per share and expire on
April 2, 2002.
(13) STATUTORY ACCOUNTING PRACTICES
The Company's insurance subsidiaries' statutory net income was $49.4
million, $61.0 million and $59.0 million in the years ended December 31, 1999,
1998, and 1997, respectively. The Company's insurance subsidiaries' statutory
surplus and capital was $444.6 million, $472.1 million and $577.3 million at
December 31, 1999, 1998 and 1997, respectively. The minimum capital and surplus
requirements in the states of Iowa and Kansas are $5.0 million and $1.2 million,
respectively.
The Company's insurance subsidiaries are domiciled in Iowa and Kansas and
prepare their statutory-basis financial statements in accordance with accounting
practices prescribed or permitted by those respective state insurance
departments. Prescribed statutory accounting practices include state laws,
regulations, and general administrative rules, as well as a variety of
publications of the 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 has codified statutory accounting practices which are
expected to constitute the only source of prescribed statutory accounting
practices and are effective in 2001. Codification will change prescribed
statutory accounting practices and may result in changes to the accounting
practices that insurance enterprises
F-38
<PAGE> 83
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
use to prepare their statutory financial statements. The Company is currently
evaluating the impact of codification on its statutory financial statements,
however, the changes will not have a material impact on statutory surplus.
The respective insurance departments impose minimum risk-based capital
(RBC) requirements on insurance enterprises that were developed by the NAIC. The
formulas for determining the amount of 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. The life
insurance subsidiaries have exceeded the authorized control level RBC
requirements in each of the years since the inception of the RBC requirement in
1993.
(14) 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 equity-indexed agreements (options) 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 transactions with only highly rated counterparties.
The credit risk on all financial instruments, whether on or off the balance
sheet, is controlled through an ongoing 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-39
<PAGE> 84
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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, 1999
----------------------------------
NOTIONAL CARRYING FAIR
AMOUNT VALUE VALUE
---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest rate caps....................................... $ -- $ -- $ --
Interest rate swaps...................................... 385,000 -- 3,336
Options.................................................. 255,914 91,888 121,701
Futures.................................................. -- -- --
---------- ------- --------
$ 640,914 $91,888 $125,037
========== ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------
NOTIONAL CARRYING FAIR
AMOUNT VALUE VALUE
---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest rate caps....................................... $1,050,000 $ 1,749 $ 457
Interest rate swaps...................................... 200,000 -- (1,879)
Options.................................................. 86,035 49,167 70,862
Futures.................................................. -- -- (298)
---------- ------- --------
$1,336,035 $50,916 $ 69,142
========== ======= ========
</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. Interest rate swap agreements, which expire in
2002, 2003 and 2004, generally involve the exchange of interest payments. The
interest rate cap agreements involve the payment of a maximum fixed interest
rate when an indexed rate exceeds that fixed rate. Swaption agreements 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 a
decrease of $1.5 million, $0.8 million and $0.5 million in 1999, 1998 and 1997,
respectively. 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.
EQUITY-INDEXED AGREEMENTS
The Company enters into financial agreements to manage the equity risk in
its equity-indexed annuities. Call options, which expire beginning in 2000
through 2009, are linked to the index in which the equity-indexed annuity
crediting rates are based. This allows the Company to participate in index
increases if the market advances as a hedge against the higher credited rates.
The amounts to be received or paid pursuant to these agreements are accrued and
recognized as an adjustment to income over the life of the agreements.
F-40
<PAGE> 85
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table shows unrealized gains and losses on derivative
positions:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------
TOTAL NET UNREALIZED
NOTIONAL UNREALIZED UNREALIZED GAINS
VALUE GAINS (LOSSES) (LOSSES)
---------- ---------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest rate caps............................ $ -- $ -- $ -- $ --
Interest rate swaps........................... 385,000 3,336 -- 3,336
Options....................................... 255,914 29,813 -- 29,813
Futures....................................... -- -- -- --
---------- ------- ------- -------
$ 640,914 $33,149 $ -- $33,149
========== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------
TOTAL NET UNREALIZED
NOTIONAL UNREALIZED UNREALIZED GAINS
VALUE GAINS (LOSSES) (LOSSES)
---------- ---------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest rate caps............................ $1,050,000 $ -- $(1,292) $(1,292)
Interest rate swaps........................... 200,000 -- (1,879) (1,879)
Options....................................... 86,035 21,695 -- 21,695
Futures....................................... -- -- (298) (298)
---------- ------- ------- -------
$1,336,035 $21,695 $(3,469) $18,226
========== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MATURITY SCHEDULE BY YEAR FOR DERIVATIVE PRODUCTS
-----------------------------------------------------
2000 2001 2002 2003 2004
------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Pay fixed swaps:
Notional amount.......... $ -- $ -- $50,000 $150,000 $185,000
Weighted average:
Receive rate(A).......... 6.313% 6.313% 6.313% 6.339% 6.490%
Pay rate(B).............. 6.258% 6.258% 6.258% 6.281% 6.407%
Options:
Notional amount.......... $79,524 $ -- $ -- $ 44,194 $ 53,205
<CAPTION>
MATURITY SCHEDULE BY YEAR FOR DERIVATIVE PRODUCTS
---------------------------------------------------
2005 2006 2007 2008 2009
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Pay fixed swaps:
Notional amount.......... $ -- $ -- $ -- $ -- $ --
Weighted average:
Receive rate(A).......... -- -- -- -- --
Pay rate(B).............. -- -- -- -- --
Options:
Notional amount.......... $52,156 $12,200 $ 4,700 $ 3,830 $ 6,105
</TABLE>
- ---------------
(A) The actual variable rates in the agreements are based on a constant maturity
treasury (CMT) plus a spread and the table assumes that such rates will
remain constant at December 31, 1999, levels. To the extent that actual
interest rate information will change accordingly.
(B) The actual variable rates in the agreements are based on three-month LIBOR
and the table assumes that such at December 31, 1999, levels. To the extent
that actual rates change, the variable interest rate information will change
accordingly.
(15) ACQUISITIONS
On October 23, 1997, the Company acquired all of the outstanding capital
stock of Delta in exchange for cash of approximately $165 million. The
acquisition was accounted for using the purchase method of accounting with
goodwill of $69.4 million established which is being amortized on a
straight-line basis over 30 years. The operations of Delta for the period from
October 23, 1997 through December 31, 1997 have been included in the
consolidated statement of income of the Company.
On December 19, 1997, the Company acquired AmVestors in a stock exchange
valued at approximately $350 million. The acquisition was accounted for using
the purchase method of accounting with goodwill of $152.9 million established
which is being amortized on a straight-line basis over 30 years. The operations
of
F-41
<PAGE> 86
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AmVestors for the period of December 19, 1997 through December 31, 1997 have
been included in the consolidated statement of income of the Company.
The following table sets forth certain pro forma operating data of the
Company for the year ended December 31, 1997. This pro forma data assumes the
acquisitions of Delta and AmVestors occurred on January 1, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997
-----------------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
Pro forma operating data:
Total revenue............................................. $712,400
Net income................................................ $ 75,000
Diluted earnings per share of common stock.................. $ 2.14
</TABLE>
(16) EARNINGS PER SHARE (EPS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- -------------------------
NUMBER PER NUMBER PER NUMBER PER
NET OF SHARE NET OF SHARE NET OF SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ------ ------ ------- ------ ------ ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS
Net Income............................. $66,654 30,230 $2.20 $62,829 33,458 $1.88 $58,059 23,537 $ 2.47
Effect of dilutive securities
Options................................ -- 77 -- -- 162 (0.01) -- 29 (0.01)
Warrants............................... -- -- -- -- 76 (0.01) -- 5 --
Stock appreciation rights.............. -- -- -- -- -- -- -- 1 --
------- ------ ----- ------- ------ ----- ------- ------ ------
Diluted EPS.............................. $66,654 30,307 $2.20 $62,829 33,696 $1.86 $58,059 23,572 $ 2.46
======= ====== ===== ======= ====== ===== ======= ====== ======
</TABLE>
(17) 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 stockholders'
equity, although such volatility will
F-42
<PAGE> 87
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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:
Short-term investments and other investments: 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, 1999, 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, in foreclosure,
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 (annuities primarily) are
stated at the cost the Company would incur to extinguish the liability (i.e.,
the cash surrender value).
Debt and capital securities: 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-43
<PAGE> 88
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair values of the Company's significant financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1999 1998
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Securities available-for-sale:
Fixed maturities...................... $6,680,755 $6,680,755 $6,746,544 $6,746,544
========== ========== ========== ==========
Equity securities..................... $ 14,585 $ 14,585 $ 32,185 $ 32,185
========== ========== ========== ==========
Short-term investments................ $ 155 $ 155 $ 22,428 $ 22,428
========== ========== ========== ==========
Mortgage loans on real estate........... $ 615,186 $ 639,102 $ 566,403 $ 616,806
========== ========== ========== ==========
Other investments, excluding options.... $ 177,270 $ 177,270 $ 156,623 $ 156,623
========== ========== ========== ==========
Interest rate swaps:
Net receivable position............... $ -- $ 3,336 $ -- $ --
========== ========== ========== ==========
Net payable position.................. $ -- $ -- $ -- $ (1,879)
========== ========== ========== ==========
Interest rate caps...................... $ -- $ -- $ 1,749 $ 457
========== ========== ========== ==========
Options................................. $ 91,888 $ 121,701 $ 49,167 $ 70,862
========== ========== ========== ==========
Futures................................. $ -- $ -- $ -- $ (298)
========== ========== ========== ==========
FINANCIAL LIABILITIES:
Policy reserves for annuities........... $6,264,417 $6,140,936 $6,203,214 $5,977,945
========== ========== ========== ==========
Debt and capital securities............. $ 387,879 $ 387,879 $ 357,780 $ 357,780
========== ========== ========== ==========
</TABLE>
(18) REORGANIZATION
On December 20, 1999 the Company and the Company's controlling shareholder,
AMHC, announced that their respective boards of directors had approved plans for
the demutualization of AMHC and the merger of the Company into AMHC following
the demutualization. Upon completion of the demutualization, AMHC would be a
public company and will change its name to AmerUs Group Co. (AmerUs Group).
Members of AMHC will receive approximately 17 million shares of AmerUs Group and
cash or policy credits in excess of $300 million as a result of the
demutualization. Shareholders of the Company will receive shares in AmerUs Group
in a one-for-one exchange. Upon completion of the demutualization, AmerUs Group
will consist of the Company and AMHC's non-life subsidiaries, principally AmerUs
Properties, Inc. and AmerUs Home Equity.
Approval for the demutualization and merger is needed from the members of
AMHC, the Iowa Insurance Commissioner and shareholders of the Company. The
Company expects to ask for approval of these transactions during the second
quarter of 2000.
(19) SUBSEQUENT EVENTS
On February 18, 2000, the Company, AMHC and Indianapolis Life Insurance Co.
(ILICO) entered into a definitive agreement for a combination of the companies.
Under these terms, AMHC will proceed with its previously announced
demutualization. ILICO will demutualize separately and ILICO's members will
receive cash, policy credits and stock equivalent to the value of 11.25 million
shares of stock of AmerUs Group. Upon
F-44
<PAGE> 89
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
demutualization, ILICO will become a subsidiary of AmerUs Group and will
continue operations as a stock life insurance company.
As part of the transaction, AMHC made an initial investment of $100 million
in a downstream holding company of ILICO on February 18, 2000.
ILICO is a 95-year old mutual life insurance and annuity company based in
Indianapolis, Indiana. ILICO and its subsidiaries are licensed to do business in
all 50 states and the District of Columbia. At December 31, 1999, ILICO had
total assets of $6.1 billion and insurance in force of $30.3 billion.
The contemplated transactions are subject to normal closing conditions,
including appropriate policyholder/member, shareholder and regulatory approvals.
The Company expects the demutualization of ILICO and combination into AmerUs
Group to take place in the fourth quarter of 2000.
On February 1, 2000, the Company acquired an independent marketing
organization for approximately $18.1 million. Additional consideration may be
paid contingent on the earnings of the acquired company over the next five
years. The assets of the acquired company were approximately $1.6 million as of
December 31, 1999 and the revenues were approximately $10.0 million for the year
then ended.
(20) OPERATING SEGMENTS
The Company has two operating segments: Life Insurance and Annuities.
Products generally distinguish a segment. A brief description of each segment
follows:
LIFE INSURANCE
Open Block: The primary product offerings consist of whole life, universal
life and term life insurance policies. These products are marketed on a national
basis primarily through a Preferred Producer agency system and a Personal
Producing General Agent ("PPGA") distribution system.
Closed Block: Closed Block was established for insurance policies which
had a dividend scale in effect as of June 30, 1996. The Closed Block was
designed to provide reasonable assurance to owners of insurance policies
included therein that, after the Reorganization of AmerUs Life, assets would be
available to maintain the dividend scales and interest credits in effect prior
to the Reorganization if the experience underlying such scales and credits
continues. The primary products included in the Closed Block are whole life,
certain universal life policies and term life insurance policies.
ANNUITIES
The Annuity segment markets fixed annuities on a national basis primarily
through independent brokers and marketing companies. The Annuity segment also
includes one insurance contract issued to a commercial paper conduit.
The Company uses the same accounting policies and procedures to measure
operating segment income and assets as it uses to measure its consolidated
income from operations and assets with the exception of the elimination of
certain items which management believes are not necessarily indicative of
overall operating trends. For example, net realized capital gains or losses on
investments, excluding gains or losses on convertible debt which are considered
core earnings, are not included as part of operating segment income. These items
are shown between adjusted pre-tax operating income and income from operations
on the following operating segment income tables. Operating segment income is
generally income before non-core realized gains and losses, interest expense,
income taxes and equity in earnings of its unconsolidated subsidiary, AMAL.
Premiums, product charges, policyowner benefits, insurance expenses,
amortization of deferred policy acquisition costs and VOBA and dividends to
policyowners are attributed directly to each operating segment. Net investment
income and core realized gains and losses on investments are allocated
F-45
<PAGE> 90
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
based on directly-related assets required for transacting the business of that
segment. Other revenues and benefits and expenses which are deemed not to be
associated with any specific reportable segment are grouped together in the All
Other category. These items primarily consist of discontinued product lines such
as group and health, and holding company revenues and expenses. The contribution
to the operating income of the life insurance segment from the Closed Block is
reported as a single line item.
Assets are segmented based on policy liabilities directly attributable to
each segment. All assets allocated to the Closed Block are grouped together and
shown as a separate item entitled "Closed Block Assets."
There are no significant intersegment transactions.
Operating segment income and assets are as follows:
OPERATING SEGMENT INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
------------------------------------------------
LIFE TOTAL
INSURANCE ANNUITIES ALL OTHER CONSOLIDATED
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums............................. $ 64,263 $ 25,122 $ 136 $ 89,521
Universal life and annuity product charges..... 46,841 27,835 -- 74,676
Net investment income.......................... 93,350 442,851 3,871 540,072
Core realized gains on investments............. -- 10,166 -- 10,166
Other income................................... -- -- 1,467 1,467
Contribution from the Closed Block............. 25,166 -- -- 25,166
-------- -------- ------- --------
229,620 505,974 5,474 741,068
Benefits and expenses:
Policyowner benefits........................... 104,154 337,983 291 442,428
Underwriting, acquisition, and other
expenses.................................... 53,376 30,900 7,843 92,119
Amortization of deferred policy acquisition
costs and value of business acquired, net of
non-core adjustment of $2,134............... 17,268 48,378 -- 65,646
Dividends to policyowners...................... 4,526 -- -- 4,526
-------- -------- ------- --------
179,324 417,261 8,134 604,719
-------- -------- ------- --------
Adjusted pre-tax operating income................ $ 50,296 $ 88,713 $(2,660) 136,349
======== ======== =======
Non-core realized gains (losses) on
investments................................. (6,922)
Amortization of deferred policy acquisition
costs due to non-core realized gains or
losses...................................... (2,134)
Reorganization costs........................... (1,762)
--------
Income from operations........................... 125,531
Interest (expense)............................... (28,320)
Income tax (expense)............................. (32,115)
Equity in earnings of unconsolidated
subsidiary..................................... 1,558
--------
Net income....................................... $ 66,654
========
</TABLE>
F-46
<PAGE> 91
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING SEGMENT INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------
LIFE ALL TOTAL
INSURANCE ANNUITIES OTHER CONSOLIDATED
--------- --------- ------ ------------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums.............................. $ 51,261 $ 29,610 $ 326 $ 81,197
Universal life and annuity product charges...... 46,224 26,757 -- 72,981
Net investment income........................... 70,952 432,299 121 503,372
Core realized gains on investments.............. -- 9,400 -- 9,400
Other income.................................... -- -- 1,700 1,700
Contribution from the Closed Block.............. 31,478 -- -- 31,478
-------- -------- ------ --------
199,915 498,066 2,147 700,128
Benefits and expenses:
Policyowner benefits............................ 91,442 339,293 21 430,756
Underwriting, acquisition, and other expenses... 43,376 35,592 2,448 81,416
Amortization of deferred policy acquisition
costs and value of business acquired, net of
non-core adjustment of ($199)................ 21,360 39,053 -- 60,413
Dividends to policyowners....................... 2,558 -- -- 2,558
-------- -------- ------ --------
158,736 413,938 2,469 575,143
-------- -------- ------ --------
Adjusted pre-tax operating income................. $ 41,179 $ 84,128 $ (322) 124,985
======== ======== ======
Non-core realized gains (losses) on
investments.................................. (9,512)
Amortization of deferred policy acquisition
costs due to non-core realized gains or
losses....................................... 199
--------
Income from operations............................ 115,672
Interest (expense)................................ (27,075)
Income tax (expense).............................. (28,422)
Equity in earnings of unconsolidated subsidiary... 2,654
--------
Net income................................... $ 62,829
========
</TABLE>
F-47
<PAGE> 92
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING SEGMENT INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------
LIFE TOTAL
INSURANCE ANNUITIES ALL OTHER CONSOLIDATED
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums............................. $ 30,733 $ 17,238 $ 156 $ 48,127
Universal life and annuity product charges..... 45,637 1,669 -- 47,306
Net investment income.......................... 73,407 147,924 3,100 224,431
Core realized gains on investments............. -- -- -- --
Other income................................... -- -- -- --
Contribution from the Closed Block............. 31,044 -- -- 31,044
-------- -------- ------- --------
180,821 166,831 3,256 350,908
Benefits and expenses:
Policyowner benefits........................... 77,825 117,573 578 195,976
Underwriting, acquisition, and other
expenses.................................... 38,496 7,365 4,138 49,999
Amortization of deferred policy acquisition
costs and value of business acquired, net of
non-core adjustment of $650................. 16,423 6,703 -- 23,126
Dividends to policyowners...................... 1,587 -- -- 1,587
-------- -------- ------- --------
134,331 131,641 4,716 270,688
-------- -------- ------- --------
Adjusted pre-tax operating income................ $ 46,490 $ 35,190 $(1,460) 80,220
======== ======== =======
Non-core realized gains (losses) on
investments................................. 13,791
Amortization of deferred policy acquisition
costs due to non-core realized gains or
losses...................................... (650)
--------
Income from operations........................... 93,361
Interest (expense)............................... (14,980)
Income tax (expense)............................. (22,022)
Equity in earnings of unconsolidated
subsidiary..................................... 1,700
--------
Net income.................................. $ 58,059
========
</TABLE>
F-48
<PAGE> 93
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING SEGMENT ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
LIFE TOTAL
INSURANCE ANNUITIES ALL OTHER CONSOLIDATED
---------- ---------- --------- ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Investments.................................. $1,258,204 $6,396,039 $36,998 $ 7,691,241
Deferred policy acquisition costs and VOBA... 290,952 469,253 -- 760,205
Other assets................................. 197,669 622,750 34,866 855,285
Closed Block assets.......................... 1,412,622 -- -- 1,412,622
---------- ---------- ------- -----------
Total assets................................. $3,159,447 $7,488,042 $71,864 $10,719,353
========== ========== ======= ===========
DECEMBER 31, 1998
Investments.................................. $1,163,503 $6,510,465 $10,801 $ 7,684,769
Deferred policy acquisition costs and VOBA... 140,379 330,191 -- 470,570
Other assets................................. 93,807 680,228 41,839 815,874
Closed Block assets.......................... 1,453,305 -- -- 1,453,305
---------- ---------- ------- -----------
Total assets................................. $2,850,994 $7,520,884 $52,640 $10,424,518
========== ========== ======= ===========
DECEMBER 31, 1997
Investments.................................. $1,224,307 $6,467,265 $ 3,966 $ 7,695,538
Deferred policy acquisition costs and VOBA... 98,817 286,093 -- 384,910
Other assets................................. 68,254 671,687 41,771 781,712
Closed Block assets.......................... 1,391,848 -- -- 1,391,848
---------- ---------- ------- -----------
Total assets................................. $2,783,226 $7,425,045 $45,737 $10,254,008
========== ========== ======= ===========
</TABLE>
F-49
<PAGE> 94
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(21) QUARTERLY RESULTS (UNAUDITED)
1999 QUARTERLY DATA
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------ ------------ ------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER COMMON SHARE)
<S> <C> <C> <C> <C>
Total revenues (excluding realized
gains)................................ $ 177,881 $ 176,035 $ 187,530 $ 189,456
Realized gains (losses)................. $ 2,604 $ 1,415 $ 145 $ (920)
Total benefits and expenses............. $ 148,435 $ 145,494 $ 156,127 $ 158,559
Net income.............................. $ 16,957 $ 16,591 $ 16,688 $ 16,418
Weighted average number of common
shares -- basic....................... 30,432,955 30,432,794 30,372,452 29,992,335
Weighted average number of common
shares -- diluted..................... 30,469,673 30,522,586 30,534,084 30,065,430
Earnings per common share -- basic...... $ 0.56 $ 0.55 $ 0.55 $ 0.54
Earnings per common share -- diluted.... $ 0.56 $ 0.54 $ 0.55 $ 0.55
</TABLE>
1998 QUARTERLY DATA
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------ ------------ ------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER COMMON SHARE)
<S> <C> <C> <C> <C>
Total revenues (excluding realized
gains)................................ $ 175,822 $ 173,987 $ 165,874 $ 175,045
Realized gains (losses)................. $ 6,219 $ 4,564 $ (8,393) $ (2,502)
Total benefits and expenses............. $ 143,843 $ 145,290 $ 142,104 $ 143,707
Net income.............................. $ 21,757 $ 20,863 $ 6,862 $ 13,347
Weighted average number of common
shares -- basic....................... 34,734,918 34,732,514 33,726,221 30,680,339
Weighted average number of common
shares -- diluted..................... 34,831,363 35,021,958 33,951,365 30,712,432
Earnings per common share -- basic...... $ 0.63 $ 0.60 $ 0.20 $ 0.45
Earnings per common share -- diluted.... $ 0.62 $ 0.60 $ 0.20 $ 0.44
</TABLE>
F-50
<PAGE> 95
AMERUS LIFE HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE PAGE
- -------- ----
<S> <C> <C>
Independent Auditors' Report on Schedules............................ S-2
I Summary of Investments -- Other than Investments in Related S-3
Parties.....................................................
II Condensed Financial Information of Registrant............... S-4 through S-7
III Supplementary Insurance Information......................... S-10
IV Reinsurance................................................. S-11
V Valuation and Qualifying Accounts........................... S-12
</TABLE>
All other schedules are omitted for the reason that they are not required,
amounts are not sufficient to require submission of the schedule, or that the
equivalent information has been included in the consolidated financial
statements and notes thereto.
S-1
<PAGE> 96
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
The Board of Directors and Stockholders
AmerUs Life Holdings, Inc.:
Under date of February 2, 2000, except as to note 19 which is as of
February 21, 2000, we reported on the consolidated balance sheets of AmerUs Life
Holdings, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1999, as contained in Part II, Item 8 of the annual report on Form
10-K for the year 1999. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related consolidated
financial statement schedules as listed in the accompanying index. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG LLP
Des Moines, Iowa
February 2, 2000, except as to note 4
which is as of February 21, 2000
S-2
<PAGE> 97
AMERUS LIFE HOLDINGS, INC.
SCHEDULE I
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------
AMOUNT AT
WHICH
SHOWN IN
AMORTIZED MARKET THE BALANCE
TYPE OF INVESTMENT COST VALUE SHEET
- ------------------ ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed Maturities:
Bonds
United States Government and government agencies
and authorities.................................. $1,682,889 $1,626,760 $1,626,760
States, municipalities and political
subdivisions..................................... 47,208 45,447 45,447
Foreign governments................................ 157,460 159,363 159,363
Public utilities................................... 541,682 511,630 511,630
Convertibles and bonds with warrants attached...... 89,276 89,828 89,828
All other corporate bonds.......................... 4,220,194 3,996,883 3,996,883
Redeemable preferred stock............................ 267,795 250,844 250,844
---------- ---------- ----------
Total fixed maturities........................... $7,006,504 $6,680,755 $6,680,755
Equity securities:
Common stocks
Banks, trust and insurance companies............... 12,188 13,523 13,523
Industrial, miscellaneous and all other............ 1,252 1,062 1,062
---------- ---------- ----------
Total equity securities.......................... $ 13,440 $ 14,585 $ 14,585
Mortgage loans on real estate........................... 615,186 615,186
Real estate............................................. 1,538 1,538
Policy loans............................................ 109,864 109,864
Other long-term investments............................. 268,984 269,158 269,158
Short-term investments.................................. 155 155
---------- ----------
Total investments.................................. $8,015,671 $7,691,241
========== ==========
</TABLE>
S-3
<PAGE> 98
AMERUS LIFE HOLDINGS, INC.
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(PARENT COMPANY)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Securities available-for-sale at fair value:
Equity securities...................................... $ 861 $ 3,095
Short-term investments................................. -- 7,753
Other investments......................................... 60,017 50,009
Investments in subsidiaries, at equity...................... 1,046,904 1,161,541
Accrued investment income................................... 1,541 2,544
Property and equipment...................................... 5,290 --
Income taxes receivable..................................... 7,407 5,218
Deferred income taxes....................................... 11,892 --
Other assets................................................ 12,122 12,100
---------- ----------
Total assets........................................... $1,146,034 $1,242,260
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
S-4
<PAGE> 99
AMERUS LIFE HOLDINGS, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(PARENT COMPANY)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Checks written in excess of bank balance.................. $ 64 $ 108
Other liabilities......................................... 32,658 43,082
Debt (note 2)............................................. 158,378 125,000
---------- ----------
Total liabilities...................................... 191,100 168,190
---------- ----------
Capital Securities (note 2)................................. 221,934 223,872
---------- ----------
Stockholders' equity:
Preferred Stock, no par value, 20,000,000 shares
authorized, none issued................................ -- --
Common Stock, Class A, no par value, 180,000,000 shares
authorized: issued and outstanding; 25,070,854 shares
(net of 4,662,305 treasury shares) in 1999 and
25,425,983 (net of 4,308,936 treasury shares) in
1998................................................... 25,071 25,426
Common Stock, Class B, no par value, 50,000,000 shares
authorized; 5,000,000 shares issued and outstanding.... 5,000 5,000
Paid-in capital........................................... 282,831 290,091
Accumulated other comprehensive income (loss)............. (135,964) 26,711
Unearned compensation..................................... (323) (240)
Unallocated ESOP shares................................... (1,378) --
Retained earnings......................................... 557,763 503,210
---------- ----------
Total stockholders' equity............................. 733,000 850,198
---------- ----------
Total liabilities and stockholders' equity............. $1,146,034 $1,242,260
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
S-5
<PAGE> 100
AMERUS LIFE HOLDINGS, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF INCOME
(PARENT COMPANY)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1999 1998
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Equity in undistributed earnings of subsidiaries.......... $ 97,460 $70,267
Net investment income..................................... 4,673 18,693
Realized losses........................................... (17,794) (2,091)
-------- -------
84,339 86,869
Expenses:
Operating expenses........................................ 7,655 2,307
Interest expense.......................................... 25,595 25,695
-------- -------
33,250 28,002
-------- -------
Income before income taxes.................................. 51,089 58,867
Income tax benefit.......................................... 15,565 3,962
-------- -------
Net income.................................................. $ 66,654 $62,829
======== =======
</TABLE>
See accompanying notes to condensed financial statements.
S-6
<PAGE> 101
AMERUS LIFE HOLDINGS, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(PARENT COMPANY)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 66,654 $ 62,829
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings.......................... (97,460) (70,267)
Dividends from subsidiaries............................... 62,400 142,350
Realized investment losses................................ 17,794 2,091
Change in:
Accrued investment income................................. 1,003 2,215
Income taxes.............................................. (14,171) (3,063)
Other, net................................................ (8,251) (11,035)
--------- ---------
Net cash provided by operating activities.............. 27,969 125,120
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments..................................... (136,491) (27,292)
Sale of investments......................................... 135,286 3,955
Purchase of property and equipment.......................... (7,868) --
Proceeds from sale of property and equipment................ 415 --
--------- ---------
Net cash (used in) investing activities................ (8,658) (23,337)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in checks written in excess of balance............... (44) 108
Change in debt and capital securities, net.................. 31,440 10,212
Purchase of treasury stock, net of issuance................. (8,181) (101,063)
Capital contribution to subsidiaries........................ (30,425) (10,000)
Dividends paid to stockholders.............................. (12,101) (13,442)
--------- ---------
Net cash (used in) financing activities................ (19,311) (114,185)
--------- ---------
Net increase (decrease) in cash............................. -- (12,402)
Cash at beginning of period................................. -- 12,402
--------- ---------
Cash at end of period....................................... $ -- $ --
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
S-7
<PAGE> 102
AMERUS LIFE HOLDINGS, INC.
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
AmerUs Life Holdings, Inc. (the Company) is the parent company of its
primary subsidiaries, AmerUs Life Insurance Company (AmerUs Life), AmVestors
Financial Corporation (AmVestors), Delta Life Corporation (Delta) and AmerUs
Capital Management Group, Inc. (ACM). The Company's investment in its
subsidiaries is stated at cost plus equity in undistributed earnings of the
subsidiaries. The Company's share of net income of its unconsolidated
subsidiaries is included in income using the equity method. These financial
statements should be read in conjunction with AmerUs Life Holdings, Inc.
consolidated financial statements.
(2) DEBT AND CAPITAL SECURITIES
Debt and capital securities consists of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Revolving Credit Agreement(A)............................... $ 32,000 $ --
ESOP Note(B)................................................ 1,378 --
Senior notes bearing interest at 6.95% due June 2005........ 125,000 125,000
Junior Subordinated debentures bearing interest at
8.85%(C).................................................. 88,660 88,660
Junior Subordinated debentures bearing interest at
7.00%(D).................................................. 133,274 135,212
-------- --------
$380,312 $348,872
======== ========
</TABLE>
- ---------------
(A) The revolving credit agreement provides for a maximum borrowing of $150
million with the balance maturing in October 2002. The interest rate is
variable, however, the Company may elect to fix the rate for periods from 30
days to six months. The loan agreement contains various financial and
operating covenants which, among other things, limit future indebtedness and
restrict the amount of future dividend payments.
(B) In connection with the acquisition of AmVestors, the Company has a leveraged
Employee Stock Ownership Plan (ESOP) which was sponsored by AmVestors for
all AmVestors full-time employees with one year of service. The ESOP
acquired AmVestors stock, which was subsequently exchanged for Company
stock, through the proceeds of a note payable to American Investors Life
Insurance Company, a subsidiary of AmVestors. The note bears interest at
7.0% and is payable in annual installments through December 31, 2002.
(C) The Company issued $88.66 million of junior subordinated debentures to a
wholly-owned subsidiary trust in connection with capital securities issued
by the trust. The debentures bear interest at the rate of 8.85% and mature
February 1, 2027.
(D) The Company issued $149.4 million of junior subordinated debentures to a
wholly-owned subsidiary trust in connection with adjustable conversion-rate
equity security units issued by the trust. The debentures bear interest at
the rate of 7.00% and mature July 27, 2003.
S-8
<PAGE> 103
AMERUS LIFE HOLDINGS, INC.
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt and capital securities are as follows for each
of the five years ending December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Year ending December 31:
2000................................................... $ --
2001................................................... --
2002................................................... 33,378
2003................................................... 133,274
2004................................................... --
Thereafter................................................ 213,660
--------
$380,312
========
</TABLE>
(3) REORGANIZATION
On December 20, 1999 the Company and the Company's controlling shareholder,
AMHC, announced that their respective boards of directors had approved plans for
the demutualization of AMHC and the merger of the Company into AMHC following
the demutualization. Upon completion of the demutualization, AMHC would be a
public company and will change its name to AmerUs Group Co. (AmerUs Group).
Members of AMHC will receive approximately 17 million shares of AmerUs Group and
cash or policy credits in excess of $300 million as a result of the
demutualization. Shareholders of the Company will receive shares in AmerUs Group
in a one-for-one exchange. Upon completion of the demutualization, AmerUs Group
will consist of the Company and AMHC's non-life subsidiaries, principally AmerUs
Properties, Inc. and AmerUs Home Equity.
Approval for the demutualization and merger is needed from the members of
AMHC, the Iowa Insurance Commissioner and shareholders of the Company. The
Company expects to ask for approval of these transactions during the second
quarter of 2000.
(4) SUBSEQUENT EVENTS
On February 18, 2000, the Company, AMHC and Indianapolis Life Insurance Co.
(ILICO) entered into a definitive agreement for a combination of the companies.
Under these terms, AMHC will proceed with its previously announced
demutualization. ILICO will demutualize separately and ILICO's members will
receive cash, policy credits and stock equivalent to the value of 11.25 million
shares of stock of AmerUs Group. Upon demutualization, ILICO will become a
subsidiary of AmerUs Group and will continue operations as a stock life
insurance company.
As part of the transaction, AMHC made an initial investment of $100 million
in a downstream holding company of ILICO on February 18, 2000.
ILICO is a 95-year old mutual life insurance and annuity company based in
Indianapolis, Indiana. ILICO and its subsidiaries are licensed to do business in
all 50 states and the District of Columbia. At December 31, 1999, ILICO had
total assets of $6.1 billion and insurance in force of $30.3 billion.
The contemplated transactions are subject to normal closing conditions,
including appropriate policyholder/member, shareholder and regulatory approvals.
The Company expects the demutualization of ILICO and combination into AmerUs
Group to take place in the fourth quarter of 2000.
S-9
<PAGE> 104
AMERUS LIFE HOLDINGS, INC.
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
AMERUS LIFE HOLDINGS, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEFERRED BENEFITS,
POLICY FUTURE POLICY OTHER POLICY CLAIMS,
ACQUISITION BENEFITS, LOSSES CLAIMS & NET LOSSES &
COSTS & CLAIMS & LOSS UNEARNED BENEFITS PREMIUM INVESTMENT SETTLEMENT
SEGMENT VOBA EXPENSES(1) PREMIUMS PAYABLE(2) REVENUE INCOME EXPENSES
- ------- ----------- ---------------- -------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE INSURANCE(3)
12/31/1999................... $388,093 $2,596,073 $ -- $16,891 $253,707 $201,467 $368,413
12/31/1998................... $257,858 $2,638,249 $ -- $18,525 $249,439 $186,714 $369,153
12/31/1997................... $242,582 $2,524,216 $ -- $ 8,461 $236,878 $187,166 $345,642
ANNUITIES
12/31/1999................... $469,253 $6,823,004 $ -- $ -- $ 25,122 $442,851 $337,983
12/31/1998................... $330,191 $6,302,489 $ -- $ -- $ 29,610 $432,299 $339,293
12/31/1997................... $286,093 $6,215,935 $ -- $ -- $ 17,238 $147,924 $117,573
OTHER
12/31/1999................... $ -- $ -- $ -- $ -- $ 136 $ 3,871 $ 291
12/31/1998................... $ -- $ 17,801 $ -- $ 322 $ 326 $ 121 $ 21
12/31/1997................... $ -- $ 17,005 $ -- $ 2,053 $ 156 $ 3,100 $ 577
TOTAL(3)
12/31/1999................... $857,346 $9,419,077 $ -- $16,891 $278,965 $648,189 $706,687
12/31/1998................... $588,049 $8,958,539 $ -- $18,847 $279,375 $619,134 $708,467
12/31/1997................... $528,675 $8,757,156 $ -- $10,514 $254,272 $338,190 $463,792
<CAPTION>
AMORTIZATION
OF DEFERRED
POLICY
ACQUISITION OTHER
COSTS & OPERATING PREMIUMS
SEGMENT VOBA EXPENSES WRITTEN
- ------- ------------ --------- --------
<S> <C> <C> <C>
LIFE INSURANCE(3)
12/31/1999................... $37,887 $57,784 n/a
12/31/1998................... $48,684 $48,418 n/a
12/31/1997................... $48,786 $43,973 n/a
ANNUITIES
12/31/1999................... $50,230 $30,900 n/a
12/31/1998................... $37,816 $35,592 n/a
12/31/1997................... $ 6,461 $ 7,365 n/a
OTHER
12/31/1999................... $ -- $ 9,605 n/a
12/31/1998................... $ -- $ 2,448 n/a
12/31/1997................... $ -- $ 4,138 n/a
TOTAL(3)
12/31/1999................... $88,117 $98,289 n/a
12/31/1998................... $86,500 $86,458 n/a
12/31/1997................... $55,247 $55,476 n/a
</TABLE>
- ---------------
(1) Policy reserves, policyowner funds and dividends payable to policyowners
(2) Policy and contract claims
(3) Includes Closed Block amounts
S-10
<PAGE> 105
AMERUS LIFE HOLDINGS, INC.
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
AMERUS LIFE HOLDINGS, INC.
SCHEDULE IV
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
----------- ---------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Life insurance in force.......... $33,046,944 $5,616,065 $655,021 $28,085,900 2.33%
=========== ========== ======== =========== =====
Premiums
Life insurance................. $ 74,878 $ 12,365 $ 1,750 $ 64,263 2.72%
Annuities...................... 25,122 -- -- 25,122 --%
Other.......................... 1,622 1,486 -- 136 --%
----------- ---------- -------- ----------- -----
Total premiums................... $ 101,622 $ 13,851 $ 1,750 $ 89,521 1.95%
=========== ========== ======== =========== =====
YEAR ENDED DECEMBER 31, 1998
Life insurance in force.......... $31,092,285 $3,778,838 $626,086 $27,939,533 2.24%
=========== ========== ======== =========== =====
Premiums
Life insurance................. $ 58,536 $ 8,311 $ 1,036 $ 51,261 2.02%
Annuities...................... 29,610 -- -- 29,610 --%
Other.......................... 1,702 1,376 -- 326 --%
----------- ---------- -------- ----------- -----
Total premiums................... $ 89,848 $ 9,687 $ 1,036 $ 81,197 1.28%
=========== ========== ======== =========== =====
YEAR ENDED DECEMBER 31, 1997
Life insurance in force.......... $30,312,097 $4,102,216 $500,613 $26,710,494 1.87%
=========== ========== ======== =========== =====
Premiums
Life insurance................. $ 37,581 $ 8,223 $ 1,375 $ 30,733 4.47%
Annuities...................... 17,238 -- -- 17,238 --%
Other.......................... 1,488 1,332 -- 156 --%
----------- ---------- -------- ----------- -----
Total premiums................... $ 56,307 $ 9,555 1,375 $ 48,127 2.86%
=========== ========== ======== =========== =====
</TABLE>
S-11
<PAGE> 106
AMERUS LIFE HOLDINGS, INC.
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
AMERUS LIFE HOLDINGS, INC.
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
PROVISIONS
BALANCE AT CHARGED TO CHARGED TO ON MORTGAGES
BEGINNING COSTS AND MORTGAGES SOLD OR BALANCE AT
OF PERIOD EXPENSES ACQUIRED TRANSFERRED END OF PERIOD
---------- ---------- ---------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Mortgage Loans
1999......................................... $22,299 $ 144 $(4,397) $ -- $18,046
1998......................................... $15,284 $(2,259) $10,374 $(1,100) $22,299
1997......................................... $11,622 $ (855) $ 4,568 $ (51) $15,284
</TABLE>
S-12
<PAGE> 1
EXHIBIT 2.5
PURCHASE AGREEMENT
This Purchase Agreement (this "Agreement") is made as of this 18th day of
February, 2000, by and between American Mutual Holding Company, an Iowa mutual
insurance holding company ("AMHC"), and AmerUs Life Holdings, Inc., an Iowa
corporation ("AMH").
RECITALS
WHEREAS, the Board of Directors of AMHC has approved and will recommend to its
members the Plan of Conversion dated as of December 17, 1999 (as such Plan of
Conversion has been amended by Amendment No. 1 thereto as of February 11, 2000,
the "Plan"), whereby AMHC shall convert to a stock company, change its name to
"AmerUs Group Co." and merge with AMH, and the Board of Directors of AMH has
approved and will recommend to its stockholders the merger of AMH with and into
AMHC, both subject to the terms set forth in the Agreement and Plan of Merger
dated as of December 17, 1999, between AMHC and AMH, as amended by Amendment No.
1 dated as of February 18, 2000 (the "Merger") ( as so amended the "Merger
Agreement");
WHEREAS, AMHC, AMH, Indianapolis Life Insurance Company, an Indiana mutual
insurance company ("Indianapolis Life"), and the Indianapolis Life Group of
Companies, Inc., an Indiana corporation 61.3% of whose common shares are owned
by Indianapolis Life ("ILGC"), intend to enter into a Combination and Investment
Agreement (the "Combination Agreement") whereby, among other things, (i)
Indianapolis Life shall reorganize with and into AMHC, the surviving corporation
in the Merger, (ii) AMHC or AMH shall purchase, and ILGC shall sell, 105.96
shares of non-voting Common Stock of ILGC (collectively with any securities that
are exchanged for such non-voting Common Stock, the "ILGC Stock") for an
aggregate consideration of $100 million, (iii) in certain circumstances,
including certain terminations of the Combination Agreement, Indianapolis Life,
ILGC or their respective affiliates shall repurchase the ILGC Stock from AMHC or
AMH and/or pay certain break-up fees, and (iv) a subsidiary of AMH will manage
certain investments of Indianapolis Life;
WHEREAS, because AMHC has available enough cash to purchase the ILGC Stock
without the necessity of incurring indebtedness and the costs and expenses
related thereto, and because AMHC will be the surviving corporation in the
Merger, AMH has requested that AMHC purchase the ILGC Stock and AMHC has agreed
to accommodate this request subject to the terms and conditions of this
Agreement. AMHC and AMH desire that the relative risks and rewards related to
the ILGC Stock be allocated as if the ILGC Stock was originally purchased by AMH
rather than AMHC, subject to compensating AMHC for the risk of accommodating AMH
pursuant hereto;
WHEREAS, in the event that (A) both (i) Indianapolis Life or any affiliate
thereof has not repurchased the ILGC Stock and (ii) the Plan does not become
effective and the Merger Agreement is terminated, in each case in accordance
with the terms thereof, (B) any non-
<PAGE> 2
permitted encumbrance, pledge, lien, removal or sale described in Section 3.2(a)
occurs, or (C) AMHC delivers to AMH, on a date not more than five (5) business
days prior to the Plan Effective Date, as such term is defined in the Plan, a
written notice exercising the rights of AMHC under this Agreement to cause AMH
to purchase the ILGC Stock (each of (A), (B) and (C) being a "Trigger Event" and
(C) being a "Five-Day Notice Trigger Event"), the parties hereto desire that
AMHC sell and AMH purchase the ILGC Stock in accordance with the terms of this
Agreement; and
WHEREAS, in the event that the Plan does become effective and the closing under
the Merger Agreement occurs, and the ILGC Stock has not been purchased by AMH
pursuant hereto, the parties hereto desire that the ILGC Stock be treated under
the Plan in like manner as the Non-Insurance Subsidiaries (as such term is
defined in the Plan) whereby an amount of cash equal to the Purchase Price (as
defined in Section 1.1 hereof) shall be credited to Net Cash Proceeds (as
defined in the Plan) under and in accordance with the Plan, and that this
Agreement be terminated and be of no further effect.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as
follows:
Article I
Purchase Rights
Section 1.1 Grant of Purchase Right. Upon the terms and subject to the
conditions set forth herein, AMH hereby irrevocably grants to AMHC the right and
option to cause AMH to immediately purchase in accordance with this Agreement
all of the ILGC Stock held at the time of exercise by AMHC upon the occurrence
of a Trigger Event for an aggregate cash purchase price (the "Purchase Price")
as calculated pursuant to Section 1.3 below. AMH agrees to so purchase from
AMHC, upon delivery of an Exercise Notice, the ILGC Stock for the Purchase
Price.
Section 1.2 Method of Exercise. AMHC may exercise the put rights hereby
granted to it on any date on or after the occurrence of a Trigger Event by
executing and delivering to AMH (i) a written notice of exercise (the "Exercise
Notice"), and (ii) a photocopy of the certificates representing all the ILGC
Stock held by AMHC to be purchased by AMH, duly endorsed for transfer or
accompanied by a duly executed instrument of assignment at the offices of AMH.
At the time of payment by AMH of the Purchase Price to AMHC, AMHC shall deliver
to AMH the original certificates representing the ILGC Stock free and clear of
all rights, claims, charges, liens and encumbrances whatsoever ("Encumbrances"),
except for those restrictions and options set forth in the Combination
Agreement.
Section 1.3 Payment of Purchase Price. (a) On or before the 30th day
(or on the Plan Effective Date (as defined in the Plan), in the case of a
Five-Day Notice Trigger Event) after receipt of the Exercise Notice (the
"Closing Date"), AMH agrees that it shall pay in full the Purchase Price to AMHC
by Federal Wire transfer of immediately available funds to an account, or by
such other reasonable means, specified by AMHC in the Exercise Notice. The
Purchase Price to be paid by AMH shall be an amount equal to (i) One Hundred
Million Dollars ($100,000,000) plus a rate of return of Eight percent (8.0%) per
annum (or if the Purchase Price is not paid in full on the Closing Date, a rate
of return of Twelve percent (12.0%) per annum (the
-2-
<PAGE> 3
"Default Rate") for the period beginning on the Closing Date to and including
the date on which the Purchase Price is actually paid), for the period beginning
on the date AMHC purchases the ILGC Stock to and including the date prior to
which the Purchase Price is paid, less (ii) an amount equal to the aggregate
amount of cash dividends or other consideration received by AMHC in respect of
the ILGC Stock during the same period. In the event that the amount set forth in
clause (ii) in the preceding sentence is greater than the amount set forth in
clause (i), then AMHC shall promptly pay to AMH such excess amount. Any break-up
fee under the Combination Agreement shall be paid to AMH.
(b) AMH may elect to cause one or more of its subsidiaries to
purchase the ILGC Stock in accordance with AMH's obligations under this
Agreement. In such event, upon written notice to AMHC, AMH will cause full
payment to be made by such subsidiary to AMHC and AMHC shall make delivery of
the original certificates to such subsidiary upon receipt of the payment of the
Purchase Price, thus satisfying the obligations of both AMH and AMHC under this
Section 1.3. Notwithstanding the foregoing, the election by AMH to cause a
subsidiary to purchase the ILGC Stock shall not relieve AMH of its obligations
as the primary obligor under this Agreement.
(c) The obligations of AMH under this Agreement shall be
general obligations of AMH and, to the extent that such treatment does not
violate or provide any new or additional rights to any persons other than AMHC
under any agreement of AMH, the obligations of AMH under this Agreement shall be
treated as pari passu with all non-senior debt of AMH.
Section 1.4 Payment of Expenses. AMH agrees that it shall pay all of
AMHC costs and expenses relating to this Agreement, to AMHC's acquisition of the
ILGC Stock, including the costs and expenses of its advisors, and to AMHC's
costs of collection if AMH defaults in its obligation to pay timely the Purchase
Price.
Article II
Representations and Warranties
Section 2.1 Representations and Warranties of AMH. AMH hereby
represents and warrants to AMHC that, on the date of this Agreement:
(a) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action of AMH. This Agreement has been
duly and validly executed and delivered by AMH and, assuming the due and valid
authorization, execution and delivery of this Agreement by AMHC, constitutes a
legal, valid and binding obligation of AMH, enforceable against it in accordance
with its terms, except as enforceability may be limited by bankruptcy and other
similar laws and general principles of equity.
(b) The execution and delivery of this Agreement, together
with all documents and instruments contemplated herein, the consummation of the
transactions contemplated hereby and thereby, and the compliance with the terms,
conditions and provisions hereof by AMH do not (i) contravene any provisions of
AMH's articles of incorporation or by-laws; (ii) conflict with or
-3-
<PAGE> 4
result in a breach of or constitute a material default (or an event that might,
with the passage of time or the giving of notice or both, constitute a material
default) or give rise to any right to terminate, cancel or accelerate or to any
loss of material benefit under any of the terms, conditions, or provisions of
any material lease, indenture, mortgage, loan, or credit agreement or any other
agreement or instrument to which AMH is a party or by which it or its assets may
be bound or affected; (iii) violate or constitute a breach of any decision,
judgment or order of any court or arbitration board or of any governmental
department, commission, board, agency or instrumentality, domestic or foreign,
by which AMH is bound or to which it is subject; or (iv) violate any applicable
law, rule, or regulation to which AMH or any of its property is bound, in each
case of clauses (i)-(iv) which has or could reasonably be expected to have a
material adverse effect on AMH.
(c) Except for any required regulatory approvals, including,
without limitation, approval if necessary by the Commissioners of Insurance of
the States of Iowa, Kansas, Indiana, New York, Massachusetts and Arizona (such
Commissioners being collectively, the "Insurance Authorities") and any required
securities or broker-dealer approvals, no consent or approval of, or filing and
expiration of a waiting period or a period for disapproval by, any governmental
authority is required for AMH to consummate the transactions contemplated by
this Agreement, except for any such approval which the failure to obtain would
have, or could reasonably be expected to have, a material adverse effect on AMH.
(d) There is no encumbrance, pledge or lien against the Assets
(as defined in Section 3.2(a)) under current loan documents binding AMH or its
subsidiaries.
Section 2.2 Representations and Warranties of AMHC. AMHC hereby
represents and warrants to AMH that, on the date of this Agreement:
(a) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action of AMHC. This Agreement has been
duly and validly executed and delivered by AMHC and, assuming the due and valid
authorization, execution and delivery of this Agreement by AMH, constitutes a
legal, valid and binding obligation of AMH, enforceable against it in accordance
with its terms, except as enforceability may be limited by bankruptcy and other
similar laws and general principles of equity.
(b) The execution and delivery of this Agreement, together
with all documents and instruments contemplated herein, the consummation of the
transactions contemplated hereby and thereby, and the compliance with the terms,
conditions and provisions hereof by AMHC do not (i) contravene any provisions of
AMHC's articles of incorporation or by-laws; (ii) conflict with or result in a
breach of or constitute a material default (or an event that might, with the
passage of time or the giving of notice or both, constitute a material default)
or give rise to any right to terminate, cancel or accelerate or to any loss of
material benefit under any of the terms, conditions, or provisions of any
material lease, indenture, mortgage, loan, or credit agreement or any other
agreement or instrument to which AMHC is a party or by which it or its assets
may be bound or affected; (iii) violate or constitute a breach of any decision,
judgment or order of any court or arbitration board or of any governmental
department, commission, board, agency or
-4-
<PAGE> 5
instrumentality, domestic or foreign, by which AMHC is bound or to which it is
subject; or (iv) violate any applicable law, rule, or regulation to which AMHC
or any of its property is bound, in each case of clauses (i)-(iv) which has or
could reasonably be expected to have a material adverse effect on AMHC.
(c) Except for any required regulatory approvals, including,
without limitation, approval by the Insurance Authorities and any required
securities or broker-dealer approvals, no consent or approval of, or filing and
expiration of a waiting period or a period for disapproval by, any governmental
authority is required for AMHC to consummate the transactions contemplated by
this Agreement, except for any such approval which the failure to obtain would
have, or could reasonably be expected to have, a material adverse effect on
AMHC.
(d) AMHC is and on the Closing Date will be the record and
beneficial owner of the ILGC Stock, free and clear of all Encumbrances except
for those restrictions and options set forth in the Combination Agreement.
Article III
Covenants
Section 3.1 Approvals, etc. In the event that any notification is
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, in connection with the purchase by AMHC or AMH of the ILGC Stock, or in
the event any other consent, approval or authorization of, or declaration of or
filing with, or other action by, any person (including, without limitation, any
governmental authority) is required after the date hereof pursuant to applicable
law as a condition precedent to the performance by AMH of this Agreement and/or
the purchase by AMH of the ILGC Stock, upon the exercise by AMHC in accordance
with the terms hereof, then each of AMH and AMHC shall use its reasonable best
efforts to obtain the same not later than the date upon which AMH is obligated
to perform its obligations hereunder.
Section 3.2 Maintenance of Liquidity. (a) Until the Closing Date, AMH
will not, directly or indirectly, create, incur, assume, or suffer to exist any
encumbrance, pledge or lien of any kind upon (except for any encumbrance, pledge
or lien in favor of those entities which are lenders to AMH on the date of the
Agreement to the extent required by the existing loan agreements as of the date
hereof), nor will it sell, lease or otherwise dispose of, the assets listed on
Schedule I ("Assets"), attached hereto and made a part hereof, which assets
have, as of the date of this Agreement, a fair market value of $110 million. AMH
shall have the right from time-to-time after the date of this Agreement to
substitute for all or a portion of the Assets other assets of AMH of equivalent
or greater fair market value, liquidity and credit quality which assets shall
become "Assets" hereunder. If AMH is not otherwise able to fund the Purchase
Price, AMH shall use the Assets to do so.
(b) Upon execution of this Agreement, AMHC, AMH and the custodian
currently holding the Assets pursuant to agreements with AMH and its
subsidiaries (the "Custodian") shall enter into an agreement (the "Notification
Agreement") in such form and with such terms upon which such parties mutually
agree to cause the Assets to be held during the term of this Agreement with the
Custodian and to cause the Custodian (i) to deliver to Nicholas Critelli,
counsel to the AMHC
-5-
<PAGE> 6
Special Board Committee, or such other person as may be designated by Mr.
Critelli, upon request by Mr. Critelli and no less frequently than on a monthly
basis, written confirmation that the Assets continue to be held by the Custodian
and (ii) to deliver to Mr. Critelli immediate notice of any encumbrance, pledge,
lien, removal or sale of the Assets. AMH shall immediately notify the Custodian
of any encumbrance, pledge, lien, removal or sale of the Assets. The Chief
Financial Officer of AMH shall certify each report delivered under clause (ii)
of the preceding sentence and shall deliver to the AMHC Special Board Committee
each week a certification that the Assets (or substitutions therefor permitted
by Section 3.2(a)) continue to be held by the Custodian. Any such encumbrance,
pledge, lien, removal or sale of the Assets not permitted by Section 3.2(a)
shall be considered a Trigger Event for purposes of this Agreement.
Article IV
Conditions
Section 4.1 Conditions to Obligations of AMHC. The obligation of AMHC
to consummate and effect the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the Closing of each of the following
conditions, any of which may be waived, in writing, exclusively by AMHC, in its
sole discretion.
(a) Representations and Warranties. The representations and
warranties of AMH contained in this Agreement shall have been true and correct
in all material respects as of the date of this Agreement. In addition, the
representations and warranties of AMH contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date except for
changes contemplated by this Agreement, with the same force and effect as if
made on and as of the Closing Date, except in such cases where the failure to be
so true and correct would not have a material adverse effect on AMH.
(b) Agreements and Covenants. AMH shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them at or prior to the
Closing Date.
(c) Approvals. AMHC and AMH shall have received all necessary
regulatory and lender approvals and any required securities or broker-dealer
approval relating to or connected with the ILGC Stock or the transactions
contemplated hereby.
Section 4.2 Conditions to the Obligations of AMH. The obligations of
AMH to consummate and effect the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Closing of each of the following
conditions, any of which may be waived, in writing, exclusively by AMH, in its
sole discretion. However, the failure of the obligations set forth in Section
4.2(c) shall not terminate AMH's obligation to consummate the transactions
contemplated hereby, but shall only serve to delay such consummation until all
required consents or approvals have been obtained.
(a) Representations and Warranties. The representations and
warranties of AMHC contained in this Agreement shall have been true and correct
in all material respects as of the date of this Agreement. In addition, the
representations and warranties of AMHC contained
-6-
<PAGE> 7
in this Agreement shall be true and correct in all material respects on and as
of the Closing Date except for changes contemplated by this Agreement, with the
same force and effect as if made on and as of the Closing Date, except in such
cases where the failure to be so true and correct would not have a material
adverse effect on AMHC.
(b) Agreements and Covenants. AMHC shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the Closing
Date.
(c) Approvals. AMHC and AMH shall have received all necessary
regulatory and lender approvals and any required securities or broker-dealer
approval relating to or connected with the ILGC Stock or the transactions
contemplated hereby.
Article V
Termination, Amendment and Waiver
Section 5.1 Termination. This Agreement shall be terminated at any time
prior to the Closing Date:
(a) by mutual written consent of the parties duly authorized
by the Board of Directors of each of AMH and AMHC; or
(b) at the option of AMHC, upon a material breach of any
representation, warranty, covenant or agreement on the part of AMH set forth in
this Agreement, or if any representation or warranty of AMH shall have become
materially untrue, in either case such that the conditions set forth in Section
4.1(a) or Section 4.1(b) would not be satisfied as of the time of such breach or
as of the time such representation or warranty shall have become untrue,
provided, that if such inaccuracy in AMH's representations and warranties or
breach by AMH is curable by AMH through the exercise of its commercially
reasonable efforts, then AMHC may not terminate this Agreement under this
Section 5.1(b) provided AMH continues to exercise such commercially reasonable
efforts to cure such breach; or
(c) at the option of AMH, upon a material breach of any
representation, warranty, covenant or agreement on the part of AMHC set forth in
this Agreement, or if any representation or warranty of AMHC shall have become
materially untrue, in either case such that the conditions set forth in Section
4.2(a) or Section 4.2(b) would not be satisfied as of the time of such breach or
as of the time such representation or warranty shall have become untrue,
provided, that if such inaccuracy in AMHC's representations and warranties or
breach by AMHC is curable by AMHC through the exercise of its commercially
reasonable efforts, then AMH may not terminate this Agreement under this Section
5.1(c) provided AMHC continues to exercise such commercially reasonable efforts
to cure such breach; or
(d) upon effectiveness of the Plan and consummation of the
Merger, provided that the ILGC Stock is treated under the Plan in like manner as
the Non-Insurance Subsidiaries as described in the last "Whereas" above.
-7-
<PAGE> 8
Section 5.2 Effect of Termination. If this Agreement is validly
terminated pursuant to Section 5.1 hereof, this Agreement shall forthwith become
null and void, and there will be no liability on the part of AMHC, AMH or any of
their respective affiliates, officers, directors, employees, agents, consultants
or other representatives with respect to this Agreement or the matters
contemplated hereby. The parties agree that either party may take whatever
action, at law or in equity, as may appear necessary or desirable to enforce the
provisions of this Agreement and no remedy shall be deemed to be exclusive and
all remedies shall be cumulative.
Section 5.3 Amendment. This Agreement may be amended by the parties
hereto at any time by an instrument in writing signed on behalf of each of the
parties hereto.
Section 5.4 Waiver. At any time prior to the Closing Date, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto, or (b) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
Section 5.5 Assignment of Rights; Indemnification. Upon consummation of
the transactions contemplated by this Agreement, AMHC shall assign to AMH all
rights of AMHC under the Combination Agreement related to obligations of
Indianapolis Life and its affiliates to repurchase or make payment to AMHC with
respect to the ILGC Stock. Upon consummation of the transactions contemplated by
this Agreement, AMH agrees to promptly upon demand defend, indemnify, and hold
harmless AMHC and its directors, officers, representatives and employees from
any and all loss, cost, expense or other liability related in any manner to the
ILGC Stock, provided that AMH shall not be required to indemnify AMHC or its
officers, representatives or employees from any loss, cost, expense or other
liability resulting from or arising out of AMHC's or such director's, officer's,
representative's or employee's gross negligence, willful misconduct, breach of
this Agreement, breach of fiduciary obligation or breach of any representation,
warranty or covenant of AMHC contained in the Combination Agreement.
Article VI
General Provisions; Post-Closing Covenants
Section 6.1 Entire Agreement; No Assignment. This Agreement (including
any Exhibits and Schedules, and other documents and instruments referred to
herein) (a) together with the Merger Agreement and the Plan constitutes the
entire agreement and supersedes all other prior agreements and understandings,
both written and oral among the parties or any of them, with respect to the
purchase of the ILGC Stock by AMH; (b) is not intended to confer upon any other
person any rights or remedies hereunder; and (c) shall not be assigned (except
to AMH as set forth herein) by operation of law or otherwise.
Section 6.2 Representations, Warranties and Covenants. The
representations and warranties of AMHC and AMH contained in this Agreement shall
terminate on the Closing Date, (except for the representation set forth in
Section 2.2(d) which shall survive) and the covenants that by their terms
survive the Closing Date shall survive the Closing Date.
-8-
<PAGE> 9
Section 6.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Iowa without giving effect
to the provisions thereof relating to conflicts of law.
Section 6.4 Additional Actions. If, at any time after the Closing Date,
either party shall consider that any further assignments or assurances in law or
any other acts are necessary or desirable to (i) vest, perfect or confirm, of
record or otherwise, in AMH its right, title or interest in, to or under the
ILGC Stock, or (ii) otherwise carry out the purposes of this Agreement, the
other party and its proper officers and directors shall use its best efforts to
do all acts necessary or proper to vest, perfect or confirm title to and
possession of the ILGC Stock in AMH and otherwise to carry out the purposes of
this Agreement; and the proper officers and directors of each party are fully
authorized in the name of their respective corporations or otherwise to take any
and all such action.
Section 6.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of AMH and AMHC has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
AMERICAN MUTUAL HOLDING COMPANY
By: s/ Roger K. Brooks
-------------------------------------
Name: Roger K. Brooks
Title: Chairman, President & CEO
AMERUS LIFE HOLDINGS, INC.
By: s/ Michael G. Fraizer
-------------------------------------
Name: Michael G. Fraizer
Title: Executive Vice President & CFO
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EXHIBIT 2.6
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made as of this 17th day
of December, 1999, by and between American Mutual Holding Company, an Iowa
mutual insurance holding company (to be converted to a stock company pursuant to
Chapters 521A and 508B of the Code of Iowa and renamed "AmerUs Group Co.")
("AMHC"), and AmerUs Life Holdings, Inc., an Iowa corporation ("AMH").
RECITALS
WHEREAS, the Board of Directors of AMHC deems it advisable and in the best
interest of AMHC and its members that AMHC convert into a stock company and
merge with AMH with AMHC as the surviving corporation;
WHEREAS, the Board of Directors of AMH deems it advisable and in the best
interest of AMH and its stockholders that AMH merge with and into AMHC;
WHEREAS, the Board of Directors of AMHC has approved and will recommend to its
members the Plan of Conversion dated as of December 17th, 1999 (the "Plan"),
whereby AMHC shall convert to a stock company, change its name to "AmerUs Group
Co." and merge with AMH, and the Board of Directors of AMH has approved and will
recommend to its stockholders the merger of AMH with and into AMHC, both subject
to the terms set forth herein (the "Merger"); and
WHEREAS, for U.S. federal income tax purposes, it is intended that this
Agreement be a "plan of reorganization" within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as
follows:
Article I
Merger
Section 1.1 The Merger. Upon the terms and subject to the conditions
set forth herein, and in accordance with Section 521A.14(5) and Chapter 508B of
the Code of Iowa and the Iowa Business Corporation Act (the "IBCA"), AMH shall
be merged with and into AMHC at the Effective Time (as defined below). Following
the Merger, the separate corporate existence of AMH shall cease and AMHC shall
continue under the name "AmerUs Group Co." as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all rights and
obligations of each of AMHC and AMH in accordance with Section 521A.14(5) and
Chapter 508B of the Code of Iowa and the IBCA.
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Section 1.2 Effective Time of Merger. The Merger shall become effective
(the "Effective Time") at the date and time set forth in properly executed
articles of merger (the "Articles of Merger") which shall be duly filed by AMHC
and AMH with the Secretary of State of the State of Iowa after all the
conditions set forth in Article VI have been satisfied or waived.
Article II
Surviving Corporation
Section 2.1 Articles of Incorporation. The form of Amended and Restated
Articles of Incorporation attached as Exhibit B to the Plan shall be the
articles of incorporation of the Surviving Corporation, until thereafter changed
or amended as provided therein or by applicable law.
Section 2.2 By-Laws. The form of Amended and Restated By-laws attached
as Exhibit C to the Plan shall be the By-laws of the Surviving Corporation,
until thereafter changed or amended as provided therein or by applicable law.
Section 2.3 Directors and Officers. The directors and officers of the
Surviving Corporation shall consist of the directors and officers of AMHC and
AMH in office immediately prior to the Effective Time, until the earlier of
their resignation or removal or until their respective successors are duly
elected or appointed and qualified, as the case may be.
Article III
Conversion of Shares; Effect of Merger
Section 3.1 Conversion; Exchange Ratio. At the Effective Time, by
virtue of the Merger and without any action on the part of any holder of capital
stock of AMH or AMHC:
(a) Each share of (i) Class A Common Stock, no par value, of
AMH (the "Class A Shares"), and (ii) Class B Common Stock, no par value, of AMH
(the "Class B Shares," and together with the Class A Shares, the "AMH Shares"),
issued and outstanding immediately prior to the Effective Time (other than
shares to be cancelled in accordance with Section 3.1(b)) shall (subject to
Section 3.1(d)) be converted into the right to receive one validly issued, fully
paid and non-assessable share of Common Stock, no par value, of the Surviving
Corporation ("AMHC Shares") (the "Exchange Ratio"). Certificates for AMHC Shares
will be delivered only in the manner provided by Section 3.3.
(b) Each AMH Share held in treasury by AMH and each AMH Share
held by AMHC or any direct or indirect subsidiary of AMHC or AMH immediately
prior to the Effective Time shall be cancelled and retired, and shall cease to
exist, and no consideration shall be delivered in exchange therefor.
(c) Each share of Common Stock, no par value, of AMHC issued
and outstanding or issuable pursuant to the Plan immediately prior to the
Effective Time shall, by virtue of the Merger, remain outstanding or issuable as
one fully paid and non-assessable share of Common Stock, no par value, of the
Surviving Corporation.
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(d) Notwithstanding anything in this Agreement to the
contrary, AMH Shares held by a person (a "Dissenting Stockholder") who complies
with all the provisions of Iowa law concerning the right of holders of AMH
Shares to dissent from the Merger and require appraisal of their AMH Shares
("Dissenting Shares") shall not be converted as described in Section 3.1(a) but
shall become the right only to receive such consideration as may be determined
to be due to such Dissenting Stockholder pursuant to the laws of the State of
Iowa. If, after the Effective Time, such Dissenting Stockholder withdraws his
demand for appraisal or fails to perfect or otherwise loses his right of
appraisal, in any case pursuant to the IBCA, his AMH Shares shall be deemed
converted as of the Effective Time into the right to receive AMHC Shares as
provided in Section 3.1(a).
Section 3.2 Exchange of Shares. At the Effective Time, the stock
transfer books of AMH shall be closed as to the holders of capital stock of AMH
immediately prior to the Effective Time and no transfer of capital stock of AMH
by any such holder shall thereafter be made or recognized. If, after the
Effective Time, certificates which represented AMH Shares immediately prior to
the Effective Time are properly presented in accordance with Section 3.3 hereof
to the exchange agent, ChaseMellon Shareholder Services, L.L.C. (hereinafter
referred to as the "Exchange Agent"), such certificates shall be cancelled and
exchanged for certificates representing the number of AMHC Shares into which the
AMH Shares represented thereby were converted in the Merger.
Section 3.3 Exchange Procedure. (a) At or prior to the Effective Time,
AMHC shall deposit, or shall cause to be deposited, with the Exchange Agent, for
the benefit of the holders of certificates formerly representing AMH Shares
("Old Certificates"), for exchange in accordance with this Article III,
certificates representing the AMHC Shares ("New Certificates") to be issued
pursuant to this Article III in exchange for outstanding AMH Shares.
(b) As promptly as practicable after the Effective Time, AMHC
shall send or cause to be sent to each holder of record of AMH Shares
immediately prior to the Effective Time whose shares were converted into the
right to receive AMHC Shares pursuant to Section 3.1 transmittal materials for
use in exchanging such stockholder's Old Certificates for the consideration set
forth in this Article III. AMHC shall cause the New Certificates into which such
stockholder's AMH Shares are converted at the Effective Time to be delivered to
such stockholder upon delivery to and receipt by the Exchange Agent of Old
Certificates representing all such stockholder's AMH Shares (or indemnity
reasonably satisfactory to AMHC and the Exchange Agent, if any of such
certificates are lost, stolen or destroyed). No interest will be paid on any
merger consideration.
(c) Until surrendered for exchange in accordance with the
provisions of this Section 3.3, each certificate theretofore representing AMH
Shares (other than shares to be cancelled pursuant to Section 3.1(b) hereof and
Dissenting Shares) shall from and after the Effective Time represent for all
purposes only the right to receive AMHC Shares as set forth in this Agreement.
No dividends or other distributions with respect to AMHC Shares with a record
date occurring after the Effective Time shall be paid to the holder of any
unsurrendered Old Certificate representing AMH Shares converted in the Merger
into the right to receive such AMHC Shares until the holder thereof receives New
Certificates in exchange therefor in
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accordance with the procedures set forth in this Section 3.3. After so receiving
New Certificates, the record holder thereof also shall be entitled to receive
any such dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to AMHC Shares such holder had the
right to receive upon surrender of the Old Certificates.
Section 3.4 Transfer Taxes. If any certificate for any AMHC Shares is
to be issued in a name other than the name of the registered owner of the AMH
Shares surrendered, it shall be a condition of such exchange that (i) the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes; or (ii) establish to the satisfaction of the Exchange Agent that all
applicable taxes have been paid or that no taxes are due.
Section 3.5 Closing. The closing of the transaction contemplated by
this Agreement (the "Closing") shall take place on such date and time and at
such place after satisfaction or waiver of the conditions set forth in Article
VI upon which AMH and AMHC mutually agree and which, to the extent required by
law, are approved by the Iowa Commissioner of Insurance (the "Iowa
Commissioner").
Section 3.6 No Further Ownership Rights in AMH Stock; No Liability. The
consideration provided pursuant to this Article III to persons identified on the
books and records of AMH as the owners of AMH Shares shall be deemed to have
been paid in full satisfaction of all rights pertaining to the AMH Shares
theretofore existing, and there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the AMH Shares which
were outstanding immediately prior to the Effective Time. None of AMH, AMHC, the
Surviving Corporation or the Exchange Agent shall be liable to any person in
respect of any property delivered in good faith to a public official pursuant to
any abandoned property, escheat or other similar law.
Section 3.7 AMH Common Stock Rights. Each stock option, restricted
stock award, stock warrant, stock appreciation right and similar common stock
equivalents, instruments or units (each, a "Common Stock Right") outstanding at
the Effective Time which may be exercised for issuance of, converted into or
relating to the AMH Shares (or, in the case of stock appreciation rights, which
are based upon the value of AMH Shares) (each, a "Continuing Common Stock
Right") shall be assumed by AMHC and converted into a stock option, restricted
stock award, a stock warrant or similar common stock equivalent, instrument or
unit, respectively, to purchase, convert into or relate to AMHC Shares (or, in
the case of stock appreciation rights, become based upon the value of AMHC
Shares) wherein (i) the right to purchase or convert into AMH Shares pursuant to
the Continuing Common Stock Right shall be converted into the right to purchase
or convert into that same number of AMHC Shares, (ii) the exercise or conversion
price per share of the AMHC Shares shall be the previous exercise or conversion
price per AMH Share, and (iii) in all other material respects the Continuing
Common Stock Right shall be subject to the same terms and conditions as governed
the Common Stock Right on which it was based, including the length of time
within which the Continuing Common Stock Right may be exercised or converted
(which shall not be extended except that the holder of a Continuing Common Stock
Right who continues in the service of AMHC or a subsidiary of AMHC shall not be
deemed to have terminated service for purposes of determining the Continuing
Common Stock Right exercise or conversion period) and for all Continuing Common
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Stock Rights, such adjustments shall be and are intended to be effected in a
manner which is consistent with Section 424(a) of the Code. At the Effective
Time, AMHC shall assume and adopt the AmerUs Life Holdings, Inc. Non-Employee
Director Stock Plan, the AmerUs Life Holdings, Inc. 1999 Non-Employee Stock
Option Plan, the AmerUs Life Holdings, Inc. Stock Incentive Plan and the AmerUs
Group Co. MIP Deferral Plan, as each such plan is maintained and administered by
AMH at the Effective Time.
Article IV
Representations and Warranties
Section 4.1 Representations and Warranties of AMH. AMH represents and
warrants to AMHC as follows:
(a) Organization and Authority. AMH and each of its subsidiaries is a
corporation duly organized, validly existing, and in good standing under the
laws of its jurisdiction of organization, and has full corporate power and
authority to conduct its business and own its property as now conducted and
owned, in each case, except to the extent that the lack of such organization,
existence, good standing, power or authority does not have, nor could reasonably
be expected to have, a Material Adverse Effect (as defined in Section 8.5) on
AMH. Each of AMH and its subsidiaries is duly qualified or licensed and in good
standing as a foreign corporation in each jurisdiction in which the nature of
its business or the ownership or leasing of its property makes such
qualification or licensing necessary other than in such jurisdictions where the
failure to be so qualified or licensed (individually or in the aggregate) would
not result in a Material Adverse Effect with respect to AMH. AMH has the
requisite corporate power and authority to enter into this Agreement and,
subject to approval of this Agreement by the requisite vote of holders of each
of the Class A Shares and Class B Shares, voting as separate classes, and
receipt of necessary regulatory approvals, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action of AMH, except for the required
approval of the stockholders of AMH of this Agreement. This Agreement has been
duly and validly executed and delivered by AMH and, assuming the due and valid
authorization, execution and delivery of this Agreement by AMHC, constitutes a
legal, valid and binding obligation of AMH, enforceable against it in accordance
with its terms, except as enforceability may be limited by bankruptcy and other
similar laws and general principles of equity.
(b) Capitalization of AMH; Ownership of Subsidiary Stock. The
authorized capital stock of AMH consists of 180,000,000 Class A Shares,
50,000,000 Class B Shares and 20,000,000 shares of preferred stock, no par value
("AMH Preferred Stock"). At the close of business on November 1, 1999, an
aggregate of 30,070,854 Class A Shares and Class B Shares and no shares of AMH
Preferred Stock were issued and outstanding, with 25,070,854 Class A Shares and
5,000,000 Class B Shares issued and outstanding, respectively, which comprise
all the issued and outstanding shares of capital stock of AMH. All such issued
and outstanding shares of capital stock of AMH have been duly authorized,
validly issued and are fully paid and non-assessable. AMH owns all the
outstanding shares of capital stock of each of AmerUs Life
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Insurance Company, Delta Life Corporation, AmVestors Financial Corporation and
American Capital Management Group, Inc.
(c) No Violation of Existing Agreements. Except as set forth
on Schedule 4.1(c), the execution and delivery of this Agreement, together with
all documents and instruments contemplated herein, the consummation of the
transactions contemplated hereby and thereby, and the compliance with the terms,
conditions and provisions hereof by AMH do not (i) contravene any provisions of
AMH's articles of incorporation or by-laws; (ii) conflict with or result in a
breach of or constitute a material default (or an event that might, with the
passage of time or the giving of notice or both, constitute a material default)
or give rise to any right to terminate, cancel or accelerate or to any loss of
material benefit under any of the terms, conditions, or provisions of any
material lease, indenture, mortgage, loan, or credit agreement or any other
agreement or instrument to which AMH is a party or by which it or its assets may
be bound or affected; (iii) violate or constitute a breach of any decision,
judgment or order of any court or arbitration board or of any governmental
department, commission, board, agency or instrumentality, domestic or foreign,
by which AMH is bound or to which it is subject; or (iv) violate any applicable
law, rule, or regulation to which AMH or any of its property is bound, in each
case of clauses (i)-(iv) which has or could reasonably be expected to have a
Material Adverse Effect (as defined in Section 8.5) on AMH.
(d) No Consents or Approvals of Governmental Authorities.
Except for any required regulatory approvals, including, without limitation,
approval by the Iowa Commissioner, the Commissioner of Insurance of the State of
Kansas (the "Kansas Commissioner") and any required securities or broker-dealer
approvals and acceptance of the Articles of Merger pursuant to the IBCA, no
consent or approval of, or filing and expiration of a waiting period or a period
for disapproval by, any governmental authority is required for AMH to consummate
the transactions contemplated by this Agreement, except for any such approval
which the failure to obtain would have, or could reasonably be expected to have,
a Material Adverse Effect (as defined in Section 8.5) on AMH.
(e) Title to Assets. Each of AMH and its subsidiaries has good
and merchantable title to all material properties and assets which are reflected
and identified as owned by such entities in the financial statements of AMH set
forth in its Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission (the "SEC") for the fiscal quarter ended September 30, 1999
(the "AMH Quarterly Financial Statements"), other than property disposed of in
the ordinary course of business subsequent to the date of such financial
statements, free and clear of any material mortgage, lien, pledge, charge, claim
or encumbrance, or material right, title and interest in others, except (a) as
reflected or specified in AMH's audited financial statements set forth in its
Annual Report on Form 10-K filed with the SEC for its fiscal year ended December
31, 1998, including the notes thereto and the unaudited quarterly financial
statements of AMH filed on Form 10-Q with the SEC for each of the first three
quarters of 1999, including the notes thereto (collectively, the "AMH Financial
Statements"), (b) the lien of taxes not yet due or payable or being contested in
good faith by appropriate proceedings and (c) such imperfections of title and
encumbrances, if any, as do not materially detract from the value or interfere
with the use of the properties subject thereto or affected thereby or could
otherwise be reasonably expected to result in a Material Adverse Effect (as
defined in Section 8.5) on AMH.
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(f) Taxes. Each of AMH and its subsidiaries has filed or
caused to be filed in a timely manner (within any applicable extension periods)
all material tax returns required to be filed by the Code or by applicable state
or foreign tax laws; all taxes shown to be due on such tax returns have been or
will be timely paid in full and no material tax liens have been filed, in each
case, except for filings or payments the absence of which, or liens the
existence of which, would not have nor could reasonably be expected to result in
a Material Adverse Effect (as defined in Section 8.5) on AMH. The Federal
consolidated income tax returns in which AMH and/or any of its subsidiaries
joined have been examined by the Internal Revenue Service for taxable years
through the year ended December 31, 1992 and all material deficiencies resulting
from such examinations have been paid; taxable years through the year ended
December 31, 1996, are currently before the IRS Office of Appeals or under
examination.
(g) Undisclosed Liabilities. Except as disclosed in the
Schedules to this Agreement, the AMH Financial Statements, or as incurred in the
ordinary course of business since the date of the AMH Financial Statements,
neither AMH nor any of its subsidiaries has to AMH's knowledge any liabilities
(absolute, accrued, contingent, unknown or otherwise) of a nature which, if
known, would be required to be disclosed on a balance sheet or in the related
notes to the consolidated financial statements prepared in accordance with
generally accepted accounting principles ("GAAP") and which would have, or could
be reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect (as defined in Section 8.5) on AMH.
(h) Absence of Material Events. Since September 30, 1999,
there has not been: (a) any change in the business, assets or prospects of AMH
or its subsidiaries which has had or could reasonably be expected to result in a
Material Adverse Effect (as defined in Section 8.5) to AMH, nor, to the
knowledge of AMH, are any such changes threatened, anticipated or contemplated,
or (b) any actual or, to the knowledge of AMH, threatened, anticipated or
contemplated, damage, destruction, loss, conversion, termination, cancellation,
default or taking by eminent domain or other action by governmental authority
which has had or could reasonably be expected to have a Material Adverse Effect
on AMH.
(i) Financial Statements. The AMH Financial Statements fairly
present in all material respects the consolidated financial position of AMH and
its subsidiaries as at the respective dates thereof and the consolidated results
of AMH operations and cash flows for the respective periods indicated, in each
case in accordance with GAAP consistently applied, except as may be indicated in
the notes thereto, or, in the case of unaudited interim financial statements, as
may be permitted by GAAP, except for normal and recurring year-end adjustments
and the absence of certain notes.
(j) Litigation. Except as set forth in Schedule 4.1(j), there
is no action, suit, investigation or proceeding pending against AMH or its
subsidiaries, or, to AMH's knowledge, threatened against or affecting AMH or its
subsidiaries, before any court or arbitrator or any governmental body, agency or
official relating to the transactions contemplated hereby or which, if
determined or resolved adversely to AMH, could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect (as defined in
Section 8.5) on AMH.
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(k) Employee Benefit Plans. Each employee benefit plan of AMH
or its subsidiaries (and each related trust, insurance contract or fund) to the
knowledge of AMH is being maintained and administered in compliance with its
terms and to the knowledge of AMH, AMH has complied in form and in operation in
all respects with the applicable requirements of all laws, regulations and
rulings, including but not limited to ERISA and the Code, and all amounts due
thereunder have been paid, except, in each case to the extent that any such
non-compliance would not, nor could reasonably be expected to result in a
Material Adverse Effect (as defined in Section 8.5) on AMH.
(l) Compliance With Laws. To the knowledge of AMH, neither AMH
nor any of its subsidiaries is in conflict with, or in default or violation of
any law, rule, regulation, order, judgment or decree applicable to AMH or any of
its subsidiaries or by which AMH or any of its subsidiaries or any of their
respective properties is bound or affected, in each case except for such matters
which do not have, nor could reasonably be expected to have, a Material Adverse
Effect (as defined in Section 8.5) on AMH. To the knowledge of AMH, (i) no
investigation or review by any governmental entity is pending or threatened
against AMH or any of its subsidiaries, nor has any governmental entity
indicated an intention to conduct the same and (ii) there is no material
judgment, injunction, order or decree binding upon AMH or any of its
subsidiaries, in each case except for such matters which do not have, nor could
reasonably be expected to have, a Material Adverse Effect (as defined in Section
8.5) on AMH.
(m) Environmental Matters. Except as set forth in Schedule
4.1(m), to the knowledge of AMH, each of AMH and its subsidiaries is in material
compliance with all applicable federal, state and local laws and regulations
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata), including, without limitation, laws, standards
and regulations relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, wastes, toxic substances
hazardous substances, or conditions, petroleum and petroleum products
("Materials of Environmental Concern"), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern (collectively,
"Environmental Laws"), which compliance includes, but is not limited to, the
possession by AMH or its subsidiaries of all permits and other governmental
authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof, except in each case any such non-compliance
which does not have, nor could reasonably be expected to have, a Material
Adverse Effect (as defined in Section 8.5) on AMH.
Section 4.2 Representations and Warranties of AMHC. AMHC
represents and warrants to AMH as follows:
(a) Organization and Authority. AMHC is a mutual insurance
holding company duly organized, validly existing, and in good standing under the
laws of the State of Iowa, and has full corporate power and authority to conduct
its business and own its property as now conducted and owned, except to the
extent that the lack of such organization, existence, good standing, power or
authority does not have, nor could reasonably be expected to have, a Material
Adverse Effect on AMHC. Each of AMHC and its subsidiaries is duly qualified or
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licensed and in good standing as a foreign corporation in each jurisdiction in
which the nature of its business or the ownership or leasing of its property
makes such qualification or licensing necessary other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) would not have a Material Adverse Effect (as defined in Section 8.5)
on AMHC. AMHC has the requisite corporate power and authority to enter into this
Agreement and, subject to approval of this Agreement by the requisite vote of
its members, and receipt of necessary regulatory approvals, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action of AMHC, except for the
required approval of the members of AMHC of this Agreement. This Agreement has
been duly and validly executed and delivered by AMHC and, assuming the due and
valid authorization, execution and delivery of this Agreement by AMH,
constitutes a legal, valid and binding obligation of AMHC, enforceable against
it in accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity.
(b) Capitalization of AMHC. As of the date of this Agreement,
AMHC has no capital stock authorized, issued or outstanding. The authorized
capital stock of AMHC after conversion to a stock company shall consist of
230,000,000 shares of Common Stock, no par value, and 20,000,000 shares of
preferred stock, no par value. The AMHC Shares, when issued in accordance with
this Agreement, shall be duly authorized, validly issued and fully paid and
non-assessable.
(c) No Violation of Existing Agreements. Except as set forth
on Schedule 4.2(c), the execution and delivery of this Agreement, together with
all documents and instruments contemplated herein, the consummation of the
transactions contemplated hereby and thereby, and the compliance with the terms,
conditions and provisions hereof by AMHC do not (i) contravene any provisions of
AMHC's articles of incorporation or by-laws; (ii) conflict with or result in a
breach of or constitute a material default (or an event that might, with the
passage of time or the giving of notice or both, constitute a material default)
or give rise to any right to terminate, cancel or accelerate or to any loss of
material benefit under any of the terms, conditions, or provisions of any
material lease, indenture, mortgage, loan, or credit agreement or any other
agreement or instrument to which AMHC is a party or by which it or its assets
may be bound or affected; (iii) violate or constitute a breach of any decision,
judgment or order of any court or arbitration board or of any governmental
department, commission, board, agency or instrumentality, domestic or foreign,
by which AMHC is bound or to which it is subject; or (iv) violate any applicable
law, rule, or regulation to which AMHC or any of its property is bound, in each
case of clauses (i)-(iv) which has or could reasonably be expected to have a
Material Adverse Effect (as defined in Section 8.5) on AMHC.
(d) No Consents or Approvals of Governmental Authorities.
Except as stated in the Plan, and except for any required approval by regulatory
authorities, including, without limitation, securities or broker-dealer
approvals, no consent or approval of, or filing and expiration of a waiting
period or a period for disapproval by, any governmental authority is required
for AMHC to consummate the transactions contemplated by this Agreement, except
for filing and acceptance of the Articles of Merger pursuant to the IBCA, which
the failure to obtain
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would have, or could reasonably be expected to have, a Material Adverse Effect
(as defined in Section 8.5) on AMHC.
(e) Title to Assets. Each of AMHC and its subsidiaries has
good and merchantable title to all material properties and assets reflected and
identified as owned by such entities in its financial statements dated as of
September 30, 1999 (the "Quarterly AMHC Financial Statements"), other than
property disposed of in the ordinary course of business subsequent to the date
of such financial statements, free and clear of any material mortgage, lien,
pledge, charge, claim or encumbrance, or material right, title and interest in
others, except (a) as reflected in AMHC's audited financial statements for its
fiscal year ended December 31, 1998, including the notes thereto and the
unaudited quarterly financial statements of AMHC for each of the first three
quarters of 1999 (collectively, the "AMHC Financial Statements"), (b) the lien
of taxes not yet due or payable or being contested in good faith by appropriate
proceedings and (c) such imperfections of title and encumbrances, if any, as do
not materially detract from the value or interfere with the use of the
properties subject thereto or affected thereby or could otherwise be reasonably
expected to result in a Material Adverse Effect (as defined in Section 8.5) on
AMHC.
(f) Taxes. Each of AMHC and its subsidiaries has filed or
caused to be filed in a timely manner (within any applicable extension periods)
all material tax returns required to be filed by the Code or by applicable state
or foreign tax laws; all taxes shown to be due on such tax returns have been or
will be timely paid in full and no material tax liens have been filed in each
case, except for filings or payments the absence of which, or liens the
existence of which, would have or could be reasonably expected to have a
Material Adverse Effect (as defined in Section 8.5) on AMHC. The Federal
consolidated income tax returns in which AMHC and/or any of its subsidiaries
joined have been examined by the Internal Revenue Service for all taxable years
through the year ended December 31, 1992 and all material deficiencies resulting
from such examinations have been paid; taxable years through the year ended
December 31, 1996, are currently before the IRS Office of Appeals or under
examination.
(g) Undisclosed Liabilities. Except as disclosed in the
Schedules to this Agreement, the AMHC Financial Statements or as incurred in the
ordinary course of business since the date of the AMHC Financial Statements,
neither AMHC nor any of its subsidiaries has to AMHC's knowledge any liabilities
(absolute, accrued, contingent, unknown or otherwise) of a nature which, if
known, would be required to be disclosed on a balance sheet or in the related
notes to the consolidated financial statements prepared in accordance with GAAP
and which have, or could be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect (as defined in Section 8.5) on AMHC.
(h) Absence of Material Events. Since December 31, 1998, there
has not been: (a) any change in the business, assets or prospects of AMHC and
its subsidiaries which has had or could be reasonably expected to result in
Material Adverse Effect (as defined in Section 8.5) to AMHC, nor, to the
knowledge of AMHC, are any such changes threatened, anticipated or contemplated
or (b) any actual or, to the knowledge of AMHC, threatened, anticipated or
contemplated, damage, destruction, loss, conversion, termination, cancellation,
default or taking by eminent domain or other action by governmental authority
which has had or could be reasonably expected to have a Material Adverse Effect
on AMHC.
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<PAGE> 11
(i) Financial Statements. The AMHC Financial Statements fairly
present in all material respects the consolidated financial position of AMHC and
its subsidiaries as at the respective dates thereof and the consolidated results
of AMHC operations and cash flows for the respective periods indicated, in each
case in accordance with GAAP consistently applied, except as may be indicated in
the notes thereto, or, in the case of unaudited interim financial statements, as
may be permitted by GAAP, except for normal and recurring year-end adjustments
and the absence of notes.
(j) Litigation. Except as set forth in Schedule 4.2(j), there
is no action, suit, investigation or proceeding pending against AMHC or its
subsidiaries, or, to AMHC's knowledge, threatened against or affecting AMHC,
before any court or arbitrator or any governmental body, agency or official
relating to the transactions contemplated hereby or which, if determined or
resolved adversely to AMHC, may have, individually or in the aggregate, a
Material Adverse Effect on AMHC (as defined in Section 8.5).
(k) Employee Benefit Plans. Each employee benefit plan of AMHC
and its subsidiaries (and each related trust, insurance contract or fund) to the
knowledge of AMHC is being maintained and administered in compliance with its
terms and to the knowledge of AMHC, AMHC has complied in form and in operation
in all respects with the applicable requirements of all laws, regulations and
rulings, including but not limited to ERISA and the Code, and all amounts due
thereunder have been paid, except, in each case to the extent that any such
non-compliance would not, nor could reasonably be expected to result in a
Material Adverse Effect on AMHC (as defined in Section 8.5).
(l) Compliance With Laws. To the knowledge of AMHC, neither
AMHC nor any of its subsidiaries is in conflict with, or in default or violation
of any law, rule, regulation, order, judgment or decree applicable to AMHC or
any of its subsidiaries or by which AMHC or any of its subsidiaries or any of
their respective properties is bound or affected, in each case except for such
matters which do not have, nor could reasonably be expected to have, a Material
Adverse Effect (as defined in Section 8.5) on AMHC. To the knowledge of AMHC,
(i) no investigation or review by any governmental entity is pending or
threatened against AMHC or any of its subsidiaries, nor has any governmental
entity indicated an intention to conduct the same and (ii) there is no material
judgment, injunction, order or decree binding upon AMHC or any of its
subsidiaries, in each case except for such matters which do not have, nor could
reasonably be expected to have, a Material Adverse Effect (as defined in Section
8.5) on AMHC.
(m) Environmental Matters. Except as set forth in Schedule
4.2(m), to the knowledge of AMHC, each of AMHC and its subsidiaries is in
material compliance with all Environmental Laws, which compliance includes, but
is not limited to, the possession by AMHC or its subsidiaries of all permits and
other governmental authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof, except in each case any
such non-compliance which does not have, nor could reasonably be expected to
have, a Material Adverse Effect on AMHC (as defined in Section 8.5).
Article V
Covenants
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Section 5.1 Conduct of Business Prior to Closing. During the term of
this Agreement each of AMHC and AMH shall, and shall cause each of their
respective subsidiaries to, operate its business only in the ordinary course and
shall use all reasonable efforts to preserve intact its ongoing business, except
(i) the sale of property identified on Schedule 5.1 at the price and upon the
terms set forth on Schedule 5.1, (ii) as otherwise mutually agreed or, (iii) in
the case of AMHC and its subsidiaries, except for sales of assets with prior
approval of the board of directors of each of AMHC and AMH.
Section 5.2 Best Efforts. Each of AMHC and AMH agrees to use its
reasonable best efforts to take or cause to be taken and to do or cause to be
done all such actions and things as shall be reasonably necessary or advisable,
or as shall be reasonably requested by the other party, in order to consummate
and make effective the Merger and the transactions contemplated hereby.
Section 5.3 Securities Filings. Each of AMHC and AMH shall cooperate
and promptly prepare and file with the SEC and any applicable state agency, all
filings required under federal or state securities laws, and shall obtain all
"Blue Sky" permits or securities approvals required to carry out the Merger and
the transactions contemplated by this Agreement.
Section 5.4 Members' and Stockholders' Approval. The Board of Directors
of AMHC shall recommend approval and adoption of the Plan, this Agreement and
the Merger by its members, and the Board of Directors of AMH shall recommend
approval and adoption of this Agreement and the Merger by its stockholders, and
each of AMHC and AMH shall use its reasonable best efforts to obtain the
approval and adoption of this Agreement and the Merger from its members and
stockholders, respectively, and otherwise comply with all legal requirements
applicable to the respective approvals required.
Section 5.5 Indemnification. From and after the Effective Time, AMHC
will cause the Surviving Corporation to fulfill and honor in all respects the
indemnification obligations of AMH and AMHC pursuant to their respective
Articles of Incorporation, Bylaws and any indemnification agreements between AMH
and its directors and officers and AMHC and its directors and officers existing
prior to the date hereof. Until the sixth anniversary of the Effective Time,
AMHC shall cause the Surviving Corporation to maintain director's and officer's
liability insurance with respect to claims against the directors and officers of
AMHC and AMH arising from facts or events which occurred before the Effective
Time, which insurance shall contain at least the same coverage and amounts as
that coverage currently provided by AMHC or AMH, respectively, with respect to
its directors and officers.
Section 5.6 Notification of Certain Matters. Each of AMHC and AMH will
give prompt notice to the other of the occurrence, or failure to occur, of any
event, which occurrence or failure to occur would be reasonably likely to cause
(a) any representation or warranty contained in this Agreement and made by it to
be untrue or inaccurate in any material respect at any time from the date of
this Agreement to the Effective Time such that the conditions set forth in
Section 6.2(a) or 6.3(a), as the case may be, would not be satisfied as a result
thereof, or (b) any material failure of AMHC or AMH, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement.
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<PAGE> 13
Notwithstanding the above, delivery of any notice pursuant to this section will
not limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
Section 5.7 Notices of Demand for Appraisal. AMH shall give AMHC (i)
prompt notice of any written demands for appraisal or any withdrawals of such
demands, and any other instruments served pursuant to IBCA and received by AMH
which relate to any such demand for appraisal and (ii) the opportunity to
participate in all negotiations and proceedings which take place prior to the
Effective Time with respect to demands for appraisal under IBCA. AMH shall not,
except with the prior written consent of AMHC or as may be required by
applicable law, voluntarily make any payment with respect to any demands for
appraisal of AMH Shares or offer to settle or settle any such demands.
Section 5.8 Dividends. AMHC shall not permit its non-insurance
subsidiaries to declare, set aside or pay any dividends on, or make any other
distributions in respect of the capital stock of such subsidiaries, including,
without limitation, any repurchase of capital stock.
Section 5.9 Modification of Plan. AMHC shall not modify or amend the
Plan, whether pursuant to Section 7.3 or 7.4 thereof or otherwise, in any manner
that adversely affects AMH or the stockholders of AMH (other than AMHC) in a
material manner.
Section 5.10 Listing Application. AMHC shall promptly prepare and file
with the New York Stock Exchange or NASDAQ National Market listing applications
covering the AMHC Shares issuable in the Merger or upon exercise or conversion
of the Continuing Common Stock Rights and shall use its reasonable best efforts
to obtain, prior to the Effective Time, approval for listing of such Common
Stock, subject only to official notice of issuance.
Section 5.11 Actions Relating to Continuing Common Stock Rights. AMHC
shall take all actions reasonably necessary to assume the Continuing Common
Stock Rights, employee benefit plans of AMH, execute supplemental indentures
where necessary and otherwise assume the obligations of AMH in accordance with
this Agreement and the IBCA.
Section 5.12 Schedules. From time to time prior to the Effective Time,
the parties to this Agreement shall promptly supplement and amend the Schedules
to this Agreement with respect to any matter, condition or occurrence hereafter
arising which, if existing or occurring at the date of this Agreement, would
have been required to be set forth or described in the Schedules at such time.
Unless waived by the other party hereto, which waiver shall not be unreasonably
withheld, no supplement or amendment shall be deemed to cure any breach of any
representation or warranty made in this Agreement or have any effect for the
purpose of determining satisfaction of the conditions set forth in Section
6.2(a) or Section 6.3(a).
Article VI
Conditions to Consummation of Merger
Section 6.1 Conditions to Obligations of Each Party. The respective
obligation of each of AMHC and AMH to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
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<PAGE> 14
(a) AMHC Approvals. The Plan, this Agreement and transactions
contemplated hereby shall have been approved and adopted by the requisite vote
of the members of AMHC in accordance with and to the extent required by the
Plan, Articles of Incorporation of AMHC or applicable laws;
(b) AMH Approvals. This Agreement and transactions
contemplated hereby shall have been approved and adopted by the requisite vote
of each class of the stockholders of AMH in accordance with and to the extent
required by the Articles of Incorporation of AMH or applicable laws;
(c) No Injunctions. No preliminary or permanent injunction or
other order of any federal or state court in the United States which prohibits
the consummation of the Merger shall have been issued and remain in effect;
(d) Securities Filings. All required securities filings shall
have become effective and shall be effective at the Effective Time, and no stop
order suspending effectiveness of such filings shall have been issued, and no
action, suit, proceeding or investigation by the SEC or any state securities
commission to suspend the effectiveness thereof shall have been initiated and be
continuing, or, to the knowledge of AMHC or AMH, threatened, and all necessary
approvals under state securities laws relating to the issuance or trading of
AMHC Shares to be issued in connection with the Merger shall have been received;
(e) Regulatory Approvals. Approval of any necessary regulatory
bodies shall have been obtained and be in effect, except for approvals which the
failure to obtain would not, individually or in the aggregate, in the judgment
of AMHC and AMH, be reasonably expected to result in a Material Adverse Effect
(as defined in Section 8.5) on AMHC, AMH or the Surviving Corporation;
(f) Listing. The AMHC Shares issuable in the Merger and in
connection with the exercise of Continuing Common Stock Rights shall have been
approved for listing on the New York Stock Exchange, or, if mutually agreed, on
another exchange or quoted in the automated quotation system of a registered
securities association, subject only to official notice of issuance;
(g) Litigation. No order, judgment or decree shall be
outstanding against a party hereto or a third party that would have the effect
of imposing materially adverse conditions deemed to be unreasonable by AMHC or
AMH to, or preventing completion of, the Merger and no suit, action or other
proceeding shall be pending before any court or governmental entity in which it
is sought to restrain or prohibit the Merger or obtain other substantial
monetary or other relief against one or more parties hereto in connection with
this Agreement or the Plan and which AMHC or AMH determines in good faith, based
upon the advice of their respective counsel, makes it inadvisable to proceed
with the Merger because any such suit, action or proceeding has a significant
potential to be resolved in a way so as to deprive the party electing not to
proceed of any of the material benefits to it of the Merger;
(h) Non-Governmental Consents. All consents or approvals of
all persons, other than the Iowa Commissioner, Kansas Commissioner, required
securities or broker-dealer
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<PAGE> 15
approvals, or other regulatory bodies, and supplements to any outstanding
indentures entered into by AMHC or AMH, required for or in connection with the
execution, delivery and performance of this Agreement and the consummation of
the Merger shall have been obtained and be in full force and effect, unless the
failure to obtain any such consent or approval is not in the judgment of AMHC
and AMH reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect (as defined in Section 8.5) on AMHC, AMH or the Surviving
Corporation;
(i) Effectiveness of Plan. All conditions precedent to the
effectiveness of the Plan (including, without limitation, receipt of the opinion
of Caplin & Drysdale, Chartered, special tax counsel referenced in the Plan),
except for effectiveness of the Merger, shall have been satisfied or waived,
subject to the extent required by law to the approval of the Iowa Commissioner;
(j) Tax Opinions. Each of AMHC and AMH shall have received a
copy addressed to it of the opinion of Caplin & Drysdale, Chartered, referenced
in the Plan. In addition, each of AMHC and AMH shall have received an opinion of
counsel or accountant or other confirmation reasonably satisfactory to AMHC and
AMH, to the effect that the transactions contemplated by this Agreement do not
result in the imposition of an entity-level state tax; and
(k) Insurance. AMHC shall have purchased (i) single premium
environmental liability insurance with a ten year term in an amount of $50
million per event and in the aggregate and with a retention of $500,000 per
event including, without limitation, coverage for items set forth in Schedule
4.2(m), and (ii) representation and warranty insurance in an amount and upon
such terms upon which AMHC and AMH mutually agree.
Section 6.2 Additional Conditions to Obligations of AMHC. The
obligation of AMHC to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Effective time of each of the following
conditions, any of which may be waived, in writing, exclusively by AMHC, in its
sole discretion.
(a) Representations and Warranties. The representations and
warranties of AMH contained in this Agreement shall have been true and correct
in all material respects as of the date of this Agreement. In addition, the
representations and warranties of AMH contained in this Agreement shall be true
and correct in all material respects on and as of the Effective Time except for
changes contemplated by this Agreement, with the same force and effect as if
made on and as of the Effective Time, except in such cases where the failure to
be so true and correct would not have a Material Adverse Effect (as defined in
Section 8.5) on AMH.
(b) Agreements and Covenants. AMH shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them at or prior to the
Effective Time.
(c) Material Adverse Effect. No Material Adverse Effect (as
defined in Section 8.5) with respect to AMH shall have occurred since the date
of this Agreement.
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<PAGE> 16
Section 6.3 Additional Conditions to the Obligations of AMH. The
obligations of AMH to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by AMH, in its
sole discretion.
(a) Representations and Warranties. The representations and
warranties of AMHC contained in this Agreement shall have been true and correct
in all material respects as of the date of this Agreement. In addition, the
representations and warranties of AMHC contained in this Agreement shall be true
and correct in all material respects on and as of the Effective Time except for
changes contemplated by this Agreement, with the same force and effect as if
made on and as of the Effective Time, except in such cases where the failure to
be so true and correct would not have a Material Adverse Effect (as defined in
Section 8.5) on AMHC.
(b) Agreements and Covenants. AMHC shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the
Effective Time.
(c) Material Adverse Effect. No Material Adverse Effect (as
defined in Section 8.5) with respect to AMHC shall have occurred since the date
of this Agreement.
(d) Corporate Opinion. AMH shall have received an opinion
dated as of the date of Closing of Belin Lamson McCormick Zumbach Flynn, A
Professional Corporation, corporate counsel to AMHC, in form and substance
reasonably satisfactory to it, to the effect that the AMHC Shares issuable
pursuant to the Merger are duly authorized, validly issued, fully paid and
non-assessable and with respect to such other matters as AMH may reasonably
request.
Article VII
Termination, Amendment and Waiver
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
stockholders of AMH and members of AMHC:
(a) by mutual written consent duly authorized by the Board of
Directors of each of AMH and AMHC;
(b) by AMHC if the approval of the stockholders of AMH
contemplated by this Agreement shall not have been obtained by reason of the
failure to obtain the required vote at a duly held meeting of stockholders;
(c) by AMH if the approval of the members of AMHC contemplated
by this Agreement shall not have been obtained by reason of the failure to
obtain the required vote at a duly held meeting of members;
(d) by AMHC, upon a breach of any representation, warranty,
covenant or agreement on the part of AMH set forth in this Agreement, or if any
representation or warranty of AMH shall have become untrue, in either case such
that the conditions set forth in Section 6.2(a)
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<PAGE> 17
or Section 6.2(b) would not be satisfied as of the time of such breach or as of
the time such representation or warranty shall have become untrue, provided,
that if such inaccuracy in AMH's representations and warranties or breach by AMH
is curable by AMH through the exercise of its commercially reasonable efforts,
then AMHC may not terminate this Agreement under this Section 7.1(d) provided
AMH continues to exercise such commercially reasonable efforts to cure such
breach; or
(e) by AMH, upon a breach of any representation, warranty,
covenant or agreement on the part of AMHC set forth in this Agreement, or if any
representation or warranty of AMHC shall have become untrue, in either case such
that the conditions set forth in Section 6.3(a) or Section 6.3(b) would not be
satisfied as of the time of such breach or as of the time such representation or
warranty shall have become untrue, provided, that if such inaccuracy in AMHC's
representations and warranties or breach by AMHC is curable by AMHC through the
exercise of its commercially reasonable efforts, then AMH may not terminate this
Agreement under this Section 7.1(e) provided AMHC continues to exercise such
commercially reasonable efforts to cure such breach.
Section 7.2 Effect of Termination; Exclusive Remedy. If this Agreement
is validly terminated pursuant to Section 7.1 hereof, this Agreement shall
forthwith become null and void, and there will be no liability on the part of
AMHC, AMH or any of their respective affiliates, officers, directors, employees,
agents, consultants or other representatives with respect to this Agreement or
the matters contemplated hereby. Termination shall be the sole and exclusive
remedy available to a party hereunder, and to the full extent permitted by law,
each party hereby waives all rights to remedies other than termination of this
Agreement.
Section 7.3 Amendment. This Agreement may be amended by the parties
hereto at any time before or after any required approval of matters presented in
connection with the Merger by the stockholders of AMH and members of AMHC and,
to the extent required by law, subject to the approval of the Iowa Commissioner;
provided, however, that after any such approval, there shall not be made without
approval of the applicable stockholders and members any amendment that by law or
governing document is required to be submitted to the stockholders or members of
any of the parties hereto for approval. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
Section 7.4 Waiver. At any time prior to the Effective Time, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, or (b) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
Article VIII
General Provisions; Post-Closing Covenants
Section 8.1 Entire Agreement; No Assignment. This Agreement (including
any Exhibits and Schedules, and other documents and instruments referred to
herein) (a) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written
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<PAGE> 18
and oral among the parties or any of them, with respect to the merger of AMH
with and into AMHC; (b) is not intended to confer upon any other person any
rights or remedies hereunder, except that the current and former directors and
officers of AMH are intended by the parties to this Agreement to be third party
beneficiaries of Section 5.5 of this Agreement; and (c) shall not be assigned by
operation of law or otherwise.
Section 8.2 Representations, Warranties and Covenants. (a) The
representations and warranties of AMHC and AMH contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
(b) Notwithstanding any other provision of this Agreement, any
representation, warranty or covenant made by AMHC with respect to its
subsidiaries shall not for purposes of this Agreement include AMH and/or its
subsidiaries.
Section 8.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Iowa without giving effect
to the provisions thereof relating to conflicts of law.
Section 8.4 Additional Actions. If, at any time after the Effective
Time, the Surviving Corporation shall consider that any further assignments or
assurances in law or any other acts are necessary or desirable to (i) vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation its
right, title or interest in, to or under any of the rights, properties or assets
of AMH acquired or to be acquired by the Surviving Corporation as a result of,
or in connection with, the Merger, or (ii) otherwise carry out the purposes of
this Agreement, AMH and its proper officers and directors shall be deemed hereby
to have granted to the Surviving Corporation an irrevocable power of attorney
coupled with an interest to execute and deliver all such proper deeds,
assignments and assurances in law and to do all acts necessary or proper to
vest, perfect or confirm title to and possession of such rights, properties or
assets in the Surviving Corporation and otherwise to carry out the purposes of
this Agreement; and the proper officers and directors of the Surviving
Corporation are fully authorized in the name of AMH or otherwise to take any and
all such action.
Section 8.5 Definition of Material Adverse Effect; Person; Knowledge.
For the purposes of this Agreement, the term "Material Adverse Effect," with
respect to any Person, shall mean any change, event or effect that is material
and adverse to the business, assets, financial condition, results of operations
or prospects of such Person and its subsidiaries taken as a whole (except for
those changes, events and effects that are directly caused by (i) conditions
affecting the United States economy as a whole; or (ii) conditions affecting
either the insurance or annuity industry, in either such case as a whole, which
conditions (in the case of clause (i) or (ii)) do not affect such Person and its
subsidiaries taken as a whole in a disproportionate manner; or (iii) any adverse
effect on a Person and its subsidiaries taken as a whole, or the operations of
such Person and its subsidiaries taken as a whole, where such effect is
primarily attributable to the transactions contemplated by this Agreement or the
pendency or announcement of the Merger). For purposes of this Agreement,
"Person" shall mean any corporation, partnership or other business entity.
References herein to the "knowledge of," "best knowledge of," "know" and
variations thereof of
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<PAGE> 19
a Person, mean the actual knowledge of the Chairman of the Board, Chief
Executive Officer, Senior Vice President, Chief Financial Officer and Treasurer,
Senior Vice President and Secretary or Senior Vice President and General Counsel
of such Person. References to "subsidiaries" herein shall not include AMH when
the "Person" is AMHC.
Section 8.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of AMH and AMHC has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
AMERICAN MUTUAL HOLDING COMPANY
By: s/ Roger K. Brooks
---------------------------------------
Name: Roger K. Brooks
Title: Chairman, President & CEO
AMERUS LIFE HOLDINGS, INC.
By: s/ Michael G. Fraizer
---------------------------------------
Name: Michael G. Fraizer
Title: Senior Vice President & CFO
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<PAGE> 1
EXHIBIT 2.7
EXECUTION COPY
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
This AMENDMENT NO. 1 ("Amendment") is made as of this 18th day of February,
2000, to the Agreement and Plan of Merger dated December 17, 1999, by and
between American Mutual Holding Company, an Iowa mutual insurance holding
company ("AMHC"), and AmerUs Life Holdings, Inc., an Iowa corporation ("AMH")
(the "Merger Agreement").
RECITALS
WHEREAS, the respective Boards of Directors of AMHC and AMH have approved and
will recommend to its members and stockholders, respectively, the approval of
the Merger Agreement and this Amendment whereby AMH shall merge with and into
AMHC, subject to the terms set forth therein and herein (the "Merger");
WHEREAS, subsequent to the date of the Merger Agreement, AMHC and AMH entered
into a Combination and Investment Agreement (the "Combination Agreement"), by
and among AMHC, AMH, Indianapolis Life Insurance Company, an Indiana mutual
insurance company ("Indianapolis Life") and The Indianapolis Life Group of
Companies, Inc., an Indiana corporation ("ILGC"), pursuant to which among other
things, AMHC, AMH, Indianapolis Life and ILGC will enter into a strategic
combination pursuant to a series of transactions in which AMHC and AMH will
first complete the Restructuring (as defined in the Plan) and Indianapolis Life
will thereafter complete a plan of conversion under applicable provisions of the
insurance law of the State of Indiana (the "Indianapolis Life Demutualization")
with Indianapolis Life remaining an Indiana domiciled life insurance company
while becoming an indirect wholly-owned stock subsidiary of AMHC upon completion
of the Indianapolis Life Demutualization;
WHEREAS, the Combination Agreement requires that AMHC and/or AMH invest $100
million in ILGC ("ILGC Investment") in return for 105.96 shares of non-voting
common stock of ILGC which represents 45% of the equity in ILGC (the non-voting
common stock will be exchangeable for ILGC voting stock upon receipt of
regulatory approval for such exchange); and
WHEREAS, the Board of Directors of AMH adopted on February 11, 2000, the AmerUs
Life Holdings, Inc. 2000 Stock Option Plan (the "AMH 2000 Stock Option Plan");
and
WHEREAS, the parties desire to amend the Merger Agreement to provide for
treatment of the ILGC Investment, AMH 2000 Stock Option Plan and other matters.
NOW, THEREFORE, the parties agree as follows:
<PAGE> 2
1. The last sentence of Section 3.7 is amended by striking such sentence in its
entirety and substituting in lieu thereof the following sentence:
"At the Effective Time, AMHC shall assume and adopt the AmerUs Life Holdings,
Inc. Non-Employee Director Stock Plan, the AmerUs Life Holdings, Inc. 1999
Non-Employee Stock Option Plan, the AmerUs Life Holdings, Inc. Stock Incentive
Plan, the AmerUs Group Co. MIP Deferral Plan and the AmerUs Life Holdings, Inc.
2000 Stock Option Plan, as each such plan is maintained and administered by AMH
at the Effective Time."
2. The following is added as Section 6.2(d) to the Agreement:
"(d) Purchase Agreement. AMH shall have performed or complied in all
respects with the terms of the Purchase Agreement, dated February 18,
2000, between AMH and AMHC."
3. The following is added as Section 8.7 to the Agreement:
Section 8.7 Monetization of Non-Insurance Subsidiaries and ILGC Common
Stock. Each of AMHC and AMH agrees that upon consummation of the transactions
contemplated hereby, the Surviving Corporation shall be obligated to make
appropriate credit to Net Cash Proceeds with respect to the Non-Insurance
Subsidiaries and ILGC Common Stock and to make distributions to those persons
who are Eligible Members of AMHC, in each such case to the extent required by
and in accordance with the Plan. "Net Cash Proceeds," "Non-Insurance
Subsidiaries," "ILGC Common Stock," and "Eligible Members" shall all have the
meanings given such terms in the Plan.
4. Except as set forth herein, the Agreement remains in full force and effect
and unmodified.
5. Capitalized terms used but not defined herein shall have the meanings given
such terms in the Merger Agreement.
IN WITNESS WHEREOF, each of AMH and AMHC has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
AMERICAN MUTUAL HOLDING COMPANY
By: s/ Roger K. Brooks
-------------------------------
Name: Roger K. Brooks
Title: Chairman, President & CEO
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<PAGE> 3
AMERUS LIFE HOLDINGS, INC.
By: s/ Michael G. Fraizer
-------------------------------
Name: Michael G. Fraizer
Title: Executive Vice President & CFO
-3-
<PAGE> 1
EXHIBIT 2.8
AmerUs Life Holdings, Inc.
699 Walnut Street, Suite 2000
Des Moines, Iowa 50309
December 17, 1999
RE: Fees and Expenses
Dear Sirs:
Reference is made to the Plan of Conversion dated as of even date herewith (the
"Plan") and the transactions contemplated thereby (including, without
limitation, the merger of AmerUs Life Holdings, Inc. ("AMH") with and into
American Mutual Holding Company ("AMHC") pursuant to an Agreement and Plan of
Merger, the form of which is attached to the Plan (the "Merger Agreement")) (the
"Transactions").
The parties hereto desire to allocate responsibility for payment of certain
expenses incurred in connection with the Plan and the Transactions. Accordingly,
AMHC agrees to pay promptly:
(1) all costs and additional Board fees of the Special Committee of the
Board of Directors of AMHC and its advisors (Houlihan Lokey Howard & Zukin; The
Critelli Law Firm; Elias, Matz, Tiernan & Herrick; and Clifton Gunderson);
(2) fees of the Belin Law Firm, KPMG, Tillinghast, M&R, Client
Connections, Caplin & Drysdale, all costs of supplemental actuarial services and
SEC fees, and fees of Vality Technology;
(3) AMHC's proportionate share (based on number of holders and members,
respectively) of printing, mailing and postage, and 58% of the fees of Sullivan
& Cromwell, Goldman, Sachs & Co. and Marsh Inc. and 58% percent of the cost of
environmental liability insurance referenced in the Merger Agreement; and
(4) The cost of representation and warranty insurance in an amount and
upon such terms upon which AMHC and AMH mutually agree.
AMH agrees to pay promptly:
(1) all costs and additional Board fees of the Special Committee of
the Board of Directors of AMH and its advisors (Donaldson, Lufkin
and Jenrette; Chapman and Cutler; and Landauer);
<PAGE> 2
(2) fees of the Nyemaster Law Firm; and
(3) AMH's proportionate share (based on number of holders and members,
respectively) of printing, mailing and postage, and 42% of the
fees of Sullivan & Cromwell, Goldman, Sachs & Co. and Marsh Inc.
and 42% of the cost of environmental liability insurance
referenced in the Merger Agreement
On or before the date of consummation of the Transactions, we shall negotiate in
good faith to determine the respective percentage of responsibility for payment
of miscellaneous expenses and internal transfer charges.
This Letter Agreement shall be binding on the parties hereto whether or not the
Plan or the Transactions are consummated.
Please sign below to indicate your agreement to the matters set forth above.
Sincerely,
AMERICAN MUTUAL HOLDING COMPANY
By
s/ Roger K. Brooks
-----------------------------------
Roger K. Brooks
Chairman, President and Chief
Executive Officer
AGREED AND ACCEPTED AS OF
THE DATE FIRST SET FORTH ABOVE:
AMERUS LIFE HOLDINGS, INC.
By
s/ Michael G. Fraizer
-----------------------------------
Michael G. Fraizer
Senior Vice President and Chief Financial Officer
<PAGE> 1
EXHIBIT 2.9
NOTIFICATION AGREEMENT
This Notification Agreement, dated as of February 18, 2000, by and among
American Mutual Holding Company, an Iowa mutual insurance holding company
("AMHC"), AmerUs Life Holdings, Inc., an Iowa corporation ("AMH"), and Bankers
Trust Company (the "Custodian")(the "Agreement").
WHEREAS, on October 23, 1997, the Custodian and each of AMH, Delta Life and
Annuity Company and American Investors Life Insurance Company, Inc. entered into
separate agreements entitled "Bankers Trust Company Custodian Agreement - Global
Custody" (the "Custody Agreements") pursuant to which the Custodian agreed to
safekeep certain Property (as defined in the Custody Agreements);
WHEREAS, AMHC and AMH have entered into a Purchase Agreement of even date
herewith (the "Purchase Agreement") whereby upon certain triggering events AMH
has agreed to purchase from AMHC, upon the request of AMHC, certain shares of
common stock of Indianapolis Group of Companies, Inc., an Indiana corporation
held by AMHC; and
WHEREAS, in connection with the obligations of AMH under the Purchase Agreement,
AMH has agreed to maintain, or to cause its subsidiaries to maintain, on deposit
with a custodian certain assets having an aggregate fair market value of at
least $110 million and to cause such custodian to provide notice of certain
matters to AMHC.
NOW THEREFORE, the parties agree as follows:
Section 1. Assets; Account Matters. AMH represents and warrants to AMHC
that on the date of this Agreement the assets identified on Schedule I hereto
(as such assets may be substituted in accordance with the Purchase Agreement,
the "Assets") are held as Property by the Custodian pursuant to valid and
binding agreements therewith. The Custodian hereby confirms that it holds such
Assets pursuant to the Custody Agreements.
Section 2. Reports and Notices. (a) During the term of this Agreement,
the Custodian agrees (i) to deliver to Nicholas Critelli, counsel to the AMHC
Special Board Committee, at an address specified by Mr. Critelli, or such other
person as may be designated in writing by Mr. Critelli, upon request by Mr.
Critelli and no less frequently than on a monthly basis, written confirmation
that the Assets continue to be held by the Custodian and (ii) to deliver to Mr.
Critelli immediate notice of any encumbrance, pledge, lien, removal or sale of
the Assets.
(b) During the term of this Agreement, AMH agrees to immediately notify
the Custodian of any encumbrance, pledge, lien, removal or sale of the Assets
and to provide to Mr. Critelli on behalf of the Special Board Committee of AMHC,
on a weekly basis a certificate from its Chief Financial Officer certifying that
the Assets continue to be held by the Custodian.
<PAGE> 2
Section 3. Amendment of Custody Agreement. This Agreement shall
constitute an amendment to each of the Custody Agreements pursuant to Section 17
thereof and AMHC shall become a third party beneficiary thereunder with respect
to the Assets.
Section 4. Termination of Agreement. This Agreement shall terminate
upon the occurrence of one of the following events:
4.1 The termination of the Purchase Agreement in accordance with
its terms;
4.2 The Closing Date under the Purchase Agreement;
4.3 Mutual written agreement by AMHC and AMH to terminate this
Agreement, with notice thereof to the Custodian.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
AMERICAN MUTUAL HOLDING COMPANY
By: s/ Roger K. Brooks
-------------------------------
Name: Roger K. Brooks
Title:
AMERUS LIFE HOLDINGS, INC.
By: s/ Roger K. Brooks
-------------------------------
Name: Roger K. Brooks
Title:
BANKERS TRUST COMPANY
By: s/ David F. Hoyt
-------------------------------
Name: David F. Hoyt
Title: Director
-2-
<PAGE> 1
EXHIBIT 10.19
LEASE
THIS LEASE (the "Lease") is made and entered into this 1st day of
December, 1999, by and between AmerUs Properties, Inc., (hereinafter called
"Landlord"), and AmerUs Life Insurance Company (hereinafter called "Tenant").
For and in consideration of the rental and of the covenants and agreements
hereinafter set forth to be kept and performed by Tenant, Landlord hereby leases
to Tenant and Tenant hereby leases from Landlord, the Building or Buildings and
the Premises as defined below, for the term and at the rental amount, and
subject to and upon all of the terms, covenants, and agreements hereinafter set
forth. This Lease supercedes and replaces all previous leases between the
parties for the property leased hereunder.
1.0 DEFINITIONS
1.1 Building and Buildings. The word "Building" as used in this
Lease shall mean the 4-story building located at 611 - 5th
Avenue, Des Moines, Iowa 50309.
1.2 Personal Property. Intentionally Deleted.
1.3 Premises. The word "Premises" as used in this Lease shall mean
the fee or leasehold interest in the underlying ground and
driveways and parking areas outside of the Building of real
property defined on Exhibit "A" attached hereto.
1.4 Leased Property. The words "Leased Property" as used in this
Lease shall mean, collectively, the Building and the Premises.
1.5 Equipment. The word "Equipment" as used in this Lease shall
mean, collectively, the furniture, fixtures and equipment
owned by Tenant and located in any Building or on any Premises
1.6 Operations. The Equipment, inventory, contract rights,
leasehold improvements, and other items of personal property,
whether tangible or intangible, used by the Tenant in the
operation of such insurance company.
1.7 Taxes. The real property taxes and personal property taxes
applicable to any Leased Property and Tenant's Operations
pursuant to Sections 4.2 and 4.3.
2.0 TERM
2.1 The Term of this Lease shall be for a period of five (5) years
and one (1) month, commencing on the 1st day of December, 1999
(the "Rent Commencement Day") and ending on the 31st day of
December, 2004. A "Lease Year" shall commence on the Rent
Commencement Day and end 12 months thereafter.
<PAGE> 2
2.2 Options to Renew Lease. Tenant shall have the option upon nine
(9) months' prior written notice in each instance to renew the
Lease for two (2) additional terms of five (5) years each on
the same terms and conditions as herein set forth except that
the base rent for the first option shall be $570,000.00 and
the base rent for the second option shall be at "market
price". Should the parties be unable to agree on the "market
price", the Landlord shall select an appraiser, the Tenant
shall select a second appraiser and the two appraisers shall
appoint a third appraiser to determine "market price".
3.0 RENT.
Tenant shall pay to Landlord as rent for the Lease Property the sum of
$520,000.00 per annum payable $43,333.33 per month in advance, without
deduction, offset, abatement for casualty, condemnation or other
reason, prior notice or demand, in lawful monies of the United States
of America.
4.0 TAXES.
4.1 Payment of Taxes. Tenant shall pay, as additional rent
hereunder, all real property taxes applicable to the Leased
Property during the term of the Lease and shall assume all
obligations for real property taxes accrued or existing for
calendar year 1999 prior to the Rent Commencement Date.
Payment of taxes shall be made to Landlord on or before ten
(10) days prior to the due date of such taxes, and Landlord
shall promptly remit the payment to the appropriate taxing
authorities. Landlord shall be responsible for any interest or
penalties associated with taxes paid subsequent to the due
date therefore only in the event Landlord receives payment
from Tenant on or before ten (10) days prior to such due date.
In the event such real property taxes required to be paid by
Tenant cover any period of time after expiration of the term
of this Lease, Tenant's share of such taxes shall be equitably
prorated to cover only the period of time within the fiscal
tax year during which this Lease is in effect. Landlord shall
forward copies of all tax bills within fifteen (15) days after
Landlord's receipt thereof.
4.2 Definition of "Real Property Taxes". As used herein, the term
"real property tax" shall include any form of assessment,
license fee, rent tax, sales tax on rental receipts, levy, or
tax imposed by any authority having the direct or indirect
power to tax, including any city, county, state, or federal
government, or any school, agricultural, lighting, drainage,
or other improvement district thereof, as against any legal or
equitable interest of Landlord in any Leased Property or in
the real property of which any Premises is a part, as against
Landlord's right to rent or other income therefrom.
4.3 Personal Property Tax. Tenant shall pay prior to delinquency
all taxes assessed against and levied upon leasehold
improvements, fixtures, furnishings and Equipment.
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<PAGE> 3
4.4 If Tenant should fail to pay any taxes, assessments or
governmental charges required to be paid by it hereunder, in
addition to any other remedies provided herein, Landlord may,
in its sole discretion, pay such taxes, assessments and
governmental charges. Any sums so paid by Landlord shall be
deemed to be additional rental owing by Tenant to Landlord and
due and payable upon demand as additional rent with interest
at the rate of twelve percent (12.00%) from the date of the
payment by Landlord.
4.5 If at any time during the term of the Lease the present method
of taxation shall be changed so that, in lieu of the whole or
any part of any taxes, assessments, levies or charges levied,
assessed or imposed on real estate and the improvements
thereon there shall be levied, assessed or imposed on Landlord
a capital levy or other tax directly on the rents received
from Tenant and/or any assessment, levy or charge measured by
or based in whole or in part, upon such rents, then all such
taxes, assessments, levies or charges, or the part thereof so
measured or based, shall be deemed to be included with the
term taxes for the purposes hereof and shall be paid by
Tenant.
4.6 Tenant may contest by appropriate proceedings, the amount,
validity or application of any taxes by appropriate
proceedings diligently conducted in good faith provided that
(a) such proceedings shall suspend the collection thereof, (b)
no part of the Leased Property or of any rent would be subject
to loss, sale or forfeiture before determination of any
contest, (c) Landlord would not be subject to any criminal
liability for failure to pay, (d) such proceedings shall not
affect the payment of rent hereunder or prevent Tenant from
using any Leased Property for its intended purposes, and (e)
Tenant shall notify Landlord of any such proceedings at which
the amount of contest exceeds $10,000.00 within 20 days after
the commencement thereof, and shall describe such proceedings
in reasonable detail. Tenant will conduct all such contests in
good faith and with due diligence and will, promptly after the
determination of such contest, pay and discharge all amounts
which shall be determined to be payable therein. In the event
Tenant elects to dispute and contest any taxes, it shall
provide Landlord with a surety bond in the amount of taxes in
dispute.
4.7 Landlord covenants and agrees that if there shall be any
refunds or rebates of the Taxes paid by Tenant, such refunds
or rebates shall belong to Tenant. Any refunds received by
Landlord shall be deemed trust funds and as such are to be
received by Landlord in trust and paid to Tenant forthwith.
Tenant will, upon the request of the Landlord, sign any
receipts which may be necessary to secure the payment of any
such refunds or rebates.
5.0 USE.
5.1 Use. The Leased Property shall be used and occupied by Tenant
only as general office use. Tenant shall not change the use of
any Leased Property as set forth above without Landlord's
prior written consent, which consent shall not be
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<PAGE> 4
unreasonably withheld. Tenant will not do or permit any act or
thing that is contrary to any legal requirement or insurance
requirement, or that impairs the value of any Leased Property
or any part thereof or that materially increases the dangers,
or poses unreasonable risk of harm, to third parties (in, on
or off any Leased Property) arising from activities thereon,
or that constitutes a public or private nuisance or waste to
any Leased Property or any part thereof. Tenant shall not
conduct any activity on any Premises or use any Leased
Property in any manner (i) which would cause any Leased
Property to become a hazardous waste treatment, storage or
disposal facility within the meaning of, or otherwise bring
any Leased Property within the ambit of, the Resource
Conservation and Recovery Act of 1976 as amended, 42
U.S.C.ss.6901 et seq., or any similar state law or local
ordinance; (ii) so as to cause a release or threat of release
of hazardous waste from any Leased Property within the meaning
of, or otherwise bring any Leased Property within the ambit
of, the Comprehensive Environmental Response Compensation and
Liability Act of 1980 as amended, the Toxic Substance Control
Act 15 U.S.C.ss. 2601, et seq. and the Federal Hazardous
Materials Transportation Act 49 U.S.C.ss.1801 et seq., or any
similar state law or local ordinance or any other
environmental law; or (iii) so as to cause a discharge of
pollutants or effluents into any water source or system, or
the discharge into the air of any emissions, which would
require a permit under the Federal Water Pollution Control
Act, 33 U.S.C.ss.1251, et seq., or the Clean Air Act, 42
U.S.C.ss.1857, et seq., or any similar state or local
ordinance.
5.2 Compliance with the Law. Tenant shall, at Tenant's expense,
comply promptly with all applicable statutes, ordinances,
rules, regulations, orders and requirements in effect during
the term hereof, regarding the use by Tenant of any Leased
Property. Tenant shall not use or permit the use of any Leased
Property in any manner that will tend to create waste or a
nuisance, or, otherwise expose Landlord or any Leased Property
to any liability.
5.3 Condition of Leased Property. Tenant hereby accepts all of the
Leased Property in their condition as of the date of the
possession hereunder, subject to all applicable zoning,
municipal, county and state laws, ordinances, and regulations
governing and regulating the use of any Leased Property, and
accepts this Lease subject thereto and to all matters
disclosed thereby, and by any exhibits attached hereto. Tenant
acknowledges that neither the Landlord nor Landlord's agent
has made any representation or warranty as to the suitability
of any Leased Property for the conduct of the Tenant's
business.
5.4 Tenant's Covenants and Indemnity. Tenant shall not dispose of
or otherwise allow the release of any hazardous waste or
materials in, on, or under the Premises, or any adjacent
property or in any improvements placed on the Premises. Tenant
represents and warrants to Landlord that Tenant's intended use
of any Leased Property does not involve the use, production,
disposal or bringing onto any Premises of any hazardous waste
or materials. Tenant shall promptly comply with all statutes,
regulations and ordinances, and with all orders, decrees
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<PAGE> 5
or judgements of governmental authorities or courts having
jurisdiction, relating to the use, collection, treatment,
disposal, storage, control, removal or clean up of hazardous
waste or materials, in, on, or under any Leased Property or
any adjacent property, or incorporated in any improvements, at
Tenant's expense.
Whether or not Tenant has actual knowledge of the release of
hazardous waste or materials in, on, or under any Leased
Property or any adjacent property as the result of Tenant's
use of any Leased Property, Tenant shall reimburse Landlord
for the full amount of all costs and expenses incurred by
Landlord in connection with such compliance activities, and
such obligation shall continue even after the termination of
this Lease. Tenant shall notify Landlord immediately of any
release of any hazardous waste or materials in, on or under
any Leased Property.
Tenant shall indemnify, defend and hold Landlord harmless from
and against any and all claims, damages, demands, losses,
liens, liabilities, obligations, fines, penalties, charges,
judgements, clean up costs, remedial actions and other
proceedings and costs and expenses (including, without
limitation, attorneys' fees and disbursements) which may be
imposed on, incurred or paid by, or asserted against Landlord
or any Leased Property by reason of, or in connection with (i)
any misrepresentation or breach of warranty, or (ii) the acts
or omissions of Tenant, or any sublessee or other person for
whom Tenant would otherwise be liable, resulting in the
release of any hazardous waste or materials, or (iii) arising
directly or indirectly from or out of or in any way connected
to Tenant's use, storage, ownership, possession, or control of
hazardous substances in, on or under any Leased Property which
directly or indirectly result in the Leased Property or any
other property becoming contaminated with hazardous
substances. Tenant hereby agrees upon notification to clean up
from any Leased Property or any other property any
contamination caused by its activity, including, without
limitation, use, storage, ownership, possession or control of
hazardous substances in, on or under any Leased Property,
including, without limitations, any remedial action required
by applicable governmental authorities. Tenant further
acknowledges that it will be solely responsible for all costs
and expenses relating to the clean up of hazardous substances
from any Leased Property or any other properties which become
contaminated with hazardous substances as a result of Tenant's
activities in, on or under any Leased Property.
The terms "hazardous substances" and "hazardous waste or
materials" shall mean: Any substance or material defined or
designated as a hazardous or toxic waste, hazardous or toxic
material, a dangerous, hazardous, toxic, or radioactive
substance, or other similar term, by any federal, state or
local environmental statute, regulation, or ordinance
presently in effect or that may be promulgated in the future,
as such statutes, regulations, and ordinances may be amended
from time to time including, but not limited to, the statutes
listed below:
Resource Conservation and Recovery Act of 1976, as amended, 42
U.S.C. ss. 6901 et seq.
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<PAGE> 6
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 as amended, 49 U.S.C. ss. 1801 et. seq.
Clean Air Act, 42 U.S.C. ss. 1857
Water Pollution Control Act, Federal Clean Water Act, 33
U.S.C.ss.1251, et seq.
Insecticide, Fungicide, and Rodenticide Act, Federal Pesticide
Act, 7 U.S.C., Paragraph 13, et seq.
Toxic Substances Control Act, 15 U.S.C. ss.2601, et seq.
Safe Drinking Water Act, 42 U.S.C. ss.300(f), et seq.
5.5 Air Quality. Tenant shall pay the cost of a contract with Mary
A. Finn Associates, Ltd. or another qualified professional
providing for the performance of a five (5) year quarterly air
monitoring program which cost is estimated at $37,000.00 over
the five (5) year term and a five (5) year annual employee
notification/training program which cost is estimated at
$2,500.00 over the five (5) year period and shall pay the cost
of the installation of OSHA required signs and labels at the
leased property.
5.6 Insurance Cancellation. Notwithstanding the provisions of
Section 5.1 above, no use shall be made or permitted to be
made of any Leased Property nor acts done which will cause the
cancellation of any insurance policy covering any Leased
Property or any other property of which any Premises may be a
part.
5.7 After notice to Tenant and reasonable opportunity for Tenant
to effect such compliance, Landlord may, but is not obligated
to, enter upon any Leased Property and take such actions and
incur such costs and expenses to effect such compliance as it
deems advisable to protect its interest in any Leased
Property; provided, however, that Landlord shall not be
obligated to give Tenant notice and an opportunity to effect
such compliance if (i) such delay might result in material
adverse harm to Landlord or any Leased Property, (ii) Tenant
has already had actual knowledge of the situation and a
reasonable opportunity to effect such compliance, or (iii) an
emergency exists.
6.0 UTILITIES.
Tenant shall pay prior to delinquency for all water, gas, heat, light,
power, telephone, sewage and city assessments, air conditioning,
ventilation, janitorial, landscaping, fire protection monitoring
service, solid waste removal, snow removal, elevator maintenance,
security, pest control, window washing, and all other materials and
utilities supplied to any Leased Property. Landlord has no
responsibility to maintain or pay for any utilities on any Leased
Property.
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7.0 MAINTENANCE AND REPAIRS: ALTERATIONS AND ADDITIONS.
7.1 Management. Tenant acknowledges that Landlord or its successor
may enter into a property management contract with a third
party or entity related to Landlord for the management of the
subject property. The consideration for said services shall
not exceed $50,000.00 annually. Tenant shall be responsible to
Landlord for such cost. Tenant shall also reimburse Landlord
for actual cost of on-site maintenance personnel who are not
employees of Tenant.
7.2 Maintenance and Repairs. Tenant shall at its sole cost and
expense keep and maintain all Leased Property, including
sidewalks, landscaping and driveways located on the Premises,
in good working order and condition and repair, and shall
suffer no waste with respect thereto. Tenant shall at its sole
cost and expense make all needed repairs to and replacements
of the Leased Property, interior and exterior, structural and
nonstructural, ordinary and extraordinary, including but not
limited to any roof, air conditioning and heating systems,
replacements or cracked or broken glass, repair of parking
areas and driveways, and shall keep the plumbing units, pipes
and connections free from obstruction and protected against
ice and freezing. Landlord has no responsibility to maintain
or pay for any part of the maintenance or replacement of the
Leased Property.
7.3 Surrender. On the last day of the term hereof, or on any
sooner termination, Tenant shall surrender the Leased Property
to Landlord in good condition, broom clean, ordinary wear and
tear excepted. Tenant shall repair any damage to the Leased
Property caused by the removal of Tenant's Equipment pursuant
to Section 7.4 below, which repairs shall include the patching
and filling of holes thereof, the repair of structural damage
of any kind or type, the repair or replacement (but only to
the extent required) of all damaged mechanical equipment and
all heating, air conditioning, and ventilating equipment.
7.4 Landlord's Rights. If Tenant fails to perform Tenant's
obligations under any of the provisions of this Section 7,
Landlord shall give Tenant written notice to do such acts as
are reasonably required to maintain any Leased Property in
good order and condition. If, within thirty (30) days of such
notice, Tenant fails to commence to do the work and diligently
prosecute it to completion, then Landlord shall have the
right, (but not the obligation) at Tenant's expense to take
such action or expend such funds necessary (i) to prevent
immediate physical deterioration to the Premises or (ii) to
comply with any actions by governmental bodies or neighboring
landowners. Any amount so expended by Landlord shall be paid
by Tenant within ten (10) days after billing for same, with
interest at twelve percent (12.00%) per annum from the date of
such work. Landlord shall have no liability to Tenant for any
damage, inconvenience, or interference with the use of any
Leased Property by Tenant as a result of performing any such
work.
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7.5 Alterations and Additions.
(a) Tenant shall not make any alterations to any structural
component of any Building (including, but not limited to
exterior walls, foundations and roof), or utility
installations on or about any Premises without the express
written consent of the Landlord; provided, however, that the
Landlord will not unreasonably delay or withhold consent. As
used in this section, the term "utility installations" shall
include ducting, power plants, space heaters, conduit, and
wiring.
(b) Landlord shall have the right to approve any contractors or
sub-contractors for work on any Leased Property which is
reasonably expected to exceed $50,000.00, which approval shall
not be unreasonably withheld.
(c) All alterations, changes, additions, improvements, and utility
installations (whether or not such utility installations
constitute fixtures of Tenant) which may be made to any Leased
Property, shall at the expiration or earlier termination of
this Lease, become the property of the Landlord and remain
upon and be surrendered with the Leased Property. The
Equipment, inventory and any other personal property, to the
extent owned by the Tenant, other than that which is affixed
to any Building or Premises so that it cannot be removed
without material damage to such Building or Premises, shall
remain the property of the Tenant, and may be removed by the
Tenant subject to the provisions in Section 7.2, at any time
during the term of this Lease when Tenant is not in default of
any of the provisions of this Lease.
(d) Landlord shall be deemed to have given its consent to a
request pursuant to this Section 7.4 if it fails to respond to
Tenant's written request within fifteen (15) days after
receipt thereof and if the request states on its face that
failure to respond in a fifteen (15) day period will be deemed
to be a consent.
8.0 ENTRY BY LANDLORD.
Landlord and Landlord's agents, shall have the right on reasonable
prior notice to enter any Building or Premises to inspect the same or
to maintain or repair the Leased Property or any portion thereof
(subject to Section 7.3 hereof), or to show any Leased Property to
prospective purchasers or lenders, or during the last nine (9) months
of the term of the Lease to any prospective Tenant. Landlord shall have
the right to use any and all means which Landlord may deem proper to
open the door to any Building in an emergency of any type.
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9.0 LIENS.
Tenant shall keep all Leased Property free from any and all liens
arising out of work performed, materials furnished, or obligations
incurred by Tenant and shall indemnify and hold harmless and defend the
Landlord from an and all liens and/or encumbrances arising out of any
work performed or material furnished by or at the direction to the
Tenant. In the event that any such lien is imposed, Tenant shall have
thirty (30) days from the date of imposition to cause the lien to be
released or record or bonded around. Failure to do so by Tenant shall
allow Landlord, in addition to all other remedies provided herein by
law, the right, but by no means the obligation, to cause the lien to be
released by such means as it shall deem proper, including payment of
the claim giving rise to the lien. All such sums paid by Landlord and
all expenses incurred by it in connection therewith, including
attorney's fees and costs, shall be payable to Landlord by Tenant on
demand with interest at twelve percent (12.00%) per annum. Landlord
shall have the right at all times to post and keep posted on any Leased
Property any notices permitted or required by law, or which the
Landlord shall deem proper, for the protection of the Landlord and any
Leased Property, and/or any other party having an interest therein,
from mechanic's and materialman's liens. The Tenant shall give to
Landlord at least ten (10) days written notice of the expected date of
commencement of any work relating to alterations and/or additions to
the Leased Property where approval is required.
10.0 INDEMNITY.
10.1 Indemnity. Tenant shall defend, indemnify, and hold harmless
Landlord from and against any and all claims arising from
Tenant's use of any Leased Property or the conduct of its
business or from any activity, work, or thing done, permitted,
or suffered by Tenant in or about any Leased Property and
shall further defend, indemnify, and hold harmless Landlord
from and against any and all claims arising from any breach,
or default in the performance of any obligation on Tenant's
part to be performed under the terms of this Lease, or arising
from any act or negligence of Tenant, or any of its agents,
contractors, or employees, and from and against any and all
costs, attorneys fees, expenses, and liabilities incurred in
connection with such claim or any action or proceeding brought
thereon. In case any action or proceeding be brought against
Landlord by reason of any such claim whatsoever, Tenant, upon
notice from Landlord, shall defend same at Tenant's expense by
counsel reasonably satisfactory to Landlord. However, Tenant
shall not be liable for any damage or injury occasioned by the
negligence or intentional acts of Landlord or its designated
agents, or employees.
10.2 Exemption of Landlord from Liability. Except for intentional
acts or gross negligence of the Landlord, its agents and
employees, Landlord shall not be held liable for injury or
damage which may be sustained by the person, goods, wares,
merchandise, or property of the Tenant, or by any agent or
other person claiming by or under Tenant which might be caused
by or resulting from fire, steam, electricity, gas, water, or
rain, which may leak or flow from or into any part of
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any Leased Property or from breakage, leakage, obstruction, or
other defects of the pipes, sprinklers, wires, appliances,
plumbing, heating, air conditioning, ventilating, or lighting
fixtures of the same, whether the said damage or injury
results from conditions arising in, on or under any Building
or Premises or from other sources. Landlord shall not be
liable for any damages arising from any act or neglect of any
other tenant (if any) of any Building or Premises. Tenant
shall defend, indemnify and hold harmless Landlord from and
against any and all claims by any person which may arise from
the matters mentioned in this Section 10.2 except for
intentional acts or negligence of the Landlord, its agents and
employees.
11.0 INSURANCE.
11.1 Liability Insurance. Tenant shall, at Tenant's expense,
procure and maintain at all times during the term of this
Lease, a policy of comprehensive public liability insurance
insuring Landlord and Tenant against any liability arising out
of the ownership, use, occupancy, or maintenance of any Leased
Property. Such insurance shall at all times be in an amount of
not less than $2,000,000.00. The limits of such insurance
shall not limit the liability of the Tenant. All insurance
required under this Section 11 shall be with companies rated A
or better in Best's Insurance Guide. Tenant shall deliver to
Landlord certificates of insurance evidencing the existence
and amounts of such insurance with loss payable clauses
satisfactory to Landlord, provided that in the event Tenant
fails to procure and maintain such insurance, Landlord may
(but shall not be required to), procure same at Tenant's
expense after ten (10) days prior written notice. No such
policy shall be cancelable or subject to reduction of coverage
or other modification except after thirty (30) days prior
written notice to Landlord by the insurer. All such policies
shall be written as primary policies, not contributing with
and not in excess of coverages which the Landlord may carry.
Tenant shall, within twenty (20) days prior to the expiration
of such policies, furnish Landlord with renewals or binders or
Landlord may order such insurance and charge the cost to the
Tenant, which amounts shall be payable by Tenant on demand.
Tenant shall have the right to provide such insurance coverage
pursuant to blanket policies which the Tenant may have in
force, provided such blanket policies expressly afford
coverage of any Leased Property and to Landlord as is required
by this Lease.
11.2 Property Insurance. Landlord shall, at Tenant's expense,
procure and maintain at all times during the term of this
Lease, the policy or policies of insurance covering loss or
damage to any Leased Property in the amount of the full
replacement value thereof, and providing protection against
all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, sprinkler
leakage (if applicable), flood (to the extent that the
Property is in a flood plain), and special extended peril (all
risk). All such policies shall be written as primary policies,
not contributing with and not in excess of coverages which the
Landlord may carry. Landlord shall order such insurance and
charge the cost to the Tenant, which amounts shall be payable
by Tenant on demand. If
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Tenant determines that the premium cost is too high, Tenant
may deliver quotes from three other insurer of similar or
better Best rating for similar coverage and provided the
quotes show more than a 10% reduction in premium rate,
Landlord will select one of the three insurers to provide the
insurance for the Leased Premises. Such insurance shall
provide for payment of losses thereunder to Landlord or the
holder of a first mortgage or deed of trust on any of the
Leased Property. Any loss proceeds shall be made available for
the purposes of replacing or rebuilding the pertinent Leased
Property if required under Section 12 and in which event, such
funds shall be segregated from the general funds of Landlord.
11.3 Waiver of Subrogation. Landlord and Tenant shall waive any and
all rights of recovery against the other or against the
officers, employees, agents and representatives of the other,
on account of loss or damage occasioned to such waiving party
or its property or the property of others under its control
caused by fire or any of the extended coverage risks described
above to the extent that such loss or damage is insured.
Landlord and/or Tenant shall give notice to the insurance
carrier or carriers involved that the foregoing mutual Waiver
of Subrogation option is contained in this Lease. The waivers
provided for in this Section 11.3 shall be applicable and
effective only in the event such waivers are obtainable from
the insurance carriers concerned.
12.0 DAMAGE TO PREMISES.
12.1 Partial or Total Damage -Insurance Available. In the event of
damage causing a partial or total destruction of the Building
during the term of this Lease and there is made available to
the Landlord, pursuant to Section 11.0 above, insurance
proceeds for such damage, Landlord shall utilize all such
insurance proceeds and cause the Building to be promptly
repaired to the condition existing immediately prior to such
damage, with this Lease to continue in full force and effect.
Tenant shall deposit with Landlord or make available to
Landlord only that amount equal to the deductible provided
under said insurance contract within ten (10) days after
notice to Tenant by Landlord. Provided, however, if Landlord
has not begun reconstruction or repairs within thirty (30)
days after the later of (i) receipt of available insurance
proceeds or (ii) receipt of the deductible payment, or it is
not reasonably anticipated that such repair or reconstruction
can be completed within a 180-day period after commencement or
reconstruction, Tenant may terminate this Lease by written
notice to Landlord along with the insurance deductible.
If after commencement of construction the Building is not
completed and ready for occupancy within 180 days after the
commencement of construction, subject to Force Majeure causes,
Tenant may terminate this Lease by written notice to the
Landlord. For purposes hereof, a Force Majeure cause shall be
an act of God, weather, earthquake, strike, insurrection, war
or other event outside the control of Landlord, during which
period the 180-day period referenced above shall be abated.
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12.2 Repair Not Permitted. In the event that the Building may not
be repaired herein under applicable laws and regulations
notwithstanding the availability of insurance proceeds, this
Lease shall be terminated as to such Leased Property effective
with the date of the damage occurrence, and Landlord shall be
entitled to retain the insurance proceeds pertaining to the
Leased Property and receive from Tenant the amount of the
insurance deductible.
12.3 Damage to Building or Personal Property During Last Two Years
of Term. In the event of any total or partial destruction to
the Building occurring during the last two (2) year period of
the term of this Lease (or any extension thereof), and
notwithstanding the provisions of Sections 12.1 above,
Landlord or Tenant shall have the right for the longer of (i)
a period of sixty (60) days following the event giving rise to
the casualty or damage, or (ii) the period of fifteen (15)
days following the receipt of insurance proceeds to terminate
this Lease as to such Leased Property. In the event of such
termination, Landlord shall be entitled to retain the
insurance proceeds and receive from Tenant the amount of the
insurance deductible. This Section shall not apply to a
casualty during any period in which the remaining Lease Term
(including any properly exercised renewal options) is greater
than two (2) years.
13.0 CONDEMNATION.
If all, or a substantial portion of any Leased Property shall be taken
or appropriated for public or quasi-public use by the right of eminent
domain, (with or without litigation), or transferred by agreement in
connection with such public or quasi-public use, either Landlord or
Tenant shall have the right at is option (exercisable within thirty
(30) days of the receipt of notice of such taking) to terminate this
Lease as to such Leased Property as of the date possession is taken by
the condemning authority. A substantial portion of the Leased Property
shall be deemed to be taken or appropriated if more than twenty percent
(20.0%) of the Building is subject to such taking. If all or a
substantial portion of the parking shall be taken, Landlord shall
immediately procure equivalent substitute parking acceptable to Tenant,
which acceptance shall not be unreasonably withheld. Absent acceptance,
Tenant shall have the right to terminate this Lease. No award for any
partial or entire taking shall be apportioned, and except as provided
in the next sentence, Tenant hereby assigns to Landlord any award which
may be made in such taking appropriation, or condemnation, together
with any and all rights of Tenant now or hereafter arising in such
award. Landlord has no interest, however, in any award made to Tenant
for the taking of Equipment belonging to Tenant; or for the
interruption of or damage to Tenant's business, or to Tenant's
unamortized cost of leasehold improvements. Any award to the Landlord
by reason of such partial taking shall be made available for
reconstruction, should the Tenant so elect, and shall be segregated
from the Landlord's general funds. No temporary taking of any Leased
Property and/or of the Tenant's rights therein, or under this Lease,
shall terminate this Lease as to such Leased Property or give Tenant
any right to any abatement of rent. Provided, however, if it is
reasonably anticipated that such temporary taking will extend for any
greater than 180 days, or if such temporary taking actually extends
beyond such 180 period, subject to Force Majeure
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causes, Tenant may, by written notice to Landlord, terminate this
Lease. Any award made for such temporary taking shall belong entirely
to Tenant unless Tenant terminates this Lease, in which event the award
shall belong entirely to Landlord.
14.0 ASSIGNMENT AND SUBLETTING.
14.1 Landlord's Consent Required. Tenant shall not assign,
transfer, mortgage, pledge, hypothecate, or encumber this
Lease or any interest therein, nor permit such assignment by
operation of law, and shall not sublet any Leased Property or
any part thereof, without the prior express written consent of
the Landlord, which consent shall not be unreasonably
withheld. Any attempt to do so without such consent being in
hand, shall be wholly void and shall constitute a breach of
this Lease.
14.2 No Release of Tenant. No consent by Landlord to any assignment
or subletting by Tenant shall relieve Tenant of any
obligations to be performed by Tenant under this Lease,
whether occurring before or after such assignment or
subletting. The consent by Landlord to any assignment or
subletting shall not relieve Tenant from the obligation to
obtain Landlord's express written consent to any other
assignment or subletting. The acceptance of any rent by
Landlord from any person shall not be deemed to be a waiver by
Landlord of any provision of this Lease, or to be deemed a
consent to any assignment, subletting, or other transfer.
14.3 By Landlord. This Lease shall be fully assignable by Landlord
or its assigns.
14.4 Permitted Assignments. Notwithstanding anything to the
contrary in this Lease, Tenant may assign the Lease without
Landlord's consent to:
(a) a parent or subsidiary corporation of Tenant, or
(b) the surviving entity in the event of the merger,
consolidation or acquisition of Tenant, or
(c) an entity which purchases all or substantially all of
Tenant's assets, or
(d) to any person or entity which purchases all or
substantially all of the stock of Tenants
provided that in (a) through (d) above, the proposed assignee
meets each of the following criteria:
(i) The proposed assignee has a net worth (at
the time of assignment) of at least
$150,000,000.00.
(ii) The proposed assignee's use of the Premises
conforms to the permitted use under this
Lease.
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(iii) Landlord (or any of its affiliates) has not
had problems (including, but not limited to,
material defaults, late payments,
bankruptcies, court cases, maintenance
concerns, or other property management
problems) with the proposed assignee.
15.0 SUBORDINATION
15.1 Subordination. At Landlord's option, this Lease shall be
subject and subordinate to all ground or underlying leases
hereinafter executed affecting any Leased Property, and to the
lien of any mortgages or deeds of trust in any amount or
amounts whatsoever now or hereafter placed on or against the
land or improvements or either thereof, of which the Premises
are a part, without the necessity of the execution and
delivery of any further instruments, on the part of the
Tenant, to effectuate such subordination. If any mortgagee,
trustee, or ground lessor shall elect to have this Lease prior
to the lien of its mortgage deed of trust or ground lease, and
shall give written notice thereof to Tenant, this Lease shall
be deemed prior to such mortgage, deed of trust or ground
lease, on the date of the recording thereof.
15.2 Subordination Agreements. Tenant covenants and agrees to
execute and deliver upon demand, without charge, such further
instruments evidencing such subordination of this Lease to
such ground or underlying leases and to the lien of any such
mortgages or deeds of trust as may be required by Landlord.
15.3 Quiet Enjoyment. Landlord covenants and agrees with Tenant
that upon Tenant paying rent and other monetary sums due under
this Lease, performing its covenants and conditions of the
Lease and upon recognizing any subsequent lessor under a
ground or underlying lease or any purchaser as Landlord,
Tenant shall and may peaceably and quietly have, hold, and
enjoy the Leased Property for the term of the Lease as against
any adverse claim of Landlord or any party claiming under
Landlord subject, however, to the terms of the Lease.
15.4 Attornment. In the event any proceedings are brought for
default under any ground or underlying lease, or in the event
of foreclosure or the exercise of a power of sale under any
mortgage or deed or trust made by Landlord covering any Leased
Property, the Tenant shall attorn to the lessor under the
ground or underlying lease or the purchaser upon any such
foreclosure, or sale, and recognize such lessor or purchaser
as the Landlord under this Lease, provided said lessor or
purchaser expressly agrees in writing to be bound by the terms
of this Lease.
15.5 Non-Disturbance. Tenant's agreement to subordinate or attorn
pursuant to Section 15.1 and 15.4 is expressly contingent upon
Tenant receiving a commercially reasonable and acceptable
non-disturbance agreement at no cost to Tenant.
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16.0 DEFAULT, REMEDIES
16.1 Event of Default. The occurrence of any of the following shall
constitute a material default and breach of this lease by
Tenant:
(a) Any failure by Tenant to pay the rent or any other
monetary sums required to be paid hereunder (where
such failure continues for five (5) days after
written notice by Landlord to Tenant);
(b) The abandonment or vacation of any Leased Property by
the Tenant;
(c) A failure by Tenant to observe and perform any other
provision of this Lease to be observed or performed
by Tenant, where such failure continues for thirty
(30) days after written notice thereof by the
Landlord to the Tenant. However, if the nature of the
default is such that the default cannot be reasonably
cured within the thirty (30) day period, Tenant shall
not be deemed to be in default if Tenant shall within
such period of time commence such cure and thereafter
diligently prosecute the same to completion;
(d) The making by Tenant of any general assignment or
general arrangement for the benefit of creditors; the
filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt, or of a petition for
reorganization or arrangement under any law relating
to bankruptcy; the appointment of a trustee or
receiver to take possession of substantially all of
the Tenant's assets located at any Premises or of
Tenant's interest in this Lease where possession is
not restored to Tenant within thirty (30) days; or
the attachment, execution or other judicial seizure
of substantially all of Tenant's assets located at
any Premises or of Tenant's interest in this Lease,
where such seizure is not discharged within thirty
(30) days; and
16.2 Remedies. Upon the occurrence of any Event of Default
described in Paragraph 16.1 and at any time thereafter so long
as the same shall be continuing, Landlord may, at its option,
by notice to Tenant do one or more of the following, as
Landlord in its sole discretion shall determine:
(a) Landlord may, by notice to Tenant, terminate this
Lease as of the date specified in such notice;
however, (A) no reletting, reentry or taking of
possession of any or all of the Property by Landlord
will be construed as an election on Landlord's part
to terminate this Lease unless a written notice of
such intention is given to Tenant, (B)
notwithstanding any reletting, reentry or taking of
possession, Landlord may at any time thereafter elect
to terminate this Lease with respect to any or all of
the Leased Property, and (C) no act or thing done by
Landlord or any of its agents, representatives or
employees and no agreement accepting a
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surrender of any or all of the Leased Property shall
be valid unless the same be made in writing and
executed by Landlord;
(b) Landlord may (i) demand that Tenat, and Tenant shall
upon the written demand of Landlord, return the
Leased Property promptly to Landlord in the manner
and condition as if the Leased Property were being
returned at the end of the Term, and Landlord shall
not be liable for the reimbursement of Tenant for any
costs and expenses incurred by Tenant in connection
therewith, and (ii) without prejudice to any other
remedy which Landlord may have for possession of the
Leased Property, enter upon the Leased Property and
take immediate possession of (to the exclusion of
Tenet) the Leased Property and expel or remove Tenant
and any other person who may be occupying the same,
by summary proceedings or otherwise, all without
liability to Landlord for or by reason of such entry
or taking of possession, whether for the restoration
of damage to property caused by such taking or
otherwise and, in addition to Landlord's other
damages, Tenant shall be responsible for the
reasonably necessary costs and expenses of reletting,
including without limitation, brokers fees, tenant
improvements and inducements for new tenants,
security costs, expenses of the lender, prepayment or
other penalties under any note or mortgage and the
costs of any repairs made by Landlord.
(c) Except as Landlord may otherwise be required by law,
Landlord may hold, keep idle or lease to others the
property as Landlord in its sole discretion may
determine, free and clear of any rights of Tenant and
without any duty to account to Tenant with respect to
such action or inaction or for any proceeds with
respect to such action or inaction, except that
Tenant's obligation to pay base rent from and after
the occurrence of an Event of Default shall be
reduced by the net proceeds, if any, received by
Landlord from leasing the Leased Property to any
person, or allowing any person to use the Leased
Property, other than Tenant for the same periods or
any portion thereof;
(d) Landlord may retain and apply against Landlord's
damages all sums which Landlord would, absent such
Event of Default, be required to pay to, or turn over
to, Tenant pursuant to the terms of this Lease; or
(e) Landlord may exercise any other right or remedy that
may be available to it by law or in equity, or
proceed by appropriate court action (legal or
equitable) to enforce the terms hereof or to recover
damages for the breach hereof including without
limitation, the right to sue for and collect the
present value of all future base rent from date of
termination for the balance of the Term (if the Lease
had not been terminated) discounted monthly at the
annual rate then in effect as the Discount Rate of
the Federal Reserve Bank of New York. Separate suits
may be brought to collect any such damages for any
period or periods with respect to which
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rent shall have accrued, and such suits shall not in
any manner prejudice Landlord's right to collect any
such damages for any subsequent periods, or Landlord
may defer any such suit until after the expiration of
the base Term or the then current renewal Term, in
which event such suit shall be deemed not to have
accrued until the expiration of the base Term, or the
then current renewal Term.
16.3 Late Charges. Tenant hereby acknowledges that late payment by
Tenant to Landlord of rent and other sums due hereunder will
cause Landlord to incur costs not contemplated by this Lease,
the exact amount of which will be difficult to ascertain. Such
costs include, but are not limited to, processing and
accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or deed of trust
covering any Leased Property. Accordingly, if any installment
of rent or any other sum due from Tenant shall not be received
by Landlord or Landlord's designee within five (5) days after
such amount shall be due, Tenant shall pay to Landlord a late
charge equal to five percent (5.00%) of such overdue amount.
The parties hereby agree that such late charge represents a
fair and reasonable estimate of the cost Landlord will incur
by reason of late payment by Tenant.
16.4 Default by Landlord. Landlord shall not be in default unless
Landlord fails to perform obligations required of Landlord
within a reasonable time, but in no event later than thirty
(30) days after written notice by Tenant to Landlord and to
the holder of any first mortgage or deed of trust covering the
Premises, whose name and address shall have been furnished to
Tenant in writing, specifying wherein Landlord has failed to
perform such obligation, provided, however that if the nature
of Landlord's obligation is such that more than thirty (30)
days are required for performance, then Landlord shall not be
in default if Landlord commences performance within such
thirty (30) day period and thereafter diligently prosecutes
same to completion. Tenant agrees that any such mortgagee or
deed of trust holder shall have the right to cure such default
on behalf of Landlord within thirty (30) calendar days after
receipt of such notice.
17.0 MISCELLANEOUS
17.1 Estoppel Certificate.
(a) Tenant shall at any time upon not less than twenty
(20) days prior written notice from Landlord,
execute, and deliver to Landlord a statement in
writing (i) certifying that this Lease is unmodified
and in full force and effect (or, if modified,
stating the nature of such modification and
certifying that this Lease, as so modified, is in
full force and effect), and the date to which the
rent and other charges are paid in advance, if any,
and (ii) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part
of Landlord hereunder, or specifying such defaults if
any are claimed. Any such statement may be
conclusively
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relied upon by any prospective purchaser or
encumbrancer of any Leased Property.
(b) Tenant's failure to deliver such statement within
such time shall be conclusive upon Tenant (i) that
this Lease is in full force and effect, without
modification except as may be represented by
Landlord, (ii) that there are no uncured defaults in
Landlord's performance, and (iii) that not more than
one month's rent has been paid in advance.
(c) Landlord shall execute such estoppel certificates,
upon twenty (20) days written notice from Tenant, as
Tenant may request from time to time. Landlord's
failure to deliver such statement within such time
shall be conclusive upon Landlord (i) that this Lease
is in full force and effect, without modification
except as may be represented by Tenant, (ii) that
there are no uncured defaults in Tenant's performance
and (iii) that not more than one month's rent has
been paid in advance.
17.2 Transfer of Landlord's Interest.
(a) In the event of a bona fide sale or conveyance by
Landlord of Landlord's interest in any Leased
Property or in any other property in which any
Premises may be a part, other than a transfer for
security purposes only, if Landlord is not in default
under any provisions of this Lease, Landlord shall be
relieved from and after the date specified in any
such notice of transfer of all obligations and
liabilities accruing thereafter on the part of the
Landlord with respect to the transferred Leased
Property, provided that any funds in the hands of
Landlord at the time of transfer in which Tenant has
an interest, shall be delivered to the successor of
the Landlord and provided Landlord's assignee assumes
all such obligations. This Lease shall not be
affected by any such sale and Tenant agrees to attorn
to the purchaser or assignee provided all Landlord's
obligations hereunder are assumed in writing by the
transferee.
(b) Tenant acknowledges notice from Landlord of its
intent to enter into a Purchase Agreement for the
sale of the subject property to William C. Knapp as
Trustee of the William C. Knapp Revocable Trust or
its assigns. Should said sale be completed, Landlord
acknowledges herein its agreement to pay to said
Purchaser the sum of $1,984,162.00 payable in the
event that Tenant does not exercise its first option
to renew this Lease for the first additional five (5)
year term for any reason other than default of
Landlord or Landlord's election to terminate the
Lease under the provisions of Paragraph 12.0.
However, should this Lease be terminated by Tenant
under the provisions relating to condemnation found
in Paragraph 13.0 herein, Tenant's payment required
herein shall be reduced by an amount equal to the
difference between $5,200,000.00 purchase price paid
by Landlord and the amount received from the
condemning
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authority. No reduction shall be made in the event of
a casualty loss if Tenant elects to terminate this
Lease pursuant to the provisions of Paragraph 12.0 or
if repairs are not permitted pursuant to the
application of Paragraph 12.2. This payment has been
calculated and attributed to asbestos abatement
costs. Payment is due on date of termination.
17.3 Captions; Attachment; Defined Terms.
(a) Captions of the paragraphs of this Lease are for
convenience only and shall not be deemed to be
relevant in resolving any question of interpretation
or construction of any section of this Lease.
(b) Exhibits attached hereto, and addendums and schedules
initialed by the parties, are deemed by attachment to
constitute part of this Lease and are incorporated
herein.
17.4 Entire Agreement. This instrument along with any exhibits and
attachments hereto constitutes the entire agreement between
Landlord and Tenant relative to the Leased Property. This
agreement and the exhibits and attachments may be altered,
amended, or revoked only by an instrument in writing signed by
both Landlord and Tenant. Landlord and Tenant hereby agree
that all prior or contemporaneous oral agreements between and
among themselves and their agents or representatives relating
to the leasing of any Leased Property are merged into or
revoked by this agreement.
17.5 Severability. The invalidity of any provision of this Lease,
as determined by a court of competent jurisdiction, shall in
no way affect the validity of any other provision hereof.
17.6 Time; Joint and Several Liability. Time is of the essence of
this Lease in each and every provision hereof. All the terms,
covenants, and conditions contained in this Lease to be
performed by either party, if such party shall consist of more
than one person or organization, shall be deemed to be joint
and several, and all rights and remedies of the parties shall
be cumulative and non-exclusive of any other remedy at law or
in equity.
17.7 Waiver. No waiver by Landlord of any provision hereof shall be
deemed a waiver of any other provision hereof or of any
subsequent breach by Tenant of the same or any other
provision. Landlord's consent to or approval of any act shall
not be deemed to render unnecessary the obtaining of
Landlord's express written consent to or approval of any
subsequent act by the Tenant. The acceptance of rent hereunder
by Landlord shall not be a waiver of any succeeding breach by
Tenant of any provision hereof, other than the failure of
Tenant to pay the particular rent so accepted, regardless of
Landlord's knowledge of such succeeding breach at the time of
acceptance of such rent.
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17.8 Surrender of Premises. The voluntary or other surrender of
this Lease by the Tenant, or mutual cancellation thereof,
shall not work a merger, and shall, at the option of Landlord,
terminate all or any existing subleases or subtenancies, or
may, at the option of Landlord, operate as an assignment to it
of any or all such subleases or subtenancies.
17.9 Holding Over. If Tenant remains in possession of all or any
part of any Leased Property after the expiration of the term
of this Lease, with or without the express or implied consent
of the Landlord, such tenancy shall be from month to month
only, and not a renewal of this Lease or an extension for any
further term. In such case, rent and other monetary sums due
hereunder shall be payable in the amount and at the time
specified in this Lease and such month-to-month tenancy shall
be subject to every other term, covenant, and agreement
contained herein. Base rent shall increase to 125% of the most
recent base rent of the preceding term.
17.10 Signs.
(a) Tenant shall have the right to erect such signs as it
shall elect, all in accordance with legal
requirements.
(b) Any such signs described above shall be removed at
the expiration or earlier termination of the Lease at
Tenant's expense and Tenant shall repair any damage
to any Leased Property resulting from such removal.
If Tenant fails to do so, Landlord may cause such
removal and repair on Tenant's behalf at Tenant's
expense.
17.11 Reasonable Consent. Except as limited elsewhere in this Lease,
wherever in this Lease Landlord and/or Tenant is required to
give its consent or approval to any action on the part of the
other, such consent or approval shall not be unreasonably
withheld or delayed. In the event of failure to give any such
consent, the other party shall be entitled to specific
performance of law and shall have such other remedies as are
reserved to it under this Lease.
17.12 Interest on Past-Due Obligations. Except as expressly herein
provided, any amount due to Landlord not paid when due shall
bear interest at twelve percent (12.00%) per annum from the
due date. Payment of such interest shall not excuse or cure
any default by Tenant under this Lease. Payment of such
interest is in addition to the late charge specified in
Section 16.3 of this Lease.
17.13 Recording. Tenant shall not record this Lease without
Landlord's prior express written consent. Landlord and Tenant
shall, at the request of either and at Tenant's expense,
execute and record a short form or memorandum of Lease.
20
<PAGE> 21
17.14 Costs of Suit.
(a) If Tenant or Landlord shall bring any action for any
relief against the other, declaratory or otherwise,
arising out of this Lease, including any suit by
Landlord for the recovery of rent or possession of
any Leased Property, the prevailing party shall be
entitled to an award of its reasonable attorneys'
fees and costs. Such fees and costs shall include
those fees and costs incurred at trial, on appeal, or
in any bankruptcy proceeding.
(b) Should Landlord, without fault on Landlord's part, be
made a party to any litigation instituted by Tenant
or any third party against Tenant, or by or against
any person holding under or using any Leased Property
by license of Tenant, or for the foreclosure of any
lien for labor, material furnished to or for Tenant
or any such other person or otherwise arising out of
or resulting from any act or transaction of Tenant,
or of any such person, Tenant covenants to defend,
indemnify, and hold Landlord harmless from any
judgment rendered against Landlord or any Leased
Property, or any part thereof, and all costs and
expenses, including reasonable attorney fees,
incurred by Landlord in or in connection with such
litigation.
17.15 Binding Effect; Choice of Law. The parties hereto agree that
all provisions hereof are to be construed as both covenants,
and conditions as though the words importing such covenants
and conditions were used in each separate paragraph hereof.
Subject to any provisions hereof restricting assignment or
subletting by the Tenant, all of the provisions hereof shall
bind and inure to the benefit of the parties hereto, their
respective heirs, legal representative, assigns, and
successors. This Lease shall be governed by the laws of the
State of Iowa.
17.16 Waiver of Jury Trial. EACH OF THE PARTIES HERETO KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF,
UNDER, OR IN CONNECTION WITH THIS LEASE OR ANY EXHIBIT HERETO,
OR ANY COURSE OF CONDUCT, COURSE OF DEALING OR STATEMENTS
(WHETHER VERBAL OR WRITTEN) MADE BY THE PARTIES HEREIN.
17.17 Corporate Authority. If Tenant is a corporation, each
individual executing this Lease on behalf of said corporation
represents and warrants that he is duly authorized to execute
and deliver this Lease on behalf of said corporation in
accordance with a duly adopted resolution of the Board of
Directors of said corporation, and that this Lease is binding
upon said corporation in accordance with its terms.
21
<PAGE> 22
17.18 Representation of Landlord. Landlord represents and warrants
that (i) it holds fee or leasehold title to the Leased
Property subject to the Lease and has full power and authority
to enter into this Lease; and (ii) each individual executing
this Lease on behalf of Landlord represents and warrants that
he is duly authorized to execute and deliver this Lease on
behalf of the Landlord, and that this Lease is binding upon
Landlord in accordance with its terms.
17.19 Triple Net Lease. It is the intent of Landlord and Tenant that
this Lease shall be an absolute triple-net lease, and that all
costs, expenses or charges with respect to the Leased Property
are the responsibility of Tenant.
17.20 Notices. Any notice provided or permitted to be given under
this Lease must be in writing and may be served by depositing
same in the United States mail, addressed to the party to be
notified, postage prepaid and certified, with return receipt
requested, by delivering the same in person to such party, or
by delivering the same by confirmed facsimile. Notice given in
accordance herewith shall be effective upon the earlier of
receipt at the address of the addressee or on the second (2nd)
day following deposit of same in the United States mail as
provided for herein, regardless of whether same is actually
received. For purposes of notice, the addresses of the parties
shall be as follows:
If to Tenant: AmerUs Life Insurance Company
ATTN: Thomas G. Godlasky
611 - 5th Avenue
Des Moines, Iowa 50309
If to Landlord: AmerUs Properties, Inc.
ATTN: James A. McClarnon
699 Walnut St., Suite 1700
Des Moines, Iowa 50309
Either party may change its address for notice by giving ten
(10) days prior written notice thereof to the other party.
LANDLORD: AMERUS PROPERTIES, INC.
By: /s/ James A. McClarnon
--------------------------------
Name/Title: James A. McClarnon,
Vice President
TENANT: AMERUS LIFE INSURANCE
COMPANY
By: /s/ Gene Harris
--------------------------------
Name/Title: Gene Harris,
Vice President
22
<PAGE> 23
STATE OF IOWA )
) ss:
COUNTY OF POLK )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared James A. McClarnon, Vice President of
AmerUs Properties, Inc., known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that he executed
the same for the purposes and consideration therein expressed, in the capacity
therein stated, and as the act and deed of said AmerUs Properties, Inc.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 15th day of December 1999.
/s/ Kathleen Zimmerman
------------------------------------
[SEAL] Notary Public, State of Iowa
STATE OF IOWA )
) ss:
COUNTY OF POLK )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared Gene Harris, Vice President of AmerUs
Life Insurance Company, known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that he executed
the same for the purposes and consideration therein expressed, in the capacity
therein stated, and as the act and deed of said AmerUs Life Insurance Company.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 15th day of December 1999.
/s/ Kathleen Zimmerman
------------------------------------
[SEAL] Notary Public, State of Iowa
23
<PAGE> 1
EXHIBIT 10.20
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS AGREEMENT, made and executed as of this 15th day of December,
1999, by AMERUS PROPERTIES, INC., an Iowa corporation ("Assignor") to and in
favor of 611 FIFTH AVENUE, L.L.C., an Iowa limited liability company
("Assignee").
W I T N E S S E T H:
WHEREAS, Assignor owns the real property located in Polk County, Iowa
and described on Exhibit "A" attached hereto and made a part hereof by this
reference and all buildings and improvements located thereon (the "Premises");
and
WHEREAS, concurrently herewith, Assignor is conveying the Premises to
Assignee and in connection therewith and as a part of such sale, Assignor
desires to convey and assign to Assignee all of Assignor's right, title and
interest as Lessor in and under the occupancy lease of the Premises which are
described on Exhibit "B" attached hereto and made a part hereof by this
reference (the "Lease"), and Assignee desires to accept such Lease.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other good
and valuable consideration paid by Assignee, the receipt and legal sufficiency
of which Assignor does hereby acknowledge, Assignor and Assignee hereby agree as
follows:
1. Assignor does hereby SELL, CONVEY and ASSIGN to Assignee all of
Assignor's right, title and interest in and under the Lease subject
to the terms, covenants, and conditions of the Lease. Assignee
hereby accepts said assignment and assumes all obligations and
liabilities under the Lease accruing subsequent to the date of this
Agreement.
2. The Agreement hereunder is intended to and shall convey and assign
to Assignee, all of Assignor's rights under the Lease to receive
rental for the period from this date forward, common area
maintenance charges, utility charges, tax reimbursements, percentage
rental, and all other avails or sums of money payable by the tenant
thereunder, whether accrued, or otherwise.
3. The Agreement hereunder is intended to and shall convey and assign
to Assignee, all of Assignor's rights under the Lease to the
security deposits and all other depository accounts payable by the
tenant thereunder as shown on Exhibit "B" attached hereto and made a
part hereof by this reference.
1
<PAGE> 2
4. Assignee shall indemnify and save harmless Assignor from and against
any and all claims, actions, liability and expense in connection
with a breach of any Lease by the landlord thereunder after the date
hereof. In case any action or proceeding is brought against
Assignor, its agents, employees or servants by reason of a breach of
the Lease by the landlord thereunder after the date hereof,
Assignee, on receiving notice thereof from Assignor, agrees to
defend such action or proceeding by adequate counsel reasonably
acceptable to Assignor at Assignee's expense. Assignor shall
indemnify and save harmless Assignee from and against any and all
claims, actions, liability and expense in connection with a breach
of any Lease by Assignor thereunder occurring during the time
Assignor was landlord under the Lease. In case any action or
proceeding is brought against Assignee, its agents, employees or
servants by reason of a breach of any Lease by Assignor thereunder
occurring during the time Assignor was landlord under the Lease,
Assignor, on receiving notice thereof from Assignee, agrees to
defend such action or proceeding by adequate counsel reasonably
acceptable to Assignee at Assignor's expense.
5. This Assignment and Assumption Agreement may be executed in several
counterparts, each of which shall be an original and all of which
shall constitute but one and the same instrument.
6. TO HAVE AND TO HOLD the foregoing unto Assignee, its successors and
assigns forever.
IN WITNESS WHEREOF, Assignor and Assignee have executed this instrument as
of the date first above written.
ASSIGNOR: ASSIGNEE:
AMERUS PROPERTIES, INC., 611 FIFTH AVENUE, L.L.C.,
an Iowa corporation an Iowa limited liability company
By: s/ James A. McClarnon By: s/ Gerald D. Neugent
------------------------- --------------------------
James A. McClarnon Gerard D. Neugent, Manager
Vice President
2
<PAGE> 3
ACKNOWLEDGEMENTS
STATE OF IOWA )
) SS.:
COUNTY OF POLK )
On this 15th day of December, 1999, before me, the undersigned, a
Notary Public in and for said State, personally appeared JAMES A. MCCLARNON, to
me personally known, who, being by me duly sworn, did say that he is the Vice
President of AMERUS PROPERTIES, INC., an Iowa corporation, that no seal has been
procured by the corporation; that the instrument was signed on behalf of the
corporation by authority of its Board of Directors; and that JAMES A. MCCLARNON,
as such officer, acknowledged the execution of the instrument to be the
voluntary act and deed of said corporation, by it and by him voluntarily
executed.
s/ Beverly L. Hutchens
----------------------------------
Beverly L. Hutchens, Notary Public
in and for the State of Iowa.
STATE OF IOWA )
) SS.:
COUNTY OF POLK )
On this 17th day of December, 1999, before me, a Notary Public in and
for said State, personally appeared GERARD D. NEUGENT, to me personally known,
who, being by me duly sworn, did say that he is the Manager of 611 FIFTH AVENUE,
L.L.C., an Iowa limited liability company; that no seal has been procured by the
limited liability company; that said instrument was signed on behalf of the
limited liability company by authority of its Member; and that GERARD D.
NEUGENT, as such Manager, acknowledged the execution of said instrument to be
the voluntary act and deed of the limited liability company, by it and by him
voluntarily executed.
s/ Kathy A. Kintner
----------------------------------
Printed Name: Kathy A. Kintner, Notary Public in
and for the State of Iowa.
3
<PAGE> 4
EXHIBIT "A"
The land referred to is situated in the State of Iowa, County of Scott, and is
described as follows:
Lot 1, Park 53 Second Addition to the City of Davenport, Scott County,
Iowa.
4
<PAGE> 5
EXHIBIT "B"
SCHEDULE OF LEASE
DES MOINES, IOWA
<TABLE>
<CAPTION>
Date
of Security
Tenant Lease Deposits
- ------ ----- --------
<S> <C> <C>
AmerUs Life Insurance Company 12/1/99 $ 0.00
</TABLE>
5
<PAGE> 1
EXHIBIT 10.43
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement (the "Agreement") is made as of
the 1st day of January, 2000, by and between AmerUs Life Holdings, Inc.
("Services Provider"), an Iowa corporation having its corporate offices at 699
Walnut Street, Des Moines, Iowa 50309 and the following affiliated or subsidiary
companies: American Mutual Holding Company, an Iowa mutual insurance holding
company having its corporate offices at 699 Walnut Street, Des Moines, Iowa
50309 ("AMHC"); AmerUs Group Co., an Iowa corporation having its corporate
offices at 699 Walnut Street, Des Moines, Iowa 50309; AmerUs Home Equity, Inc.,
an Iowa corporation having its corporate offices at 1901 Bell Avenue, Des
Moines, Iowa 50315; AmerUs Mortgage, Inc., an Iowa corporation having its
corporate offices at 699 Walnut street, Des Moines, Iowa 50309; AmerUs
Properties, Inc., an Iowa corporation having its corporate offices at 699 Walnut
Street, Des Moines, Iowa 50309; AmerUs Capital Management Group, Inc. ("ACM"),
an Iowa corporation having its corporate offices at 699 Walnut Street, Des
Moines, Iowa 50309; AmerUs Life Insurance Company ("AmerUs Life") an Iowa
corporation having its corporate offices at 611 Fifth Avenue, Des Moines, Iowa;
AmVestors Financial Corporation, a Kansas corporation having its corporate
offices at 555 South Kansas Avenue, Topeka, Kansas 66603; Delta Life and Annuity
Company, an Iowa corporation having its corporate offices at 611 Fifth Avenue,
Des Moines, Iowa 50309 (collectively, the "AmerUs Companies" and, individually,
an "AmerUs Company").
WHEREAS, in the course of the operation and administration of the
business of the AmerUs Companies, an AmerUs Company may require certain services
from the Services Provider; and
WHEREAS, the AmerUs Companies desire to receive such services from the
Services Provider on the basis described in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
ARTICLE I. SERVICES TO BE PROVIDED
Section 1.01. For a period from the date hereof through December 31,
2002 (hereinafter referred to as the "Services Period") and from month to month
thereafter until terminated in accordance with the provisions contained in
Article V hereof, the Services Provider shall provide to each of the other
AmerUs Companies those services described in the Schedule of Services attached
hereto as Schedule I.
Section 1.02. The parties agree that any ancillary or support services
necessary or, in the usual and customary manner and the normal course of
business, associated with the specific services described in Schedule I shall be
deemed to be included in, and governed by, this Agreement unless specifically
excluded.
<PAGE> 2
Section 1.03. The parties agree that on sixty (60) days' prior written
notice to the AmerUs Company affected thereby, the Services Provider may modify
the services described in Schedule I pertaining to such company, provided that:
(a) Such modified services shall be equivalent to or better than the
services being replaced; and
(b) Each affected AmerUs Company consents to the modified services,
such consent not to be unreasonably withheld.
Section 1.04. The services provided by the Services Provider under this
Agreement shall be performed in a professional and commercially reasonable
manner consistent with industry standards and in accordance with applicable laws
and regulations.
Section 1.05. The services rendered by the Services Provider shall in
no way constitute the relinquishment of the management's responsibility of the
AmerUs Company receiving such service, which shall not be relieved of any
obligation or liability which it would otherwise be subject by law as a result
of those services being rendered.
ARTICLE II. ADEQUATE STAFF AND FACILITIES
Section 2.01. During the Service Period, the Services Provider shall
maintain adequate staff, support services and facilities as may be necessary to
perform its responsibilities under this Agreement.
ARTICLE III. RESPONSIBLE PERSONS
Section 3.01. Each of the AmerUs Companies shall each appoint in
writing one or more individuals who shall serve as contact person(s) for
purposes of the carrying out of this Agreement. Such contact person(s) shall be
authorized to act on behalf of their respective parties as to matters pertaining
to this Agreement.
ARTICLE IV. COMPENSATION
Section 4.01. In connection with the services to be performed under
this Agreement, the AmerUs Companies shall compensate the Services Provider as
set forth in this Article IV.
Section 4.02. For the services described in Schedule I, the AmerUs
Companies agree to pay to the Services Provider the compensation set forth in
Schedule II. Costs for each service will be allocated, using an appropriate
allocation mechanism (e.g., number of personnel for human resource services and
P.C. support services or mainframe run time for mainframe services) to each
service recipient in a manner that is consistent with the benefits received by
each service recipient. No provision of this Agreement shall require the payment
of any charges or fees in excess of the maximum approved by the Iowa Insurance
Division pursuant to Section 521A.5 of the Iowa Code and any such excess charges
or fees are hereby rescinded and shall not be considered to have been paid. Any
charges or fees determined to be in excess of those approved by the Iowa
Insurance Division shall be returned promptly by the service provider to the
service user.
Section 4.03. If an AmerUs Company determines that the services
performed hereunder are not satisfactory or that the fees charged are in excess
of those provided for in this Agreement,
2
<PAGE> 3
the affected AmerUs Company is hereby authorized to withhold payment for such
service until the matter in dispute is resolved or the fees charged are
substantiated or adjusted appropriately. Adjustments for errors and a final
settlement shall be made no more than sixty (60) days after this Agreement
terminates.
ARTICLE V. TERM AND TERMINATION
Section 5.01. Unless this Agreement is otherwise terminated according
to its provisions, the Service Provider shall be obligated to provide, and each
recipient of such services shall be obligated to pay for, the services described
in Schedule I during the Service Period.
Section 5.02. Except as otherwise provided in this Agreement, during
the Service Period or any extension thereof, an AmerUs Company may terminate
with respect to itself this Agreement at its option, at any time, upon ninety
(90) days' written notice to the Services Provider. In addition, the Services
Provider, upon ninety (90) days' written notice may terminate any one or more of
the services to be furnished hereunder by it, but such termination shall not be
deemed to terminate this Agreement in its entirety.
Section 5.03. This Agreement, or any service provided hereunder, may be
terminated or substantially reduced at any time by mutual consent of the
parties.
ARTICLE VI. MISCELLANEOUS
Section 6.01. This Agreement is the complete and exclusive statement of
the agreement between the parties and supersedes all prior agreements and
representations between them relating to the subject matter of this Agreement,
except as set forth in the Schedules. Subject to the prior approval of the Iowa
Insurance Division, this Agreement may be amended at any time by written
agreement of the parties.
Section 6.02. Any notice or other communication given pursuant to this
Agreement shall be given in writing to the other party at the address stated
herein or at such other address as such party shall specify by notice hereunder.
Such notice shall be conclusively deemed to be served when delivered personally
or three (3) calendar days after sending by registered mail or one (1) business
day after sending by telecopy or telex or similar electronic means.
Section 6.03. This Agreement and the rights and duties of the parties
shall be governed by and construed in accordance with the laws of the State of
Iowa, without regard to principles of conflicts of laws.
Section 6.04. No delay or failure by any party to exercise any of its
rights or remedies hereunder shall operate as a waiver thereof. Each party shall
reimburse the other parties for all expenses, including reasonable attorneys'
fees, incurred by the other party in exercising any of its rights or remedies
hereunder, or resulting from any default by the reimbursing party.
Section 6.05. This Agreement shall be binding upon the parties and
their respective successors and assigns and shall inure to the benefit of the
parties and to the benefit of their successors and assigns.
Section 6.06. Nothing herein contained is intended to confer upon any
person, other than the parties and their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this
Administrative Services Agreement effective as of the day and year first above
written.
<TABLE>
<S> <C>
AMERUS LIFE HOLDINGS, INC. AMERICAN MUTUAL HOLDING COMPANY
By: s/ Roger K. Brooks By: s/ Roger K. Brooks
------------------------------ ------------------------------
Roger K. Brooks, Chairman, Roger K. Brooks, Chairman,
President and Chief President and Chief Executive
Executive Officer Officer
AMERUS GROUP CO. AMERUS HOME EQUITY, INC.
By: s/ Roger K. Brooks By: s/ Lee Griffin
------------------------------ ------------------------------
Roger K. Brooks, Chairman, Lee Griffin, President,
President and Chief
Executive Officer
AMERUS PROPERTIES, INC. AMERUS LIFE INSURANCE COMPANY
By: s/ Gene C. Harris By: s/ Gary R. McPhail
------------------------------ ------------------------------
Gene C. Harris, President and Gary R. McPhail, President and
Chief Executive Officer Chief Executive Officer
AMERUS CAPITAL MANAGEMENT AMVESTORS FINANCIAL CORPORATION
GROUP, INC.
By: s/ Thomas C. Godlasky By: s/ Mark V. Heitz
------------------------------ ------------------------------
Thomas C. Godlasky, President Mark V. Heitz, President and
and Chief Executive Officer Chief Executive Officer
DELTA LIFE AND ANNUITY
COMPANY
By: s/ Gary R. McPhail
------------------------------
Gary R. McPhail, President and
Chief Executive Officer
</TABLE>
4
<PAGE> 5
SCHEDULE I
Schedule of Services
Following is a description of each of the services that AmerUs Life
Holdings (ALH) provides to its subsidiaries:
1. Human Resources
Functions performed by ALH include corporate compensation,
management development, benefits, and payroll. The corporate
compensation function involves establishing compensation levels,
administering stock option programs, and implementing salary
programs. The benefits function revolves around policy setting,
negotiating with vendors, administering retiree benefits and pay,
and administering 401(k) and ESOP programs. Management development
involves the design and development of management training
programs, internship programs, and corporate orientation. The
payroll function includes account reconciliation, preparation of
W-2's, preparation of paychecks, and a variety of other activities.
2. Air Transportation
The AmerUs Group of companies lease a corporate airplane. The
corporate airplane is utilized to provide air transportation to
Company personnel for business purposes. The senior management,
investment, and distribution areas of the Company primarily utilize
the corporate airplane.
3. Legal
The services offered by the legal group include contract
structuring and review, structured finance activities, litigation
support (making strategic decisions and liaisons with outside
counsel), trademark protection, and other services.
4. Facilities Management
The facilities management group within ALH manages and maintains
the facilities that the Company and its affiliates occupy. This
group is responsible for drawing up and administering workspace
allocations and designs, managing leasehold improvements,
coordinating internal moves, and overseeing the maintenance
functions.
5. Tax
The tax function at ALH includes activities such as tax
compliance, tax research, planning and consulting, benefit and
pension services, and related activities.
6. Audit Services
Audit services include internal audit activities such as internal
control, EDP and operational reviews. Audit services also include
coordinating and providing assistance with the Company's external
audits and regulatory examinations.
5
<PAGE> 6
7. Communications
Communications services include activities such as the preparation
and publication of internal newsletters, human resource recruiting
materials, and training materials. The communications group is also
responsible for establishing and maintaining the Company's internal
and external web sites.
8. Printing and Supplies
Printing performs the function of printing internally produced
materials. Supplies is responsible for obtaining office and related
supplies.
9. Telecommunications
Services in this area include local telephone service,
analyst/technician services, clerical/switchboard assistance, and
installation services.
10. Mail
Activities in this area include collecting and sorting mail,
scanning and indexing insurance policy information, and other
related activities.
11. Mainframe and Personal Computer Support and Computer Programming
The computer services functions include administering, maintaining
and operating the mainframe computer, providing support for
personal computer and network applications and users, and offering
computer support for personal computer and network applications and
users, and offering computer programming services on a project
basis.
12. Strategic Management
ALH provides strategic management functions for the AmerUs Group of
companies. These services, the costs of which are captured in a
management fee charged to the other entities, include strategic
management, mergers and acquisitions strategy, and other activities
related to the strategic position of the Company.
6
<PAGE> 7
SCHEDULE II
Schedule of Fees
<TABLE>
<CAPTION>
SERVICE ALLOCATION METHOD
------- -----------------
<S> <C>
1. Human Resources Cost plus 7%
2. Air Transportation Cost plus 7%
3. Legal Cost plus 7%
4. Facilities Management Cost plus 7%
5. Tax Cost plus 7%
6. Audit Services Cost plus 7%
7. Communications Cost plus 7%
8. Printing and Supplies Cost plus 7%
9. Telecommunications Cost plus 7%
10. Mail Cost plus 7%
11. Mainframe and Personal Cost plus 7%
Computer Support and
Computer Programming
12. Strategic Management Cost plus 7%
</TABLE>
7
<PAGE> 1
EXHIBIT 10.44
AMENDMENT NO. 2 TO FACILITY AGREEMENT
This AMENDMENT NO. 2 TO FACILITY AGREEMENT (this "Amendment") is
entered into as of January 25, 2000 by and among AmerUs Life Holdings, Inc. (the
"Company"), Bank One, NA (f/k/a The First National Bank of Chicago),
individually and as agent ("Agent"), and the other finanial institutions
signatory hereto (the "Lenders").
RECITALS
A. The Company, the Agent and the Lenders are party to that certain
$27,500,000 Facility and Guaranty Agreement dated as of February 12, 1999 (as
previously amended, the "Facility Agreement"). Unless otherwise specified
herein, capitalized terms used in this Amendment shall have the meanings
ascribed to them by the Facility Agreement.
B. The Company, the Agent and the undersigned Lenders wish to amend the
Facility Agreement on the terms and conditions set forth below in order to
accommodate, among other things, the merger (the "Merger") of the Company with
and into the reorganized stock company which results from the demutualization of
American Mutual Holding Company, the name of which is to be determined (the
"Reorganized Company").
Now, therefore, in consideration of the mutual execution hereof and
other good and valuable consideration, the parties hereto agree as follows:
1. Amendment to Facility Agreement. Upon the Effective Date
(as defined below) or the Delayed Effective Date (as defined below), as
applicable, the Facility Agreement shall be amended as follows:
(a) Article I is amended as follows:
(i) by deleting the definitions of "Change of Control",
"Company" and "Subsidiary" and replacing each in its entirety to read
as follows:
"Change of Control" shall mean the occurrence of any of the
following events: (i) the Company 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 Company owns 50% or less shall become
entitled to elect a majority of AmerUs Life's board of directors;
or (ii) during any period of 25 consecutive calendar months,
individuals who at the beginning of such period constituted the
Board of Directors of the Company (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 Company was approved by a vote of a majority of the directors
then
<PAGE> 2
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.";
"Company" means the reorganized stock company which results
from the demutualization of American Mutual Holding Company, the
name of which is to be determined, and the successor by merger to
AmerUs Life Holdings, Inc.";
"Subsidiary" of any Person shall mean and include (a) 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 (b) 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 time. Unless otherwise
expressly provided, all references herein to "Subsidiary" shall
mean a Subsidiary of the Company; provided that, notwithstanding
the foregoing provisions of this definition (x) any grantor trust
or limited liability company established by the Company and/or its
Subsidiaries in order to effectuate the lease/leaseback
transaction with Linzer Elektrizitats-, Fernwarme- und
Verkehrsbetriebe Aktiengesellschaft ("ESG") with respect to a
cogeneration facility in Linz, Austria as described in the summary
of terms and structure delivered to the Administrative Agent and
the Banks prior to the Fourth Amendment Effective Date (all as
defined in the Existing Credit Agreement), and any trust or
limited liability company formed by the Company and/or its
Subsidiaries after the Fourth Amendment Effective Date to
effectuate transactions with ESG or any other Person in which the
Indebtedness of the Company and its Subsidiaries incurred in
connection therewith is comprised solely of (i) obligations which
are non-recourse to the Company or any of its Subsidiaries and
(ii) other obligations which are or will be 100% defeased by U.S.
Government obligations (each such transaction, including the
lease/leaseback with ESG, a "Permitted Transaction") and (y) any
Person which is at the relevant time of determination an
Unrestricted Subsidiary (as such term is defined in the Existing
Credit Agreement, as amended by the Sixth Amendment thereto dated
as of May 18, 1999), shall not constitute a Subsidiary for
purposes of this Agreement."
(ii) by deleting the definition of "Group".
(iii) by adding the following definition for "Bank One" in
its proper alphabetical order:
"Bank One" means Bank One, NA, a national banking
association having its principal office in Chicago, Illinois, in
its individual capacity, and its successors."
2
<PAGE> 3
(b) Each reference therein to "First Chicago" is amended to
be a reference to "Bank One" and each reference to "The First National
Bank of Chicago" is amended to be a reference to "Bank One, NA."
(c) Section 5.01(a) is amended by adding the following at
the end of such section:
"; provided, however, that AmerUs Life Holdings, Inc. may
merge into the reorganized stock company which results from the
demutualization of American Mutual Holding Company, the name of
which is to be determined.
(d) Section 6.01(g) is amended in its entirety to read as
follows:
"(g) The Company shall default in the performance or
observance of Section 5.01(e) or (h) herein or Section 7.10 or 7.11 of
the Existing Credit Agreement (as amended by the Sixth Amendment
thereto dated as of May 18, 1999)."
(e) the first sentence of Section 10.01 is amended to add
the following at the conclusion thereof before the period:
"and further provided that AmerUs Life Holdings, Inc. may assign such
rights and obligations to the reorganized stock company which results
from the demutualization of American Mutual Holding Company in
connection with the Merger of AmerUs Life Holdings, Inc. into such
reorganized stock company".
2. Representations and Warranties of the Company. The Company
represents and warrants that:
(a) The execution, delivery and performance by the Company of this
Amendment and by the Reorganized Company of the Affirmation Agreement
attached hereto as Exhibit A (the "Affirmation") has been (or in the case of
the Reorganized Company, will be) duly authorized by all necessary corporate
action on the part of the Company or the Reorganized Company, as applicable,
and that this Amendment and the Affirmation are (or in the case of the
Affirmation Agreement, will be) the legal, valid and binding obligation of
the Company or the Reorganized Company, as applicable, enforceable against
the Company or the Reorganized Company, as applicable, in accordance with
their respective terms, except as the enforcement thereof may be subject to
the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affecting creditors' rights generally;
(b) Neither the execution, delivery and performance by the Company
or the Reorganized Company of this Amendment or the Affirmation, as
applicable, nor compliance with the terms and provisions hereof, nor the
consummation of the transactions contemplated herein (including the Merger),
(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 result in the creation or imposition of (or
the obligation to
3
<PAGE> 4
create or impose) any lien upon any of the property or assets of the
Reorganized Company (after giving effect to the Merger), the Company or any
of their respective Subsidiaries pursuant to the terms of, any indenture,
mortgage, deed of trust, loan agreement, credit agreement (including without
limitation the Existing Credit Agreement) or any other material instrument
to which the Reorganized Company (after giving effect to the Merger), the
Company or any of their respective Subsidiaries is a party or by which the
Reorganized Company, the Company or any of their respective property or
assets are bound or to which the Reorganized Company (after giving effect to
the Merger) or the Company may be subject (it being understood that the
prior existence and continuation of Liens on the assets of the Reorganized
Company and its Subsidiaries shall not violate this representation) or (iii)
will violate any provision of the Certificate of Incorporation or By-Laws of
the Reorganized Company, the Company or any of their respective
Subsidiaries.
(c) No order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or exemption by,
any Governmental Authority (including without limitation the Iowa Insurance
Division) is required to authorize or is required in connection with (i) the
execution, delivery and performance of this Amendment, the Affirmation or
the Merger or (ii) the legality, validity, binding effect or enforceability
of this Amendment or the Affirmation, other than those which shall have been
obtained and shall be in effect as of (x) the Effective Date in connection
with this Amendment and (y) the Delayed Effective Date in connection with
the Affirmation and the Merger.
(d) Immediately after giving effect to this Amendment and the
Merger, each of the representations and warranties contained in the Facility
Agreement will be true and correct in all material respects as if made at
such time; and
(e) Immediately after giving effect to this Amendment and the
Merger, no Program Event of Default or Unmatured Default will have occurred
and be continuing.
3. Effective Date. The Immediate Amendments (as defined below) shall
become effective on the date (the "Effective Date") of the execution and
delivery hereof by the Company, the Agent and each of the Lenders. The Delayed
Amendments (as defined below) shall become effective upon such date (the
"Delayed Effective Date") as the Effective Date has occurred and the following
additional conditions have been satisfied:
(a) receipt by the Agent substantially contemporaneously with the
Merger of the Affirmation duly executed by the Reorganized Company;
(b) consummation of the Merger;
(c) receipt by the Agent substantially contemporaneously with the
Merger of a certificate, executed by the Secretary or Assistant Secretary of
the Reorganized Company, certifying an attached copy of the Board of
Directors' resolutions for the Reorganized Company authorizing, either
generally or specifically, the execution, delivery and performance under the
Affirmation;
4
<PAGE> 5
(d) receipt by the Agent of such other documents relating to the
Merger as the Agent or its counsel may have reasonably requested.
In the event the Delayed Effective Date has not occurred on or before
August 31, 2000, the Delayed Amendments shall not become operative and shall
be of no force or effect. "Immediate Amendments" means the amendments to the
Facility Agreement set forth in Sections 1(a)(i) (as to the definition of
"Subsidiary" only) and 1(a)(iii), 1(b) and 1(d) above. "Delayed Amendments"
means all other amendments to the Facility Agreement set forth in Section 1
above.
4. Reference to and Effect Upon the Facility Agreement.
(a) Except as specifically amended above, the Facility Agreement
and the other Loan Documents shall remain in full force and effect and are
hereby ratified and confirmed.
(b) The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of the Agent or
any Lender under the Facility Agreement or any Loan Document, nor constitute
a waiver of any provision of the Facility Agreement or any Loan Document,
except as specifically set forth herein. Upon the effectiveness of this
Amendment, each reference in the Facility Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of similar import shall mean and be
a reference to the Facility Agreement as amended hereby.
5. Costs and Expenses. The Company hereby affirms its obligations
under Section 12.08 of the Facility Agreement to reimburse the Agent for all
reasonable costs, internal charges and out-of-pocket expenses paid or incurred
by the Agent in connection with the preparation, negotiation, execution and
delivery of this Amendment, including but not limited to the attorneys' fees and
time charges of attorneys for the Agent with respect thereto.
6. CHOICE OF LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS (INCLUDING, WITHOUT LIMITATION, 735 ILCS SECTION 105/5-1
ET SEQ, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF THE
STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL
BANKS.
7. Headings. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purposes.
8. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
such counterparts shall constitute one and the same instrument.
[signature page to follow]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the date and year first above written.
AMERUS LIFE HOLDINGS, INC.
By: s/ Michael G. Fraizer
---------------------------------
Name: Michael G. Fraizer
Title: Senior Vice President and Chief Financial
Officer
BANK ONE, NA,
Individually and as Agent
By: s/ Cynthia Priest
-----------------------------------
Cynthia Priest
Vice President
6
<PAGE> 1
EXHIBIT 10.45
[LOGO]
Date: February 1, 2000
APPLICATION FOR STANDBY LETTER OF CREDIT
The undersigned member hereby applies for a Letter of Credit to be issued
on their account and pursuant to and subject to the terms of the previously
executed Agreement for Advances, Pledge and Security Agreement, the Credit
Policy of the Federal Home Loan Bank of Des Moines ("Bank"), and the
Reimbursement Agreement. This writing incorporates the terms of all negotiations
and is the sole evidence of those negotiations.
It is understood and agreed that:
1. The Bank's officers shall, if needed, disburse the funds pursuant to
the terms of Irrevocable Letter of Credit No. 1110-N00020101.
2. Any funds so disbursed shall be treated as an advance pursuant to the
above-referenced agreements and Credit Policy.
3. The Bank is hereby authorized to draw funds on this commitment and to
transfer the funds from the demand deposit account of the member
pursuant to instructions set forth by the holder of Irrevocable Letter
of Credit No. 1110-N00020101. The total amount of all such transfers
shall not exceed $25,000,000.00. The fee charged for this transaction
is $13,020.83. This authorization will expire at the close of business
on June 30, 2000.
The undersigned officers hereby certify that they are authorized to apply
to the Federal Home Loan Bank of Des Moines for this advance commitment pursuant
to a resolution adopted by the Board of Directors of the undersigned member. The
member agrees that the Bank can accept and rely upon applications executed and
sent via facsimile or electronic transmission. The member shall be legally bound
by the terms of such application.
NAME OF INSTITUTION Amerus Life Insurance Company (#1110)
LOCATION Des Moines, Iowa
BY: /s/ David Hansen BY: /s/ Lois Bagger
---------------------------- ------------------------------
David Hansen Lois Bagger
---------------------------- ------------------------------
Typed Name of Signer Typed Name of Signer
TITLE: Manager, Cash Management TITLE: Investing Accounting Spec.
------------------------- ---------------------------
NOTE: This transaction is not effective until approved and notice is given to
you by the Bank. If adverse facts develop which make the member
ineligible for Bank advances, the member must provide the Bank with
immediate written notification of its ineligibility and the Bank may
cancel this commitment.
- -------------------------------------------------------------------------------
FOR FHLB USE
Date Approved: 1/28/00 FEDERAL HOME LOAN BANK OF DES MOINES
Notified Via: telephone By:
-----------------------------------
Commitment No.: 1110-N00020101 By:
-----------------------------------
<PAGE> 2
[HOME LOAN BANK LOGO]
Date: February 1, 2000
LETTER OF CREDIT NO. 1110-N00020101
Ameritas Variable Life Insurance Company
PO Box 82550
Lincoln, NE 68501-2550
Attention: JoAnn Martin
Dear Ms. Martin:
You are hereby irrevocably authorized to draw on the Federal Home Loan
Bank of Des Moines (the "Bank"). Irrevocable Standby Letter of Credit No.
1110-N00020101 for account of Amerus Life Insurance Company, (the "Member"),
available by your drafts at sight upon the terms and conditions hereinafter set
forth, an aggregate amount not exceeding $25,000,000.00 ("Stated Amount").
Funds under this Letter of Credit are available to you against your sight
drafts(s) drawn on us, stating on their face: "Drawn under Federal Home Loan
Bank of Des Moines Irrevocable Standby Letter of Credit No. 1110-N0002101"
accompanied by your written certificate signed by you in the form of Exhibit
"A" attached hereto appropriately completed. Presentation of such draft(s) and
certificate(s) shall be made at our office located at 907 Walnut, Des Moines,
Iowa 50309. We hereby agree that all drafts drawn under and in compliance with
the terms of this Letter of Credit will be duly honored by us upon delivery of
the certificate(s), as specified, if presented at such office on or before the
expiration date hereof. A drawing under this Letter of Credit may also be made
in the form of a writing transmitted by any telecommunication facility sent by
you and received by us at our office indicated above, provided that you
undertake in such writing to send us the appropriate certificate(s) referred to
above within three business days of sending such writing. If a drawing in
respect of payment is made by you hereunder at or prior to 10:00 A.M., Des
Moines, Iowa time, on a business day, and provided that such drawing and the
documents presented in connection therewith conform to the terms and conditions
hereof, payment shall be made to you or to your designee, of the amount
specified, in immediately available funds, not later than 3:00 P.M., Des
Moines, Iowa time, on the same business day. If a drawing in respect of payment
is made by you hereunder after 10:00 A.M., Des Moines, Iowa time, on a business
day and provided that such drawing and the documents presented in connection
therewith conform to the terms and conditions hereof, payment shall be made to
you or to your designee, of the amount specified, in immediately available
funds, not later than 3:00 P.M., Des Moines, Iowa time on the succeeding
business day. If requested by you, payment under this Letter of Credit may be
made by deposit of immediately available funds into a designated account that
you maintain with us. If a drawing made by you hereunder does not, in any
instance, conform to the terms and conditions of this Letter of Credit, we will
give you prompt notice stating the reasons therefore and that we are holding any
documents presented to us at your disposal or are returning the same to you, at
our discretion. Upon being notified that the drawing was not in accordance with
the Letter of Credit, you may attempt to correct any such drawing if, and to the
extent that, you are entitled (without regard to the provision of this
sentence) and able to do so. As used herein "business day" shall mean any day
other than a Saturday, Sunday or a day on which financial institutions in the
State of Iowa are authorized or required by law to close.
<PAGE> 3
-2-
Drawings in respect of payments hereunder honored by us shall not, in
the aggregate, exceed the Stated Amount.
Only you may make a drawing under this Letter of Credit. Upon the payment
to you, to your designee or to your account of the amount specified in a sight
draft(s) drawn hereunder, we shall be fully discharged on our obligations under
this Letter of Credit with respect to such sight draft(s) and we shall not
thereafter be obligated to make any further payments under this Letter of Credit
in respect of such sight draft(s) to you or any other person.
This Letter of Credit shall automatically terminate and be delivered to
the Bank for cancellation upon the earlier of (i) the making by you of a drawing
which reduces the available balance hereunder, to $0, or (ii) June 30, 2000.
This Letter of Credit, except as otherwise expressly stated herein, is
subject to the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce, Publication No. 500 (the "Uniform
Customs"). This Letter of Credit shall be governed by Iowa law, including, but
not limited to, the Iowa Uniform Commercial Code. Communications with respect to
this Letter of Credit shall be in writing and shall be addressed to us at 907
Walnut, Des Moines, Iowa 50309, specifically referring thereon to "Irrevocable
Letter of Credit No. 1110-N00020101."
This Letter of Credit sets forth in full our undertaking, and such
undertaking shall not in any way be modified, amended, amplified or limited by
reference to any document, instrument or agreement referred to herein except
only the certificate(s) and the sight draft(s) referred to herein; and any such
reference shall not be deemed to incorporate herein by reference any document,
instrument or agreement except for such certificate(s) and such sight draft(s).
Very truly yours,
FEDERAL HOME LOAN BANK OF DES MOINES
By /s/ Jerry R. Ferguson
----------------------
Authorized Officer
<PAGE> 4
EXHIBIT A
---------
CERTIFICATE
- -----------
The undersigned, a duly authorized officer of __________, ________________,
____ (the "Payee"), hereby certifies to ______________ (the "Bank"), with
reference to Irrevocable Standby Letter of Credit No. _________, (the "Letter of
Credit"; any capitalized term used herein and not defined shall have its
respective meaning as set forth in the Letter of Credit) issued by the Bank in
favor of the Payee, that:
(1) The Payee is making a drawing under the Letter of Credit with respect
to the payment of amounts due it from ____________.
(2) The amount of the sight draft(s) accompanying this Certificate, namely
$_________, together with the amounts of all previous drafts, does not
exceed $____________.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of the ___ day of __________, 20__ .
-------------------,-----------------
-------------------
By
----------------------------------
Title
--------------------------------
<PAGE> 1
EXHIBIT 10.46
SEVENTH AMENDMENT TO CREDIT AGREEMENT
SEVENTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
December 23, 1999, among AMERUS LIFE HOLDINGS, INC., an Iowa corporation (the
"Borrower"), the various Banks from time to time party to the Credit Agreement
referred to below (the "Banks"), BANK ONE, INDIANA, NA and ABN AMRO BANK, N.V.,
as Co-Arrangers (the "Co-Arrangers") and THE CHASE MANHATTAN BANK, as
Administrative Agent (the "Administrative Agent"). All capitalized terms used
herein and not otherwise defined shall have the respective meanings assigned to
such terms in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the Banks, the Co-Arrangers and the
Administrative Agent are parties to a Credit Agreement, dated as of October 23,
1997 (as amended, modified or supplemented to the date hereof, the "Credit
Agreement");
WHEREAS, the Borrower has requested that the Banks agree to amend the
Credit Agreement as herein provided; and
WHEREAS, the Banks have agreed to the amendments to the Credit
Agreement as herein provided subject to the terms and conditions set forth
herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 7.02 of the Credit Agreement is hereby amended by:
(i) deleting the word "and" appearing at the end of clause (h);
(ii) deleting the period appearing at the end of clause (i) and
inserting in lieu thereof the text "; and"; and
(iii) inserting the following new clause (j) immediately following
clause (i):
"(j) the Borrower may merge with and into AMHC in connection with
the demutualization of AMHC, provided that (x) no Default or Event of
Default is then in existence or would result therefrom and (y)
concurrently with the consummation of such merger AMHC as the surviving
corporation of such merger shall execute and deliver to the
Administrative Agent an acknowledgment and assumption agreement (in the
form attached hereto as Exhibit I) pursuant to which AMHC shall expressly
assume all obligations of the Borrower under this Agreement and the other
Credit Documents (it being understood and agreed that on and after the
date of such merger all references to the Borrower in this Agreement and
the other Credit Documents shall be deemed to be references to AMHC)."
<PAGE> 2
2. Section 7.09 of the Credit Agreement is hereby amended by deleting
clause (vii) thereof in its entirety and by inserting in lieu thereof the
following new clause (vii):
"(vii) transactions in connection with and related to the
demutualization of AMHC (including, without limitation, the merger of the
Borrower with and into AMHC) shall not be subject to this Section 7.09."
3. The first sentence of Section 11.04 of the Credit Agreement is
hereby amended by inserting the text "except pursuant to a merger of the
Borrower with and into AMHC in accordance with the terms of Section 7.02(j),"
following the words "provided, however,".
4. In order to induce the Banks to enter into this Amendment, the
Borrower hereby represents and warrants that (x) all representations and
warranties contained in Section 5 of the Credit Agreement are true and correct
in all material respects on and as of the Seventh Amendment Effective Date (as
defined below) after giving effect to this Amendment (unless such
representations and warranties relate to a specific earlier date, in which case
such representations and warranties shall be true and correct as of such earlier
date) and (y) there exists no Default or Event of Default on the Seventh
Amendment Effective Date, after giving effect to this Amendment.
5. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any provision of the Credit Agreement or
any other Credit Document except as expressly set forth herein.
6. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Administrative Agent.
7. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
8. This Amendment shall become effective as of the date hereof on the
date (the "Seventh Amendment Effective Date") when each of the Borrower and all
the Banks shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Administrative Agent at its Notice Office.
9. From and after the Seventh Amendment Effective Date, all
references in the Credit Agreement and each of the Credit Documents to the
Credit Agreement shall be deemed to be references to the Credit Agreement after
giving effect to this Amendment.
* * *
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused a counterpart of
this Amendment to be duly executed and delivered as of the date first above
written.
AMERUS LIFE HOLDINGS, INC.
By s/ Michael G. Fraizer
----------------------------------------
Name: Michael G. Fraizer
Title: Senior Vice President and
Chief Financial Officer
THE CHASE MANHATTAN BANK,
Individually and as Administrative Agent
By s/ Helen L. Newcomb
----------------------------------------
Name: Helen L. Newcomb
Title: Vice President
BANK ONE, INDIANA, NA, Individually and as
a Co-Arranger
By s/ Cynthia W. Priest
----------------------------------------
Name: Cynthia W. Priest
Title: First Vice President
ABN AMRO BANK N.V., Individually and as a
Co-Arranger
By s/ Parker H. Douglas
----------------------------------------
Name: Parker H. Douglas
Title: Group Vice President
By s/ Neil R. Stein
----------------------------------------
Name: Neil R. Stein
Title: Corporate Banking Officer
<PAGE> 4
BANK OF MONTREAL
By s/ Bruce A. Pietka
----------------------------------------
Name: Bruce A. Pietka
Title: Vice President
BANQUE NATIONALE DE PARIS
By s/ Arnaud Collin du Eocage
----------------------------------------
Name: Arnaud Collins du Eocage
Title: Executive Vice President and
General Manager
CIBC INC.
By s/ Robert Mendeles
----------------------------------------
Name: Robert Mendeles
Title: Executive Director of CIBC World
Market Corp., as Agent
DRESDNER BANK AG, NEW YORK BRANCH AND
GRAND CAYMAN BRANCH
By s/ Lloyd C. Stevens
----------------------------------------
Name: Lloyd C. Stevens
Title: Vice President
By s/ George T. Ferguson, IV
----------------------------------------
Name: George T. Ferguson, IV
Title: Assistant Vice President
<PAGE> 5
FIRST UNION NATIONAL BANK
By s/ Thomas L. Stitchberry
----------------------------------------
Name: Thomas L. Stitchberry
Title: Senior Vice President
FLEET NATIONAL BANK
By s/ David A. Bosselait
----------------------------------------
Name: David A. Bosselait
Title: Vice President
MELLON BANK, N.A.
By s/ Susan M. Whitewood
----------------------------------------
Name: Susan M. Whitewood
Title: Vice President
BANK OF AMERICA, N.A.
By s/ Debra Basler
----------------------------------------
Name: Debra Basler
Title: Vice President
NORWEST BANK IOWA, NATIONAL ASSOCIATION
By s/ Diane S. Ramsey
----------------------------------------
Name: Diane S. Ramsey
Title: Vice President
<PAGE> 6
ROYAL BANK OF CANADA
By s/ Vivian Abdelmessih
----------------------------------------
Name: Vivian Abdelmessih
Title: Senior Manager
SUNTRUST BANK
By s/ W. David Wisdom
----------------------------------------
Name: W. David Wisdom
Title: Vice President
<PAGE> 1
AMERUS LIFE HOLDINGS, INC.
EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIOS
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
--------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Earnings
Pre-tax income from continuing operations $ 97,211 $ 88,597 $ 78,381
Less: Income (loss) from equity investees (1,232) (6,072) 13,205
Add: Distributed income from equity investees 1,639 689 4,621
--------------------------------------------------
100,082 95,358 69,797
--------------------------------------------------
Fixed charges 310,921 315,537 98,935
Less: Preference security dividend requirements
not included in net income - 4,697 592
--------------------------------------------------
Net fixed charges 310,921 310,840 98,343
--------------------------------------------------
Total Earnings $ 411,003 $ 406,198 $ 168,140
==================================================
Fixed Charges
Interest expense on debt 11,566 15,058 7,961
Interest credited to deferred annuity account balances 281,063 282,465 81,834
Amortization of debt issuance costs 1,538 1,300 1,529
Preference security dividend requirements 16,754 16,714 7,611
--------------------------------------------------
Total Combined Fixed Charges and Preference Security Dividends $ 310,921 $ 315,537 $ 98,935
==================================================
Ratio of Earnings to Combined Fixed Charges and
Preference Security Dividends 1.32 1.29 1.70
==================================================
<CAPTION>
Years Ended December 31,
1996 1995
-------------------------------
(in thousands)
<S> <C> <C>
Earnings
Pre-tax income from continuing operations $ 116,988 $ 110,550
Less: Income (loss) from equity investees (2,926) (1,356)
Add: Distributed income from equity investees 664 254
-------------------------------
120,578 112,160
-------------------------------
Fixed charges 68,396 80,476
Less: Preference security dividend requirements
not included in net income - -
-------------------------------
Net fixed charges 68,396 80,476
-------------------------------
Total Earnings $ 188,974 $ 192,636
===============================
Fixed Charges
Interest expense on debt 2,142 2,356
Interest credited to deferred annuity account balances 66,254 78,120
Amortization of debt issuance costs - -
Preference security dividend requirements - -
-------------------------------
Total Combined Fixed Charges and Preference Security Dividends $ 68,396 $ 80,476
===============================
Ratio of Earnings to Combined Fixed Charges and
Preference Security Dividends 2.76 2.39
===============================
</TABLE>
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
NAME JURISDICTION
- ---- ------------
<S> <C>
AmerUs Life Insurance Company Iowa
Delta Life Corporation Delaware
Delta Life and Annuity Company Tennessee
AmVestors Financial Corporation Kansas
American Investors Life Insurance Company, Inc. Kansas
AmVestors Acquisition Subsidiary, Inc. Kansas
Annuity International Marketing Corporation Kansas
Financial Benefit Life Insurance Company Florida
The Insurance Mart, Inc. Florida
Rainbow Card Pack Publication, Inc. Florida
AmerUs Capital I Delaware Business Trust
AmerUs Capital II Delaware Business Trust
AmerUs Capital Management Group, Inc. Iowa
ACM Properties, Inc. Iowa
Maxx Housing, Inc. Iowa
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AmerUs Life Holdings, Inc.
We consent to incorporation by reference in the Registration Statement Nos.
333-32201, 333-32203, 333-40065, 333-20907, 333-20905, 333-63895. and 333-72237
on Forms S-8 and Registration Statement Nos. 333-72643 and 333-50249 on Forms
S-3 of our reports dated February 2, 2000, relating to the consolidated balance
sheets of AmerUs Life Holdings, Inc. and subsidiaries as of December 31, 1999
and 1998, and related consolidated statements of income, comprehensive income,
stockholders' equity, and cash flows and related schedules for each of the years
in the three-year period ended December 31, 1999,which appears in the December
31, 1999 annual report on Form 10-K of AmerUs Life Holdings, Inc.
KPMG LLP
Des Moines, Iowa
March 8, 2000
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 6,680,755
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 14,585
<MORTGAGE> 615,186
<REAL-ESTATE> 1,538
<TOTAL-INVEST> 7,691,241
<CASH> 23,090
<RECOVER-REINSURE> 17,535
<DEFERRED-ACQUISITION> 529,663
<TOTAL-ASSETS> 10,719,353
<POLICY-LOSSES> 7,390,991
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 12,221
<POLICY-HOLDER-FUNDS> 282,026
<NOTES-PAYABLE> 173,088
214,791
0
<COMMON> 30,071
<OTHER-SE> 702,929
<TOTAL-LIABILITY-AND-EQUITY> 10,719,353
164,197
<INVESTMENT-INCOME> 540,072
<INVESTMENT-GAINS> 3,244
<OTHER-INCOME> 1,467
<BENEFITS> 442,428
<UNDERWRITING-AMORTIZATION> 67,780
<UNDERWRITING-OTHER> 93,881
<INCOME-PRETAX> 97,211
<INCOME-TAX> 32,115
<INCOME-CONTINUING> 66,654
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,654
<EPS-BASIC> 2.20
<EPS-DILUTED> 2.20
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
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</TABLE>
<PAGE> 1
Privileged and Confidential
EXHIBIT 99.6
AGREEMENT AND RELEASE
THIS AGREEMENT AND RELEASE, dated as of December 31, 1999, is entered
into by and between AmerUs Life Holdings, Inc., AmerUs Group Co., American
Mutual Holding Company, and all of their respective subsidiaries and affiliates
(collectively and individually "Employer") and Marcia S. Hanson ("Employee").
In consideration of the payment by Employer of the Severance Amount and
Continued Benefits as hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Employee agrees as follows:
1. ALL OTHER AGREEMENTS RESCINDED. Except as expressly otherwise herein
provided, this Agreement and Release supersedes and rescinds the Amended and
Restated Employment Agreement, dated April 15, 1999, between Employer and
Employee and all other agreements oral, written, express, implied or otherwise,
if any, between Employer and Employee, effective as of December 31, 1999 (the
"Termination Date").
2. RELEASE AND WAIVER. Except for breaches of the rights provided in
Sections 6 and 7 of this Agreement and Release, Employee, on her behalf and on
behalf of others who might derive rights through her, fully and forever releases
and discharges Employer and each of its partners, principals, stockholders,
directors, officers, employees, agents, trustees, pension plan trustees and
administrators, contractors, consultants, and attorneys, whether past, present,
or future, and all predecessors, successors, and assigns thereof ("Released
Parties"), from any and all claims, demands, agreements, causes of action,
injunctions, and restraints or liabilities of whatever kind, arising out of or
in any way related to her employment with Employer or in her capacity as an
officer or a director of Employer, whether in law, equity, or otherwise, and
whether now known or unknown or which have ever existed or now exist, including,
but not limited to, claims, liabilities, or causes of action relating to or
arising out of Employee's hiring, employment, or separation from employment with
Employer. This release includes, but is not limited to, claims under the Age
Discrimination in Employment Act of 1967, as Amended, 29 U.S.C. ss.621 et. seq.,
the Family Medical leave Act, 29 U.S.C. ss.2601 et. seq., Title VII of the Civil
Rights Act of 1964, as amended, 42 U.S.C. ss.ss.2000e et. seq., 42 U.S.C.
ss.1981, The Civil Rights Act of 1991, the Americans With Disabilities Act, 42
U.S.C. ss.ss.12181-12189, The Employee Retirement Income Security Act of 1974,
as amended, 29 U.S.C. ss.ss.1001 et. seq., the Iowa Civil Rights Act, as
amended, Iowa Code ss.ss.216 et. seq., the Wage Payment Collection Act, Iowa
Code ss.91.A et. seq., claims under any local rule, state or federal statute,
claims under the common law, claims for breach of contract, claims for any tort,
claims for any wrongful discharge, or any other claims which could have been but
have not been asserted. Employee acknowledges and agrees that this release,
waiver, and covenant not to sue set forth in Section 3 hereof are
<PAGE> 2
Privileged and Confidential
essential and material terms of this Agreement and Release and that without such
release, waiver, and covenant not to sue, no agreement would have been reached
by the parties.
3. COVENANT NOT TO SUE. Employee covenants not to sue or to institute
or cause to be instituted any kind of claim or action in any federal, state or
local agency or court against any of the Released Parties arising out of or
attributable to Employee's employment, or separation from employment with
Employer, or any other action or cause of action released under Section 2
hereof.
4. COMPLIANCE WITH APPLICABLE LAW. In order to comply with the Older
Workers Benefit Protection Act, Employee acknowledges that she is releasing any
claim she might have under the Age Discrimination in Employment Act. Employee
shall be given twenty one (21) days to consider entering into this Agreement and
Release. If Employee signs this Agreement and Release prior to the end of twenty
one (21) days, her signature shall constitute a waiver of that twenty-one day
consideration period. Employee shall further be given seven (7) days subsequent
to her execution of this Agreement and Release to revoke her execution. Proof of
execution shall be provided to Victor N. Daley, by delivering an executed
original Agreement and Release within forty-eight (48) hours of its execution.
Proof of revocation shall be provided by delivering a notice of revocation to
Victor N. Daley prior to the end of the seventh day after executing this
Agreement and Release. In the event Employee revokes execution pursuant to this
paragraph, Employer shall have no obligation under this Agreement and Release,
including no obligation to pay Employee the Severance Amount and Continued
Benefits as set forth herein.
5. EMPLOYEE ADVISED TO SEEK LEGAL COUNSEL. Employee acknowledges that
Employer advised her to seek the advice of legal counsel before entering into
this Agreement and Release. Employee acknowledges that she has read this
Agreement and Release, that she fully understands and appreciates the meaning of
this Agreement and Release, that it fully reflects the entirety of the agreement
between the parties, that no representation, inducement, or warranty has been
made to her by or on behalf of Employer except as expressly set forth herein,
that she has consulted competent legal counsel of her selection, and that she
KNOWINGLY and VOLUNTARILY enters into this Agreement and Release and agrees to
comply with its terms and conditions.
6. SEVERANCE AMOUNT. The Employee shall receive (i) an amount equal to
two (2) years base compensation of $240,000 per year, which sum shall be payable
in equal semimonthly installments during this two year period beginning on the
day after the Termination Date (the "Severance Period"), (ii) her targeted MIP
bonus at the fifty percent 50% level (i.e., $120,000) for each of the two years
of the Severance Period which shall be payable on March 1, 2000 and March 1,
2001, respectively, and (iii) an amount equal to her monthly flex credits which
shall be payable in equal semimonthly installments of $125 during the Severance
Period ((i), (ii) and (iii) collectively the "Severance Amount"). If Employee's
Termination Date is later than December 31st of 1999, the base compensation
portion (item (i) of the preceding sentence) of the Severance Amount shall be
reduced by the amount of Employee's base compensation earned
-2-
<PAGE> 3
Privileged and Confidential
between December 31, 1999 and the Termination Date multiplied by .50. For
example, a May 1, 2000 Termination Date would result in a reduction of two (2)
months compensation providing Employee with a total two year base compensation
amount of $440,000.
7. CONTINUED BENEFITS. In addition to the Severance Amount set forth in
Section 6 above, Employee shall receive the following benefits.
a. Executive Stock Purchase. During the Severance Period, Employee
shall remain eligible to continue her current participation as a
participant in the Executive Stock Purchase Plan.
b. Stock Options and 1999 MIP Payment. Employee's stock options
shall as of the Termination Date be forfeited and no longer
exercisable, and Employee shall not receive a 1999 MIP payment;
however, in lieu of such options and MIP payment, Employee shall
receive $280,000.
c. MIP Deferral. Any amounts the Employee has deferred according to
the AmerUs Group MIP Deferral Plan shall be paid on the Termination
Date. Valuation of the MIP deferral shall be based on the December 31,
1999 price of AMH Class A common stock.
d. Long-term Incentive Plan. All deferred monies from the Long Term
Incentive Plan plus earnings on those deferrals will be payable at
termination. Additionally, the three year performance cycle payout
ending December 31, 1999 will be paid as soon as the results are known.
e. Vacation Pay. Employee shall receive in cash all accrued and
unused vacation on the next regularly scheduled pay date following the
Termination Date.
f. Group Insurance Coverage. Employee's group medical and dental
coverage shall continue until the Termination Date, and thereafter
Employee shall be eligible to continue her medical and dental coverage
under COBRA provisions, subject to applicable law. COBRA notices and
enrollment forms shall be mailed to Employee's home from MedSoft
Corporation, provided that Employee completes and returns the
appropriate enrollment forms in accordance with such forms'
instructions.
g. Other Benefits. Employee's accidental death and dismemberment
coverage shall end on the last day of the month of the Termination
Date. All other fringe benefits provided by Employer, including
short-term disability and long-term disability coverage, shall end on
the Termination Date. Employee shall have the option of converting her
long-term disability insurance utilizing the long-term disability
conversion application previously provided to Employee. After
completing and returning the application to Provident Life & Accident
Insurance
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<PAGE> 4
Privileged and Confidential
Company, Employee shall receive her individualized rate as provided for
in the policy. There are no available conversion options for Employee's
accidental death and dismemberment or short-term disability coverage.
h. Life Insurance. Employee's basic group life, as well as any
supplemental life, child life, and spouse life insurance elected shall
all continue through the last day of the month of the Termination Date.
Employee shall have the option to continue her supplemental life, child
life, and spouse life insurance coverage through portability or
conversion if elected within thirty one (31) days of cessation of
coverage. Employee may "port" her supplemental life, child life, or
spouse life insurance by completing a portability application that has
been provided to Employee. Although Employee may not port her basic
group life coverage, she shall have the option of converting her basic
life insurance coverage, as well as any supplemental life, child life,
and spouse life insurance coverage which Employee has elected, by
completing a form that has been provided to Employee. Neither
portability nor conversion requires underwriting and Employee may port
and/or convert to an amount less than or equal to her basic and
supplemental coverage combined, provided she does so within thirty one
(31) days of the Termination Date.
i. Retirement Plans. As of the Termination Date, Employee shall be
vested in all employee and employer matching contributions to the
All*AmerUs Savings & Retirement, SERP, and Excess Benefit Plans salary
deferral. Employee's participation in the 401 (k) Plan shall end on the
Termination Date, and Employee shall not take a distribution from the
plan until thirty (30) days following the Termination Date.
8. SUCCESSORS; BINDING AGREEMENT. This Agreement and Release shall be
binding on, inure to the benefit of, and be enforceable by the successors and
assigns of Employer. This Agreement and Release shall be binding on, inure to
the benefit of, and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
9. NO ASSIGNMENT. The right of Employee or any other person to the
payment of amounts or other benefits under this Agreement and Release shall not
be assigned, alienated, hypothecated, placed in trust, disposed of, transferred,
pledged or encumbered (except by will or by the laws of descent and
distribution), and, to the extent permitted by law, no such amount or payment
shall in any way be subject to any legal process to subject the same to the
payments of any claim against Employee or any other person.
10. NOTICE. For the purposes of this Agreement and Release, notices and
all other communications provided for in the Agreement and Release shall be in
writing and shall be deemed to have been duly given when hand delivered or
mailed by registered mail, return receipt requested, postage prepaid, addressed
to the respective addresses set forth below, provided that all notices to
Employer shall be directed to the attention of the
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<PAGE> 5
Privileged and Confidential
Chief Executive Officer of Employer, with a copy to the Secretary of Employer,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
EMPLOYER: Chief Executive Officer
AmerUs Life Holdings, Inc.
699 Walnut Street
Des Moines, Iowa 50309
Secretary
AmerUs Life Holdings, Inc.
699 Walnut Street
Des Moines, Iowa 50309
EMPLOYEE: Marcia S. Hanson
13080 Cedarcrest Lane
Clive, IA 50325
11. AMENDMENT; WAIVER. No provisions of this Agreement and Release may
be modified, waived or amended unless such waiver, modification or amendment is
agreed to in writing and signed by (i) Employee; and (ii) such officer as may be
specifically designated by Employer for such purpose, and such provisions shall
be modified, waived or amended only to the extent set forth in such writing.
12. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement and Release shall not affect the validity or enforceability of
any other provision of this Agreement and Release, which shall remain in full
force and effect.
13. COUNTERPARTS. This Agreement and Release may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together will constitute one and the same instrument.
14. ARBITRATION. Any dispute, disagreement or other question arising
from this Agreement and Release or the interpretation thereof shall be settled
by arbitration in accordance with the commercial rules then in effect of the
American Arbitration Association, except that the arbitrator(s) shall be
selected in accordance with the following procedure: such dispute, disagreement
or other question shall be referred to and decided by a single arbitrator if the
parties can agree upon one within fifteen (15) days after either of the parties
shall notify the other, as provided in Paragraph 10 of this Agreement and
Release, that it wishes to avail itself of the provisions of this Paragraph 14;
otherwise, such dispute, disagreement or other question shall be referred to and
decided by three arbitrators, one to be appointed by Employer and one to be
appointed by Employee, each such appointment to be made within ten (10) days
after the expiration of the fifteen (15) day period referred to above, and the
third arbitrator to be appointed by the first two arbitrators within twenty (20)
days after the expiration of such ten (10) day
-5-
<PAGE> 6
Privileged and Confidential
period. If the first two arbitrators cannot reach agreement on the third
arbitrator within said twenty (20) day period, the third arbitrator shall be an
impartial arbitrator appointed by the President of the American Arbitration
Association within thirty (30) days after the expiration of said twenty (20) day
period. Hearings of the arbitrator(s) shall be held in Des Moines, Iowa, unless
the parties agree otherwise. Judgment upon an award rendered by the
arbitrator(s) may be entered in any court of competent jurisdiction, including
courts in the State of Iowa. Any award so rendered shall be final and binding
upon the parties hereto. All costs and expenses of the arbitrator(s) shall be
paid as determined by such arbitrator(s), and all costs and expenses of experts,
witnesses, and other persons retained by the parties shall be borne by them
respectively.
15. INJUNCTIVE RELIEF. In the event of a breach or threatened breach by
Employee of the provisions of this Agreement and Release, Employer shall be
entitled to an injunction to prevent irreparable injury to Employer. In this
regard, Employee understands and agrees that any breach by Employee of the
provisions of this Agreement and Release will result in serious and irreparable
injury to Employer and its business and that the remedy at law alone will be an
inadequate remedy for such breach.
16. GENERAL CREDITOR. Nothing contained in this Agreement and Release
and no action taken pursuant to the provisions of this Agreement and Release
shall create or be construed to create a trust of any kind or a fiduciary
relationship between Employer and Employee or any other person, nor shall any
money or property of Employer be segregated for the benefit of Employee to
satisfy the obligations of Employer hereunder. To the extent that Employee
acquires a right to receive payments hereunder, such rights shall be no greater
than the right of any general unsecured creditor of Employer. Except as
expressly provided herein, each payment shall be made in cash from the general
assets of Employer.
17. NONVESTED RIGHTS. The rights and benefits of Employee under this
Agreement and Release are nonvested rights and benefits of Employee.
18. TAX WITHHOLDING. Employer will have the right to withhold from any
transfer or payment made to Employee or to any other person hereunder, whether
such payment is to be made in cash or other property, all applicable federal,
state, city or other taxes or foreign taxes as shall be required in the
determination of Employer, pursuant to any statute or governmental regulation or
ruling.
19. DISCLOSURE OF INFORMATION. Employee hereby acknowledges that she
has had access to confidential information of Employer and of corporations
affiliated with Employer and that such information may constitute valuable,
special and unique property of Employer and such other corporations. Employee
shall not disclose any such confidential information to any person or entity for
any reason or purpose whatsoever, including, without limitation, the disclosure
of the terms and conditions of this Agreement and Release, except as may be
required by law. If Employee becomes legally compelled to disclose any
confidential information, Employee will provide Employer prompt notice thereof
so that Employer may seek a protective order or other appropriate
-6-
<PAGE> 7
Privileged and Confidential
remedy and Employee will cooperate with Employer in that effort. If such
protective order or other remedy is not obtained, Employee (a) will furnish only
that portion of the confidential information that Employee is advised by written
opinion of counsel is legally required; and (b) will exercise her best effort to
obtain reliable assurance that confidential treatment will be accorded such
confidential information.
20. AGREEMENT NOT TO SOLICIT EMPLOYEES OR AGENTS. Employee agrees that,
for a period of three (3) years following the Termination Date, neither she nor
any affiliate shall, either alone or on behalf of any business engaged in
competition with Employer, solicit or induce, or in any manner attempt to
solicit or induce any person employed by, or an agent of, Employer to terminate
his or her contract or employment or agency, as the case may be, with Employer.
21. NON-DISPARAGEMENT. Employee agrees that she shall not (a) take any
action to demean, disparage, or criticize Employer or any of Employer's
officers, employees, agents, directors, or stockholders; or (b) make any
negative or adverse remarks whatsoever to any third party, including without
limitation, actual or potential customers, investors of Employer, and past,
current or future employees, agents, and/or consultants of Employer, concerning
the business, operations, technologies, products, services, marketing
strategies, pricing policies, management, affairs and financial condition of
Employer and/or its successors, assigns, stockholders, officers, directors, and
employees; provided, however, that nothing contained in this Paragraph shall be
deemed to prohibit Employee from truthfully responding to inquires pursuant to
legal process or providing information as required by law.
22. RETURN OF DOCUMENTS. Employee agrees that upon the Termination Date
Employee shall deliver to Employer all notes, letters, documents, and records
which may contain proprietary information which are then in her possession or
control and shall destroy any and all copies and summaries thereof not returned
to Employer.
23. GOVERNING LAW. The provisions of this Agreement and Release shall
(except to the extent federal law applies) be construed in accordance with the
laws of the State of Iowa, without giving effect to any choice of law rules that
may require the application of the laws of another jurisdiction.
24. ENTIRE AGREEMENT. This Agreement represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereto, and upon the execution and delivery of this Agreement,
neither AMH nor Employee shall have any further rights, obligations or
liabilities under the Prior Agreement or any other written or oral agreement
relating to the subject matter hereof.
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<PAGE> 8
Privileged and Confidential
IN WITNESS WHEREOF, Employee has executed this Agreement and Release on
this 31st day of December, 1999.
<TABLE>
<CAPTION>
EMPLOYER: EMPLOYEE:
<S> <C>
s/ Roger K. Brooks s/ Marcia S. Hanson
- -------------------------------- -------------------------------------
Printed Name: Roger K. Brooks Printed Name: Marcia S. Hanson
WITNESS:
s/ Victor N. Daley
- --------------------------------
Printed Name: Victor N. Daley
</TABLE>
-8-
<PAGE> 1
EXHIBIT 99.7
SUPPLEMENTAL BENEFIT AGREEMENT
THIS SUPPLEMENTAL BENEFIT AGREEMENT (this "Agreement") is entered
into and made effective as of the 7th day of February, 2000, by and between
, an individual residing at ("Employee"), and AmerUs
Life Insurance Co., an Iowa corporation having its principal place of business
at 611 5th Avenue, Des Moines, Iowa 50309 ("Employer").
WHEREAS, Employer currently employs Employee of
Employer; and
WHEREAS, Employer and Employee wish to enter into an agreement
concerning a certain aspect of their employment relationship;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
Section 1. Definitions. Whenever used herein, capitalized words and
phrases, unless the context otherwise requires, shall have the meanings ascribed
in the text, or as set forth on Exhibit A, which is attached hereto and made a
part hereof.
Section 2. Termination of Employment by Employee for Good Reason.
a. If the employment of Employee is terminated by Employee for
Good Reason, Employee shall be entitled to the Severance Payment and the
Continued Benefits.
b. Any offer of Comparable Employment following a Change of
Control shall remain open for at least fifteen (15) days after such offer is
extended to Employee. If Employee does not accept an offer of Comparable
Employment following a Change of Control within fifteen (15) days after it is
offered, all rights of Employee under this Agreement shall cease.
c. If Employee timely accepts an offer of Comparable
Employment following a Change of Control and if within two (2) years following
the date such offer of Comparable Employment is accepted either (i) the
employment of Employee is terminated by Employer without Cause (as such term is
described in Section 4 hereof) or (ii) a Material Event occurs and Employee
elects to terminate his or her employment with Employer (which will also be
considered a termination of employment by Employee for Good Reason for purposes
hereof), then Employee shall be entitled to the Severance Payment and the
Continued Benefits.
Section 3. Termination of Employment by Employer Following Change of
Control. If the employment of Employee is terminated by Employer following a
Change of Control, and such termination is not for Cause as described in Section
4 hereof, Employee shall be entitled to the Severance Payment and the Continued
Benefits; provided, however, that if the Employee accepts an offer of Comparable
Employment, the provisions of Section 2(c) shall apply rather than this Section
3.
<PAGE> 2
Section 4. Termination of Employment by Employer for Cause. Employer
may terminate the employment of Employee at any time for Cause. Employer shall
have "Cause" to terminate Employee's employment for Employee's personal
dishonesty, gross negligence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, or
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses) or final cease-and-desist order. Upon termination for Cause,
all rights of Employee under this Agreement shall cease as of the Termination
Date.
Section 5. Notice of Termination. Any termination of the employment of
Employee shall be communicated by a Notice of Termination to the other party
hereto. If there is any dispute or controversy under this Agreement with respect
to Employee's entitlement to the Severance Payment or Continued Benefits, or the
amount of same, except in the event of a termination for Cause by Employer,
Employer shall continue to pay Employee the full compensation and benefits in
effect when the Notice of Termination was given (including without limitation
Base Compensation and payments under any bonus and incentive plans in which
Employee participates), until the earlier of the date when the dispute is
finally resolved or twelve (12) months from the date when the Notice of
Termination was given. Amounts paid under the preceding sentence shall be offset
against and shall reduce any other amounts due under this Agreement, including
any Severance Payment or Continued Benefits and any arbitration award under
Section 11 hereof.
Section 6. Severance Payment. In the event the employment of Employee
is terminated by Employee for Good Reason as described in Section 2 hereof or by
Employer following a Change of Control as described in Section 3 hereof,
Employer shall pay to Employee the following Severance Payment, which shall be
paid in a lump sum within thirty-five (35) days following the Termination Date:
a. Any amount of Employee's Base Compensation earned but
unpaid through the Termination Date; and
b. In lieu of any further salary or other payments of any kind
to Employee for periods after the Termination Date, an amount equal to:
i. the sum of:
(1) Employee's Base Compensation, plus
(2) the amount of Employee's annual
bonus that would have been paid
immediately preceding the
Termination Date assuming the Plan
Target Level (as defined by the
Plan) had been achieved;
ii. multiplied by the number two(2); and
c. An amount equal to the contributions from the Employer the
Employee would have otherwise been entitled to under the Plans if Employee had
remained an employee of Employer
3
<PAGE> 3
until and including December 31 of the calendar year in which Employee's
employment terminates and Employee had earned the amounts set forth in Section
6.b.i above through said December 31st; provided, however, if Section 280G(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), is applicable, the
amount of Severance Payment described herein shall be limited to the extent
necessary so that, within the meaning of Section 280G(b)(2)(A)(ii) of the Code,
the aggregate present value of the payments in the nature of compensation to (or
for the benefit of) the Employee which are contingent on a Change of Control
(with a Change of Control for this purpose being defined in terms of a "change"
described in either Section 280G(b)(2)(A)(i)(I) or (II) of the Code) are limited
to an amount equal to 2.999 multiplied by the "base amount," as such term is
defined in Section 280G(b)(3) of the Code.
Section 7. Continued Benefits. In the event the employment of Employee
is terminated by Employee for Good Reason as described in Section 2 hereof or by
Employer following a Change of Control as described in Section 3 hereof,
Employer shall continue to provide to Employee the Continued Benefits described
in this Section 7. Employer shall maintain in full force and effect, for the
benefit of Employee for two (2) years after the Termination Date, all employee
welfare benefit plans and programs or arrangements in which Employee was
entitled to participate immediately prior to the Termination Date (the
"Continued Benefits"); provided, however, that Employee's continued
participation is possible under the general terms and provisions of such plans,
programs and arrangements. In the event that Employee's continued participation
in any such plan, program or arrangement is not possible, Employer shall arrange
to provide Employee with substantially equivalent benefits. At the end of the
period of coverage, Employee shall have the option to have assigned to Employee
at no cost and with no apportionment of prepaid premiums any assignable
insurance policy owned by Employer and relating specifically to Employee.
Notwithstanding the foregoing, Employee's period of continued coverage under any
such plan, program or arrangement (or any Employer-arranged provision of such
benefits) shall terminate as of the date Employee becomes eligible to
participate in a similar plan, program or arrangement of another employer.
Employee shall be deemed to be "eligible to participate" for this purpose even
if Employee is required to pay an employee premium and even if the new plan,
program or arrangement imposes preexisting condition limitations or
restrictions. In addition, Employee shall be fully vested in all of his or her
account in the AllHAAmerUs Savings & Retirement Plan and the AllHAAmerUs
Supplemental Executive Retirement Plan.
Section 8. No Mitigation. Employee shall not be required to mitigate
the amount of any Severance Payment or Continued Benefits by seeking other
employment or otherwise, nor shall the amount of any Severance Payment or
Continued Benefits (other than the earlier termination of certain employee
benefits as described in Section 7 hereof) be reduced by any compensation earned
by Employee as a result of employment by another employer after termination of
this Agreement or otherwise. Employer's obligation to pay Employee the
compensation and make the arrangements provided herein shall be absolute and
unconditional and, following any Change of Control, shall not be affected by any
circumstances, including without limitation any set-off (except as provided in
Sections 5 and 9.b. hereof), counterclaim, recoupment, defense or other rights
which Employer may have. Except as otherwise provided herein, all amounts
payable by Employer shall be paid without notice or demand.
4
<PAGE> 4
Section 9. Indemnification.
a. Employer shall pay, and indemnify Employee against, all
costs and expenses, including without limitation the fees and expenses of
attorneys, arbitrators, experts and witnesses, incurred by or on behalf of
Employee in connection with any arbitration or legal claim or proceeding arising
from this Agreement or the interpretation thereof, to the extent that Employee
is successful, on the merits or otherwise, in any such claim or proceeding. If
Employee is not wholly successful in such claim or proceeding but is successful,
on the merits or otherwise, as to one or more but less than all claims, issues
or matters in such claim or proceeding, then Employer shall indemnify Employee
against all such costs and expenses incurred by Employee or on Employee's behalf
in connection with each successfully resolved claim, issue or matter.
b. Employer shall advance all such costs and expenses
incurred by or on behalf of Employee in connection with any such claim or
proceeding referred to in Section 9.a. hereof within twenty (20) days after
receipt by Employer of a statement or statements from Employee requesting such
advance or advances, whether prior to or after final disposition of such claim
or proceeding. Such statement or statements shall reasonably evidence the costs
and expenses incurred by Employee and shall be preceded or accompanied by an
undertaking by or on behalf of Employee to repay any costs and expenses advanced
if it shall ultimately be determined that Employee is not entitled to be
indemnified against such costs and expenses and, furthermore, if Employee fails
to repay any costs and expenses that are advanced, then such amounts shall be
offset against and shall reduce any other amounts due to Employee under this
Agreement.
Section 10. Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telecopier or commercial courier guaranteeing next day
delivery to the respective addresses provided for Employer and Employee in the
introductory paragraph of this Agreement. Notices to Employer shall be addressed
to the attention of the Chief Executive Officer and the Corporate Secretary of
Employer. All such notices and communications shall be deemed to have been duly
given; at the time delivered by hand, if personally delivered; five (5) business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; and the next business day after timely delivery
to the courier, if sent by commercial courier guaranteeing next day delivery.
Section 11. Arbitration. Employer and Employee agree that any
disputes arising out of or relating to this Agreement shall be arbitrated in
accordance with the rules of the American Arbitration Association and the
Federal Arbitration Act. Such arbitration shall be held in Des Moines, Iowa. No
party shall initiate arbitration unless, at least thirty (30) days prior
thereto, such party has given the other party written notice of the intent to
initiate arbitration and a detailed description of the basis of the dispute. A
single arbitrator (or, in any matter in which the amount in controversy exceeds
$500,000, a panel of three (3) arbitrators) shall interpret this Agreement in
accordance with Iowa laws and shall conduct proceedings in accordance with the
Federal Rules of Civil Procedure. Punitive damages, if any, awarded by the
arbitrator(s) shall not exceed two (2) times compensatory damages awarded. Any
award of the arbitrator(s) shall be deemed final, and judgment upon such award
may be entered and enforced in any Iowa District Court and transferred to any
other jurisdiction.
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Section 12. Tax Withholding. Employer shall have the right to
withhold from any transfer or payment made to Employee or to any other Person
hereunder, whether such payment is to be made in cash or other property, all
applicable federal, state, city or other taxes or foreign taxes as shall be
required in the determination of Employer pursuant to any statute or
governmental regulation or ruling.
Section 13. Interest. Employer shall pay Employee interest at a
rate of ten percent (10%) per annum on any benefits payable to Employee
hereunder not paid by the date provided for herein from such date until the date
of payment.
Section 14. General Creditor. Nothing contained in this Agreement
and no action taken pursuant to the provisions of this Agreement shall create or
be construed to create a trust of any kind or a fiduciary relationship between
Employer and Employee or any other Person, nor shall any money or property of
Employer be segregated for the benefit of Employee to satisfy the obligations of
Employer hereunder. To the extent that Employee acquires a right to receive
payments hereunder, such rights shall be no greater than the right of any
general unsecured creditor of Employer. Except as expressly provided herein,
each payment shall be made in cash from the general assets of Employer.
Section 15. No Waiver. The failure of either party to require the
performance of any term or condition of this Agreement, or the waiver by either
party of any breach of this Agreement, shall not prevent a subsequent
enforcement of any term or condition nor be deemed to be a waiver of any
subsequent breach by either party.
Section 16. Binding Effect. This Agreement shall be binding on and
inure to the benefit of the successors and assigns of Employer. This Agreement
shall inure to the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
Section 17. No Assignment. The right of Employee or any other
Person to the payment of amounts or other benefits under this Agreement shall
not be assigned, alienated, hypothecated, placed in trust, disposed of,
transferred, pledged or encumbered (except as provided in Section 16 herein)
and, to the extent permitted by law, no such amount or payment shall in any way
be subject to any legal process to subject the same to the payments of any claim
against Employee or any other Person.
Section 18. Paragraphs and Other Headings. The paragraph headings
contained in this Agreement are for reference purposes only and shall not affect
the interpretation of this Agreement.
Section 19. Governing Law. This Agreement and all transactions
contemplated by this Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the State of Iowa, without regard to principles
of conflicts of laws.
Section 20. Severability. If any one or more of the provisions
contained in this Agreement shall for any reason be held invalid, illegal or
unenforceable, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, which shall be construed as
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if such invalid, illegal or unenforceable provision had never been contained
herein. It is the intention of the parties that if any provision of this
Agreement is capable of two constructions, one of which would render the
provision void and the other of which would render the provision valid, then the
provision shall have the meaning that renders it valid.
Section 21. At-Will Employment. Nothing in this Agreement shall
alter the "at-will" nature of Employee's employment with Employer, it being
understood that the "at-will" nature of Employee's employment with Employer
shall in no way alter the benefits to which Employee is otherwise entitled under
this Agreement.
Section 22. Survivability. The obligations of Employer and
Employee under this Agreement shall survive the termination of this Agreement.
Section 23. Employer After A Change of Control. Following a Change
of Control and the acceptance by Employee of an offer of Comparable Employment,
the term "Employer" shall be deemed to mean the actual employer of Employee
(which may be Employer, an affiliate thereof or some other Person involved in
the Change of Control).
Section 24. Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes all other representations,
agreements and understandings, oral or otherwise, between or among the parties
with respect to the matters contained herein.
IN WITNESS WHEREOF, the parties have set their respective signatures as
of the day and year first above written.
<TABLE>
<CAPTION>
EMPLOYEE AMERUS LIFE INSURANCE COMPANY
<S> <C>
By: By:
---------------------------------- ------------------------------
Print Name: Its:
-------------------------- -----------------------------
</TABLE>
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EXHIBIT A
DEFINITIONS
"Affiliate" shall mean 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 such entity; provided, however,
that any Person which owns directly or indirectly ten percent (10%) or more of
the securities having ordinary voting power for the election of directors or any
other governing body of a corporation or ten percent (10%) or more of the
partnership or other ownership interests of any other Person (other than as a
limited partner of such Person) will be deemed to control such Person.
"AMHC" shall mean American Mutual Holding Company.
"Base Compensation" shall mean the greater of (i) the semi-monthly
salary paid to Employee by Employer which was in effect immediately prior to the
Termination Date or (ii) the semi-monthly salary paid to Employee by Employer
which was in effect prior to any reduction thereof made without the written
consent of Employee, in either case multiplied by twenty-four (24).
"Change of Control" shall mean any Transaction or series of
Transactions involving Employer or any Affiliate of Employer which results in
either (i) AMHC not directly or indirectly owning or controlling shares of stock
of the Employer sufficient to cast a majority of the votes necessary to elect
members of the Board of Directors of the Employer ("Voting Control"); (ii) the
individuals who, prior to such Transaction, constituted the board of directors
of AMHC ceasing to constitute at least a majority thereof, unless the election,
or the nomination for election of each director of AMHC for a period of two (2)
years following the consummation of such Transaction was approved by a vote of
at least two-thirds of the directors of AMHC then still in office who were
directors of AMHC prior to such Transaction; (iii) the individuals who, prior to
such Transaction, constituted the board of directors of Employer ceasing to
constitute at least a majority thereof, unless the election, or the nomination
for election of each director of the Employer for a period of two (2) years
following the consummation of such Transaction was approved by a vote of at
least two-thirds of the directors of Employer then still in office who were
directors of Employer prior to such Transaction; or (iv) the acquisition by any
Person other than AMHC or its subsidiaries of the beneficial ownership, as
defined in Rule 13d-3 of the Securities Exchange Act of 1934, of more than
twenty-five percent (25%) of the shares of stock of the Employer which are
entitled to elect the board of directors of the Employer at any time that AMHC
does not have beneficial ownership of the Voting Control of the Employer;
provided, however, that in the case of (i), (ii) and (iii), a Transaction which
is a Demutualization shall not constitute a Change of Control if the directors
elected or nominated for election to either AMHC's or Employer's respective
board of directors by AMHC's or Employer's respective stockholders following the
Demutualization were the directors of AMHC or Employer, respectively, prior to
such Demutualization, or if the election, or the nomination for election, by
AMHC's or Employer's respective stockholders, of each director of AMHC or
Employer, respectively, for a period of two (2) years following the consummation
of such Demutualization was approved by a vote
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of at least two-thirds of the directors of AMHC or Employer then still in office
who were the respective directors of AMHC or the Employer prior to such
Demutualization.
"Comparable Employment" shall mean employment with Employer, an
Affiliate thereof or a third party involved in any Change of Control on terms
and conditions (including without limitation geographic location) which in the
aggregate are at least substantially comparable to the terms and conditions of
employment prevailing with respect to Employee immediately preceding a Change of
Control.
"Continued Benefits" shall mean the benefits described in Section 7
hereof.
"Demutualization" shall mean any transaction in which more than fifty
percent (50%) of the assets of AMHC are (i) distributed or otherwise transferred
to the members of AMHC or (ii) are offered to the members of AMHC.
"Good Reason" shall mean the occurrence of both (i) a Change of Control
without Employee being offered Comparable Employment and (ii) a Material Event.
"Material Event" shall mean the occurrence of any one of the following
events following a Change of Control without Employee's express written consent:
(1) The assignment to Employee of duties substantially
inconsistent with Employee's position, duties, responsibility
or status with Employer or a substantial reduction of
Employee's duties or responsibilities, as compared with
Employee's duties or responsibilities prior to such reduction,
or any removal of Employee from, or any failure to re-elect
Employee to, the position Employee held at the time of such
removal or failure to re-elect, except in connection with
termination of employment for Cause; or
(2) A reduction in the amount of Employee's Base Compensation, a
material reduction in payments received by Employee under any
bonus or incentive plans in which Employee participates or a
material reduction in any other employee perquisites to which
Employee is entitled; or
(3) The relocation of Employee's principal office to a location
more than thirty-five (35) miles from the location of such
office immediately prior to such relocation; or
(4) Any material breach by Employer of any of the provisions of
this Agreement.
"Notice of Termination" shall mean written notice of the termination of
the employment of Employee.
"Person" shall mean an individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
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"Plans" shall mean, collectively, the AllHAAmerUs Savings & Retirement
Plan, the AllHAAmerUs Supplemental Executive Retirement Plan, the AllyHAmerUs
Excess Benefit Plan, the Interim Benefit Supplement, any trust agreements
related to the foregoing and any successor plans.
"Severance Payment" shall mean the payment described in Section 6
hereof.
"Termination Date" shall mean the date on which the employment of
Employee with Employer terminates.
"Transaction" shall mean any merger, consolidation, tender or exchange
offer, dissolution, liquidation, sale or exchange of stock, business
combination, sale or exchange of all or substantially all assets,
demutualization or other similar transaction or combination of the foregoing by
or between persons who were not under common control prior to such transaction.
3
