<PAGE> 1
SCHEDULE 14A
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
</TABLE>
AmerUs Group Co.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: common
stock, no par value, of AmerUs Group Co. ("AmerUs")
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: A maximum
of 10.3 million shares of AmerUs common stock
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): The
proposed maximum aggregate value of the transaction of $271,018,750
equals the product of 10.3 million shares and $26.3125, the average of
the high and low sale price per share of AmerUs common stock on the
New York Stock Exchange on November 15, 2000. In accordance with Rule
0-11 under the Securities Exchange Act of 1934, as amended, the filing
fee was determined by multiplying the amount calculated pursuant to
the foregoing sentence by 1/50 of one percent.
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $271,018,750
------------------------------------------------------------------------
(5) Total fee paid: $54,203.75
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
PRELIMINARY PROXY MATERIALS -- SUBJECT TO COMPLETION
Roger K. Brooks
Chairman, President &
Chief Executive Officer
[AMERUS GROUP CO. LOGO]
[ ], 2000
Dear Shareholder:
You are cordially invited to attend the special meeting of shareholders of
AmerUs Group Co. ("AmerUs") to be held on [ ], [ ], at
9:00 a.m., Des Moines time, at the AmerUs Conference Center, Hub Tower, 3rd
Floor, 699 Walnut Street, Des Moines, Iowa.
The enclosed booklets contain the Notice of Special Meeting and the Proxy
Statement. Parts 1 and 2 of the Proxy Statement include information about the
formal business to be acted on by the shareholders. Shareholders are being asked
to consider and approve a proposal (the "Proposal") to issue shares of AmerUs
common stock to eligible members of Indianapolis Life Insurance Company
("ILICO") in connection with AmerUs' acquisition of ILICO. The definitive
agreement between AmerUs and ILICO provides that ILICO will convert from a
mutual insurance company to a stock insurance company and immediately thereafter
become a wholly-owned subsidiary of AmerUs. The Board of Directors of AmerUs has
unanimously approved the Proposal and recommends that shareholders vote "FOR"
its approval.
We hope that you will be able to attend the meeting. However, whether or
not you plan to attend in person, please complete, sign, date and return the
enclosed proxy card promptly to ensure that your shares will be represented. If
you do attend the meeting and wish to vote your shares personally, you may
revoke your proxy at any time before it is exercised.
Thank you for your ongoing support and continued interest in AmerUs Group.
Very truly yours,
Roger K. Brooks
Chairman, President and
Chief Executive Officer
<PAGE> 3
AMERUS GROUP CO.
699 WALNUT STREET, SUITE 2000
DES MOINES, IOWA 50309-3948
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS
TO BE HELD [ ], [ ]
To the Shareholders:
A special meeting of shareholders of AmerUs Group Co. ("AmerUs") will be
held on [ ], [ ], [ ], at 9:00 a.m., Des Moines time,
at the AmerUs Conference Center, Hub Tower, 3rd Floor, 699 Walnut Street, Des
Moines, Iowa, and at any postponements or adjournments thereof, to consider and
vote on a proposal (the "Proposal") to issue shares of AmerUs common stock to
eligible members of Indianapolis Life Insurance Company ("ILICO") in connection
with AmerUs' acquisition of ILICO (the "Combination"). In the Combination, ILICO
will convert from a mutual insurance company to a stock insurance company and
immediately thereafter will become an indirect wholly-owned subsidiary of
AmerUs.
Under the definitive agreement providing for the Combination, the
consideration to be provided in the Combination to eligible members of ILICO
will consist of shares of AmerUs common stock, cash and policy credits which
have an aggregate value equal to the value of 9.3 million shares of AmerUs
common stock. Although it is currently anticipated that the aggregate value of
the shares of AmerUs common stock, cash and policy credits distributed to the
Eligible Members of ILICO will be equal to the value of 9.3 million shares of
AmerUs common stock, if the aggregate value of that distribution is projected to
be less than $186 million, ILICO has the ability to terminate the definitive
agreement providing for the Combination unless AmerUs determines to distribute
additional shares, cash and/or policy credits to increase the value of the
payment to $186 million. Approval of the Proposal will authorize the AmerUs
Board of Directors to issue up to a maximum of 10.3 million shares of AmerUs
common stock, provided that the determination of whether to increase the
issuance above 9.3 million shares is in the sole discretion of the AmerUs Board.
THE BOARD OF DIRECTORS OF AMERUS HAS UNANIMOUSLY APPROVED THE SHARE ISSUANCE AND
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PROPOSAL.
The Proposal is more fully described in the Proxy Statement accompanying
this notice. Part 2 of the Proxy Statement, which was prepared jointly by AmerUs
and ILICO, is also included in the Member Information Statement sent by ILICO to
its members.
The Board of Directors has fixed the close of business on [ ],
[ ] as the record date for the determination of shareholders entitled to
notice of, and to vote at, the special meeting. Accordingly, only shareholders
of record on that date are entitled to vote at the special meeting.
YOUR PROXY IS IMPORTANT, SINCE THE PROPOSAL REQUIRES APPROVAL BY A MAJORITY
OF THE SHAREHOLDER VOTES CAST, PROVIDED THAT THE TOTAL VOTES CAST REPRESENT OVER
FIFTY PERCENT IN INTEREST OF ALL THE ISSUED AND OUTSTANDING SHARES OF AMERUS
COMMON STOCK AS OF THE RECORD DATE.
ACCORDINGLY, YOU ARE URGED TO READ AND TO CONSIDER CAREFULLY THE
INFORMATION CONTAINED IN THE PROXY STATEMENT.
<PAGE> 4
All shareholders are invited to attend the meeting in person. However, to
ensure your representation at the meeting, please complete, sign, date and
return the enclosed proxy card promptly in the enclosed postage prepaid
envelope. Any shareholder attending the meeting may vote in person even if he or
she has returned a proxy.
By Order of the Board of Directors
James A. Smallenberger
Senior Vice President and Secretary
[ ], 2000
TO ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE COMPLETE, SIGN
AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE
ENCLOSED PRE-ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. PROXY CARDS MUST BE RECEIVED BY THE COMPLETION OF THE SPECIAL
MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF.
<PAGE> 5
REFERENCES TO ADDITIONAL INFORMATION
This Proxy Statement incorporates important business and financial
information about AmerUs and its subsidiaries that is not included in or
delivered with the document. This information is available without charge to
security holders upon written or oral request. AmerUs will provide without
charge to each person to whom this Proxy Statement is delivered, upon the
written or oral request of such person, a copy of any or all of the documents
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into such documents).
Any such request should be directed to:
[ ]
[ ]
[ ]
[ ]
[ ]
IN ORDER TO OBTAIN TIMELY DELIVERY PRIOR TO THE SPECIAL MEETING,
SHAREHOLDERS MUST REQUEST THE INFORMATION NO LATER THAN [ ], [ ].
See also "Where You Can Find More Information" in Part 2 of this Proxy
Statement.
<PAGE> 6
PROXY STATEMENT -- PART I
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General Information......................................... 1
Questions and Answers Regarding your Vote................... 3
Proposal to be Voted On..................................... 5
Summary..................................................... 6
Overview of the Combination with ILICO...................... 15
Future Shareholder Proposals................................ 17
</TABLE>
PROXY STATEMENT -- PART 2
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<S> <C>
Introduction to Part 2...................................... 1
Risk Factors Relating to the Combination.................... 2
Background of the Combination............................... 4
The ILICO Board's Recommendation............................ 9
The AmerUs Boards' Recommendations.......................... 11
Opinions of ILICO's and AmerUs' Financial Advisors.......... 13
Information Concerning the Business of ILICO................ 26
Information Concerning the Business of AmerUs............... 27
Ratings..................................................... 28
The Combination............................................. 29
AmerUs Investment in ILICO's Subsidiaries................. 29
Structure of the Combination.............................. 29
Representations and Warranties............................ 29
Certain Covenants and Agreements.......................... 30
Closing................................................... 32
Conditions to the Completion of the Combination........... 32
Indemnification for Officers, Directors and Employees..... 33
Termination of the Combination Agreement.................. 34
Rights of Repurchase; Certain Termination Fees............ 36
Post-Termination Conduct of Business of ILICO and ILGC
Prior to Purchase or Repurchase........................ 37
Memorandum of Understanding............................... 37
Historic Market Prices and Dividends........................ 38
Dividends................................................. 38
Description of AmerUs Capital Stock......................... 40
General................................................... 40
Common Stock.............................................. 40
Preferred Stock........................................... 40
Capital Securities Series A of AmerUs Capital I........... 40
Adjustable Conversion-rate Equity Security Units of AmerUs
Capital II............................................. 40
Warrants.................................................. 41
Certain Provisions of the Articles of Incorporation and
By-laws of AmerUs...................................... 41
State Statutory Provisions................................ 43
Security Ownership.......................................... 44
Federal Tax Consequences.................................... 46
Accounting Matters.......................................... 46
Independent Auditors........................................ 47
Selected Consolidated Financial Data of ILICO............... 48
Management's Discussion and Analysis of Financial Condition
and Results of Operation of ILICO and Subsidiaries........ 49
</TABLE>
i
<PAGE> 7
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Selected Consolidated Financial Data of AmerUs.............. 62
Financial Information Concerning AmerUs and Subsidiaries.... 64
Unaudited Pro Forma Financial Data.......................... 64
Certain Considerations; Interests of Certain Persons in the
Combination............................................... 72
Executive Officer Compensation Following the
Combination............................................ 72
AmerUs Management Following the Combination............... 74
Directors................................................. 74
AmerUs Management's Compensation.......................... 75
ILICO Management Following the Combination.................. 75
Directors................................................. 75
Board Compensation Following the Combination.............. 76
Executive Officers........................................ 76
Other Regulatory Approvals.................................. 76
Other Insurance Regulatory Approvals...................... 76
HSR Act................................................... 77
Legal Proceedings........................................... 77
Information Pertaining to Forward-Looking Statements........ 78
Where You Can Find More Information......................... 79
Index to Appendices......................................... 80
Appendix 1 Unaudited Interim Consolidated Financial
Statements of Indianapolis Life Insurance Company
and Subsidiaries
Appendix 2 Consolidated Financial Statements of Indianapolis
Life Insurance Company and Subsidiaries
Appendix 3 Amendment to Combination Agreement; Combination
Agreement
Appendix 4 Goldman Sachs Opinion and Letter
Appendix 5 Merrill Lynch Opinion
Appendix 6 Memorandum of Understanding; Amendment to
Memorandum of Understanding]
Appendix 7 Letter to Indiana Commissioner of Insurance
</TABLE>
ii
<PAGE> 8
AMERUS GROUP CO.
699 WALNUT STREET, SUITE 2000
DES MOINES, IOWA 50309-3948
------------------------
PROXY STATEMENT -- PART I
------------------------
This Proxy Statement (the "Statement") is furnished to shareholders by the
Board of Directors of AmerUs Group Co. ("AmerUs") in connection with the
solicitation of proxies for use at the Special Meeting of shareholders of AmerUs
to be held at the AmerUs Conference Center, Hub Tower, 3rd Floor, 699 Walnut
Street, Des Moines, Iowa, on [ ], [ ], [ ], at 9:00
a.m., Des Moines time, and at any postponements or adjournments thereof.
This Statement, Notice of Special Meeting and the accompanying proxy card
are being first mailed to shareholders on or about [ ], 2000.
Part 1 of the Statement contains information about the proposal (the
"Proposal") to authorize the issuance of shares of AmerUs common stock in
connection with AmerUs' acquisition of Indianapolis Life Insurance Company
("ILICO") (the "Combination") (see "PROPOSAL TO BE VOTED ON"). Part 2 of the
Statement includes information concerning the Combination and financial and
other information concerning AmerUs and ILICO.
GENERAL INFORMATION
Why Your Vote is Required
The rules of the New York Stock Exchange require AmerUs to obtain
shareholder approval of the issuance of the AmerUs Common Stock because the
aggregate number of shares to be issued under the Proposal will be greater than
20% of the total number of shares of AmerUs Common Stock issued and outstanding
immediately prior to the Combination.
Record Date; Voting
The Board of Directors has fixed [ ], 2000 as the record date (the
"Record Date") for the determination of shareholders entitled to notice of and
to vote at the special meeting. On the Record Date, [ ] shares of
AmerUs common stock (the "AmerUs Common Stock") were outstanding and entitled to
vote at the meeting. Each share of AmerUs Common Stock entitles the holder
thereof to one vote on each matter to be voted on at the special meeting. There
were no shares of voting preferred stock outstanding as of the Record Date.
Proxies furnished by shareholders pursuant hereto will be voted in
accordance with the directions on such proxies. If no choice is specified, the
proxy will be voted "FOR" the Proposal.
Quorum
The presence in person or by proxy at the Special Meeting of the holders of
at least a majority of the outstanding shares of AmerUs Common Stock entitled to
vote is necessary to constitute a quorum for the transaction of business at the
Special Meeting. If a quorum is not present in person or by proxy at the Special
Meeting, AmerUs' by-laws permit the chairperson of the Special Meeting or a
majority of the shareholders present in person or by proxy to adjourn the
Special Meeting to solicit additional proxies in favor of the Proposal.
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Required Vote for Approval
Under New York Stock Exchange rules, the Proposal requires approval by a
majority of the shareholder votes cast, provided that the total votes cast
represent over fifty percent (50%) in interest of all the issued and outstanding
shares of AmerUs Common Stock as of the Record Date.
Abstentions and Broker Non-Votes
Abstentions and broker non-votes (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owners or other persons entitled to vote shares as to a matter with respect to
which brokers or nominees do not have discretionary power to vote) will be
considered as present for the purposes of establishing a quorum. In accordance
with New York Stock Exchange rules, brokers and nominees are precluded from
exercising their voting discretion with respect to the approval of the Proposal.
Without specific instructions from the beneficial owner of such shares, brokers
and nominees do not have the power to vote such shares on the Proposal. AS A
RESULT, ABSTENTIONS AND BROKER NON-VOTES WILL BE COUNTED AS PRESENT BUT WILL NOT
COUNT AS VOTES CAST. ACCORDINGLY, ABSTENTIONS AND BROKER NON-VOTES WILL HAVE NO
EFFECT ON THE VOTING ON THE PROPOSAL FOR PURPOSES OF THE NEW YORK STOCK EXCHANGE
RULES.
Revocation of Proxies
Any shareholder giving a proxy has the power to revoke it at any time
before it is voted. Revocation of a proxy is effective upon receipt by the
Secretary of AmerUs of either (i) an instrument revoking it, or (ii) a duly
executed proxy bearing a later date. In addition, a shareholder who is present
at the Special Meeting may revoke the shareholder's proxy and vote in person if
the shareholder so desires.
Solicitation of Proxies and Expenses
Proxies are being solicited by the Board of Directors of AmerUs. The cost
of preparing, printing and mailing this Statement, the accompanying notice and
the enclosed proxy card, and all other costs in connection with the solicitation
of proxies, will be paid by AmerUs.
AmerUs will reimburse brokerage houses and other custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy
solicitation material to the owners of AmerUs Common Stock. AmerUs will solicit
proxies initially by mail. Further solicitation may be made by AmerUs'
directors, officers or employees personally, by telephone or otherwise, but they
will not be specifically compensated for these services. AmerUs has retained
[ ] to coordinate the solicitation of proxies for a fee of
$[ ], plus reasonable out-of-pocket expenses of up to $[ ].
2
<PAGE> 10
QUESTIONS AND ANSWERS
Q: WHAT AM I VOTING ON?
A: The Proposal to authorize the issuance of shares of AmerUs Common Stock to
eligible members of ILICO in connection with the Combination, which provides
for ILICO to convert from a mutual insurance company to a stock insurance
company and immediately thereafter to become an indirect wholly-owned
subsidiary of AmerUs.
Q: WHAT WILL ILICO'S ELIGIBLE MEMBERS RECEIVE IN THE COMBINATION?
A: Under the definitive agreement providing for the Combination, the
consideration to be provided in the Combination to eligible members of ILICO
will consist of shares of AmerUs Common Stock, cash and policy credits which
have an aggregate value equal to the value of 9.3 million shares (subject to
possible increase, as described in the answer below) of AmerUs Common Stock.
Q: WHY DOES THE PROPOSAL INVOLVE THE ISSUANCE OF UP TO 10.3 MILLION SHARES OF
AMERUS COMMON STOCK INSTEAD OF 9.3 MILLION SHARES?
A. Although it is currently anticipated that the aggregate value of the shares
of AmerUs Common Stock, cash and policy credits distributed to the eligible
members of ILICO will be equal to the value of 9.3 million shares of AmerUs
Common Stock, if the aggregate value of that distribution is projected to be
less than $186 million, ILICO has the ability to terminate the definitive
agreement providing for the Combination unless AmerUs determines to
distribute additional shares, cash and/or policy credits to increase the
value of the payment to $186 million. Approval of the Proposal will authorize
the AmerUs Board of Directors (the "AmerUs Board") to issue up to a maximum
of 10.3 million shares of AmerUs Common Stock, provided that the
determination of whether to increase the issuance above 9.3 million shares is
in the sole discretion of the AmerUs Board. The number of shares of AmerUs
Common Stock, cash and policy credits actually provided to the eligible
members of ILICO is referred to in this Statement as the Member
Consideration.
Q: WHAT DOES THE AMERUS BOARD RECOMMEND?
A. THE AMERUS BOARD RECOMMENDS THAT ITS SHAREHOLDERS APPROVE THE PROPOSAL.
Q: WHAT FACTORS DID THE AMERUS BOARD CONSIDER IN EVALUATING THE COMBINATION WITH
ILICO?
A: The AmerUs Board took into consideration the strategic benefits that would
result from the Combination, including: opportunities to achieve operating
efficiencies and expense savings resulting from the significantly larger
scale of the combined companies; extension of the geographic reach of
distribution because of the modest geographic overlap of the AmerUs and ILICO
distribution channels; and the expansion and diversification of both product
lines and distribution channels.
Q. WILL THERE BE ANY TAX CONSEQUENCES FOR AMERUS AS A RESULT OF THE COMBINATION?
A. The Combination has been structured as a tax free reorganization, with no
recognition of income, gain or loss for AmerUs under U.S. tax laws.
Q: WILL THE COMBINATION HAVE ANY TAX CONSEQUENCES FOR AMERUS' SHAREHOLDERS?
A: AmerUs' shareholders will have no direct tax consequences arising from the
Combination.
Q: WHO IS ENTITLED TO VOTE?
A: The Board of Directors has fixed the close of business on [ ], 2000
as the Record Date for the determination of shareholders entitled to vote at
the special meeting. Accordingly, only shareholders of record on the books of
AmerUs at the close of business on the Record Date will be entitled to vote
at the special meeting, either in person or by Proxy.
3
<PAGE> 11
Q: WHAT IS THE REQUIRED VOTE FOR APPROVAL OF THE PROPOSAL?
A: The Proposal requires approval by a majority of the shareholder votes cast,
provided that the total votes cast represent over fifty percent (50%) in
interest of all the issued and outstanding shares of AmerUs Common Stock as
of the Record Date.
Q: HOW DO I VOTE?
A: Complete, sign and date the Proxy Card you receive and return it in the
enclosed postage prepaid envelope. If you do not mark any selections, your
Proxy Card will be voted in favor of the Proposal. You have the right to
revoke your Proxy at any time before it is voted by (1) notifying AmerUs'
Corporate Secretary or (2) returning a later-dated Proxy prior to the special
meeting. Proxy Cards should be sent by shareholders to [ ].
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: It may be an indication that your shares are registered differently or are
held in more than one account. Complete, sign, date and return all Proxy
Cards to ensure that all your shares are voted.
Q: WHO PAYS FOR THIS PROXY SOLICITATION?
A: AmerUs will pay all expenses associated with the proxy solicitation and will
reimburse brokerage houses and other custodians, nominees and fiduciaries for
their reasonable out-of-pocket expenses for forwarding proxy solicitation
material to the owners of AmerUs Common Stock.
Q: HAS AMERUS RETAINED A PROXY SOLICITATION FIRM?
A: Yes. AmerUs has retained [ ] to coordinate the solicitation of
proxies for a fee of $[ ], plus reasonable out-of-pocket expenses of
up to $[ ].
Q. WHAT DO I NEED TO KNOW ABOUT THE COMBINATION AND THE ISSUANCE OF THE AMERUS
COMMON STOCK?
A. You should carefully read and consider the information contained in this
Statement. You should complete, sign and date your Proxy Card and return it
in the enclosed postage prepaid envelope as soon as possible so that your
shares may be voted on the Proposal.
Q. MY SHARES ARE HELD IN "STREET NAME." WILL MY BROKER VOTE MY SHARES ON THE
PROPOSAL.
A. Your broker will vote your shares on the Proposal only if you provide your
broker with instructions on how to vote. You should follow the directions
provided by your broker regarding how to instruct your broker to vote your
shares.
Q. WHEN IS THE COMBINATION EXPECTED TO BE COMPLETED?
A. AmerUs and ILICO are working as quickly as possible and hope to complete the
Combination by the end of the first quarter of 2001. However, it is possible
that delays in the regulatory approval process and satisfaction of the
conditions to the closing of the Combination could delay completion of the
Combination. (See "THE COMBINATION -- Conditions to Completion of the
Combination.")
4
<PAGE> 12
PROPOSAL TO BE VOTED ON
Shareholders are being asked to consider and approve a proposal (the
"Proposal") to issue shares of AmerUs Common Stock to ILICO's Eligible Members
(as defined in the Plan) in connection with the Combination which will be
effected pursuant to (i) the Combination and Investment Agreement by and among
AmerUs, ILICO and The Indianapolis Life Group of Companies, Inc., a subsidiary
of ILICO ("ILGC"), dated February 18, 2000, as amended September 18, 2000 (the
"Combination Agreement") and (ii) ILICO's Plan of Conversion (the "Plan"), under
which ILICO will convert from a mutual insurance company to a stock insurance
company and immediately thereafter become an indirect wholly-owned subsidiary of
AmerUs. Under the Combination Agreement, the consideration to be provided in the
Combination to the Eligible Members will consist of shares of AmerUs Common
Stock, cash and policy credits which have an aggregate value equal to the value
of 9.3 million shares of AmerUs Common Stock. Although it is currently
anticipated that the aggregate value of the shares of AmerUs Common Stock, cash
and policy credits distributed to the Eligible Member of ILICO will be equal to
the value of 9.3 million shares of AmerUs Common Stock, if the aggregate value
of that distribution is projected to be less than $186 million, ILICO has the
ability to terminate the Combination Agreement unless AmerUs determines to
distribute additional shares, cash and/or policy credits to increase the value
of the payment to $186 million. Approval of the Proposal will authorize the
AmerUs Board to issue up to a maximum of 10.3 million shares of AmerUs Common
Stock, provided that the determination of whether to increase the issuance above
9.3 million shares is in the sole discretion of the AmerUs Board.
5
<PAGE> 13
SUMMARY
This summary highlights selected information contained in the rest of the
Statement. Although we have highlighted what we believe is certain important
information about the Combination in this summary, we urge you to read this
entire document and the documents incorporated by reference carefully to
understand completely the information contained in this Statement. See "Where
You Can Find More Information" in Part 2 of this Statement.
YOUR VOTE
Vote required................. The Proposal requires approval by a majority of
the shareholder votes cast, provided that the
total votes cast represent over fifty percent
(50%) in interest of all the issued and
outstanding shares of AmerUs Common Stock as of
the Record Date.
Effect of approval of the
share issuance................ Under the Combination Agreement (attached as
Appendix 3 to Part 2 of this Statement),
approval of the Proposal is required for
satisfaction of one of the conditions precedent
to the closing of the Combination. Such
conditions include, among other requirements,
approval of the Plan by the Indiana
Commissioner of Insurance and ILICO's members.
Assuming that each other such condition is
satisfied (or, to the extent permissible under
applicable law, waived), AmerUs will distribute
the Member Consideration to Eligible Members of
ILICO.
Recommendation of the Board of
Directors..................... THE BOARD OF DIRECTORS OF AMERUS HAS
UNANIMOUSLY APPROVED THE PROPOSAL AND
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE PROPOSAL. (For more information
on the AmerUs Boards' recommendation, see "THE
AMERUS BOARDS' RECOMMENDATION" in Part 2 of the
Statement.)
THE COMPANIES:
ILICO......................... ILICO is a mutual insurance company whose
business is concentrated in individual life
insurance products. This core business line
comprises about four-fifths of the company's
premium writings and reserves. The remaining
business is generated from the individual
annuity business. At the present time, ILICO
owns 55% of the outstanding equity interest in
ILGC; the remaining 45% of the outstanding
equity interest of ILGC is owned by AmerUs and
certain of its subsidiaries. ILGC owns three
insurance companies and a securities
broker-dealer. Currently, ILICO has
approximately 152,000 members. On its September
30, 2000 consolidated financial statement,
ILICO reported consolidated total assets of
approximately $6 billion. As a mutual insurance
company, ILICO has no authorized, issued or
outstanding stock. Through the purchase of
ILICO insurance policies, ILICO's policyholders
acquire insurance coverage from ILICO and
ownership interests ("Membership Interests") in
ILICO pursuant to Indiana insurance law and
ILICO's articles of incorporation and by-laws.
Those Membership Interests include the right to
vote on matters submitted to a vote of members
and the right to a distribution of cash,
6
<PAGE> 14
stock or other consideration in the event of a
dissolution or a demutualization of the
company.
AmerUs........................ AmerUs is a publicly-held holding company
located in Des Moines, Iowa whose subsidiaries
are engaged 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. AmerUs is the name adopted by the New
York Stock Exchange listed company resulting
from the demutualization of American Mutual
Holding Company ("AMHC"), an Iowa mutual
insurance holding company, and the merger of
its majority owned subsidiary, AmerUs Life
Holdings, Inc. ("ALH"), with and into AMHC on
September 20, 2000. As of September 30, 2000,
AmerUs had consolidated assets of approximately
$11.6 billion and shareholders' equity of
$785.5 million.
Listing of AmerUs Common
Stock; Number of Shares
Outstanding................... The AmerUs Common Stock is listed on the New
York Stock Exchange under the ticker symbol
AMH. There are currently 30.0 million shares of
AmerUs Common Stock issued and outstanding. For
more information about AmerUs Common Stock, see
"HISTORIC MARKET PRICES AND DIVIDENDS" in Part
2 of this Statement.
THE COMBINATION
What is the Combination?...... The Combination is a series of related
transactions whereby ILICO will convert from a
mutual insurance company to a stock insurance
company and become a wholly-owned subsidiary of
AmerUs, pursuant to the Combination Agreement.
Although these transactions are described below
as a series of separate steps, effectively they
all will occur at the same time and none of
these steps will be taken without the others.
First step.................... In accordance with Indiana Code sec. 27-15 et
seq. (the "Indiana Demutualization Law"), ILICO
will convert from a mutual insurance company to
a stock insurance company, organized and
existing under Indiana's insurance law.
Second step................... CLA Assurance Company, a wholly-owned Iowa
domiciled life insurance company subsidiary of
AmerUs ("CLA") will be merged with and into
ILICO under Indiana Code sec. 27-1-9 et seq.
and the applicable provisions of Iowa law (the
"Merger"). The stock of CLA will be converted
into and become all of the stock of ILICO.
ILICO will thereby become a wholly-owned
subsidiary of AmerUs.
Third step.................... Eligible Members of ILICO will receive the
Member Consideration in exchange for their
Membership Interests in ILICO.
Final step.................... AmerUs will immediately contribute all of the
stock of ILICO to ILICO Holdings, Inc., an
Indiana domiciled, wholly-owned subsidiary of
AmerUs (the "Indiana Parent Company").
Opinions of Financial
Advisors...................... In connection with its consideration of the
Combination Agreement, the AmerUs Board has
considered the opinion of its financial
7
<PAGE> 15
advisor, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), dated September
18, 2000. A detailed description of the Merrill
Lynch opinion can be found at "OPINIONS OF
ILICO'S AND AMERUS' FINANCIAL ADVISORS" in Part
2 of this Statement. The full text of the
opinion, included in Part 2 of this Statement
as Appendix 5, sets forth the assumptions made,
matters considered and limitations on the
review undertaken by Merrill Lynch in
connection with the opinion. We encourage you
to read this opinion in its entirety. The
opinion was solely for the information and
assistance of the AmerUs Board and is not a
recommendation to AmerUs' shareholders as to
how to vote on the Proposal. In connection with
the Plan and Combination Agreement, the ILICO
Board of Directors (the "ILICO Board")
considered the opinion of its financial
advisor, Goldman, Sachs & Co. ("Goldman
Sachs"), dated September 18, 2000. A detailed
description of the Goldman Sachs opinion can be
found at "OPINIONS OF ILICO'S AND AMERUS'
FINANCIAL ADVISORS" in Part 2 of this
Statement. The full text of the opinion,
included in Part 2 of this Statement in
Appendix 4, sets forth the assumptions made,
matters considered and limitations on the
review undertaken by Goldman Sachs in
connection with the opinion. We encourage you
to read this opinion in its entirety. The
opinion was solely for the information and
assistance of the ILICO Board and is not a
recommendation to members of ILICO entitled to
vote on the Plan ("Voting Members") as to how
to vote on the Plan or as to the form of
consideration any Eligible Member should elect.
Conditions to the Closing of
the Combination............... The closing of the Combination is conditioned
on the satisfaction or waiver of various
conditions, including, but not limited to, the
following:
- Receipt of all required governmental
approvals;
- Approval of the Plan by ILICO's Voting
Members;
- Approval of the Proposal by AmerUs'
shareholders;
- Absence of any restraining orders or
injunctions prohibiting consummation of
the Combination; and
- Absence of events, occurrences,
developments or state of circumstances
or facts on or after September 18, 2000
which, individually or in the aggregate,
have had or would reasonably be expected
to have a Material Adverse Effect (as
defined in the Combination Agreement) on
ILICO, ILGC or AmerUs.
Termination of the Combination
Agreement..................... The Combination Agreement may be terminated at
any time prior to the consummation of the
Combination upon the occurrence of certain
events, including, but not limited to, the
following:
- at AmerUs' option, if ILICO or ILGC
enters into an agreement contemplating a
Competing Transaction Proposal (as
defined in the Combination Agreement);
8
<PAGE> 16
- if any required member, shareholder or
governmental entity approval is not
obtained despite the efforts of the
parties;
- if the Combination has not been
consummated by June 30, 2001, unless
such date is extended by the parties; or
- at ILICO's option, if the aggregate
value of the payments projected to be
received by ILICO's Eligible Members is
less than $186 million (due to a
fluctuation in the value of the Member
Consideration) and AmerUs, at its
option, does not increase the value of
the Member Consideration to $186
million.
Other Features of the
Combination................... As an initial step towards consummation of the
Combination, AmerUs acquired shares of a newly
authorized series of non-voting Common Stock of
ILGC in exchange for a $100 million investment
in ILGC. Upon receipt of all necessary
regulatory approvals, AmerUs and its
subsidiaries holding shares of ILGC non-voting
Common Stock have the right to exchange such
non-voting Common Stock for voting common
shares that represent 45% of the equity
interest of ILGC on a fully diluted basis.
Additionally, a subsidiary of AmerUs, AmerUs
Capital Management Group, Inc., has entered
into investment management agreements with
ILICO and each of ILICO's insurance company
subsidiaries (the "Investment Advisory
Agreements").
Lastly, ILICO and AmerUs have agreed upon
principles and guidelines for the
post-Combination integration of the combined
companies. (For information on such principles
and guidelines, see "THE
COMBINATION -- Memorandum of Understanding" in
Part 2 of this Statement.)
Rights of Repurchase;
Potential Termination Fees.... If the Combination Agreement is terminated
without the Combination having occurred, ILICO
is obligated to purchase or ILGC is obligated
to repurchase AmerUs' $100 million investment
in ILGC, and to pay a rate of return on the
investment ranging from 10% to 18% per annum.
ILICO and ILGC would be required to effect this
purchase or repurchase of the $100 million
investment within a specified time period
depending on the basis for termination of the
Combination Agreement. The maximum time period
permitted for this purchase or repurchase is
four years from the closing of the investment,
which occurred on February 18, 2000. In certain
circumstances and subject to receipt of
regulatory approval, AmerUs' investment in ILGC
may, at the election of AmerUs, be repaid in
whole or in part with equity interests in IL
Annuity and Insurance Company, which is a
subsidiary of ILGC.
In addition, the Combination Agreement includes
termination fee provisions triggered in the
event of a termination due to a variety of
occurrences or events, including ILICO entering
into a transaction competing with the
Combination. (See "THE COMBINATION -- Rights of
Repurchase, Certain Termination Fees" in Part 2
of this Statement). In the event of such
termination, in addition to the purchase or
repurchase of the $100 million invest-
9
<PAGE> 17
ment in ILGC, ILICO and ILGC would collectively
be obligated to pay AmerUs a termination fee of
$3,000,000 plus certain fees and expenses and
an additional amount determined by a certain
formula, with the minimum additional
termination fee being $7,030,800.
Risk Factors.................. In considering their votes, AmerUs'
shareholders should carefully consider the
risks associated with the Combination. See
"RISK FACTORS RELATING TO THE COMBINATION" in
Part 2 of this Statement.
(For a more detailed discussion of the
Combination, see "THE COMBINATION" in Part 2 of
this Statement.)
Dissenters Rights............. Shareholders of AmerUs have no dissenters' or
similar rights with respect to the proposed
share issuance, regardless of how they vote.
10
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA OF ILICO
The following table sets forth certain financial data of ILICO. The
selected consolidated financial data below for each of the four years ending
December 31, 1999 are derived from the Consolidated Financial Statements of
ILICO, which financial statements have been audited by Ernst & Young LLP,
independent auditors. The selected consolidated financial data provided below
for the nine months ended September 2000 and 1999 are derived from the unaudited
consolidated financial statements of ILICO. In the opinion of management, the
unaudited financial data for the nine months ended September 30, 2000 and 1999
present fairly the consolidated financial statements for such periods in
conformity with GAAP.
The information in the following tables is based on, and should be read
together with, the historical financial information set forth in this Proxy
Statement.
<TABLE>
<CAPTION>
AS OF OR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) AS OF OR FOR THE YEAR ENDED DECEMBER 31,(B)
-------------------- ----------------------------------------------
2000 1999 1999 1998 1997 1996
-------- --------- ---------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Total revenues........................ $ 398.3 $ 357.5 $ 491.4 $ 415.2 $ 362.6 $ 323.4
Benefits and expenses................. 383.4 356.7 486.2 381.8 336.3 308.7
Net income (loss)..................... 3.9 (5.0) (0.8) 21.2 15.4 7.9
CONSOLIDATED BALANCE SHEET DATA:
Total assets.......................... $6,017.9 $5,956.1 $6,123.8 $4,864.7 $2,996.5 $2,137.0
Total liabilities..................... 5,604.7 5,576.7 5,754.3 4,479.6 2,682.2 1,854.1
Minority interest in consolidated
subsidiaries........................ 104.5 75.2 71.7 57.7 8.9 --
Total policyowners' surplus(A)........ 308.7 304.2 297.8 327.4 305.4 282.9
</TABLE>
---------------
(A) ILICO is a mutual life insurance company and therefore has no shares of
common stock.
(B) GAAP financial information is not available for 1995.
11
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA OF AMERUS
The following table sets forth certain financial data of AmerUs. The
selected consolidated financial data below for each of the five years ending
December 31, 1999 are derived from the Consolidated Financial Statements of
AmerUs, which financial statements have been audited by KPMG LLP, independent
auditors. The selected consolidated financial data provided below for the nine
months ended September 2000 and 1999 are derived from the unaudited consolidated
financial statements of AmerUs. In the opinion of management, the unaudited
financial data for the nine months ended September 30, 2000 and 1999 present
fairly the consolidated financial statements for such periods in conformity with
GAAP.
The information in the following tables is based on, and should be read
together with, the historical financial information concerning AmerUs contained
in previous filings with the Securities and Exchange Commission and incorporated
by reference in this Statement. (See "FINANCIAL INFORMATION CONCERNING AMERUS
AND SUBSIDIARIES" and "WHERE YOU CAN FIND MORE INFORMATION" in Part 2 of this
Statement.)
<TABLE>
<CAPTION>
AS OF OR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) AS OF OR FOR THE YEAR ENDED DECEMBER 31,
--------------------- -------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
--------- --------- --------- --------- --------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT
DATA:
Total revenues.................... $ 605.7 $ 574.3 $ 764.3 $ 704.2 $ 380.7 $ 527.2 $ 652.5
Benefits and expenses............. 491.7 468.8 638.5 592.3 288.8 404.4 547.8
Net income from continuing
operations...................... 33.1 34.2 34.5 29.7 39.5 69.5 59.2
Net income........................ 33.8 34.5 38.4 103.5 54.4 81.2 79.9
Income from continuing operations
per share(A):
Basic........................... $ 1.86 $ 1.97 $ 2.04 $ -- $ -- $ -- $ --
Diluted......................... $ 1.85 $ 1.96 $ 2.03 $ -- $ -- $ -- $ --
Weighted average number of shares
outstanding(A):
Basic........................... 17.9 17.4 17.4
Diluted......................... 17.9 17.5 17.5
CONSOLIDATED BALANCE SHEET DATA:
Total assets...................... $11,560.5 $11,305.5 $11,097.7 $10,780.5 $12,004.8 $6,052.8 $5,781.1
Total liabilities................. 10,577.3 9,964.2 9,829.5 9,399.5 10,735.2 5,378.5 5,114.2
Minority interest................. -- 340.0 309.1 364.3 460.5 -- --
Company-obligated mandatorily
redeemable preferred
Securities...................... 197.7 197.7 197.7 199.6 86.0 --
Total stockholders' equity(A)..... 785.5 803.6 761.4 817.1 723.1 674.3 666.9
</TABLE>
---------------
(A) AmerUs was formed in 1996 as a mutual insurance holding company and
therefore, had no shares of common stock outstanding until its
demutualization on September 20, 2000. At that time, it distributed 17.4
million shares of its common stock to its former members and exchanged its
common stock for the 12.6 million shares of common stock held by the public
in ALH on a one-for-one basis. Net income from continuing operations per
share has been calculated on the basis that the 17.4 million shares
distributed to members were outstanding from January 1, 1999 and the shares
exchanged for ALH shares were outstanding from the date of demutualization.
12
<PAGE> 20
UNAUDITED SELECTED PRO FORMA FINANCIAL DATA
The following tables show financial information after giving effect to the
Combination as though it had occurred on an earlier date (which we refer to as
"pro forma" information). In the Combination, ILICO's Eligible Members will
receive AmerUs Common Stock, cash and policy credits. The financial information
is provided as of September 30, 2000, and for the nine months ended September
30, 2000 and for the year ended 1999. In presenting the pro forma balance sheet
information, we assumed that the combination had occurred September 30, 2000. In
presenting the pro forma income statement information for September 30, 2000 and
1999, we assumed that the Combination had occurred as of January 1, 1999. The
pro forma information gives effect to the Combination under the purchase method
of accounting in accordance with GAAP.
We expect that we will incur transaction and integration charges as a
result of combining the companies. The pro forma information, while helpful in
illustrating the financial characteristics of the combined company under one set
of assumptions, does not reflect these expenses and, accordingly, does not
attempt to predict or suggest future results. It also does not necessarily
reflect what the historical results of the combined company would have been had
the Combination occurred on January 1, 1999 or any other date.
The information in the following table is based on, and should be read
together with, the historical financial information set forth in this Statement
and, in the case of AmerUs' shareholders, in AmerUs' prior SEC filings which we
have incorporated into this document by reference. See "WHERE YOU CAN FIND MORE
INFORMATION."
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
----------------------------------------------
AMERUS ILICO COMBINATION PRO
HISTORICAL HISTORICAL WITH ILICO FORMA
---------- ---------- ----------- ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenues.......................................... $605.7 $398.3 $(79.1) $924.9
Total benefits and expenses............................. 491.7 383.3 (85.3) 789.7
Net income from continuing operations................... 33.1 3.9 6.7 43.7
Net income from continuing operations per share:
Basic................................................. $ 1.85 $ 1.62
Diluted............................................... $ 1.85 $ 1.62
Shares used in the calculation of net income from
continuing operations per share (in millions):
Basic................................................. 17.9 26.9
Diluted............................................... 17.9 26.9
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
------------------------------------------------
AMERUS ILICO COMBINATION PRO
HISTORICAL HISTORICAL WITH ILICO FORMA
---------- ---------- ----------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenues........................................ $764.5 $491.4 $(159.2) $1,096.7
Total benefits and expenses........................... 638.6 486.2 (161.6) 963.2
Net income from continuing operations................. 35.4 (0.8) 6.7 41.3
Net income from continuing operations per share:
Basic............................................... $ 2.03 $ 1.56
Diluted............................................. $ 2.02 $ 1.56
Shares used in the calculation of net income from
continuing operations per share (in millions):
Basic............................................... 17.4 26.4
Diluted............................................. 17.5 26.5
</TABLE>
13
<PAGE> 21
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
-------------------------------------------------
AMERUS ILICO COMBINATION PRO
HISTORICAL HISTORICAL WITH ILICO FORMA
---------- ---------- ----------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets........................................ $11,560.5 $6,017.9 $(162.7) $17,415.7
Total liabilities................................... 10,577.4 5,604.7 19.3 16,201.4
Minority interest................................... -- 104.5 (104.5) --
Company obligated mandatorily redeemable preferred
securities........................................ 197.7 -- -- 197.7
Total stockholders' equity(A)....................... 785.4 308.7 (77.5) 1,016.6
Book value per common share......................... $ 26.18 $ 26.07
Shares used in the calculation of book value per
common share (in millions)........................ 30.0 39.0
</TABLE>
---------------
(A) Under the terms of the Combination Agreement, AmerUs is committed at a
minimum to contribute cash and policy credits equivalent to the value of
approximately 300,000 shares of AmerUs Common Stock. Therefore, it has been
presumed for pro forma purposes that the Combination consideration will
consist of cash equal to the value of the minimum share amount of
approximately 300,000 shares at an estimated fair value of $25.6875 per
share of AmerUs Common Stock and the remaining consideration will be in the
form of 9 million shares of AmerUs Common Stock.
14
<PAGE> 22
OVERVIEW OF THE COMBINATION WITH ILICO
GENERAL
In accordance with the Indiana Demutualization Law, subject to receipt of
required regulatory approvals, ILICO will convert from a mutual insurance
company into a stock insurance company. ILICO will merge with a subsidiary of
AmerUs, with ILICO surviving the merger as a subsidiary of AmerUs, and AmerUs
will contribute the stock of the demutualized ILICO to an Indiana-domiciled
holding company subsidiary of AmerUs. In so doing, ILICO will become a direct,
wholly-owned subsidiary of an Indiana corporation, organized in Indiana by
AmerUs, that is itself a wholly-owned subsidiary of AmerUs. The Combination will
be effected through the following steps:
- In accordance with the Indiana Demutualization Law, ILICO will become a
stock insurance company, organized and existing under the Indiana
Insurance Law.
- CLA will be merged with and into ILICO under Indiana Code sec. 27-1-9 et
seq. and the relevant provisions of Iowa insurance law (the "Merger").
The stock of CLA will be converted into and become all of the stock of
ILICO, which will thereby become a wholly-owned subsidiary of AmerUs.
- Eligible Members (as defined below) of ILICO will be entitled to receive
the Member Consideration in exchange for their Membership Interests.
- AmerUs will, as an essential and mandatory step in the transaction,
immediately contribute all of the stock of ILICO to ILICO Holdings, Inc.,
an Indiana domiciled subsidiary of AmerUs.
Under the terms of the Plan, the Combination is conditioned upon the
occurrence of certain events, including:
- Approval of the Plan (including ILICO's demutualization, the Combination,
the Joint Agreement of Merger and ILICO's amended articles of
incorporation) by ILICO's Board of Directors, which occurred on September
18, 2000 (the "Adoption Date");
- Approval of an Application for Approval of the Plan and ILICO's amended
articles of incorporation the Indiana Insurance Commissioner (the
"Indiana Commissioner");
- Approval of the Plan (which includes the Joint Agreement of Merger and
ILICO's amended articles of incorporation) by at least two-thirds ( 2/3)
of ILICO's Voting Members who cast their votes in person or by proxy at
the meeting of members required by the Indiana Demutualization Law;
- Approval of the Proposal by a majority of the AmerUs shareholder votes
cast, provided that the total votes cast represent over fifty percent
(50%) in interest of all the issued and outstanding shares of AmerUs
Common Stock as of the Record Date; and
- Satisfaction of all of the conditions in the Plan and the Combination
Agreement, including approval of the acquisition of control of ILICO and
its insurance company subsidiaries by the Indiana, Arizona and
Massachusetts Commissioners of Insurance and the New York Superintendent
of Insurance.
In exchange for their Membership Interests in ILICO, those persons who are
members of ILICO on the Adoption Date and are still members on the effective
date of the Plan ("Eligible Members") will receive the Member Consideration, all
as contemplated by the Combination Agreement. AmerUs or ILICO will provide such
consideration pursuant to the terms of the Combination Agreement. (See "THE
COMBINATION" in Part 2 of this Statement.)
The Plan provides that each Eligible Member will receive consideration
equal to the value of the number of shares of AmerUs Common Stock allocated as a
result of the Membership Interest of such Eligible Member. Subject to
limitations set forth in the Plan, Eligible Members will have the right to elect
to receive consideration in the form of the shares of AmerUs Common Stock or
cash.
The amount of consideration paid to Eligible Members will consist of two
components. First, a fixed component of consideration equal to twelve (12)
shares of AmerUs Common Stock will be allocated to each
15
<PAGE> 23
Eligible Member. In addition, an Eligible Member may be allocated a variable
component of consideration which will be based on, and actuarially determined
from, the policies owned by the Eligible Member. The method of allocation of the
aggregate variable component of the consideration will take into account, among
other things, each policy's estimated past and expected future contribution to
ILICO's surplus, determined on an actuarial basis.
The value of the consideration to be paid to an Eligible Member who
receives policy credits or cash will be equal to the number of shares of AmerUs
Common Stock allocated to the Eligible Member multiplied by the greater of (i)
the closing price per share of the AmerUs Common Stock on the effective date of
the Plan or (ii) the average closing price per share of the AmerUs Common Stock
for the ten trading days beginning on the Plan Effective Date.
AmerUs intends, within twelve (12) months after the closing of the
Combination, to offer a program, the costs of which shall be borne by AmerUs, to
all of its shareholders (including Eligible Members who receive and retain
AmerUs Common Stock in the Combination) holding less than one hundred (100)
shares of stock ("Odd Lot Holders") pursuant to which those Odd Lot Holders may
sell their shares (or round up to 100 shares by purchase) without paying any
brokerage commissions. The program will include a mailing to eligible
shareholders and the maintenance of a toll-free help line, and it will be open
for a minimum of sixty (60) days. The program and its offering shall in all
respects be subject to all applicable laws and regulations, including AmerUs'
determination that it will not adversely affect the tax treatment contemplated
by the Plan.
INDIANA REGULATORY APPROVAL FOR THE PLAN
Under the Indiana Demutualization Law, ILICO is required to submit an
Application for Approval (which will include the Plan) to the Indiana
Commissioner. ILICO submitted its Application on September 21, 2000, and
supplemented it on November 2, 2000. The Indiana Commissioner must, after
determining that ILICO's Application is complete, designate a date for a public
hearing (the "Indiana Hearing") to receive comments and information to aid the
Indiana Commissioner in considering and approving or disapproving the
Application for Approval of the Plan. The Indiana Commissioner has scheduled the
Indiana Hearing for January 16, 2001. ILICO must provide prior written notice of
the Indiana Hearing to its members, and must publish prior notice of the Indiana
Hearing for the general public. Members and the general public will be invited
to appear and will have the right to be heard at the Indiana Hearing. The Plan
may not take effect unless and until, after the Indiana Hearing, the Indiana
Commissioner approves the Plan as, fair, reasonable and equitable to the
Eligible Members, and determines that the amount and form of consideration is
fair in the aggregate and to each member class.
In addition to the hearing on the Plan, consummation of the Combination
requires an order from the Indiana Commissioner following a separate hearing on
AmerUs' acquisition of control of ILICO. Various other regulatory approvals are
required for the Combination. For a discussion of additional regulatory
approvals necessary for completion of the Combination, see "OTHER REGULATORY
APPROVALS", in Part 2 of this Statement.
The Plan (which includes ILICO's demutualization, the Combination, the
Joint Agreement of Merger and ILICO's amended articles of incorporation) must
also be submitted to, and may not take effect until approved by, the ILICO's
Voting Members at a special members' meeting. The Voting Members will be those
persons who were members of ILICO on the Adoption Date (which will also be the
record date for the meeting). Each Voting Member may cast only one vote,
regardless of the number of policies owned. The notice of the members' meeting
will be accompanied by information relevant to the members' meeting, including a
copy of the Plan and other explanatory information (the "Member Information
Statement"). The Member Information Statement, discussed below, will be provided
to and approved by the Indiana Department of Insurance prior to its mailing. The
Plan will be approved by the Voting Members if two-thirds ( 2/3) of the votes
cast at the members' meeting in person or by proxy are in favor of the Plan.
16
<PAGE> 24
FUTURE SHAREHOLDER PROPOSALS
AmerUs' by-laws require shareholders who intend to nominate directors or
propose new business at an annual meeting to provide advance notice of such
intended action. To submit a nomination or proposal for AmerUs' next annual
meeting, a shareholder must mail or deliver a notice to AmerUs so it is received
by AmerUs' Corporate Secretary not later than the close of business on the tenth
day following the date on which notice of such meeting is first given to
shareholders.
Proposals to be submitted by shareholders for consideration at AmerUs' next
annual meeting and inclusion in its 2001 Proxy Statement must be received by
AmerUs at its executive offices in Des Moines, Iowa, not later than
[ ]. Securities and Exchanges Commission ("SEC") rules also
establish standards as to which shareholder proposals are required to be
included in a proxy statement for an annual meeting. AmerUs will only consider
proposals for inclusion in its proxy statement for an annual meeting that
satisfy the requirements of its by-laws and applicable SEC rules.
17
<PAGE> 25
PART 2
GENERAL INFORMATION
ABOUT AMERUS GROUP CO.,
INDIANAPOLIS LIFE INSURANCE
COMPANY AND THE COMBINATION
THE DATE OF THIS STATEMENT
IS DECEMBER , 2000
<PAGE> 26
TABLE OF CONTENTS
<TABLE>
<S> <C>
Introduction to Part 2...................................... 1
Risk Factors Relating to the Combination.................... 2
Background of the Combination............................... 4
The ILICO Board's Recommendation............................ 9
The AmerUs Boards' Recommendations.......................... 11
Opinions of ILICO's and AmerUs' Financial Advisors.......... 13
Information Concerning the Business of ILICO................ 26
Information Concerning the Business of AmerUs............... 27
Ratings..................................................... 28
The Combination............................................. 29
AmerUs Investment in ILICO's Subsidiaries................. 29
Structure of the Combination.............................. 29
Representations and Warranties............................ 29
Certain Covenants and Agreements.......................... 30
Closing................................................... 32
Conditions to the Completion of the Combination........... 32
Indemnification for Officers, Directors and Employees..... 33
Termination of the Combination Agreement.................. 34
Rights of Repurchase; Certain Termination Fees............ 36
Post-Termination Conduct of Business of ILICO and ILGC
Prior to Purchase or Repurchase........................ 37
Memorandum of Understanding............................... 37
Historic Market Prices and Dividends........................ 38
Dividends................................................. 38
Description of AmerUs Capital Stock......................... 40
General................................................... 40
Common Stock.............................................. 40
Preferred Stock........................................... 40
Capital Securities Series A of AmerUs Capital I........... 40
Adjustable Conversion-rate Equity Security Units of AmerUs
Capital II............................................. 40
Warrants.................................................. 41
Certain Provisions of the Articles of Incorporation and
By-laws of AmerUs...................................... 41
State Statutory Provisions................................ 43
Security Ownership.......................................... 44
Federal Tax Consequences.................................... 46
Accounting Matters.......................................... 46
Independent Auditors........................................ 47
Selected Consolidated Financial Data of ILICO............... 48
Management's Discussion and Analysis of Financial Condition
and Results of Operation of ILICO and Subsidiaries........ 49
Selected Consolidated Financial Data of AmerUs.............. 62
Financial Information Concerning AmerUs and Subsidiaries.... 64
Unaudited Pro Forma Condensed Consolidated Financial Data... 64
</TABLE>
i
<PAGE> 27
<TABLE>
<S> <C>
Certain Considerations; Interests of Certain Persons in the
Combination............................................... 72
Executive Officer Compensation Following the
Combination............................................ 72
AmerUs Management Following the Combination............... 74
Directors................................................. 74
AmerUs Management's Compensation.......................... 75
ILICO Management Following the Combination.................. 75
Directors................................................. 75
Board Compensation Following the Combination.............. 76
Executive Officers........................................ 76
Other Regulatory Approvals.................................. 76
Other Insurance Regulatory Approvals...................... 76
HSR Act................................................... 77
Legal Proceedings........................................... 77
Information Pertaining to Forward-Looking Statements........ 78
Where You Can Find More Information......................... 79
Index to Appendices......................................... 80
Appendix 1 Unaudited Interim Consolidated Financial
Statements of Indianapolis Life Insurance Company
and Subsidiaries.................................
Appendix 2 Consolidated Financial Statements of Indianapolis
Life Insurance Company and Subsidiaries..........
Appendix 3 Amendment to Combination Agreement; Combination
Agreement........................................
Appendix 4 Goldman Sachs Opinion and Letter.................
Appendix 5 Merrill Lynch Opinion............................
Appendix 6 Memorandum of Understanding; Amendment to
Memorandum of Understanding......................
Appendix 7 Letter to Indiana Commissioner of Insurance......
</TABLE>
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<TABLE>
<S> <C>
INDIANAPOLIS LIFE INSURANCE COMPANY AMERUS GROUP CO.
2960 North Meridian Street 699 Walnut Street, Suite 2000
Indianapolis, Indiana 46208 Des Moines, Iowa 50309-3948
</TABLE>
PART 2
This document is being furnished to ILICO's members as Part 2 of ILICO's
Member Information Statement and to AmerUs' shareholders as Part 2 of its Proxy
Statement.
If you are receiving this document as a member of ILICO, references to the
"Statement" refer to the following: 1) Part 1 of ILICO's Member Information
Statement; ii) this document, which is being provided as Part 2 of the Member
Information Statement; iii) the Appendices to both Part 1 and Part 2; and iv)
and a supplemental booklet of selected portions of publicly available documents
concerning AmerUs (the "Supplemental Booklet") that is being provided to ILICO's
members.
If you are receiving this document as a shareholder of AmerUs, references
to the "Statement" refer to the following: i) Part 1 of AmerUs' Proxy Statement;
ii) this document, which is being provided as Part 2 of the Proxy Statement; and
iii) the Appendices to each of these booklets.
ILICO's members and AmerUs' shareholders are urged to read each of the
booklets provided to them. Part 2 contains information about ILICO and AmerUs,
their respective businesses, including financial statements, the Combination
Agreement and related matters.
Part 2 should be read in conjunction with the information provided in Part
1 and the more detailed information in the Appendices, including financial
statements and notes thereto, and publicly available documents concerning
AmerUs. (See "WHERE YOU CAN FIND MORE INFORMATION"). All financial data and
ratios presented in this Statement have been prepared using generally accepted
accounting principles ("GAAP") unless otherwise indicated.
For purposes of this Statement, the term "ILICO" refers, at all times prior
to and after the effective date of the Plan, to Indianapolis Life Insurance
Company, an Indiana mutual life insurance company which will become, as of the
effective date of the Plan, an Indiana stock life insurance company and an
indirect wholly-owned subsidiary of AmerUs.
For purpose of this Statement, "AmerUs" refers to i) AmerUs Group Co., the
name adopted by the New York Stock Exchange listed stock company resulting from
the demutualization of American Mutual Holding Company ("AMHC"); ii) AMHC and
iii) AmerUs Life Holdings, Inc. ("ALH"), the public company subsidiary of AMHC,
which was merged into AMHC in connection with its demutualization, either
collectively or individually as the context requires. The terms AmerUs Group
Co., ALH and AMHC will only be used if necessary for clarity and context. As the
context requires, certain capitalized terms used in Part 2 of this Statement
have been defined in Part 1.
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RISK FACTORS RELATING TO THE COMBINATION
INTEGRATION OF SEPARATE COMPANIES
The Combination involves the integration of two companies with different
corporate cultures that have previously operated independently. The difficulties
of combining the companies' operations include:
- the necessity of coordinating geographically separated organizations; and
- integrating personnel with diverse corporate backgrounds.
The Combination will involve the integration of the businesses of ILICO and
AmerUs, and we cannot assure you that this will happen or that it will happen in
a timely manner. The process of integrating various operations could cause an
interruption of, or loss of momentum in, the activities of one or more of the
companies' businesses and the loss of key personnel. It is also possible that
the integration process could result in inconsistencies in standards, controls,
procedures and policies. The diversion of management's attention and any delays
or difficulties encountered in connection with the Combination and the
integration of operations could have an adverse effect on the business, results
of operations, financial condition or prospects of the companies after the
Combination. The value of AmerUs Common Stock could be adversely affected by
these delays and difficulties.
ANTICIPATED BENEFITS FROM THE COMBINATION MAY NOT BE REALIZED
Among the factors considered by the ILICO Board and the Boards of Directors
of AMHC and ALH (the "AmerUs Boards") in connection with their respective
approvals of the Combination Agreement were the opportunities for economies of
scale, as well as operating efficiencies that could result from the Combination.
We cannot give any assurance that these savings will be realized within the time
periods contemplated or even that they will be realized at all.
In addition, the principles and guidelines attached to a letter dated
February 17, 2000 from AmerUs to ILICO, as amended by the Amendment dated
September 18, 2000 to the Combination Agreement (as amended, the "Memorandum of
Understanding"), which are attached as Appendix 6 to Part 2 of this Statement,
as well as certain guidelines for the post-closing integration, operation and
leadership of ILICO that AmerUs provided to the Indiana Commissioner, may impose
various constraints on AmerUs' ability to realize certain opportunities for
economies of scale, as well as operating efficiencies, as a result of the
Combination. (See "THE COMBINATION -- Memorandum of Understanding").
The AmerUs Board also considered the potential for growth through expansion
of distribution channels for the combined companies which may result from the
Combination. There is no guarantee that this or any other anticipated potential
benefit from the Combination will be realized.
The value of AmerUs Common Stock could be adversely affected to the extent
that the combined companies fail to realize the benefits of the Combination.
AMERUS AND ILICO WILL EACH INCUR SIGNIFICANT EXPENSES IN CONNECTION WITH THE
COMBINATION
AmerUs and ILICO expect to incur significant expenses associated with
combining operations of the two companies or their subsidiaries, transaction
fees and other costs relating to the Combination or the Conversion. Additional
unanticipated costs may be incurred in the integration of the businesses of
AmerUs and ILICO or their subsidiaries. Although AmerUs and ILICO expect that
the elimination of certain duplicative costs, as well as the realization of
other efficiencies related to the integration of the businesses, may offset
additional expenses over time, we cannot give any assurance that this net
benefit will be achieved in the near term, or at all.
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OBTAINING REQUIRED APPROVALS AND SATISFYING CLOSING CONDITIONS MAY DELAY OR
PREVENT COMPLETION OF THE COMBINATION
Completion of the Combination is conditioned upon the receipt of all
required governmental authorizations, consents, orders and approvals. AmerUs and
ILICO intend to vigorously pursue all such required approvals. The failure to
obtain these approvals could delay the completion of the Combination for a
significant period of time after ILICO's Eligible Members have approved the Plan
of Conversion and AmerUs' shareholders have approved the issuance of the AmerUs
Common Stock. No assurance can be given, however, that these approvals will be
obtained or that the required conditions to closing will be satisfied, and, if
all such approvals are obtained and the conditions are satisfied, no assurance
can be given as to the terms, conditions and timing thereof.
THE COMBINATION MAY CAUSE DILUTION TO HISTORICAL AMERUS EARNINGS
The Combination and the transactions contemplated by the Combination
Agreement may have a dilutive effect on earnings per share of AmerUs Common
Stock due to the additional AmerUs shares that will be issued in the
Combination. AmerUs' earnings from continuing operations per share on a fully
diluted basis were $1.85 for the nine months ended September 30, 2000, as
compared to pro forma earnings per share on a fully diluted basis after giving
effect to the Combination of $1.62 for the nine months ended September 30, 2000.
The pro forma figure does not reflect costs associated with or benefits
anticipated from the Combination, such as synergies and related cost savings and
transaction costs and is based on the assumption that 96.77% of the Member
Consideration is paid in the form of AmerUs Common Stock. There is no assurance
that pro forma earnings per share are indicative of the results that would have
occurred or are indicative of future results.
During the period in which the Member Consideration is distributed to
ILICO's Eligible Members and for a period thereafter, trading volume may be
elevated to a level above the historical levels. As a result, the trading price
of the AmerUs Common Stock may be lower than the price traded at prior to the
distribution.
CHANGES IN STATE AND FEDERAL REGULATION MAY AFFECT PROFITABILITY
The insurance business is subject to comprehensive state regulation and
supervision throughout the U.S. The primary purpose of such regulation is to
protect policyholders, not shareholders. The laws of the various states
establish insurance departments with broad powers with respect to such things as
licensing companies to transact business, licensing agents, admitting statutory
assets, regulating premium rates, approving policy forms, regulating unfair
trade and claims practices, establishing statutory reserve requirements and
solvency standards, fixing maximum interest rates on life insurance policy loans
and minimum rates for accumulation of surrender values, restricting certain
transactions between affiliates and regulating the types, amounts and statutory
valuation of investments.
State insurance regulators and the National Association of Insurance
Commissioners ("NAIC") continually reexamine existing laws and regulations, and
may impose changes in the future that materially adversely affect AmerUs' and
ILICO's businesses, results of operations and financial condition.
The U.S. federal government does not directly regulate the insurance
business. However, federal legislation and administrative policies in certain
areas can significantly and adversely affect the insurance industry generally
and AmerUs and ILICO in particular. These areas include employee benefit plan
regulation, financial services regulation and federal taxation and securities
laws. Additionally, interpretation of existing laws may change, and the passage
from time to time of new legislation may adversely affect, claims exposure on
policies and annuity contracts.
AmerUs, ILICO and certain subsidiaries of AmerUs and ILICO and certain
policies and contracts offered by them are subject to various levels of
regulation under the federal securities laws administered by the SEC. These laws
and regulations are primarily intended to protect investors in the securities
markets, and generally grant supervisory agencies broad administrative powers,
including the power to limit or restrict the conduct of business for failure to
comply with such laws and regulations. AmerUs and ILICO and their
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<PAGE> 31
subsidiaries may also be subject to similar laws and regulations in the
jurisdictions in which they offer certain types of products or conduct other
securities-related activities.
AmerUs and ILICO cannot predict the impact of future state or federal laws
or regulations on their businesses. Future laws and regulations, or the
interpretation thereof, may materially adversely affect their businesses,
results of operations and financial condition.
BACKGROUND OF THE COMBINATION
In recognition of the rapid changes occurring in the insurance industry
during the past several years, the ILICO Board continually evaluated the
strategic business alternatives available to ILICO. Beginning in 1994, ILICO
decentralized and formed ILGC as a downstream stock holding company to acquire
and operate stock insurance companies and related operations for the purpose of
enhancing the focus on specific product and distribution capabilities and
opportunities. Subsequently, ILICO determined that in the long run an
affiliation or combination with a larger organization was necessary to enhance
ILICO's business objectives. Accordingly, after consideration of various
alternatives, in 1997 ILICO entered into an agreement to affiliate with American
United Life Insurance Company ("AUL"), another Indianapolis, Indiana based
mutual insurance company, under a proposed mutual insurance holding company
structure.
Through two legislative sessions, ILICO and AUL unsuccessfully pursued the
enactment of new state legislation that was required for their proposed
affiliation. During that time, ILICO and AUL began to develop plans for how
their respective organizations could be combined, and AUL made a series of
investments in ILICO's subsidiary, ILGC (the "AUL Investments"). Ultimately,
ILICO and AUL decided to terminate such affiliation, unwind other relationships
between their companies (including the AUL Investments), and pursue their
separate business ventures independent of each other. ILICO's determination in
that regard was based on an analysis in which the ILICO Board had four primary
objectives: i) enhancing the value of the Membership Interests and realizing the
fair value of the company for members; ii) maintaining the financial strength of
ILICO and creating opportunities to acquire additional capital to support growth
above that required to repay the AUL Investments; iii) enhancing ILICO's
services to its policyholders; and (iv) continuing its tradition of community
service and support.
On September 9, 1999, the ILICO Board met with ILICO management, Goldman,
Sachs & Co. ("Goldman Sachs") and legal counsel to discuss the strategic
alternatives available to ILICO, including (i) remaining a mutual company; (ii)
demutualizing and remaining an independent stock company; (iii) forming its own
mutual holding company or affiliating with other companies under a mutual
holding company system; and (iv) demutualizing and combining with a strategic
partner. At that meeting, the ILICO Board authorized management to proceed with
a demutualization study and develop an approach for initiating contact with
potential strategic partners, with the help of Goldman Sachs, which was
subsequently formally engaged.
An Offering Memorandum (the "Memorandum") was prepared by ILICO that
described ILICO and its operations in detail and provided historical and
projected financial information. The Memorandum also emphasized ILICO's interest
in proposals that would provide Eligible Members with fair payment for their
Membership Interests, provide funds to repay the AUL Investments, leverage
ILICO's corporate capacity and support future growth through additional capital
and maintain ILICO's significant presence in Indianapolis, Indiana.
On October 14, 1999 the ILICO Board met with ILICO management and ILICO's
legal and financial advisors, including Goldman Sachs, to discuss again the
strategic alternatives available to ILICO. The ILICO Board also discussed the
development of a possible plan of demutualization and recent insurance industry
activity in the area of mutual holding companies and demutualization. At this
meeting, the ILICO Board discussed with Goldman Sachs the efforts to date in
developing a list of potential strategic partners and the projected timetable
for due diligence and other steps in progressing toward any potential
transaction.
Goldman Sachs began its solicitation of interest and made initial contact
with eighteen potential strategic partners on behalf of ILICO. Following
execution of confidentiality agreements containing customary
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provisions, sixteen potential partners were sent the Memorandum. AmerUs executed
such a confidentiality agreement on October 15, 1999 and received the
Memorandum. AmerUs retained Merrill, Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") as its financial advisor.
Subsequently, potential partners were invited by Goldman Sachs, on behalf
of ILICO, to submit written, non-binding indications of interest, in accordance
with certain procedures, to make an investment in ILGC and a proposal to acquire
ILICO through some form of sponsored demutualization. After a review of the
Memorandum and an initial analysis of the value of ILICO prepared by the
management of AmerUs with the assistance of Merrill Lynch, AmerUs submitted a
non-binding indication of interest on November 3, 1999 followed by an additional
letter dated November 9, 1999 providing further information. Several companies
submitted formal indications of interest and four of them, which included
AmerUs, were invited by ILICO to conduct detailed due diligence. At the November
11, 1999 ILICO Board Meeting, the due diligence meeting schedule was discussed
for these companies, including AmerUs, whose initial proposals were most
consistent with ILICO's strategic objectives.
Pursuant to the procedures established, on November 17 and 18, 1999,
certain representatives of AmerUs and its advisors conducted initial due
diligence on ILICO and met with the senior management of ILICO, including Larry
R. Prible, Chairman, President and Chief Executive Officer, and its advisors.
The AmerUs representatives included Roger K. Brooks, Chairman, President and
Chief Executive Officer, Michael G. Fraizer, Executive Vice President and Chief
Financial Officer and certain other officers of AmerUs and its subsidiaries.
Three other potential business partners conducted initial due diligence during
the period from November 11, 1999 through December 9, 1999.
On November 24, 1999, Goldman Sachs distributed guidelines for submitting a
definitive proposal for the investment in ILGC and the subsequent transaction
with ILICO. Through early December, 1999, four companies, including AmerUs, had
communicated to Goldman Sachs various terms and conditions on which they might
propose to enter into a definitive agreement with ILICO.
Following an evaluation of the operations and financial condition of ILICO
during the weeks following the meetings of November 17 and 18, 1999 and based on
the materials provided and the results of the due diligence, on December 6, 1999
AmerUs submitted a proposal for an investment of $100 million in ILGC and a
merger of ILICO with AmerUs followed by a demutualization of the combined
companies. Under the terms of the proposal, ILICO's members would receive 10.5
million shares of common stock of the resulting publicly held company out of the
approximately 41 million shares of common stock to be outstanding.
With the assistance of Goldman Sachs and its other advisors, on December 9,
1999 the ILICO Board evaluated and compared the proposals in detail. With
respect to the proposals and the terms of each, the ILICO Board considered,
among other factors, the valuation of ILICO, the type and amount of
consideration proposed to be distributed to members, the operations of ILICO and
its subsidiaries following the completion of the transaction, ratings, community
impact and material closing conditions. Based upon such considerations,
including the belief that the initial AmerUs proposal was likely to best meet
the objectives of the ILICO Board in seeking a business partner, the ILICO Board
on December 9, 1999 authorized the management of ILICO to pursue parallel
negotiations with AmerUs and one of the other potential strategic partners.
On December 15, 1999, ILICO signed a confidentiality agreement with AmerUs
containing customary provisions to enable ILICO and its representatives to
conduct a due diligence review of AmerUs and its affiliates. On December 15,
1999, certain representatives of ILICO and its advisors conducted initial due
diligence on AmerUs and its affiliates and met with the senior management and
advisors of AmerUs and its affiliates, including Messrs. Brooks and Fraizer and
certain other officers of AmerUs and its affiliates. The ILICO representatives
included Mr. Prible, John J. Fahrenbach, Senior Vice President and Chief
Financial Officer, and certain other officers of ILICO. Following this meeting
further discussion and due diligence of AmerUs was continued by ILICO.
The management of AmerUs advised the Boards of Directors of the AmerUs
Boards of the status of the transaction, the results of the due diligence
conducted during the process and the proposed terms of the transaction during a
meeting of the AmerUs Boards on December 17, 1999.
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Following that meeting, negotiations continued. On January 5 and 6, 2000
members of AmerUs management had individual meetings with each of the members of
the AmerUs Boards to discuss a potential transaction with ILICO. On January 7,
2000, at telephonic AmerUs Boards' meetings which included representatives of
Merrill Lynch, management, legal counsel and other advisors, the AmerUs Boards
discussed entering into a non-binding letter of intent with ILICO that provided
for, among other things, an investment by AmerUs of $100 million in ILGC and
either the merger of ILICO and AmerUs and the subsequent demutualization of the
combined companies or a demutualization of ILICO sponsored by AmerUs with ILICO
members receiving shares of AmerUs Common Stock, cash and policy credits with an
aggregate value equal to the value of 11.25 million shares of common stock of
AmerUs. This proposed letter of intent also contained a term sheet with the
mutual understanding of the parties as to the terms and conditions to be
included in the definitive agreement, an outline for post affiliation
integration and operations of the combined companies and an exclusive period for
AmerUs to negotiate a definitive agreement with ILICO and ILGC.
On January 6, 2000, the ILICO and ILGC Boards met to review, with the
advice and assistance of its financial and legal advisors, the proposals from
the two remaining potential strategic partners. At this meeting, ILICO's
management and financial and legal advisors made presentations to the ILICO and
ILGC Boards concerning the proposals of AmerUs and the other potential strategic
partner, including detailed presentations of the letters of intent and term
sheet proposals. After further discussions with Goldman Sachs, other advisors
and the management of ILICO and ILGC and after comparing the terms communicated
by the other companies that had conducted due diligence on ILICO to those
contained in the proposal from AmerUs, the ILICO and ILGC Boards determined that
the proposal from AmerUs represented the offer that best met the objectives of
the ILICO Board in seeking a business partner. Following this review, the ILICO
and ILGC Boards unanimously approved entering into the non-binding letter of
intent with AmerUs. This non-binding letter of intent was executed by ILICO and
AmerUs on January 7, 2000.
Commencing on January 7, 2000, the parties began negotiating a definitive
agreement. As part of these negotiations, the parties agreed to combine the
companies under the following terms: AmerUs would make a $100 million investment
in ILGC and would proceed with its demutualization and distribution of value to
its members; ILICO would proceed with its own demutualization, which would occur
after the demutualization of AmerUs; AmerUs would then distribute shares of
AmerUs Common Stock, cash and policy credits to ILICO's members in exchange for
all Membership Interests.
On February 10, 2000, the ILICO and ILGC Boards met to review, with the
advice and assistance of their management and financial and legal advisors, the
proposed definitive agreement and the transactions contemplated thereby, which
were generally consistent with the terms and conditions of the non-binding
letter of intent executed among the parties on January 7, 2000. The ILICO and
ILGC Boards had a detailed discussion of AmerUs' initial $100 million investment
in ILGC, aggregate consideration in the subsequent demutualization of ILICO
equal in value to the value of 11.25 million shares of AmerUs Common Stock to be
distributed to ILICO's Eligible Members, termination events and consequences,
post-Combination operations, certain terms of a plan of conversion for ILICO's
demutualization, ancillary agreements to the proposed definitive agreement and
fees related to the proposed transaction. The ILICO and ILGC Boards considered
the financial aspects of the proposed transaction with the advice and assistance
of its financial advisor, Goldman Sachs. Based upon the information presented,
the ILICO and ILGC Boards unanimously approved the proposed definitive agreement
and its ancillary agreements and authorized management to execute the proposed
definitive agreement.
On February 11, 2000, the AmerUs Boards met and reviewed, with the advice
and assistance of their management and financial, legal and other advisors, the
proposed definitive agreement and the transactions contemplated thereby, which
were generally consistent with the terms and conditions of the non-binding
letter of intent. At such meeting, AmerUs management and financial and legal
advisors made presentations to the AmerUs Boards concerning the key elements of
the proposed transaction, including a financial assessment of ILICO and ILGC,
pro forma merger analysis, results of due diligence and legal considerations for
the AmerUs Boards in discharging their fiduciary responsibilities in connection
with the proposed transaction, and the terms and conditions of the definitive
agreement that had been negotiated. Representatives of Merrill
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Lynch made a presentation to the AmerUs Boards regarding the financial aspects
of the proposed transaction and delivered its written opinion. Based on the
information presented, the AmerUs Boards unanimously approved the proposed
transaction and determined that the proposed transaction, including the
distribution of shares of AmerUs Common Stock, cash and policy credits to
ILICO's members in exchange for their Membership Interests, was in the best
interests of AmerUs and further recommended that the shareholders of AmerUs vote
for the issuance of the shares of AmerUs Common Stock. Management of AmerUs was
authorized to proceed to execute a definitive agreement to consummate the
proposed transaction with such changes as management determined to be
appropriate.
The definitive agreement ("Definitive Agreement") was executed on February
18, 2000 and AmerUs made a $100 million investment in ILGC in accordance with
the terms of the Definitive Agreement, a portion of which was immediately used
to repay the AUL Investments. On February 21, 2000, a press release was issued
jointly by AmerUs and ILICO announcing that a Definitive Agreement had been
signed providing for combining the operations of the companies, with the members
of ILICO to receive consideration equal in value to the value of 11.25 million
shares of AmerUs Common Stock in exchange for their Membership Interests and for
AmerUs to make a $100 million investment in ILGC.
In the months following the execution of the Definitive Agreement on
February 18, 2000, the parties recognized that certain changes in circumstances
necessitated changes in the Definitive Agreement. These changes included, among
other things, a substantial decrease in the sale of fixed annuities by IL
Annuity; a substantial increase in terminations of existing fixed annuities
issued by IL Annuity; a substantial increase in the projected costs of
demutualization of ILICO; and the impact of these occurrences on the financial
results and condition of ILICO, on a consolidated basis. The parties engaged in
protracted negotiations concerning amending the Definitive Agreement to provide
for a reduction in the aggregate value of the consideration to be distributed to
ILICO's members in exchange for their Membership Interests, but did not reach
firm agreement as to the amount of the reduction. The parties also discussed
certain other changes in the Definitive Agreement to update the Definitive
Agreement and reflect the changed circumstances.
On August 11, 2000, the AmerUs Boards met and reviewed terms proposed by
AmerUs management for the amendment to the Definitive Agreement. Negotiations
between the parties were ongoing at the time of this meeting. At this meeting,
AmerUs management and financial, legal and other advisors made presentations to
the AmerUs Boards concerning the additional due diligence undertaken by AmerUs
since the Definitive Agreement was signed on February 18, 2000, the change in
circumstances at ILICO and ILGC and the resulting proposed changes to the
Definitive Agreement. Representatives of Merrill Lynch answered questions
regarding the transactions and advised the boards that it was prepared to render
a fairness opinion based upon revised terms discussed at the meeting. Based on
the information presented, the AmerUs Boards authorized the management of AmerUs
to proceed to finalize the negotiations for an amendment of the Definitive
Agreement within certain parameters regarding the reduction of the aggregate
value of the consideration to be distributed to ILICO's members in exchange for
their Membership Interests and otherwise generally consistent with the changes
in the terms proposed by AmerUs management and reviewed with the AmerUs Boards
and, based on the terms discussed, the AmerUs Boards agreed to maintain their
recommendation to shareholders to approve the transaction.
Negotiations among the parties continued and the final terms of the
amendment were agreed to by the parties on September 18, 2000, subject to the
approval of the ILICO and ILGC Boards. The final terms of the amendment included
a reduction in the consideration to be distributed to ILICO members in exchange
for their Membership Interests from shares of AmerUs Common Stock, cash and
policy credits with an aggregate value equal to the value of 11.25 million
shares of AmerUs Common Stock to shares of AmerUs Common Stock, cash and policy
credits with an aggregate value equal to the value of 9.3 million shares and
certain other terms, all of which were consistent with the terms reviewed by
AmerUs management with the AmerUs Boards. Also, Merrill Lynch updated its
written opinion that, as of such date, and based upon the assumptions made,
matters considered, and limitations on review set forth in the opinion, the
consideration being paid in the aggregate in the revised transaction, taking
into account the times of payment, was fair to AmerUs from a financial point
view.
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On September 18, 2000, the ILICO and ILGC Boards met to review and discuss,
with the advice and assistance of their management and financial and legal
advisors, the proposed amendment to the Definitive Agreement and the Plan of
Conversion for ILICO's demutualization. ILICO's financial and legal advisors led
a detailed discussion of the proposed amendment, including changes to the
aggregate consideration, regulatory matters, actuarial matters, and termination
provisions. Goldman Sachs presented the ILICO Board with a written fairness
opinion and a separate letter regarding the current assumed value to be provided
to Eligible Members in relation to the surplus of ILICO, as required by the
Indiana Demutualization Law. This opinion and letter are described more fully
below under "OPINIONS OF ILICO'S AND AMERUS' FINANCIAL ADVISORS -- The Goldman
Sachs Opinion" and the "THE ILICO BOARD'S RECOMMENDATION -- Opinion of ILICO's
Financial Advisor" and the full text of this opinion and letter are attached to
Part 2 of this Statement in Appendix 4. After discussion and deliberation, the
ILICO Board approved the amendment to the Definitive Agreement and authorized
management to execute the amendment. The ILICO Board also determined that the
Plan was in the best interests of ILICO's members, approved the Plan of
Conversion, recommended the Plan to ILICO's members, and authorized other
actions relating to the proposed transaction.
The amendment to the Definitive Agreement was executed by AmerUs and by
ILICO and ILGC on September 18, 2000. On September 19, 2000, a press release was
issued jointly by AmerUs and ILICO announcing that the companies had approved
revised terms for the combination of the companies, including the reduction in
the consideration to be distributed to ILICO's members in exchange for their
Membership Interests from shares of AmerUs Common Stock, cash and policy credits
with an aggregate value equal to the value of 11.25 million shares of AmerUs
Common Stock to shares of AmerUs Common Stock, cash and policy credits with an
aggregate value equal to the value of 9.3 million shares, and that the ILICO
Board had approved the Plan.
ILICO's application for approval of the Plan was filed with the Indiana
Insurance Department on September 21, 2000.
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THE ILICO BOARD'S RECOMMENDATION
ILICO'S REASONS FOR THE CONVERSION AND COMBINATION
A principal purpose of the Conversion and the Combination is that, under
the Plan, Eligible Members will receive shares of AmerUs Common Stock or, under
certain circumstances, cash or policy credits, in exchange for their otherwise
illiquid Membership Interests. Thus, Eligible Members will realize real economic
value from their Membership Interests that is currently otherwise unavailable to
them. Moreover, most Eligible Members will have the option of continuing their
ownership interests by electing to receive and retain AmerUs Common Stock in the
transaction. Those members will also defer taxable income on that distribution
of stock until they choose to sell the stock. At the same time that the Eligible
Members receive all these tangible economic benefits under the Plan, THEIR
POLICY BENEFITS, VALUES, PREMIUMS AND GUARANTEES WILL NOT BE CHANGED IN ANY
RESPECT DUE TO THE CONVERSION OR THE COMBINATION(except that the policy benefits
will increase for certain members with tax qualified policies who will receive
policy credits as their payment). As always, any changes to policy premiums,
benefits, values and guarantees will be governed by the terms of the policy.
Another principal reason for the ILICO Board's decision to proceed with the
Plan is to improve ILICO's access to the capital markets and raise capital to
permit ILICO to grow its existing business and develop new business
opportunities in the insurance industry. As part of the Plan, ILICO will become
an indirect wholly-owned subsidiary of AmerUs. ILICO should then have access to
capital markets through AmerUs, a publicly held company. Access to capital
markets should enable ILICO to invest in new technology, improved customer
service, new products and new channels of distribution. ILICO may also obtain
more financial flexibility, which should help it enhance its ratings and
financial stability. Also, the flexibility to provide equity based incentive
compensation plans, such as stock options, in the same manner as other publicly
held companies, may enhance ILICO's ability to attract and retain qualified
management, whose dedication and service will benefit policyholders. The
Combination with AmerUs, a company with a corporate culture compatible with that
of ILICO, may also create an opportunity to leverage ILICO's corporate capacity
and strength and to reduce expenses through economies of scale.
ILICO and AmerUs have also agreed upon terms for post-Combination
integration, operation and leadership that will promote ILICO's goals of
enhancing service to policyholders and continuing ILICO's tradition of community
service and support. (See "THE COMBINATION -- Memorandum of Understanding").
Subject to the terms of the Memorandum of Understanding, ILICO will (i)
continue to conduct business operations from Indianapolis, Indiana, including
its personal producing general agent and other non-career distribution
management and strategy, niche/interest sensitive whole life products, product
development and manufacturing, term products, private label business and
development of enterprise-wide "customer care model"; (ii) develop
administration capabilities in Indianapolis for the variable products of ILICO
and its subsidiaries; (iii) continue its "Indianapolis Life" name and brand, and
maintain its presence in Indianapolis, Indiana, with employment at or near
historical levels (but subject to enterprise-wide reductions contemplated by the
Combination); and (iv) continue its prominent historical role in community
involvement and sponsorships under the leadership of ILICO's chief executive
officer, including its corporate giving at or above historic levels. For more
information about the post-Combination integration of ILICO and AmerUs, see "THE
COMBINATION -- Memorandum of Understanding."
ALTERNATIVES TO THE CONVERSION AND COMBINATION; RECOMMENDATION OF ILICO'S BOARD
OF DIRECTORS
With increasing competition in the financial services industry and the
resulting need to develop new business opportunities, the ILICO Board has
examined alternative ways of raising capital, a common problem for mutual
insurance companies. One alternative considered by ILICO was to remain a mutual
insurance company. Mutual companies enjoy freedom from any tension between
policyholder and stockholder interests, a reduced public disclosure burden and
protection from hostile takeovers. However, in the current insurance business
environment, these advantages are outweighed by the obstacles to raising capital
that a mutual company faces. Raising capital by selling debt in the form of
surplus notes is subject to practical, as well as
9
<PAGE> 37
rating agency, limitations. Selling stock in a downstream subsidiary of ILICO
would allow for only limited growth and capital raising. The option of merging
with another existing mutual company would provide some benefits of growth and
economies of scale, but would ultimately face the same limitations as remaining
an independent mutual company. Additionally, with the trend toward
demutualization, the number of suitable merger partners is limited. As an
additional drawback, as a mutual company, ILICO could not pay its members for
their Membership Interests in the form of cash, stock or other consideration.
Another alternative considered by the ILICO Board was to demutualize and
remain an independent, stand-alone stock insurance company. This alternative
would, in theory, have permitted ILICO to access the capital markets. This
process would allow ILICO to pay its Eligible Members for their Membership
Interests in the form of stock, cash or other consideration. However, in light
of the continued consolidation in the life insurance industry, it is
questionable whether ILICO, by itself, would have the size and scale necessary
to compete effectively with larger stock insurance companies. In addition,
Goldman Sachs advised the ILICO Board that a demutualization followed by an
initial public offering presented concerns including that it would require
substantial time and resources to develop a marketing story and to explain
recent financial performance, that an initial public offering would not repay
the AUL Investments in a timely manner and that then current market conditions
made an initial public offering difficult, especially for smaller capitalization
companies such as ILICO.
The ILICO Board also considered a mutual holding company structure. This
approach allows some access to capital markets and continues the mutual form of
ownership. Because there is a limit on the amount of stock that can be sold to
the public, however, there is a legal limit on the amount of capital that can be
raised. The ILICO Board believes that the public markets have set a practical
limit on the amount of capital that a mutual holding company may raise and,
moreover, that the public markets would likely discount the value of such stock
compared to the stock of the same company if it did not have such a structure.
In addition, the concerns of an initial public offering discussed above would
also be applicable to a public mutual holding company structure. Also, the
mutual holding company structure provides no reasonable way to pay members for
their Membership Interests.
The ILICO Board believes that the Conversion and the Combination will
provide ILICO with greater financial strength and opportunity for future growth.
The benefits of this financial strength include the ability to invest in the
growth of ILICO and its products and services, and the ability to promote
ratings. The Conversion and the Combination also provide value to the members in
the form of payment for their otherwise illiquid Membership Interests, while
maintaining their contract rights. At the same time, the Conversion and the
Combination provide for continuation of ILICO's tradition of community service
and support, with continued employment in Indianapolis, Indiana and Woodbury,
New York, upon the terms of the Memorandum of Understanding. AmerUs' corporate
culture, stemming from common historical roots with those of ILICO, help assure
that the integration of ILICO's operations and management teams can be
successfully accomplished, to the benefit of ILICO and its policyholders.
THE ILICO BOARD HAS APPROVED THE PLAN, AND RECOMMENDS THAT YOU VOTE "YES"
ON THE PROPOSAL TO APPROVE THE PLAN.
OPINION OF ILICO'S FINANCIAL ADVISOR
As required by the Indiana Demutualization Law, in connection with the Plan
and Combination Agreement, the ILICO Board received from its financial advisor,
Goldman Sachs, an opinion stating that, as of September 18, 2000 and based upon
and subject to the matters set forth in the opinion and such other matters as
Goldman Sachs considered relevant, the exchange of the aggregate Membership
Interests in ILICO for the shares of AmerUs Common Stock, cash and policy
credits to be paid to the Eligible Members of ILICO in accordance with the Plan
was fair, from a financial point of view, to such Eligible Members, taken as a
group. A more detailed description of the Goldman Sachs opinion can be found at
"OPINIONS OF ILICO'S AND AMERUS' FINANCIAL ADVISORS." THE FULL TEXT OF THE
GOLDMAN SACHS OPINION IS INCLUDED IN APPENDIX 4 TO PART 2 OF THIS STATEMENT AND
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY GOLDMAN SACHS IN CONNECTION WITH THE OPINION. We encourage
10
<PAGE> 38
you to read this opinion in its entirety. The opinion was solely for the
information and assistance of the ILICO Board and is not a recommendation to
ILICO's Voting Members as to how to vote on the Plan or as to the form of
consideration any Eligible Member should elect.
As required by the Indiana Demutualization Law, the ILICO Board also
received from Goldman Sachs a letter stating that as of September 18, 2000 and
based upon and subject to the assumptions, limitations and qualifications set
forth in such letter, the current assumed value of the AmerUs Common Stock, cash
and policy credits (based on the reported closing price of the common stock of
ALH on the New York Stock Exchange on September 15, 2000) to be provided to
Eligible Members in accordance with the Plan was greater than ILICO's
policyholders' surplus as of June 30, 2000 as calculated by ILICO in accordance
with statutory accounting practices prescribed by the Indiana Commissioner. THE
FULL TEXT OF THIS GOLDMAN SACHS LETTER IS INCLUDED IN APPENDIX 4 TO PART 2 OF
THIS STATEMENT AND SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN BY GOLDMAN SACHS IN CONNECTION WITH SUCH
LETTER. We encourage you to read this letter in its entirety. The letter was
solely for the information and assistance of the ILICO Board and is not a
recommendation to ILICO's Voting Members as to how to vote on the Plan or as to
the form of consideration any Eligible Member should elect.
OPINION OF ILICO'S ACTUARIAL ADVISOR
The ILICO Board has also received the actuarial opinion of
PriceWaterhouseCoopers stating that the methodology of the Plan for allocation
of Consideration among Eligible Members is reasonable and appropriate, and is
consistent with the Indiana Demutualization Law. The PriceWaterhouseCoopers
opinion also states that the objective of the special accounting mechanism
established under the Plan to give reasonable assurance to the owners of certain
participating policies that assets will be available to maintain ILICO's
dividend scale if the experience underlying that dividend scale continues (the
"Closed Block") is consistent with the Indiana Demutualization Law, and that the
plan of operation of the Closed Block is consistent with the objectives of the
Closed Block.
A SUMMARY OF THE PRICEWATERHOUSECOOPERS OPINION IS PROVIDED UNDER "THE PLAN
OF CONVERSION, OPINION OF ILICO'S FINANCIAL ADVISORS -- THE
PRICEWATERHOUSECOOPERS ACTUARIAL OPINION" IN PART 1 OF THE VERSION OF THIS
STATEMENT PROVIDED TO ILICO'S MEMBERS. THE FULL TEXT OF THE WRITTEN ACTUARIAL
OPINION OF PRICEWATERHOUSECOOPERS, DATED SEPTEMBER 18, 2000, WHICH SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN IN CONNECTION WITH THE ACTUARIAL OPINION, IS INCLUDED IN THE VERSION
OF THIS STATEMENT PROVIDED TO ILICO'S MEMBERS AS APPENDIX 3 TO PART 1.
THE AMERUS BOARDS' RECOMMENDATIONS
At the meeting of the AmerUs Boards held on February 11, 2000 members of
AmerUs management and representatives of Merrill Lynch and AmerUs' other
advisors made presentations concerning the business and prospects of ILICO and
its subsidiaries and the potential combination of ILICO and AmerUs. The AmerUs
Boards also received presentations concerning, and reviewed the terms of, the
Combination Agreement (in its original form) with members of AmerUs management,
its legal counsel and financial and other advisors. In its deliberations at the
meeting, the AmerUs Boards each unanimously concluded that the combination of
AmerUs and ILICO pursuant to the terms and conditions of the Combination
Agreement (in its original form) were fair to and in the best interests of
AmerUs and its shareholders (and in the case of AMHC, its members).
On August 11, 2000, the AmerUs Boards met and received presentations from
AmerUs management, and its legal advisors with respect to the change in the
financial and other conditions of ILICO and its subsidiaries and certain
proposed amendments to the original Combination Agreement. Based upon the
material and opinions presented, the AmerUs Boards unanimously decided that the
contemplated amendments to the original Combination Agreement are fair to and in
the best interests of AmerUs and its shareholders (and in the case of AMHC, its
members).
11
<PAGE> 39
Accordingly, the AmerUs Boards unanimously approved the issuance of the
AmerUs Common Stock and the amendment of the original Combination Agreement and
unanimously recommends that the AmerUs shareholders vote for approval of the
Proposal at the AmerUs Special Meeting. (See also "BACKGROUND OF THE
COMBINATION").
In reaching its decision, at both the February 11 and August 11 meetings,
the AmerUs Boards consulted with AmerUs management, as well as financial and
other advisors and legal counsel and considered the following material factors:
i) The expectation that the Combination would provide important
strategic benefits, including:
a) opportunities to achieve operating efficiencies and expense
savings resulting from the significantly larger scale of the combined
companies;
b) extension of the geographic reach of distribution because of the
modest geographic overlap of the AmerUs and ILICO distribution channels;
and
c) expansion and diversification of both product lines and
distribution channels.
ii) ILICO's projected financial information and assumptions;
iii) The opportunity for accretion to both earnings and return on
investment;
iv) The terms and conditions of the Combination Agreement (including
the fact that under certain circumstances, ILICO must pay AmerUs a
termination fee in connection with the termination of the Combination
Agreement -- See "THE COMBINATION -- Rights of Repurchase; Certain
Termination Fees"), which the AmerUs Boards, based on presentations by
AmerUs management and the AmerUs Boards' legal and financial advisors,
deemed to be generally favorable to AmerUs, as well as the belief that
approval of the Combination Agreement and the stock issuance was consistent
with the AmerUs Boards' fiduciary duties as described by its legal
advisors.
v) The presentations given by Merrill Lynch at the Board meetings on
December 17, 1999 and February 11, 2000, including the valuation analyses
of ILICO and AmerUs presented on February 11, 2000 (See "BACKGROUND OF THE
COMBINATION") and Merrill Lynch's written fairness opinions dated February
11, 2000 and September 18, 2000. A copy of the September 18th Merrill Lynch
opinion is attached to Part 2 of this Statement as Appendix 5.
vi) The analysis and recommendation of the Combination Agreement by
AmerUs management and other advisors, including, without limitation, a
discussion of the foregoing factors.
From the information and advice provided by management and its advisors on
the strategic and operational benefits and the potential for a positive
financial impact, the AmerUs Boards believe that the acquisition of ILICO is a
strategically and financially sound step in its overall strategy of growing the
company and increasing its resources and that it is in the best interests of
AmerUs and its shareholders.
The foregoing discussion of information and factors considered and given
weight by the AmerUs Boards are not intended to be exhaustive. In view of the
wide variety of factors considered in connection with its evaluation of the
terms of the Combination, the AmerUs Boards did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching their determinations. In addition,
individual members of the AmerUs Boards may have given different weights to
different factors. For additional information concerning anticipated cost
savings and estimated number of shares held by the public referenced above, see
"PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION."
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<PAGE> 40
OPINIONS OF ILICO'S AND AMERUS' FINANCIAL ADVISORS
THE GOLDMAN SACHS OPINION
On September 18, 2000, at the meeting of the ILICO Board, Goldman Sachs
delivered to the ILICO Board its oral opinion (which was confirmed in a written
opinion dated as of September 18, 2000) that, as of September 18, 2000, and
based upon and subject to the matters set forth in the opinion and such other
matters as Goldman Sachs considered relevant, the exchange of the aggregate
Membership Interests in ILICO for the Aggregate Consideration (as calculated in
the Combination Agreement and defined below) to be paid to the Eligible Members
of ILICO in accordance with the Plan was fair, from a financial point of view,
to such Eligible Members, taken as a group.
WE HAVE ATTACHED IN APPENDIX 4 TO PART 2 OF THIS STATEMENT AND INCORPORATE
HEREIN BY REFERENCE THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED
SEPTEMBER 18, 2000. THIS OPINION SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE
OPINION. WE ENCOURAGE YOU TO READ THIS OPINION IN ITS ENTIRETY. The opinion was
solely for the information and assistance of the ILICO Board and is not a
recommendation to ILICO's Voting Members as to how to vote on the Plan or as to
the form of consideration any Eligible Member should elect.
Under the Combination Agreement, ILICO's Eligible Members will exchange
their aggregate Membership Interests in ILICO for shares of AmerUs Common Stock,
cash and policy credits having an aggregate value equal to the value of 9.3
million shares of AmerUs Common Stock (the "Aggregate Consideration"); provided,
however, that in the event that the aggregate value of 9.3 million shares of
AmerUs Common Stock is less than $186 million, based on the average closing
price of such shares for the five trading days ending ten business days prior to
the closing date of the Combination, ILICO has the right (but not the
obligation) to terminate the Combination Agreement unless AmerUs increases the
number of shares of AmerUs Common Stock on which the Aggregate Consideration is
based to a total number having an aggregate value, based on the foregoing
average, together with any additional cash or policy credits from AmerUs, of at
least $186 million. Based on the foregoing, for purposes of its opinion Goldman
Sachs assumed that the value of the Aggregate Consideration paid to Eligible
Members would be $186 million or higher. Goldman Sachs expressed no opinion as
to the actual value of the AmerUs Common Stock or any policy credits when issued
to ILICO's Eligible Members pursuant to the Plan or the prices at which shares
of AmerUs Common Stock may trade subsequent to the effective date of the Plan.
Goldman Sachs noted in its opinion that trading in the AmerUs Common Stock for a
period following the completion of a distribution of AmerUs Common Stock,
including the distribution to Eligible Members in accordance with the Plan, may
be characterized by a redistribution of the AmerUs Common Stock among the
Eligible Members and other investors. Goldman Sachs further noted that it is
possible that during these periods of redistribution the AmerUs Common Stock may
trade at prices below the prices at which it would trade on a fully-distributed
basis. Goldman Sachs' opinion did not address the relative merits or fairness
from a financial point of view of the transactions contemplated by the Plan and
Combination Agreement as compared to any alternative business transaction
considered by, or that might be available to, ILICO.
In connection with its opinion, Goldman Sachs reviewed, among other things:
- the Combination Agreement;
- audited consolidated financial statements prepared in accordance with
generally accepted accounting principles ("GAAP") for ILICO for the four
years and ALH for the five years ended December 31, 1999;
- annual statements of ILICO and the insurance company subsidiaries of ALH
containing financial statements prepared in accordance with statutory
accounting practices ("SAP") for the five years ended December 31, 1999;
- certain interim SAP and GAAP financial reports of ILICO and ALH;
13
<PAGE> 41
- certain internal financial analyses and forecasts for ILICO and AmerUs
(on a stand alone basis) prepared by their respective managements,
including certain cost savings and operating synergies projected by the
managements of ILICO and ALH;
- certain documentation relating to ILICO's strategic affiliation with AUL
and certain other parties, the investments made by those parties and the
termination and repayment of the foregoing;
- the Plan of Conversion of AMHC, dated as of December 17, 1999, Amendment
No. 1 thereto dated February 18, 2000 and Amendment No. 2 thereto dated
April 3, 2000;
- the Proxy Statement/Prospectus of AMHC and ALH filed on May 12, 2000;
- the Agreement and Plan of Merger, dated as of December 17, 1999 between
AMHC and ALH, Amendment No. 1 thereto dated as of February 18, 2000 and
Amendment No. 2 thereto dated as of April 3, 2000;
- the AMHC Member Information Statement and Supplemental Information
Booklet, dated May 18, 2000;
- the ILICO Plan dated September 18, 2000, including all exhibits thereto;
- a draft of ILICO's Application, including all exhibits thereto; and
- the actuarial opinions of Jesse M. Schwartz, of PriceWaterhouseCoopers,
LLP, described herein.
Goldman Sachs reviewed the reported price and trading activity of ALH
common stock, compared certain financial information for ILICO and AmerUs and
certain stock market information for ALH with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent demutualization transactions, reviewed the
financial terms of certain recent business combinations in the life insurance
industry specifically and in other industries generally and performed such other
studies and analyses as Goldman Sachs considered appropriate. Goldman Sachs'
review with respect to AmerUs was based largely on publicly available
information with respect to ALH, the publicly traded principal subsidiary of
AMHC prior to the demutualization of AMHC and the merger of ALH with and into
AMHC. Goldman Sachs assumed in preparing its opinion that no undisclosed facts
about AMHC, nor the implementation of such demutualization and merger, would
have any adverse effect on the value of the Aggregate Consideration.
Goldman Sachs also held discussions with members of the senior management
of ILICO and AmerUs regarding their assessment of the strategic rationale for,
and the potential benefits of, the transactions contemplated by the Combination
Agreement and the past and current business operations, financial condition and
capitalization, and the future prospects of, their respective companies, as well
as the effect of the Plan.
In preparing its opinion, Goldman Sachs noted the following views expressed
by ILICO's management prior to ILICO's decision to enter into the Combination
Agreement (in its original unamended form) in February 2000 (in no particular
order):
- that ILICO had determined that a distribution to members and conversion
to stock form pursuant to a demutualization would be in the best
interests of ILICO and its members and would facilitate the investment of
$100 million in cash by AmerUs or a subsidiary thereof in ILGC (the
"Initial Investment") in exchange for 105.96 shares of non-voting common
stock of ILGC pursuant to the Combination Agreement;
- that ILICO needed additional capital promptly in order to repurchase
current minority stakes in ILGC owned by AUL and Legacy Marketing Group;
- that ILICO needed further capital to support ILICO's long-term growth
objectives and to preserve its competitive position;
14
<PAGE> 42
- that AmerUs viewed the Initial Investment as an integral part of the
transactions contemplated by the Combination Agreement and would not have
made the Initial Investment without ILICO's agreement to enter into and
complete the other transactions contemplated by the Combination
Agreement; and
- that ILICO believed it needed to be part of a larger organization with
greater financial resources to preserve and enhance its strategic
flexibility and competitive position.
Further, in preparing its opinion, Goldman Sachs noted the following views
expressed by ILICO's management prior to its decision to agree to amend the
Combination Agreement in September 2000 (in no particular order):
- that deteriorating results of operations of ILICO, on a consolidated
basis, after the date of the Combination Agreement created a risk that
AmerUs would be entitled to terminate the Combination Agreement and
demand the return of the Initial Investment;
- that ILICO lacked sufficient funds to enable it to repay the Initial
Investment in the event that the Combination Agreement was terminated;
and
- that to find a new party to refinance the Initial Investment and enter
into the other transactions contemplated by the Combination Agreement in
substitution for AmerUs on acceptable terms would be difficult, in light
of, among other things, the deterioration in ILICO's results of
operations referred to above.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial forecast and other information reviewed by it and assumed such
accuracy and completeness for purposes of rendering Goldman Sachs' opinion. In
that regard, Goldman Sachs assumed with ILICO's consent that the forecasts and
the synergies prepared by the managements of ILICO and AmerUs had been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of their respective managements. Goldman Sachs noted in its
opinion that these financial forecasts are subject to review, restatement and/or
modification relating to certain outstanding issues, including, among other
things, the Closed Block to be established under the Plan and other effects of
the conversion. Goldman Sachs assumed with ILICO's consent that obtaining any
necessary governmental, regulatory or other consents or approvals for the
consummation of the transactions contemplated by the Combination Agreement would
not have any adverse effect on ILICO or AmerUs or on the contemplated benefits
of the transactions contemplated by the Combination Agreement. Goldman Sachs is
not an accountant and relied upon ILICO and Ernst & Young LLP for the accuracy
and completeness of the financial statements Goldman Sachs reviewed in
connection with the opinion. Also, Goldman Sachs is not an actuary and Goldman
Sachs' services did not include actuarial determinations or evaluations by
Goldman Sachs or an attempt to evaluate actuarial assumptions. In addition,
Goldman Sachs has not made an independent evaluation or appraisal of the assets
or liabilities (including the insurance reserves) of ILICO, AmerUs or any of
their respective subsidiaries and Goldman Sachs was not for purposes of its
opinion furnished with any such evaluation or appraisal, except for a draft of
the Actuarial Opinions referred to below.
Goldman Sachs was not asked and expressed no opinion as to (1) which of
ILICO's policyholders are considered Eligible Members, (2) any matters relating
to the establishment or operation of the Closed Block, (3) the value to Eligible
Members of one form of consideration to be received under the Plan relative to
that of other forms of consideration under the Plan, (4) the fairness of the
Plan to any individual member or class of members of ILICO, including any
provisions of the Plan relating to which Eligible Members receive AmerUs Common
Stock, cash or policy credits and other provisions of the Plan that distinguish
among Eligible Members, or (5) the effect of any delay in the payment of
consideration to certain employee benefit plans as provided for in the Plan.
Goldman Sachs was further advised that Jesse M. Schwartz, of
PricewaterhouseCoopers LLP, independent consulting actuaries, delivered his
opinions to the ILICO Board on the reasonableness and appropriateness of the
methodology or formulas used to allocate consideration among Eligible Members in
exchange for the Membership Interests and on certain matters relating to the
establishment and operation of the Closed Block, including the sufficiency of
assets allocated to the Closed Block (the "Actuarial Opinions"). Goldman Sachs
was also instructed by ILICO to assume that special tax
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<PAGE> 43
counsel, Caplin & Drysdale, Chartered, will deliver an opinion to the ILICO
Board on the effective date of the Plan with respect to the federal income tax
consequences of the Plan to the ILICO Eligible Members in accordance with the
Plan.
At a meeting of the ILICO Board on September 18, 2000, Goldman Sachs made a
presentation to the ILICO Board. The following is a summary of the material
financial analyses in the presentation to the ILICO Board. SOME OF THE SUMMARIES
OF THE FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT. THE
TABLES MUST BE READ TOGETHER WITH THE TEXT ACCOMPANYING EACH SUMMARY.
Transaction Benefits and Developments
Goldman Sachs reviewed the anticipated benefits of the transaction in light
of its discussions with senior management of ILICO and AmerUs, including:
- the replacement of AUL capital and termination of the AUL affiliation
through the Initial Investment;
- that the transaction would distribute value to Eligible Members via a
sponsored demutualization;
- improved access to the capital markets and increased financial
flexibility;
- opportunities to strengthen management expertise through a best practices
approach;
- expanded and diversified distribution;
- increased scale;
- similar corporate cultures which would catalyze the integration process;
and
- the expectation that the transaction would be accretive to AmerUs.
Goldman Sachs also reviewed the recent historical interim consolidated
operating results of ILICO provided by its management, as well as revised
management projections for ILICO adjusted for the recent underperformance of IL
Annuity and Insurance Company ("IL Annuity") and other major operating
subsidiaries.
Analysis of Transaction Price
Goldman Sachs reviewed the financial multiples and other information
implied in the transaction price, on the assumption that ILICO's Eligible
Members would receive 9.3 million shares of AmerUs Common Stock at $25.50 per
share, the share price of ALH, the publicly traded predecessor of AmerUs, as of
September 15, 2000. On this assumption and the fact that AmerUs made the Initial
Investment of $100 million (the minority interest), Goldman Sachs calculated a
policyholder valuation of $237 million and an aggregate consideration of $337
million. Goldman Sachs then analyzed (i) multiples of such estimated
policyholder valuation and aggregate consideration against net income, statutory
surplus and book value adjusted for deferred acquisition cost write-off
assumptions and (ii) such multiples adjusted for an assumed sale of IL Annuity
at the statutory surplus at June 30, 2000 of $40 million, as follows:
<TABLE>
<CAPTION>
ADJUSTED
MULTIPLE MULTIPLE
-------- --------
<S> <C> <C>
MULTIPLE OF NET INCOME:
Policyholder Valuation/1999 Actual Net Income............. 11.1x 11.8x
Policyholder Valuation/ILICO revised management
projections for 2000................................... 10.6 11.1
Policyholder Valuation/ILICO revised management
projections for 2001................................... 8.9 9.9
Aggregate Consideration/1999 Actual Net Income plus
minority interest...................................... 13.7 15.7
Aggregate Consideration/ILICO revised management
projections for 2000 plus minority interest............ 12.3 13.5
Aggregate Consideration/ILICO revised management
projections for 2001 plus minority interest............ 9.8 11.6
</TABLE>
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<PAGE> 44
<TABLE>
<CAPTION>
ADJUSTED
MULTIPLE MULTIPLE
-------- --------
<S> <C> <C>
MULTIPLE OF BOOK VALUE AS ADJUSTED FOR IL ANNUITY
UNDERPERFORMANCE:
Policyholder Valuation/12/31/99 GAAP Adjusted Equity...... 0.84x 0.9x
Aggregate Consideration/12/31/99 GAAP Adjusted Equity plus
minority interest...................................... 0.98 1.2
MULTIPLE OF SURPLUS:
Policyholder Valuation/12/31/99 Statutory Surplus......... 2.31x N/A
Policyholder Valuation/12/31/99 Statutory Surplus less
Surplus Notes.......................................... 3.06 N/A
Aggregate Consideration/12/31/99 Statutory Surplus plus
minority interest...................................... 2.54 N/A
Aggregate Consideration/12/31/99 Statutory Surplus plus
minority interest less Surplus Notes................... 3.12 N/A
</TABLE>
Selected Merger Transactions Analysis
Goldman Sachs analyzed selected transactions in the life insurance industry
with aggregate consideration greater than $100 million, and those with aggregate
consideration between $100 million and $500 million, in each case since 1996.
Goldman Sachs compared the proposed ILICO/AmerUs transaction to those selected
transactions as follows:
- aggregate consideration as a multiple of latest twelve months GAAP net
income;
- aggregate consideration as a multiple of tangible GAAP book value;
- aggregate consideration as a multiple of the previous year statutory
surplus; and
- aggregate consideration premium over the stock trading price one month
prior to public announcement.
TRANSACTIONS SINCE 1996 OVER $100 MILLION
<TABLE>
<CAPTION>
MULTIPLE OF LTM MULTIPLE OF MULTIPLE OF PREMIUM TO
GAAP NET TANGIBLE GAAP PREVIOUS YEAR 30-DAY
INCOME BOOK VALUE STATUTORY SURPLUS PRIOR PRICE
--------------- ------------- ----------------- -----------
<S> <C> <C> <C> <C>
Median............................ 17.6x 1.8x 3.8x 32.6%
Mean.............................. 20.1 2.1 4.4 35.3
High.............................. 37.4 5.2 13.2 101.2
Low............................... 7.6 0.5 0.9 8.9
</TABLE>
TRANSACTIONS SINCE 1996 OVER $100 MILLION AND LESS THAN $500 MILLION
<TABLE>
<CAPTION>
MULTIPLE OF LTM MULTIPLE OF MULTIPLE OF PREMIUM TO
GAAP NET TANGIBLE GAAP PREVIOUS YEAR 30-DAY
INCOME BOOK VALUE STATUTORY SURPLUS PRIOR PRICE
--------------- ------------- ----------------- -----------
<S> <C> <C> <C> <C>
Median............................ 15.0x 1.3x 3.7x 19.0%
Mean.............................. 16.8 1.6 4.0 25.7
High.............................. 35.2 3.3 9.8 57.6
Low............................... 7.6 0.5 1.1 0.1
</TABLE>
Selected Companies Analysis
Goldman Sachs reviewed and compared certain financial information for ILICO
to corresponding financial information, ratios and public market multiples for
three categories of selected life insurance companies: (1) large and middle
capitalization companies; (2) small capitalization companies; and (3) annuity
companies. The four small capitalization companies and three annuity companies
were chosen, for purposes of this analysis, because they were similar in size
and in lines of business to ILICO. The thirteen large/middle capitalization
companies were chosen, for purposes of this analysis, because they are publicly
17
<PAGE> 45
traded companies in the life insurance and annuity businesses. The information
that Goldman Sachs reviewed and compared included the following:
<TABLE>
<CAPTION>
SELECTED LARGE SELECTED
AND MID-CAP SMALL-CAP LIFE SELECTED
LIFE INSURANCE INSURANCE ANNUITY
COMPANIES COMPANIES COMPANIES
MEDIAN MEDIAN MEDIAN
-------------- -------------- ---------
<S> <C> <C> <C>
RATIO/MULTIPLE
Estimated 2000 Price/Earnings Ratio as of
9/15/00........................................ 12.5x 9.5x 9.3x
Estimated 2001 Price/Earnings Ratio as of
9/15/00........................................ 11.9x 8.7x 8.9x
Institutional Brokers Estimate System ("IBES")
Estimated Five Year Growth Rate................ 12.0% 10.3% 12.5%
Estimated 2001 Price/Earnings Ratio to IBES
Estimated Five Year Growth Rate................ 1.0x 0.9x 0.8x
Share Price/Book Value Ratio..................... 1.6x 1.0x 1.3x
Dividend Yield................................... 1.3% 2.0% 1.3%
Debt/Capital Ratio............................... 28.7% 30.9% 35.3%
Latest Twelve Months Return on Average Common
Equity......................................... 13.5% 9.4% 9.7%
</TABLE>
Historical Stock Trading Analysis
Goldman Sachs reviewed certain historical stock price and price-to-earnings
multiple information for ALH, the publicly traded predecessor of AmerUs. Goldman
Sachs compared ALH common stock and ALH's price-to-earnings multiple on a daily
basis from September 15, 1999 through September 15, 2000 and from February 1,
2000 through September 15, 2000 with the following: (i) the S&P 500 index; and
(ii) the S&P 500 life insurance index.
Selected Demutualization Analysis
Goldman Sachs reviewed and compared the financial multiples and other
information implied in the ILICO/AmerUs transaction price to the projected
returns on equity and multiples of market capitalization to pro forma book value
of selected U.S. life insurance companies that have demutualized. The
information that Goldman Sachs reviewed included:
<TABLE>
<CAPTION>
MARKET
CAPITALIZATION
PROJECTED TO PRO FORMA
ROE BOOK VALUE
--------- --------------
<S> <C> <C>
Median...................................................... 9.50% 0.78x
High........................................................ 11.80 1.11
Low......................................................... 1.20 0.65
</TABLE>
Life Insurance Return on Equity vs. Price to Book Value Regressional Analysis
Goldman Sachs performed a regressional analysis quantifying the
relationship between returns on equity and market price to book value among
public life insurance companies and derived a theoretical valuation of the ILICO
policyholders' interest of $187 million, based on that regressional analysis and
based on management of ILICO's projected 2000 return on equity of 7.39%.
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<PAGE> 46
Contribution Analysis
Goldman Sachs reviewed certain historical consolidated operating and
financial information for ILICO and AmerUs supplied to Goldman Sachs by ILICO
management and, based on an implied pro forma equity ownership of the combined
company, the relative contribution of ILICO and AmerUs to the combined company.
The information that Goldman Sachs reviewed included:
<TABLE>
<CAPTION>
ILICO
CONSOLIDATED AMERUS
CONTRIBUTION CONTRIBUTION
------------ ------------
<S> <C> <C>
Net Income.................................................. 14.8% 85.2%
Net Income before Extraordinary Items....................... 24.5% 75.5%
GAAP Assets................................................. 35.5% 64.5%
Policyholders'/Shareholders' GAAP Equity.................... 28.8% 71.2%
Statutory Assets............................................ 36.3% 63.7%
Statutory Surplus........................................... 19.4% 80.6%
Statutory Surplus Excluding Surplus Notes................... 15.4% 84.6%
Pro Forma Equity Ownership.................................. 23.7% 76.3%
</TABLE>
Other Factors and Analyses
In its presentation to the ILICO Board, Goldman Sachs reviewed other
factors and analyses, including publicly available financial information and
published research analyst views and comments regarding ALH.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its opinion, Goldman Sachs
considered the results of all these analyses as well as the other matters
described or referred to in its opinion. No company or transaction used in the
above analyses as a comparison is identical to ILICO or AmerUs or the
transaction contemplated by the Combination Agreement. The analyses were
prepared solely for purposes of Goldman Sachs' providing its opinion to the
ILICO Board and these analyses do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, as they are based upon numerous factors or events beyond the
control of the parties or their respective advisors, Goldman Sachs does not
assume responsibility if future results are materially different from those
forecasted. Goldman Sachs is not obligated to update, revise, reaffirm or
withdraw its opinion based on any events or developments subsequent to September
18, 2000 or otherwise. Goldman Sachs' opinion to the ILICO Board was one of many
factors taken into consideration by the ILICO Board in making its determination
to approve the Plan and Combination Agreement. The foregoing summary does not
purport to be a complete description of the analysis performed by Goldman Sachs
and is qualified by reference to the written opinion of Goldman Sachs set forth
in Appendix 4 to Part 2 of this Statement.
ILICO engaged Goldman Sachs to act as its financial advisor in connection
with the possible merger of ILICO or a possible sale of or investment in all or
a portion of ILICO or one of its subsidiaries, as well as the potential
restructuring of ILICO by demutualization or other means. ILICO selected Goldman
Sachs as its financial advisor based upon Goldman Sachs' qualifications,
expertise and reputation. Goldman Sachs, as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes.
Goldman Sachs is familiar with ILICO having provided certain investment
banking services from time to time, including having acted as its financial
advisor in connection with, and having participated in certain of
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<PAGE> 47
the negotiations leading to, the Combination Agreement. Goldman Sachs has also
provided certain investment banking services to AmerUs and its affiliates from
time to time, including having acted as financial advisor to AMHC in connection
with its mutual holding company reorganization in 1995 and 1996, as lead
underwriter of ALH's initial public offering of 5.4 million shares of common
stock, without par value, in January 1997, as lead manager of ALH's public
offering of $86 million aggregate principal amount of Capital Securities in
January 1997, as lead underwriter of ALH's public offering of 4.6 million
Adjustable Conversion-Rate Equity Security Units in July 1998, as a co-lead
manager of ALH's public offering of $125 million aggregate principal amount of
senior notes due 2005 in June 1998 and as agent on its stock repurchase program.
In addition, another Goldman Sachs team, separate from the team that has been
providing services to ILICO, acted as principal financial advisor to AMHC in
connection with its demutualization effort. These respective teams have not
shared information or work product relating to or obtained in performing their
respective assignments. Goldman Sachs also may provide investment banking
services to AmerUs and its affiliates in the future. Goldman Sachs provides a
full range of financial advisory and securities services and, in the course of
its normal trading activities, may from time to time effect transactions in and
hold securities, including derivative securities, of ILICO or AmerUs or their
respective affiliates for its own account and for the accounts of customers.
Pursuant to the terms of the engagement letter dated as of September 21,
1999, ILICO agreed to pay Goldman Sachs a retainer fee of $50,000 per calendar
quarter for the quarter commencing September 1, 1999, until the consummation of
the transaction or the last of the series of transactions contemplated. In
addition, if the purchase of 100% of the outstanding common stock or the assets
of ILICO is accomplished, Goldman Sachs will receive a transaction fee of 1.50%
of the aggregate consideration (as defined in the engagement letter) paid in
such transaction to the extent such aggregate consideration is less than or
equal to $400 million plus 4.00% of the amount by which the aggregate
consideration exceeds $400 million. Based on the assumed value of the aggregate
consideration on September 15, 2000, the amount of such fee would be
approximately $5 million. ILICO has further agreed to reimburse Goldman Sachs
for its reasonable out-of-pocket expenses, including attorneys' fees and
disbursements, plus any sales, use or similar taxes (including additions to such
taxes, if any) arising in connection with any matter referred to in the letter.
ILICO has also agreed to indemnify Goldman Sachs against specified liabilities,
including liabilities under the federal securities law.
THE MERRILL LYNCH OPINION
AMHC and ALH retained Merrill Lynch to act as their financial advisor in
connection with the possible acquisition of ILICO and ILGC. On February 11,
2000, at a joint meeting of the AmerUs Boards, Merrill Lynch rendered an opinion
that, as of that date and based on the assumptions made, matters considered and
limits of review set forth in the opinion, the consideration to be paid in the
aggregate in the merger (the "Merger") of a wholly-owned subsidiary of AmerUs
with ILICO, the investment (the "Investment") by AMHC and ALH of $100 million in
ILGC and the redemption (the "Redemption") by ILGC of all of its outstanding
common stock not owned by ILICO (the Merger, the Investment and the Redemption
together, the "Transaction") was, taking into account the times of payment,
fair, from a financial point of view, to AMHC, ALH, and the corporate successor
to AMHC which was intended to acquire ILICO.
Set forth below is a brief summary of the presentation by Merrill Lynch to
the AmerUs Boards on February 11, 2000 regarding the material analyses performed
by Merrill Lynch in connection with the preparation of its February 11th
opinion. These descriptions of financial analyses presented on February 11, 2000
include information presented in tabular format. In order to understand the
financial analyses performed by Merrill Lynch, the tables must be read together
with the text of each description. The tables alone do not constitute a complete
description of the financial analyses. Considering the data in the table without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of the financial analyses performed by Merrill
Lynch.
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<PAGE> 48
Implied Transaction Values
Based on the closing price of the ALH common stock on February 9, 2000,
Merrill Lynch calculated that the transaction value represented a multiple of
9.9x estimated year 2000 earnings and 8.5x estimated year 2001 earnings, in each
case based upon ILICO projections and excluding merger-related synergies, and a
multiple of 0.8x September 30, 2000 book value, adjusted to include the minority
interest to be acquired in the Transaction.
Strategic Rationale
Merrill Lynch reviewed the strategic rationales for the Transaction,
including:
- that the Transaction would represent a discount to ILICO's book value;
- potential cost saving opportunities;
- the opportunity to increase the scale of core individual life operations
in light of the similar life product focus of the two companies;
- augmentation of product development capabilities and distribution
channels;
- broader product offerings, especially in fast-growing variable products;
and
- the modest geographic overlap of the two companies.
Indianapolis Life Insurance Company
Overview. In connection with rendering its opinion, Merrill Lynch reviewed
certain historical financial and operating information with respect to ILICO,
including growth in revenues, net operating income, total equity (adjusted to
reflect minority interests) and total assets for the years 1995 through 1998 and
for the nine months ending September 1999. Merrill Lynch also reviewed growth in
ILICO's annualized life insurance sales and annuity sales for the years 1993
through 1998. Merrill Lynch derived the compound annual growth rates with
respect to these financial and operating data for ILICO as described in the
following chart.
COMPOUND ANNUAL GROWTH RATE
<TABLE>
<CAPTION>
1995-1998 1995-SEPTEMBER 1999 1993-1998
--------- ------------------- ---------
<S> <C> <C> <C>
Revenues............................................. 9.1%
Net Operating Income................................. 12.7
Total Equity......................................... 7.6%
Total Assets......................................... 35.2
Annualized Life Insurance Sales...................... 17.3%
Annuity Sales........................................ 171.9%
</TABLE>
Comparable Companies Analysis. Merrill Lynch compared financial data
relating to ILICO to three publicly traded life insurance corporations:
- Kansas City Life Corporation;
- The MONY Group, Inc.; and
- ALH.
These comparable companies were chosen because they are publicly traded
companies with operations concentrated in the sale of traditional life and
annuity products, and for purposes of this analysis their operations may be
considered reasonably similar to the operations of ILICO. Merrill Lynch
calculated the mean multiple of aggregate market value for the selected
companies to estimated 1999 earnings, estimated 2000 earnings and book value as
of September 30, 1999. For purposes of calculating these multiples, Merrill
Lynch used closing stock prices on February 9, 2000 and estimated earnings per
share as reported by First Call
21
<PAGE> 49
Corporation as of February 9, 2000. Merrill Lynch then derived a range of
implied equity value for 100% of ILICO by applying these multiples to the
comparable financial data for ILICO.
The following table shows the results of this analysis. Although the table
illustrates that Merrill Lynch also calculated the mean multiples for a broader
selection of companies operating in the life insurance sector, Merrill Lynch did
not use these ratios to derive implied equity values for ILICO.
PUBLIC COMPARABLES VALUATION
<TABLE>
<CAPTION>
LIFE
PEER CLASS INSURANCE PEER CLASS
INDIANAPOLIS COMPARABLE COMPARABLE IMPLIED
LIFE DATA MEAN MEAN VALUE
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
1999E Earnings............................... $ 25.2 9.2x 10.9x $231.8
2000E Earnings............................... 30.4 9.2 10.0 279.7
9/30/99 Book Value........................... 379.4 .78 1.37 295.9
</TABLE>
Comparable Transactions Analysis. Using publicly available information,
Merrill Lynch reviewed transaction multiples for two acquisitions of life
insurers engaged in the traditional life insurance business that Merrill Lynch
deemed relevant in evaluation of the Transaction:
- Protective Life Corporation/West Coast Life
- Reliastar Financial Corporation/Security Connecticut Corporation
For the selected comparable transactions, Merrill Lynch calculated the mean
multiples of equity value at the time of the announcement of the transactions
based on the consideration to be paid in such transactions to estimated current
year and forward year estimated earnings and to book value per share. Merrill
Lynch then derived a range of implied equity value for 100% of ILICO by applying
these multiples to the comparable financial data for ILICO. Merrill Lynch
performed the same analysis using mean multiples for a broader selection of
transactions in the life insurance sector.
AmerUs
Stock Performance. Merrill Lynch compared the relative stock performance
of ALH with the Standard & Poor's 500 and a peer group comprised of the
following 10 life insurance companies:
- Torchmark Corporation
- Protective Life Corporation
- American General Corporation
- Jefferson-Pilot Corporation
- ReliaStar Financial Group
- Presidential Life Corporation
- Lincoln National Corporation
- ALH
- Kansas City Life Insurance Company
- The MONY Group, Inc.
Merrill Lynch performed this comparison for the period January 27, 1997
(the date of ALH's IPO) through February 9, 2000, with particular emphasis on
the period between December 31, 1998 and February 9, 2000.
22
<PAGE> 50
Comparable Companies Analysis. Merrill Lynch compared financial data
relating to ALH and two publicly traded life insurance corporations:
- Kansas City Life Insurance Company
- The MONY Group, Inc.
These companies were chosen because they are publicly-traded companies with
operations concentrated in the sale of traditional life products, and for
purposes of this analysis may be considered reasonably similar to the operations
of ALH. Merrill Lynch calculated the mean multiple of stock price to estimated
1999 earnings, estimated 2000 earnings and book value as of September 30, 1999.
For purposes of calculating these multiples, Merrill Lynch used closing stock
prices on February 9, 2000 and estimated earnings per share as reported by First
Call Corporation as of February 9, 2000. Merrill Lynch then derived ranges for
the implied share price for ALH by applying these mean multiples to the
comparable financial data for ALH.
The following table shows the results of this analysis. Although the table
illustrates that Merrill Lynch also calculated the mean multiples for a broader
selection of companies operating in the life insurance sector, Merrill Lynch did
not use these ratios to derive implied share prices for ALH.
PUBLIC COMPARABLES VALUATION
<TABLE>
<CAPTION>
LIFE PEER CLASS
AMERUS PEER CLASS INSURANCE IMPLIED
CURRENT COMPARABLE COMPARABLE SHARE
ALH DATA MULTIPLES MEAN MEAN PRICE
-------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1999 Earnings...................... $ 2.45 8.2x 9.7x 11.2x $23.77
2000E earnings..................... 2.67 7.5 10.8 10.3 28.84
12/31/99 Book Value................ 24.38 .82 .76 1.44 18.53
</TABLE>
Pro Forma Financial Analysis
Based on management earnings estimates for AmerUs and ILICO and projections
for expected cost savings and related expenses and synergies of the Transaction
provided by AmerUs and ILICO, Merrill Lynch analyzed selected pro forma effects
of the Transaction, which included, among other things, the impact of the merger
on ALH's earnings per share. This analysis indicated that the Transaction would
be accretive to projected earnings per share for the ALH common stock, and that
the Transaction would be accretive to ALH's tangible book value and return on
equity.
Changes in Circumstances
Subsequent to AmerUs signing a definitive agreement to acquire ILICO, the
parties recognized that the changes in circumstances described above under
"BACKGROUND OF THE COMBINATION" necessitated changes in the definitive
agreement. Merrill Lynch then:
- Reviewed with AmerUs the financial performance of ILICO for the fourth
quarter of 1999, the full details of which were not available at the time
of the original agreement, and for the first and second quarters of 2000;
- Discussed with AmerUs management the causes for changes in the financial
performance and position of ILICO; and
- Discussed with AmerUs management and ILICO management and its financial
advisors the impact of these changes on the transaction.
On August 11, 2000, at a joint meeting of the AmerUs Boards, Merrill Lynch
advised the boards that it would be prepared to render a fairness opinion based
upon the revised terms discussed at such meeting. AmerUs management had also
consulted with Merrill Lynch about the proposed changes to the original
Combination Agreement. In light of the proposed revisions to the terms of the
original Combination Agreement, AmerUs
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<PAGE> 51
then requested that Merrill Lynch provide an updated written opinion, which it
did on September 18, 2000. In connection with its opinion dated September 18,
2000, Merrill Lynch updated certain of the analyses performed in connection with
its prior opinion delivered on February 11, 2000 and reviewed the assumptions on
which such analyses were based and the factors considered in connection
therewith. Merrill Lynch considered the consequences of the changes in
circumstances at ILICO, including how ILICO's earnings had changed relative to
previous estimates and the current and projected impact of these changes on
ILICO's financial position. Merrill Lynch considered these consequences in light
of the decrease in the aggregate value of the consideration offered by AmerUs in
the transaction from 11.25 million shares to 9.30 million shares. In light of
these considerations, Merrill Lynch confirmed its opinion, based upon and
subject to the considerations set forth in the September 18, 2000 written
opinion, that the consideration being paid in the aggregate in the Transaction
under the revised agreement, taking into account the times of payment, was fair,
from a financial point of view, to AMHC, ALH and the corporate successor to
AMHC.
THE FULL TEXT OF THE SEPTEMBER 18 MERRILL LYNCH OPINION, WHICH STATES THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE
SCOPE OF REVIEW UNDERTAKEN BY MERRILL LYNCH IN RENDERING ITS OPINION, IS
INCLUDED IN PART 2 OF THIS STATEMENT AS APPENDIX 5, AND IS INCORPORATED BY
REFERENCE INTO THIS STATEMENT. THE MERRILL LYNCH OPINION IS FOR THE USE AND
BENEFIT OF THE RESPECTIVE BOARDS OF DIRECTORS OF ALH AND AMHC AS PREDECESSORS TO
AMERUS AND ADDRESSES ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO AMHC,
ALH AND THE CORPORATE SUCCESSOR TO AMHC OF THE AGGREGATE CONSIDERATION BEING
PAID IN THE TRANSACTION. THE MERRILL LYNCH OPINION DID NOT ADDRESS THE FAIRNESS
OF THE DEMUTUALIZATION OF AMHC (WHICH HAS OCCURRED) OR THE MERITS OF THE
UNDERLYING DECISION BY AMERUS TO ENGAGE IN THE DEMUTUALIZATION AND DID NOT
CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF ALH OR ANY MEMBER OF AMHC AS
TO HOW SUCH SHAREHOLDER OR MEMBER SHOULD VOTE WITH RESPECT TO THE
DEMUTUALIZATION. THE MERRILL LYNCH OPINION DOES NOT ADDRESS THE MERITS OF THE
UNDERLYING DECISION BY AMERUS TO ENGAGE IN THE TRANSACTION AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF AMERUS AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE ISSUANCE OF THE AMERUS COMMON STOCK
OR ANY RELATED MATTER. THE MERRILL LYNCH OPINION DOES NOT EXPRESS ANY OPINION AS
TO THE PRICES AT WHICH THE COMMON STOCK OF ALH OR AMERUS WOULD TRADE FOLLOWING
ANNOUNCEMENT OF THE AMENDED AGREEMENT OR CONSUMMATION OF THE COMBINATION, AS THE
CASE MAY BE.
In arriving at its September 18 opinion, Merrill Lynch, among other things:
- Reviewed publicly available business and financial information relating
to ALH and ILICO (in each case, on a consolidated basis) that Merrill
Lynch deemed to be relevant;
- Reviewed information, including financial forecasts, relating to the
business, earnings, cash flow, assets, liabilities and prospects of ALH
and ILICO (in each case on a consolidated basis), furnished to Merrill
Lynch by ALH and ILICO, respectively, as well as the amount and timing of
the cost savings expected to result from Transaction furnished to Merrill
Lynch by ALH;
- Conducted discussions with members of senior management of ALH and ILICO
concerning the matters described above, as well as their respective
businesses and prospects before and after giving effect to the
Transaction and the expected synergies;
- Reviewed the historical market prices and valuation multiples for the ALH
common stock and compared them with those of selected publicly traded
companies that Merrill Lynch deemed to be relevant;
- Reviewed the results of operations of AmerUs and ILICO (in each case on a
consolidated basis) and compared them with those of selected publicly
traded companies that Merrill Lynch deemed to be relevant;
- Compared the proposed financial terms of the Transaction with the
financial terms of other transactions that Merrill Lynch deemed to be
relevant;
- Participated in discussions and negotiations among representatives of ALH
and AMHC on one hand, and of ILICO on the other, and their financial and
legal advisors;
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<PAGE> 52
- Reviewed the potential pro forma impact of the Transaction;
- Reviewed a draft of the amended agreement dated September 8, 2000; and
- Took into account such other matters as Merrill Lynch deemed necessary,
including Merrill Lynch's assessment of general economic, market and
monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to it,
discussed with or reviewed by or for it, or publicly available, and did not
assume any responsibility for independently verifying such information or
undertake an independent evaluation or appraisal of any of the consolidated
assets or liabilities of AmerUs or ILICO and was not furnished with any such
evaluation or appraisal. In addition, Merrill Lynch did not assume any
obligation to conduct any physical inspection of the consolidated properties or
facilities of AmerUs or ILICO. With respect to the financial forecast
information and the expected synergies furnished to or discussed with Merrill
Lynch by AmerUs or ILICO, Merrill Lynch assumed that they had been reasonably
prepared and reflected the best currently available estimates and judgment of
AmerUs or ILICO's management as to the expected future financial performance of
AmerUs or ILICO, as the case may be, and the expected synergies. Merrill Lynch
further assumed that the Transaction will be accounted for as a purchase
transaction under generally accepted accounting principles and that it will
qualify as a tax-free reorganization for U.S. federal income tax purposes.
Merrill Lynch also assumed that the final form of the amended agreement would be
substantially similar to the last draft reviewed by it.
The Merrill Lynch opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated, and on the information
made available to, Merrill Lynch, as of September 18, 2000. Merrill Lynch
assumed that all necessary regulatory and other consents and approvals
(contractual or otherwise) for the Transaction will be obtained and that the
Merger will be consummated (without any material waiver of any of the conditions
set forth in the amended agreement) and that no restrictions, including any
divestiture requirements or amendments or modifications, will be imposed in the
course of obtaining such regulatory or other consents or approvals that would
have a material adverse effect on the contemplated benefits of the Transaction.
AMHC and ALH retained Merrill Lynch based upon its experience and
expertise. Merrill Lynch is an internationally recognized investment banking and
advisory firm. As part of its investment banking business, Merrill Lynch is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes.
In addition, in the ordinary course of its business, Merrill Lynch and its
affiliates may actively trade the debt and equity securities of AmerUs for their
own account and/or the accounts of their respective customers, and, accordingly,
may at any time hold long or short positions in these securities.
Pursuant to a letter agreement between Merrill Lynch and AMHC and ALH,
dated as of January 5, 2000, AmerUs has agreed to pay Merrill Lynch $4.5 million
for financial advisory services rendered through the closing of the transaction,
of which $1.0 million has been paid and the balance of which will be paid upon
consummation of the Combination.
AmerUs has also agreed, among other things, to indemnify Merrill Lynch and
its affiliates from and against specified liabilities and expenses, which may
include liabilities under federal securities laws, in connection with its
engagement.
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<PAGE> 53
INFORMATION CONCERNING THE BUSINESS OF ILICO
Headquartered in Indianapolis, Indiana, ILICO and its subsidiaries together
sell term, universal and whole life insurance policies and fixed and variable
annuities to policyholders in 50 states and District of Columbia. To enhance
focus on specific product and distribution capabilities and opportunities, ILICO
decentralized in 1994 by forming a downstream stock holding company, ILGC. ILGC
owns a majority interest in four operating subsidiaries: IL Annuity, Bankers
Life Insurance Company of New York ("Bankers Life"), Western Security Life
Insurance Company ("Western Security") and IL Securities, Inc. ("IL
Securities"). Each insurance company subsidiary is focused on a particular
product manufacturing or marketing channel. ILICO, the upstream mutual parent,
sells a broad portfolio of whole life, term, universal life, and fixed annuity
products, and specializes in the development and administration of whole life
products. IL Annuity, a subsidiary of ILICO since 1994, specializes in the
development, marketing and administration of annuity products. Acquired in 1995,
Bankers Life, a stand-alone subsidiary with its own sales force, provides ILICO
with development and administration of universal life products and an additional
sales outlet for its traditional life and term insurance products in the New
York market. Western Security, acquired in 1996, manufactures and administers
term life products for ILICO and its other subsidiaries as well as for private
label partners. IL Securities is a registered broker dealer that facilitates the
marketing of certain products.
ILICO and its subsidiaries distribute their products through a variety of
distribution channels. A large portion of their traditional whole and universal
life products are distributed through their network of 6,500 soliciting and
general agents. ILICO and its subsidiaries have grown their core appointed
general agent pool consistently since 1994, much of that growth coming from the
Managing General Agent ("MGA") network system and Independent Marketing
Organizations ("IMOs"). Term and second-to-die products are distributed
primarily through strategic alliances with private label partners. Under private
label arrangements, ILICO and its subsidiaries manufacture products that are
distributed through the field forces of other life insurance companies, their
private label partners. The majority of the fixed annuities are sold and
administered by IL Annuity through the Legacy Marketing Group ("Legacy"), which
is not otherwise affiliated with ILICO. Bankers Life markets its products
through a combination of general agents, private label partners and IMOs.
ILICO plans to remain focused on selling traditional individual life and
annuity products in selected core regional markets, and targeting
middle-to-upper income level individuals and small business owners in mid-sized
cities and satellite communities of large cities. As the company develops its
non-participating business lines, the proportion of participating whole life
policies versus annuities, term, universal life and interest-sensitive policies
is declining. ILICO anticipates that it will not offer participating products
after December 31, 2000. After the Combination with AmerUs, ILICO and its
subsidiaries will continue to develop, manufacture and service the universal and
interest-sensitive whole life product line as well as term insurance and private
label products for AmerUs and unaffiliated companies. In addition, ILICO and its
subsidiaries are undertaking a major effort to develop variable products
administration capability.
As of September 30, 2000, ILICO had consolidated total assets of
approximately $6 billion and consolidated total policyowners' surplus of $309
million.
For more information about the business of ILICO following the Combination,
see "THE COMBINATION -- Memorandum of Understanding."
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<PAGE> 54
INFORMATION CONCERNING THE BUSINESS OF AMERUS
AmerUs is a publicly held holding company located in Des Moines, Iowa and
listed on the New York Stock Exchange. AmerUs' subsidiaries are engaged 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. As of September 30, 2000,
AmerUs had consolidated assets of approximately $11.6 billion and shareholders'
equity of $786 million. AmerUs' principal subsidiaries are AmerUs Life Insurance
Company ("ALIC"), Delta Life Corporation ("Delta"), AmVestors Financial
Corporation and AmerUs Capital Management Group, Inc. ("ACM").
AmerUs is the holding company for ALIC, an Iowa domiciled life insurance
company licensed in the District of Columbia and all states except New Hampshire
and New York.
On October 23, 1997, AmerUs acquired all of the outstanding capital stock
of Delta for approximately $165 million in cash. The principal asset of Delta is
its wholly-owned subsidiary, Delta Life and Annuity Company, 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, AmerUs acquired AmVestors Financial Corporation in a
stock exchange valued at approximately $350 million. AmVestors Financial
Corporation's principal operating subsidiaries are American Investors Life
Insurance Company, Inc., a Kansas domiciled life insurance company licensed in
48 states and the District of Columbia; and Financial Benefit Life Insurance
Company, a Kansas domiciled life insurance company licensed in 40 states, the
District of Columbia and the U.S. Virgin Islands.
On December 29, 1997, AmerUs formed ACM as a wholly-owned investment
advisor to, among other things, manage the assets of certain affiliated and
non-affiliated entities.
AmerUs participates in a joint venture with Ameritas Life Insurance Corp.
("Ameritas") ("Ameritas Joint Venture") through ALIC's 34% ownership interest in
AMAL Corporation, a Nebraska corporation ("AMAL"). AMAL owns Ameritas Variable
Life Insurance Company ("AVLIC") and Ameritas Investment Corp., a registered
broker-dealer ("AIC"), which have been in business since 1983. AVLIC is licensed
to conduct business in 46 states and the District of Columbia. AIC is a
registered broker-dealer which is licensed in all states except New York. ALIC's
partner in the Ameritas Joint Venture, Ameritas, is a Nebraska domiciled life
insurance company which has been in existence for more than 100 years.
AmerUs has two primary 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.
AmerUs is a publicly owned reporting company under the Securities Exchange
Act of 1934, as amended. The common stock of AmerUs is registered under Section
12(g) of the Securities Exchange Act of 1934 (the "Exchange Act") and listed on
the New York Stock Exchange.
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<PAGE> 55
RATINGS
Ratings with respect to claims-paying ability and financial strength are an
increasingly important factor in establishing the competitive position of
insurance companies. The following are the ratings as of the date of this
Statement for ILICO and its subsidiaries:
<TABLE>
<CAPTION>
COMPANY RATING SERVICE RATING TYPE RATING
------- ----------------- ---------------------------- ---------------
<S> <C> <C> <C>
ILICO....................... A. M. Best financial condition A (excellent)
ILICO....................... Standard & Poor's insurer financial strength A (strong)
ILICO....................... Moody's insurance financial strength Baa1 (adequate)
ILICO....................... Fitch claims-paying AA- (very high)
Bankers Life................ A. M. Best financial condition A (excellent)
Bankers Life................ Standard & Poor's insurer financial strength A (strong)
Bankers Life................ Fitch claims-paying AA- (very high)
Western Security............ A. M. Best financial condition A (excellent)
Western Security............ Standard & Poor's insurer financial strength A (strong)
Western Security............ Fitch claims-paying AA- (very high)
IL Annuity.................. A. M. Best financial condition A (excellent)
IL Annuity.................. Standard & Poor's claims-paying A (strong)
IL Annuity.................. Fitch claims-paying AA- (very high)
</TABLE>
The following are the ratings as of the date of this Statement for the
various insurance companies of AmerUs:
<TABLE>
<CAPTION>
COMPANY RATING SERVICE RATING TYPE RATING
------- ----------------- ---------------------------- ---------------
<S> <C> <C> <C>
AmerUs Life.................. Standard & Poor's insurer financial strength A (strong)
AmerUs Life.................. A. M. Best financial condition A (excellent)
AmerUs Life.................. Moody's insurance financial strength Baa1 (adequate)
Financial Benefit Life....... A. M. Best financial condition B+ (very good)
Financial Benefit Life....... Standard & Poor's insurer financial strength BBB (adequate)
American Investors Life...... Standard & Poor's insurer financial strength A (strong)
American Investors Life...... A. M. Best financial condition A- (excellent)
American Investors Life...... Moody's insurance financial strength Baa1 (adequate)
Delta Life................... Standard & Poor's insurer financial strength BBB (good)
Delta Life................... Moody's insurance financial strength Baa1 (adequate)
Delta Life................... A. M. Best financial condition A (excellent)
</TABLE>
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<PAGE> 56
THE COMBINATION
AMERUS INVESTMENT IN ILICO'S SUBSIDIARIES
As an initial step towards consummation of the Combination, AmerUs acquired
shares of a newly authorized series of non-voting common stock (the "Non-Voting
Common Stock") of ILGC representing a 45% equity interest in ILGC in exchange
for a $100 million investment in ILGC (the "Stock Purchase"). Following receipt
of all necessary regulatory approvals, AmerUs and its subsidiaries holding
shares of Non-Voting Common Stock have the right to exchange their shares into
voting common shares that represent 45% of the equity interest of ILGC on a
fully diluted basis (the "Converted Shares").
STRUCTURE OF THE COMBINATION
The Combination is a series of related transactions as a result of which
ILICO will convert from a mutual insurance company to a stock insurance company
and become a wholly-owned subsidiary of AmerUs. Although these transactions are
described below as a series of steps, effectively they all will occur at the
same time and none of these steps will be taken without the others.
- As of the Combination Closing Date (as defined below), ILICO will become
a stock insurance company organized and existing under Indiana's
insurance law in accordance with the Plan.
- CLA will be merged with and into ILICO under Indiana Code sec. 27-1-9 et
seq. and the relevant provisions of Iowa's insurance law (the "Merger").
The stock of CLA will be converted into and become all of the stock of
ILICO, which will thereby become a wholly-owned subsidiary of AmerUs.
- The Eligible Members of ILICO will receive the Member Consideration in
exchange for their Membership Interests.
- AmerUs will, as an essential and mandatory step in the transaction,
immediately contribute all of the stock of ILICO to ILICO Holdings, Inc.,
an Indiana domiciled subsidiary of AmerUs.
REPRESENTATIONS AND WARRANTIES
In the Combination Agreement, each of ILICO, ILGC and AmerUs has made
representations and warranties customary for a transaction such as the
Combination, with respect to, among other matters: (a) corporate existence and
power; (b) ownership of subsidiaries; (c) authority to execute and deliver the
Combination Agreement and the Investment Advisory Agreements; (d) absence of any
breach of or conflict with any agreements, governmental authorizations or
charter documents; (e) accuracy of financial statements; (f) absence of certain
changes or events, including any changes or events having a Material Adverse
Effect; (g) compliance with applicable laws; (h) solvency; (i) taxes; (j)
litigation; and (k) information supplied for use in disclosure documents.
ILICO and ILGC have each made further representations and warranties
relating to, among other matters: (a) authority to issue non-voting shares of
ILGC; (b) insurance regulatory matters; (c) reserves; (d) regulatory filings;
(e) reinsurance agreements; (f) accuracy of ILICO's member information
statement; (g) shares of ILICO to be issued upon implementation of the Plan; (h)
absence of undisclosed liabilities; (i) significant contracts; (j) title to
properties; (k) environmental matters; (l) intellectual property; (m) no
commitment to make loans or advances; (n) ownership of assets necessary to
conduct business; (o) benefit plans; (p) employees; (q) books and records; (r)
absence of threats of cancellation; and (s) operations insurance.
"Material Adverse Effect" is defined in the Combination Agreement and
generally refers to a material adverse effect on the business or condition of
any person and its subsidiaries taken as a whole, or on the ability of a person
to consummate the transactions contemplated by the Combination Agreement.
Certain specified events, however, including the following, do not in and of
themselves constitute a material adverse effect on the business or condition of
the person and its subsidiaries taken as a whole: (i) ratings downgrade(s) of
ILICO or any subsidiary, subject to agreed-upon exceptions; (ii) any decrease in
sales of fixed annuities at
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<PAGE> 57
IL Annuity; (iii) an annualized lapse rate for fixed annuities at IL Annuity
that does not exceed 27% calculated on a rolling three -- calendar month basis;
(iv) certain further increases in such annualized lapse rate primarily because
the yield on IL Annuity's convertible bond portfolio is a certain amount below
the performance of a specified bond index; (v) total out-of-pocket
demutualization expenses at ILICO of up to $21 million in the aggregate, not
including fees of Goldman Sachs; (vi) year 2000 mutual company surplus tax
payable by ILICO; and (vii) the elimination of sales of participating policies
by ILICO.
CERTAIN COVENANTS AND AGREEMENTS
Stock Purchase Covenants
In connection with the Stock Purchase, the parties have agreed to several
provisions relating to the ILGC Shares, including the following:
- The shares of Non-Voting Common Stock and/or the Converted Shares shall
have a priority in all dividends and other voluntary or involuntary
distributions made on account of the equity ownership interests in ILGC
until AmerUs (or its assignee) receives the full amount to which it would
be entitled in a purchase or repurchase by ILICO or ILGC;
- During the period commencing on the closing of the Stock Purchase until
the purchase or repurchase of all of the issued and outstanding shares of
Non-Voting Common Stock or Converted Shares by ILICO or ILGC, ILGC must
not issue or transfer any debt or equity security not expressly
contemplated by the Combination Agreement;
- ILGC must not take any action which would cause each share of its
Non-Voting Common Stock to be exchangeable into less than one share of
ILGC Common Stock or that would dilute the rights associated with such
shares; and
- AmerUs shall have a right to representation on the Board of Directors of
ILGC until the purchase or repurchase of all the shares of Non-Voting
Common Stock or the Converted Shares by ILICO or ILGC (see "Rights of
Repurchase; Certain Termination Fees").
Investment Advisory Agreements
ACM has entered into investment management agreements with ILICO and each
of ILICO's insurance company subsidiaries (the "Investment Advisory
Agreements").
If the Combination Agreement is terminated, ILICO and ILGC are required to
continue the term of each of the Investment Advisory Agreements until the
purchase or repurchase of all of the shares of Non-Voting Common Stock or the
Converted Shares by ILICO or ILGC (see "-- Rights of Repurchase; Certain
Termination Fees" below). However, these agreements can be terminated on 180
days notice if the Combination Agreement is terminated by ILICO or ILGC (i) due
to a breach of the Combination Agreement by AmerUs or a Material Adverse Effect
with respect to AmerUs, which breach or Material Adverse Effect is within the
control of AmerUs (see "Termination -- Termination Due to Act Within the Control
of AMHC", below) or (ii) because AmerUs experiences a change of control or sells
substantially all its assets and such transaction is not reasonably acceptable
to ILICO.
No Solicitation
The Combination Agreement provides that ILICO and ILGC will not (i)
initiate, solicit or encourage or otherwise facilitate any inquiries or the
making of any proposal or offer which constitutes a Competing Transaction
Proposal; or (ii) participate in any discussions or negotiations regarding any
Competing Transaction Proposal (subject to certain exceptions described below).
The Combination Agreement defines a "Competing Transaction Proposal" as (i) a
merger, reorganization, affiliation, sponsored demutualization, share exchange,
consolidation or similar transaction involving, or any purchase of 5% or more of
the assets or any equity securities of, or demutualization or conversion of,
ILICO, ILGC or any of their subsidiaries other than as expressly required under
the Combination Agreement or as expressly authorized by AmerUs; or (ii) a
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<PAGE> 58
transaction involving a pooling or affiliation of the business of either ILICO,
ILGC or any of their subsidiaries with another person or any similar business
combination or restructuring.
ILICO and its board of directors are not prevented from doing the
following: (i) providing information in response to a request by a person who
has made an unsolicited bona fide written Competing Transaction Proposal; (ii)
engaging in any negotiations or discussions with any person who has made an
unsolicited bona fide written Competing Transaction Proposal; or (iii)
recommending a Competing Transaction Proposal to the policyholders of ILICO
and/or permitting such policyholders to vote on such Competing Transaction
Proposal, in each case if and only to the extent that the board of directors of
ILICO determines in good faith that the failure to take such action is
reasonably likely to result in a breach of the board's fiduciary duties under,
or otherwise violate, applicable law; and the board of directors of ILICO
determines in good faith that such Competing Transaction Proposal is a Superior
Proposal.
The Combination Agreement defines a "Superior Proposal" as a Competing
Transaction Proposal which, if accepted by ILICO, ILGC or a subsidiary, is
reasonably capable of being consummated, and which, if consummated, would result
in a more favorable transaction for ILICO and its policyholders than the
transaction contemplated by the Combination Agreement.
Directors
Upon consummation of the Combination, the board of directors of AmerUs will
be adjusted to include the Chief Executive Officer of ILICO (as Vice-Chairman of
the AmerUs board of directors) and at least two additional members of the ILICO
Board of Directors (the "IL/AmerUs Directors"). AmerUs is required to use its
best efforts to cause the AmerUs Board to appoint two of the IL/AmerUs Directors
to terms expiring at AmerUs' May 2001 annual meeting (assuming the Combination
is consummated by May 2001) and to nominate such directors for election to three
year terms on the AmerUs Board commencing at this annual meeting. AmerUs is also
required to use its best efforts to cause the AmerUs Board to appoint the third
additional director to a term expiring at AmerUs' May 2003 annual meeting
(assuming the Combination is consummated by May 2001). It is anticipated that
the IL/AmerUs Directors will consist of Mr. Prible, Alecia Ann DeCoudreaux and
Andrew Jackson Paine, Jr., who currently serve on the ILICO Board of Directors.
The Combination Agreement further provides that upon consummation of the
Combination, ILICO is required to use its best efforts to cause two individuals
nominated by the Chief Executive Officer of AmerUs to be elected to the ILICO
Board of Directors. It is anticipated that these nominees will be Roger K.
Brooks and D T Doan.
Other Covenants and Agreements
The Combination Agreement also includes certain covenants customary for a
transaction such as the Combination with respect to, among other matters: (i)
ILICO's and its subsidiaries' conduct of their respective businesses during the
period between the signing of the Combination Agreement and the Combination
Closing (as defined below); (ii) using all reasonable efforts to take all steps
necessary or desirable under applicable law to consummate the transactions
contemplated by the Combination Agreement; (iii) cooperation in obtaining
governmental approvals; (iv) consultation regarding public announcements
concerning the Combination Agreement and the transactions contemplated in the
Combination Agreement; (v) treatment of confidential and proprietary information
concerning the business and operations of the parties; (vi) mutual access to and
timely disclosure of information concerning the parties; (vii) implementation of
a program for AmerUs shareholders following the Combination (including ILICO's
Eligible Members receiving shares of AmerUs Common Stock) holding less than one
hundred (100) shares of AmerUs Common Stock pursuant to which such holders may
sell their shares (or round up to 100 shares by purchase) without paying any
brokerage commissions; and (viii) prohibiting ILICO from amending, modifying or
withdrawing the Plan filed with the Indiana Commissioner without the written
consent of AmerUs.
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<PAGE> 59
CLOSING
Unless the Combination Agreement is terminated in accordance with its
terms, the closing of the Combination (the "Combination Closing") will take
place on a date (the "Combination Closing Date") within twenty (20) business
days after satisfaction or waiver of the conditions to the Combination Closing
set forth in the Combination Agreement, or as otherwise agreed by the parties.
CONDITIONS TO THE COMPLETION OF THE COMBINATION
The Combination Agreement provides that the respective obligations of
AmerUs, ILICO and ILGC are subject to the satisfaction of several mutual
conditions to the Combination Closing, summarized as follows:
- all permits and governmental, policyholder and shareholder approvals, and
other consents, approvals or waivers necessary for the consummation of
the Combination Closing shall have been obtained, and no provision of any
applicable law shall prohibit the consummation of the Combination
Closing;
- there shall not be any temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
transactions contemplated by the Combination Agreement;
- all documents necessary or agreed upon by the parties for consummation of
the transactions shall have been executed and delivered by the parties;
and
- the Combination Agreement and the Investment Advisory Agreements shall be
in full force and effect.
The Combination Agreement further provides that the obligation of AmerUs to
consummate the Combination Closing is subject to the satisfaction of several
additional conditions, summarized as follows:
- no governmental entity shall have imposed any condition to any approval
required in connection with the Combination Closing, other than certain
conditions involving ministerial acts, routine reporting requirements or
certain conditions known to and previously accepted by AmerUs;
- (i) ILICO and ILGC shall have performed their obligations under the
Combination Agreement, (ii) the representations and warranties of ILICO
and ILGC shall be true at and as of the Combination Closing Date, except
where the failure of such representations and warranties to be true has
not had and would not reasonably be expected to have a Material Adverse
Effect, and (iii) AmerUs shall have received certificates signed by the
Chief Executive Officers and Chief Financial Officers of ILICO and ILGC
that the foregoing conditions have been satisfied;
- since the date of the Combination Agreement, there shall not have been
any events, occurrences, developments or state of circumstances or facts
which, individually or in the aggregate, have had or would reasonably be
expected to have a Material Adverse Effect on ILICO;
- no proceeding shall be pending seeking damages or seeking a temporary
restraining order, preliminary or permanent injunction or other order
that would prevent the consummation of the transactions contemplated by
the Combination Agreement, other than any such proceeding which, in the
judgment of AmerUs, is not likely to materially interfere with the
transactions contemplated by the Combination Agreement; provided that
AmerUs may not invoke this condition unless it has used its reasonable
best efforts to have such proceeding dismissed or terminated;
- AmerUs shall have received opinions of tax counsel, dated as of the
Combination Closing Date, or rulings from the Internal Revenue Service,
that the Combination will be effected on a tax free basis to AmerUs;
- A.M. Best Company, Inc. shall not have informed ILICO or any of its
subsidiaries or otherwise announced that it will make a reduction in the
ratings of ILICO or Bankers Life if the Combination is consummated or for
any other reason, where such reduction would or would reasonably be
expected to constitute a Material Adverse Effect;
- AmerUs shall either (i) have received from the SEC reasonable assurance
that the issuance of shares of AmerUs Common Stock to the members of
ILICO pursuant to the Combination may be
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<PAGE> 60
accomplished without registration of such shares under the federal
securities laws or (ii) have in effect a registration statement covering
issuance of such shares.
The Combination Agreement further provides that the obligation of ILICO and
ILGC to consummate the Combination Closing is subject to the satisfaction
several additional conditions, summarized as follows:
- no governmental entity shall have imposed any condition to any approval
required in connection with the Combination Closing which would
materially and adversely affect the aggregate value of the shares of
AmerUs Common Stock, cash and policy credits to be received by Eligible
Members of ILICO upon consummation of the Combination or the authority of
AmerUs to carry out the transactions contemplated by the Combination
Agreement;
- (i) AmerUs shall have performed its obligations under the Combination
Agreement, (ii) the representations and warranties of AmerUs shall be
true at and as of the Combination Closing Date, except where the failure
of such representations and warranties to be true has not had and would
not reasonably be expected to have a Material Adverse Effect and (iii)
ILICO and ILGC shall have received a certificate signed by the Chief
Executive Officer and Chief Financial Officer of AmerUs that the
foregoing conditions have been satisfied;
- since the date of the Combination Agreement, there shall not have been
any events, occurrences, developments or state of circumstances or facts
which, individually or in the aggregate, have had or would reasonably be
expected to have a Material Adverse Effect on AmerUs;
- no proceeding shall be pending seeking damages or seeking a temporary
restraining order, preliminary or permanent injunction or other order
that would prevent the consummation of the transactions contemplated by
the Combination Agreement, other than any such proceeding which, in the
judgment of ILICO and ILGC, is not likely to materially interfere with
the transactions contemplated by the Combination Agreement; provided that
ILICO and ILGC may not invoke this condition unless they have used their
reasonable best efforts to have such proceeding dismissed or terminated;
- ILICO and ILGC shall have received opinions of tax counsel, or rulings
from the Internal Revenue Service, that the Combination will be effected
(i) on a tax-free basis to ILICO and the ILICO policyholders receiving
only shares of AmerUs Common Stock and (ii) with respect to employee
benefit plans and individual retirement accounts and individual
retirement annuities, tax sheltered annuities governed by Section 403(b)
of the Internal Revenue Code, as amended (the "Code"), in such a manner
that it does not adversely affect the compliance thereof with the
applicable requirements of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or the Code;
- A.M. Best Company, Inc. shall not have informed AmerUs or any of its
insurance company subsidiaries or otherwise announced that it will make a
reduction in the ratings of AmerUs Life or American Investors Life if the
Combination is consummated or for any other reason, where such reduction
would or would reasonably be expected to have a Material Adverse Effect
on AmerUs; and
- the Chief Executive Officer of AmerUs shall have delivered to the Chief
Executive Officer of ILICO a post-combination plan of integration with
details in addition to the essential terms set forth in the Memorandum of
Understanding between the parties concerning post-Combination Closing
integration and which is not, except as otherwise agreed, materially
inconsistent with such Memorandum of Understanding. (See "THE
COMBINATION -- Memorandum of Understanding")
INDEMNIFICATION FOR OFFICERS, DIRECTORS AND EMPLOYEES
The Combination Agreement provides that all rights to indemnification now
existing in favor of employees, directors and officers of ILICO or its
subsidiaries as provided in the articles of incorporation and bylaws of such
entities shall survive the effective date of the Combination for a period of at
least six (6) years, subject to applicable law. The Combination Agreement
further provides that any indemnification provided by AmerUs shall extend to
ILICO's and its subsidiaries' employees, directors and officers to the fullest
extent permitted by applicable law and the articles of incorporation of AmerUs.
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TERMINATION OF THE COMBINATION AGREEMENT
Termination Due to Third-Party Offer
The Combination Agreement may be terminated at any time prior to the
Combination Closing by AmerUs:
- if the Board of Directors of ILICO, in connection with any Competing
Transaction Proposal, withdraws or modifies in a manner adverse to AmerUs
a recommendation with respect to the Combination, recommends such a
Competing Transaction Proposal or votes to permit the ILICO policyholders
to consider such a Competing Transaction Proposal;
- if ILICO or ILGC enters into an agreement, letter of intent or other
arrangement contemplating the effectuation of, directly or indirectly, a
Competing Transaction Proposal; or
- if a third party obtains the right to elect a majority of the Board of
Directors of ILICO or ILGC or the right to control 10% or more of the
voting shares of capital stock of ILGC or any of its subsidiaries.
In addition, the Combination Agreement may be terminated at any time prior
to the Combination Closing by ILICO or ILGC if the Board of Directors of ILICO
resolves (in the exercise of its fiduciary duty) to accept a Superior Proposal
(as defined in the Combination Agreement).
Termination Due to Uncontrollable Event; Termination by Mutual Agreement
The Combination Agreement may be terminated at any time prior to the
Combination Closing by any party:
- if consummation of the Combination Closing becomes prohibited under any
applicable law, and all rights of appeal with respect to such prohibition
are exhausted;
- if a party fails to obtain any policyholder, shareholder or governmental
entity approval necessary to consummate the Combination Closing,
provided, however, that a party may not terminate on this basis if it
shall not have in good faith used all reasonable efforts to consummate
the Combination Closing; or
- if the Combination Closing is not consummated on or before June 30, 2001,
unless extended by mutual agreement of the parties.
The Combination Agreement may be terminated at any time prior to the
Combination Closing by ILICO or ILGC:
- if (i)(A) AmerUs agrees to enter into a merger or consolidation with
another person, in which AmerUs would not be the continuing or surviving
corporation and the majority of such continuing or surviving
corporation's directors would not have been affiliated with AmerUs prior
to the consummation of such merger or consolidation, or (B) AmerUs
transfers substantially all of its assets and (ii) such transaction is
not reasonably acceptable to ILICO;
- if there has been a material breach by AmerUs of any representation,
warranty, covenant or agreement contained in the Combination Agreement
that is not curable or, if curable, is not cured within 30 days after
written notice of such breach is given by ILICO or ILGC to AmerUs, which
breach would not be construed by a reasonable person to have been within
the control of AmerUs or a subsidiary; provided, however, that ILICO and
ILGC shall not exercise their termination right under this clause for
breach of any representation or warranty that occurs on or after
September 18, 2000 unless the events, occurrences, developments or state
of circumstances or facts that constitute such breach have had or would
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on AmerUs; or
- if, on or after September 18, 2000, there shall have been any events,
occurrences, developments or state of circumstances or facts which would
not be construed by a reasonable person to have been within the control
of AmerUs or a subsidiary and which, individually or in the aggregate (i)
have had a Material Adverse Effect with respect to AmerUs or (ii) would
reasonably be expected to have such a Material
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<PAGE> 62
Adverse Effect, on both the date an initial notice thereof is given by
ILICO or ILGC to AmerUs and on the earlier of (A) the date 120 days
following the date of such initial notice or (B) June 20, 2001; or
- if the aggregate value of the shares of AmerUs Common Stock, cash and
policy credits projected to be received by the ILICO members as of the
effective date of the Plan of Conversion is less than $186 million,
provided, however, that such termination notice shall be null and void in
the event that AmerUs agrees to increase the number of shares of AmerUs
Common Stock and/or the amount of cash and policy credits to be delivered
so that the aggregate value of such shares of AmerUs Common Stock, cash
and policy credits provided to such members equals $186 million.
The Combination Agreement may be terminated at any time prior to the
Combination Closing by AmerUs:
- if there has been a material breach by ILICO and ILGC of any
representation, warranty, covenant or agreement contained in the
Combination Agreement that is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by AmerUs to
ILICO and ILGC, which material breach would not be construed by a
reasonable person to have been within the control of ILICO, ILGC or a
subsidiary; provided, however, that AmerUs may not exercise this
termination right for breach of any representation or warranty that
occurs on or after September 18, 2000 unless the events, occurrences,
developments or state of circumstances or facts that constitute such
breach have had or would reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on ILICO; or
- if on or after September 18, 2000, there shall have been any events,
occurrences, developments or state of circumstances or facts which would
not be construed by a reasonable person to have been within the control
of ILICO or a subsidiary and which, individually or in the aggregate, (i)
have had a Material Adverse Effect with respect to ILICO or (ii) would
reasonably be expected to have such a Material Adverse Effect, on both
the date an initial notice thereof is given by AmerUs to ILICO and on the
earlier of (A) the date 120 days following the date of such initial
notice or (B) June 20, 2001.
In addition, the Combination Agreement may also be terminated by mutual
written agreement of ILICO, ILGC and AmerUs.
Termination Due to Act Within the Control of ILICO
The Combination Agreement may be terminated at any time prior to the
Combination Closing by AmerUs:
- if there has been a material breach by ILICO or ILGC of any
representation, warranty, covenant or agreement contained in the
Combination Agreement that is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by AmerUs to
ILICO and ILGC, which breach would be construed by a reasonable person to
have been within the control of ILICO, ILGC or a subsidiary; provided,
however, that AmerUs may not exercise this termination right for breach
of any representation or warranty that occurs on or after September 18,
2000 unless the events, occurrences, developments or state of
circumstances or facts that constitute such breach have had or would
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on ILICO;
- by AmerUs if, on or after September 18, 2000, there shall have been any
events, occurrences, developments, or state of circumstances or facts
which would be construed by a reasonable person to have been within the
control of ILICO or a subsidiary and which, individually or in the
aggregate (i) have had a Material Adverse Effect with respect to ILICO,
or (ii) would reasonably be expected to have such a Material Adverse
Effect, on both the date an initial notice thereof is given by AmerUs to
ILICO and on the earlier of (A) the date 120 days following the date of
such initial notice or (B) June 20, 2001; or
- if there has been a material breach of a representation or warranty by
ILICO or ILGC and any individual listed on a schedule to the Combination
Agreement (which identifies persons associated
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with ILICO or ILGC deemed to have "knowledge" for purposes of
interpreting certain provisions of the agreement) had actual knowledge of
the material breach of such representation or warranty as of the closing
date of the Stock Purchase (irrespective of whether such breach is within
the control of ILICO, ILGC or a subsidiary, and without limiting the
rights of AmerUs).
Termination Due to Act Within the Control of AmerUs
This Combination Agreement may be terminated at any time prior to the
Combination Closing by ILICO or ILGC:
- if there has been a material breach by AmerUs of any representation,
warranty, covenant or agreement contained in the Combination Agreement
that is not curable or, if curable, is not cured within 30 days after
written notice of such breach is given by ILICO or ILGC to AmerUs, which
breach would be construed by a reasonable person to be within the control
of AmerUs or a subsidiary; provided, however, that ILICO and ILGC may not
exercise this termination right for breach of any representation or
warranty that occurs on or after September 18, 2000 unless the events,
occurrences, developments or state of circumstances or facts that
constitute such breach has had or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on AmerUs;
- if, on or after September 18, 2000, there shall have been any events,
occurrences, developments or state of circumstances or facts which would
be construed by a reasonable person to be within the control of AmerUs or
a subsidiary and which, individually or in the aggregate (i) have had a
Material Adverse Effect with respect to AmerUs or (ii) would reasonably
be expected to have such a Material Adverse Effect, on both the date an
initial notice thereof is given by ILICO or ILGC to AmerUs and on the
earlier of (A) the date 120 days following the date of such initial
notice or (B) June 20, 2001; or
- if there has been a material breach of a representation or warranty by
AmerUs and any individual listed on a schedule to the Combination
Agreement (which identifies persons associated with AmerUs deemed to have
"knowledge" for purposes of interpreting certain provisions of the
agreement) had actual knowledge of the material breach of such
representation or warranty as of the closing date of the Stock Purchase
(irrespective of whether such breach is within the control of AmerUs or a
subsidiary, and without limiting the rights of ILICO and ILGC).
RIGHTS OF REPURCHASE; CERTAIN TERMINATION FEES
If the Combination Agreement is terminated without the Combination having
occurred, ILICO is obligated to purchase or ILGC is obligated to repurchase all
the Non-Voting Common Stock or Converted Shares outstanding. The Combination
Agreement requires that such purchase or repurchase be made for a price of $100
million plus an imputed interest rate, which varies depending on which party
terminated the agreement, the reasons for such termination and the provision of
the agreement serving as the basis for such termination (see "Termination of the
Combination Agreement," above). The imputed interest rate varies from 10% to 18%
per annum. ILICO and ILGC are required to effect such purchase or repurchase of
the Non-Voting Common Stock and/or Converted Shares within a specified period
depending on the circumstances. The longest repayment period is four years after
the closing of the Stock Purchase. In addition, following a termination based on
certain provisions of the Combination Agreement, the holders of Non-Voting
Common Stock or Converted Shares outstanding are permitted to exchange all or a
portion of such shares for all of the issued and outstanding equity interests of
IL Annuity, based on an independent appraiser's estimation of the value thereof
and subject to receipt of required regulatory approvals.
In addition, the Combination Agreement includes break-up fee provisions
triggered in the event of certain acts or occurrences, including any of the
following:
- the Combination Agreement is terminated due to the events described under
"-- Termination of the Combination Agreement -- Termination due to
Third-Party Offer" or;
- the Combination Agreement is terminated due to an event not within the
control of either party or by mutual agreement (see "-- Termination of
the Combination Agreement -- Termination Due to
36
<PAGE> 64
Uncontrollable Event; Termination by Mutual Agreement") or due to an act
within the control of ILICO (see "-- Termination of the Combination
Agreement -- Termination Due to Act Within Control of ILICO") and (B)
ILICO, within eighteen months of the termination of the Combination
Agreement, enters into a Competing Transaction Proposal that was the
subject of discussion or negotiations after ILICO signed a letter of
intent for this transaction and before this Combination Agreement was
terminated; or
- if the Combination Agreement is terminated because, without the written
consent of AmerUs, ILICO amends or modifies the Plan filed with the
Indiana Commissioner, including amending or withdrawing the Plan.
In the event of any such termination, in addition to the repurchase of all
the Non-Voting Common Stock or Converted Shares outstanding, a break-up fee is
payable equal to $3,000,000, plus 3% of the AMHC Offer (as defined below), plus
a certain portion of AmerUs' costs and expenses in connection with the
Combination Agreement. "AMHC Offer" is defined as an "the product of (x)
9,300,000 and (y) the greater of (A) $25.20 and (B) the average closing price
per share of the AmerUs Common Stock on the five trading days immediately prior
to the earlier of (i) the announcement of a Competing Transaction Proposal that
forms the basis for termination of the Combination Agreement, or (ii) the
termination date of the Combination Agreement."
POST-TERMINATION CONDUCT OF BUSINESS OF ILICO AND ILGC PRIOR TO PURCHASE OR
REPURCHASE
Subject to certain exceptions, ILICO and ILGC have each agreed, on and
after any termination date and until the purchase or repurchase of all the
shares of Non-Voting Common Stock or the Converted Shares by ILICO or ILGC, to
certain restrictions, including, but not limited to, the following: (i) ILICO,
ILGC and their subsidiaries will exercise their best efforts to remain in all
material respects corporations duly organized, validly existing and duly
qualified to conduct their business; (ii) ILICO and ILGC will not permit any of
their subsidiaries to engage in any material business other than the life
insurance business and businesses reasonably related thereto; (iii) ILICO, ILGC
and their subsidiaries will not issue or encumber any shares of the capital
stock or other debt or equity security of any of the subsidiaries of ILGC; (iv)
ILICO and ILGC will not declare or pay dividends outside certain parameters; (v)
except for fair value and exercising reasonable and prudent business judgment,
ILICO, ILGC and their subsidiaries will not sell or encumber any properties or
assets, and will not make or commit to any capital expenditures for tangible
assets; (vi) ILICO, ILGC and their subsidiaries will not enter into any lease of
real or personal property; (vii) ILICO, ILGC and their subsidiaries will not
effect any transactions with any Affiliates, other than pursuant to pre-existing
arrangements or in the ordinary course of business; (viii) ILGC will abide by
certain leverage and tangible net worth restrictions; (ix) all ILICO insurer
subsidiaries will abide by certain capital and surplus restrictions; and (x)
ILICO, ILGC and their subsidiaries will not incur any additional indebtedness.
MEMORANDUM OF UNDERSTANDING
AmerUs and ILICO have agreed to certain principles and guidelines for the
post affiliation integration, operation and leadership of the combined
companies. These principles and guidelines are set forth in the Memorandum of
Understanding (attached as Appendix 6 to Part 2 of this Statement) and contained
in a letter from AmerUs to the Indiana Commissioner attached as Appendix 7 to
Part 2 of this Statement. Subject to the terms and conditions of the Memorandum
of Understanding and the letter to the Indiana Commissioner, these principles
and guidelines include the following: (i) identification of business activities
to be located in Des Moines, Iowa, Indianapolis, Indiana, Woodbury, New York,
and Topeka, Kansas (current sites of operations of AmerUs and ILICO); (ii)
description of the leadership role and some of the specific duties of ILICO's
Chief Executive Officer; (iii) membership of the Boards of Directors of AmerUs
and ILICO and election of the ILICO Chief Executive Officer as Vice Chairman of
the AmerUs Board; (iv) commitments to continuation of the ILICO name and brand
and to the continuation of employment in Indianapolis, Indiana at or near
historic levels (subject to enterprise wide reductions contemplated by the
Combination); and (v) commitments to the continuation of ILICO's prominent role
in community involvement and sponsorships and corporate giving at or above
current levels.
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<PAGE> 65
HISTORIC MARKET PRICES AND DIVIDENDS
ALH was a publicly traded company from 1997 until September 20, 2000, when
it was merged into AMHC and AMHC was renamed AmerUs. On February 20, 1998, ALH's
Class A common stock was listed and trading began on the New York Stock Exchange
under the symbol "AMH." Prior to such listing, ALH's Class A common stock was
listed and traded on the Nasdaq National Market System under the symbol "AMRS."
The AmerUs Common Stock is currently trading on the New York Stock Exchange
under the symbol "AMH." The following table sets forth, for the periods
indicated, the high and low sales prices per share of AmerUs' Common Stock and
ALH's Class A common stock as quoted on Nasdaq or the NYSE, as applicable, and
the dividends per share declared during such period.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
---- --- ---------
<S> <C> <C> <C>
1998
First Quarter............................................. 36 1/4 30 7/8 $0.10
Second Quarter............................................ 34 7/16 30 5/8 $0.10
Third Quarter............................................. 33 1/16 21 15/16 $0.10
Fourth Quarter............................................ 24 1/8 14 3/4 $0.10
1999
First Quarter............................................. 24 11/16 16 13/16 $0.10
Second Quarter............................................ 28 21 15/16 $0.10
Third Quarter............................................. 28 3/4 21 3/16 $0.10
Fourth Quarter............................................ 25 3/4 20 1/2 $0.10
2000
First Quarter............................................. 24 16 9/16 $0.10(1)
Second Quarter............................................ 20 1/8 18 --
Third Quarter............................................. 26 1/4 21 7/16 --
Fourth Quarter............................................ $0.40(2)
</TABLE>
---------------
(1) In February 2000, ALH announced that it changed its dividend policy from a
quarterly payment to an annual payment of $0.40 per share of common stock.
(2) AmerUs Group Co. annual dividend.
DIVIDENDS
The ALH board of directors declared and paid a quarterly dividend of $0.10
per share of common stock from the second quarter of 1997 until the first
quarter of 2000. In accordance with its current policy of declaring dividends
annually, on November 10, 2000 the AmerUs Board approved the first annual
payment of a dividend of $0.40 per share of common stock. Any payment of
dividends is subject to the discretion of the AmerUs Board and is dependent upon
AmerUs' financial condition, results of operations, cash requirements, future
prospects, regulatory restrictions on the payment of dividends by AmerUs' life
insurance subsidiaries and other factors deemed relevant by the AmerUs Board.
AmerUs' 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 the life insurance subsidiaries' 1999
results, AmerUs' life insurance subsidiaries could pay an estimated $61.1
million in dividends in 2000 without obtaining regulatory approval.
Under its bank credit facility, AmerUs is prohibited from paying dividends
on its common stock in excess of an amount equal to 3% of the AmerUs'
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, AmerUs' subsidiary trust, and
the 7.00% Adjustable Conversion-rate Equity Security Units ("ACES") issued in
1998 by AmerUs Capital II, AmerUs' subsidiary trust, AmerUs has agreed not to
38
<PAGE> 66
declare or pay any dividends on AmerUs' capital stock (including the AmerUs
Common Stock) during any period for which AmerUs elects to extend interest
payments on its junior subordinated debentures, except for stock dividends paid
by AmerUs where the dividend stock is the same stock as that on which the
dividend is being paid. Dividends on AmerUs' capital stock cannot be paid until
all accrued interest on the Capital Securities and ACES has been paid.
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<PAGE> 67
DESCRIPTION OF AMERUS CAPITAL STOCK
GENERAL
AmerUs is authorized to issue 250,000,000 shares of capital stock, of which
20,000,000 shares are preferred stock, no par value, and 230,000,000 are common
stock, no par value. In addition, a total of 8,415,000 shares of common stock
are reserved for issuance under the terms of the ACES, outstanding warrants (see
"-- Warrants," below) or options granted or available for grant under various
AmerUs benefit plans. AmerUs is also authorized to issue shares of preferred
stock on such terms as determined by the AmerUs board of directors (the
"Preferred Stock").
COMMON STOCK
Each share of AmerUs Common Stock entitles its holder to one vote per share
on all matters upon which shareholders are entitled to vote (including election
of directors, mergers, sales of assets other than in the regular course of
business, dissolution and amendments to the articles of incorporation). The
shares of AmerUs Common Stock are subject to the relative rights, preferences,
qualifications and limitations of any class or series of preferred stock. There
is no provision in AmerUs' articles of incorporation permitting cumulative
voting in the election of directors.
PREFERRED STOCK
The AmerUs Board is authorized, subject to any limitations prescribed by
law, from time to time to issue up to an aggregate of 20,000,000 shares of
preferred stock in one or more series, each of such series to have such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative, participating, optional or other special rights, and such
qualifications, limitations or restrictions thereof, as shall be determined by
the AmerUs Board in a resolution or resolutions providing for the issue of such
preferred stock; provided, however, that preferred stock may have no votes per
share but in no event shall preferred stock have more than one vote per share.
Thus, any series may, if so determined by the AmerUs Board, have full or limited
voting rights with the AmerUs Common Stock, be convertible into AmerUs Common
Stock or another security of AmerUs, and have such other relative rights,
preferences and limitations as the AmerUs Board shall determine. As a result,
any class or series of preferred stock could have rights which would adversely
affect the rights of the holders of the AmerUs Common Stock. The shares of any
class or series of preferred stock need not be identical. The issuance of a new
series of preferred stock, while providing desirable flexibility in connection
with possible acquisitions or other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or discouraging a third
party from acquiring, a majority of the outstanding voting stock of AmerUs.
CAPITAL SECURITIES SERIES A OF AMERUS CAPITAL I
The Capital Securities were issued through a wholly-owned subsidiary trust
of AmerUs, AmerUs Capital I. The sole asset of the trust is the junior
subordinated debentures of AmerUs in the principal amount of approximately $70
million bearing interest at 8.85% and maturing February 1, 2027. AmerUs 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. AmerUs may prepay the securities at anytime after February 1,
2007.
ADJUSTABLE CONVERSION-RATE EQUITY SECURITY UNITS OF AMERUS CAPITAL II
The ACES were issued through a wholly-owned subsidiary trust of AmerUs,
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. AmerUs is obligated to mandatorily redeem the capital securities on July
27, 2003. At September 30, 2000, 4,080,500 units were outstanding.
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<PAGE> 68
WARRANTS
As of September 30, 2000, AmerUs had outstanding warrants convertible into
473,596 shares of AmerUs Common Stock at an exercise price of $24.42 per share
of AmerUs Common Stock. The warrants expire on April 4, 2002.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS OF AMERUS
The following discussion is a summary of certain provisions of the articles
of incorporation and by-laws of AmerUs relating to shareholder voting rights,
advance notice requirements and other provisions which may be deemed to have an
"anti-takeover" effect. In addition to these provisions, the inability of the
holders of the common stock to elect a majority of the AmerUs Board at any one
annual meeting may also deter attempts to effect, or prevent the consummation
of, a change in control of AmerUs. These and other provisions affect shareholder
rights and should be given careful attention.
Indemnification and Limitation of Liability
AmerUs' articles of incorporation provide that no director of AmerUs is
liable to AmerUs or its shareholders for monetary damages for any breach of
fiduciary duty as a director, except to the extent otherwise required by the
Iowa Business Corporation Act ("IBCA"). This provision does not prevent
shareholders from obtaining injunctive or other equitable relief against
directors nor does it shield directors from liability under Federal or state
securities laws. In addition, the articles of incorporation provide that AmerUs
will, to the maximum extent permitted by law, indemnify any person who incurs
any loss by reason of the fact that he or she is or was or has agreed to be a
director, officer or employee of AmerUs or while a director, officer or employee
of AmerUs is or was serving at the request of AmerUs as a director, officer,
partner, trustee, employee or agent of any corporation, partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, subject to such person having met the standards of conduct
required for such indemnification under Iowa law.
Issuance of Common Stock, Preferred Stock and Other Rights
AmerUs believes that its ability to issue, by action of a majority of the
AmerUs Board, and without shareholder consent, the authorized but unissued
shares of AmerUs Common Stock, shares of preferred stock and other rights
provides AmerUs with the flexibility necessary to meet its future needs without
experiencing the time delay of having to seek shareholder approval. Unissued
shares of AmerUs Common Stock and preferred stock are issuable from time to time
for any corporate purpose, including, without limitation, stock splits, stock
dividends, employee benefit and compensation plans, acquisitions and public or
private sales for cash as a means of raising capital. It is possible that the
AmerUs Board might use its authority to issue AmerUs Common Stock, preferred
stock or other rights in a way that could deter or impede the completion of a
tender offer or other attempt to gain control of AmerUs of which the AmerUs
Board does not approve. AmerUs does not have any plans or commitments to use its
authority to effect any such issuance, but reserves the right to take any action
in the future which the AmerUs Board deems to be in the best interests of the
shareholders and AmerUs under the circumstances. It is not possible to state the
actual effect of any issuance of preferred stock upon the rights of holders of
AmerUs Common Stock because the AmerUs Board has not determined any issuance
price or prices, terms or rights relating to preferred stock. However, such
effects might include (i) restrictions on common stock dividends if preferred
stock dividends have not been paid; (ii) dilution of the voting power and equity
interest of existing holders of AmerUs Common Stock to the extent that any
preferred stock series has voting rights or would acquire voting rights upon the
occurrence of certain events (such as the failure to pay dividends for a
specified period) or that any preferred stock series is convertible into AmerUs
Common Stock; and (iii) current holders of AmerUs Common Stock not being
entitled to share in AmerUs' assets upon liquidation, dissolution or winding-up
until satisfaction of any liquidation preferences granted to any series of
preferred stock.
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<PAGE> 69
Board of Directors
The articles of incorporation provide that the number of company directors
will be determined pursuant to the by-laws, but must not be less than seven or
more than 21 directors (subject to the rights of the holders of any series of
preferred stock). The by-laws provide that the exact number of directors are to
be determined from time to time by the affirmative vote of a majority of the
entire AmerUs Board. At any meeting of the AmerUs Board, a majority of the
entire AmerUs Board constitutes a quorum for the transaction of business, and
subject to certain exceptions, at any meeting at which a quorum is present the
affirmative vote of a majority of the directors present constitutes the act of
the AmerUs Board. The AmerUs Board is divided into three classes, designated
Classes I, II and III, as nearly equal in number as possible. At each annual
meeting of shareholders following such initial classification and election, the
respective successors of each class shall be elected for three-year terms, and
each director holds office until such annual meeting and until his or her
successor is elected and qualified, unless the director dies, resigns, is
disqualified or is removed from office. Thus, approximately two-thirds of the
members of the board of directors at any time will have had prior board
experience. With such a staggered board of directors, at least two annual
meetings are normally required to effect a change in the composition of a
majority of the board of directors. Under the IBCA and AmerUs' articles of
incorporation, and subject to the rights of the holders of any series of
preferred stock, a majority of the board of directors though less than a quorum,
or the sole remaining director, may fill vacancies on the board of directors or
newly created directorships resulting from any increase in the authorized number
of directors. The by-laws provide that the holders of a majority of shares then
entitled to vote if an election of directors were held may remove any director
or the entire board of directors, with or without cause.
Limitations on Calling Special Meetings of Shareholders
Under Iowa law, special meetings of shareholders may be called by the board
of directors or by such other persons as may be authorized by the articles of
incorporation, the by-laws or Section 490.702(1)(b) of the IBCA. Under AmerUs'
by-laws, shareholder or shareholders holding at least 10% of the shares entitled
to vote on a particular matter may request a special meeting with respect to
such matter. In addition, the AmerUs Board and the Chairman of the AmerUs Board
may call a special meeting for any purpose unless otherwise prescribed by the
IBCA. The notice for a special meeting must set forth the purpose or purposes of
the meeting and, except as otherwise required by law or the articles of
incorporation, no business will be transacted at any special meeting of
shareholders other than the items of business stated in the notice.
Advance Notice Requirements
The by-laws establish advance notice procedures with regard to (i) the
nomination, other than by or at the direction of the AmerUs Board, of candidates
for election to the AmerUs Board (the "Nomination Provision") and (ii) certain
business to be brought before an annual meeting of shareholders of AmerUs (the
"Business Provision"). The Nomination Provision, by requiring advance notice of
nominations by shareholders, affords the AmerUs Board a meaningful opportunity
to consider the qualifications of the proposed nominees and, to the extent
deemed necessary or desirable by the AmerUs Board, to inform shareholders about
such qualifications. The Business Provision, by requiring advance notice of
business proposed to be brought before an annual meeting, provides a more
orderly procedure for conducting annual meetings of shareholders and provides
the AmerUs Board with a meaningful opportunity prior to the meeting to inform
shareholders, to the extent deemed necessary or desirable by the AmerUs Board,
of any business proposed to be conducted at such meeting, together with any
recommendation of the AmerUs Board. The Business Provision does not affect the
right of shareholders to make shareholder proposals for inclusion in proxy
statements for AmerUs' annual meetings of shareholders pursuant to the rules of
the Commission. In addition, neither the Nomination Provision nor the Business
Provision prevents any shareholder or shareholders holding at least 10% of the
shares entitled to vote on a particular matter from requesting a special meeting
with respect to such matter as described above in "Limitations on Calling
Special Meetings of Shareholders". Although these bylaw provisions do not give
the AmerUs Board any power to approve or disapprove of shareholder nominations
for the election of directors or of any other business desired by shareholders
to be conducted at an annual meeting, they may make it difficult for a third
party to conduct a solicitation of proxies to elect its own
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<PAGE> 70
slate of directors or otherwise attempt to obtain control of AmerUs, even if
such a solicitation or attempt might be beneficial to AmerUs and its
shareholders.
Amendment of Articles of Incorporation and By-laws
Except to the extent the articles of incorporation or by-laws otherwise
provide, the AmerUs Board may, upon the affirmative vote of a majority of the
entire board, amend or repeal any bylaw, provided that the shareholders may
specify particular provisions of the bylaw which may not be amended or repealed
by the AmerUs Board. The articles of incorporation may be amended with the
affirmative vote of the holders of a majority of the outstanding voting
securities of AmerUs having the right to vote generally in the election of
directors. Under Iowa law, certain proposed amendments to the articles of
incorporation which adversely affect the rights of a particular class of stock
must be approved by a majority of such class.
STATE STATUTORY PROVISIONS
Eligible Members should be aware that any merger or acquisition of AmerUs
by another entity or the acquisition or attempted acquisition of more than 10%
of the stock of AmerUs is subject to regulatory approval by the Iowa and Kansas
and, following consummation of the Combination, Arizona, Indiana and
Massachusetts insurance commissioners, as well as the New York insurance
superintendent. Section 490.1108 of the IBCA provides that in considering
acquisition proposals, directors may consider, in addition to the consideration
of the effects of any action on shareholders, the effects on AmerUs' employees,
suppliers, creditors, customers and the communities in which it operates, as
well as the long-term and short-term interests of AmerUs. Consideration of any
or all community interest factors is not a violation of the business judgment
rule, even if the directors reasonably determine that effects on a community or
other factors outweigh the financial or other benefits to AmerUs or a
shareholder or group of shareholders. Section 490.624A of the IBCA also includes
authorization of "poison pills" which include, without limitation, terms and
conditions of stock rights or options issued by a corporation that preclude or
limit the exercise, transfer or receipt of stock rights by persons owning or
offering to acquire a specified number or percentage of a corporation's
outstanding shares.
In addition, Section 508B.13 of Iowa's insurance law provide that, prior to
and for a period of five years following the effective date of AMHC's September
20, 2000 demutualization, a person, other than the reorganized company (i.e.,
AmerUs), an employee benefit plan or employee benefit trust sponsored by the
reorganized company, or as otherwise specifically provided for in the plan of
demutualization approved by the Iowa Insurance Commissioner, shall not directly
or indirectly acquire or offer to acquire the beneficial ownership of more than
five percent of any class of voting security of the reorganized company, and a
person, other than the reorganized company or other than an employee benefit
plan or employee benefit trust sponsored by the reorganized company, who
acquires five percent or more of any class of voting security of the reorganized
company prior to such demutualization or as specifically provided for in the
plan of demutualization, shall not directly or indirectly acquire or offer to
acquire the beneficial ownership of additional voting securities of the
reorganized company, unless the acquisition is approved by the Iowa Insurance
Commissioner as not being contrary to the interests of the policyholders of the
reorganized company or its life insurance company subsidiary and by the board of
directors of the reorganized company.
Section 490.1110 of the IBCA also imposes a 3 year moratorium on business
combinations with any person owning 10% or more of the outstanding voting stock
of the corporation and its affiliate unless (1) the transaction or acquisition
in which the shareholder became a 10% or more shareholder is approved in advance
by the board, (2) after becoming a 10% or more shareholder, the shareholder owns
at least eighty-five percent of the corporation's outstanding voting stock not
owned by directors and officers, and by employee stock plans that do not allow
individual employees to decide confidentially whether to tender their shares,
or, (3) at or after the time the shareholder became a 10% or more shareholder,
the business combination is approved by the board and authorized by the holders
of two-thirds of the outstanding voting stock not held by the 10% or more
shareholder.
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<PAGE> 71
The foregoing provisions of state law could have the effect of delaying,
deferring or preventing a change in control of AmerUs. In addition, other
regulatory restrictions on the acquisition of securities of AmerUs may also
deter attempts to effect, or prevent the consummation of, a change in control of
AmerUs.
SECURITY OWNERSHIP
PRINCIPAL HOLDERS
As of September 30, 2000, no person owned more than 5% of any class of
voting securities of AmerUs.
DIRECTORS AND OFFICERS
The following table sets forth the beneficial ownership of the AmerUs
Common Stock as of September 30, 2000 of each of the directors, certain
executive officers and all directors and executive officers as a group. The
percentage of AmerUs Common Stock owned by all directors and executive officers
as a group as of September 30, 2000 was [3.68]%.
<TABLE>
<CAPTION>
AMOUNT
AND NATURE
OF BENEFICIAL PERCENT OF
NAME OWNERSHIP(1) CLASS(2)
---- ------------- ----------
<S> <C> <C>
John R. Albers(10).......................................... 22,500 *
Wesley H. Boldt............................................. 0
Joseph A. Borgen, PhD. ..................................... 0
Roger K. Brooks(3)(4)(5)(9)(12)............................. 375,349 1.24%
Malcolm Candlish(10)(11).................................... 10,811 *
Thomas F. Gaffney(7)(10)(11)................................ 20,049 *
Ralph W. Laster, Jr.(6)(10)................................. 9,404 *
John W. Norris, Jr.(10)(11)................................. 7,105 *
Jack C. Pester(10)(11)...................................... 7,235 *
John A. Wing(10)(11)........................................ 13,364 *
F.A. Wittern, Jr. .......................................... 0 *
Michael G. Fraizer(3)(4)(9)(13)............................. 72,394 *
Thomas C. Godlasky(3)(4)(8)(9).............................. 131,480 *
Mark V. Heitz(4)(9)......................................... 265,069 *
Gary R. McPhail(3)(4)(9).................................... 114,968 *
Directors and executive officers as a group (16 persons).... 1,124,029 3.68%
</TABLE>
---------------
(1) Unless otherwise indicated, each person has sole voting and dispositive
power with respect to the shares shown. Some directors and executive
officers share the voting and dispositive power over their shares with
their spouses as community property, joint tenants or tenants in common.
(2) An (*) indicates that the individual's ownership interests of AmerUs Common
Stock is less than one percent.
(3) Includes shares of restricted stock which has vesting and transfer
restrictions for three (3) years from the date of grant: Mr. Brooks, 6,000;
Mr. Godlasky, 2,000; Mr. McPhail, 2,000; Mr. Fraizer, 600; and all
executive officers as a group, 11,600.
(4) Includes beneficial interest in shares of AmerUs Common Stock held pursuant
to the Company's Saving & Retirement Plan. The attributed shares owned by
the Company's Savings & Retirement Plan are voted by the trustees as
directed by their respective participants.
(5) Includes 6,000 shares owned by his spouse.
(6) Includes 7,156 shares owned by the Jerri S. Laster Trust, of which Mr.
Laster is a co-trustee.
(7) Includes 12,017 shares owned by his spouse through the Donna L. Gaffney
Trust.
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<PAGE> 72
(8) Includes 12,063 shares and 669 shares of AmerUs Common Stock owned by his
spouse and his daughter, respectively.
(9) Includes shares of AmerUs Common Stock that may be purchased upon the
exercise of employee stock options exercisable on September 30, 2000 or
within sixty (60) days thereafter: Mr. Heitz, 161,724; Mr. Brooks, 188,334;
Mr. McPhail, 73,400; Mr. Godlasky, 63,400; Mr. Fraizer, 25,050; and all
executive officers as a group, 554,458.
(10) Includes shares of AmerUs Common Stock that were granted pursuant to the
AmerUs Non-Employee Stock Option Plan and may be purchased upon the
exercise of stock options exercisable on September 30, 2000 or within sixty
(60) days thereafter: Mr. Albers, 2,500; Mr. Candlish, 2,500; Mr. Gaffney,
2,500; Mr. Norris, 2,500; Mr. Pester, 2,500; Mr. Wing, 2,500; and Mr.
Laster, 834.
(11) Includes shares of Common Stock that were acquired through the Non-Employee
Director Stock Plan which has vesting and transfer restrictions for two (2)
years after the date of purchase: Mr. Gaffney, 3,121; Mr. Norris, 2,695;
Mr. Candlish, 2,880; Mr. Pester, 2,830; and Mr. Wing, 125.
(12) Includes 336 shares of Common Stock that were acquired pursuant to the
Company's Warrant Agreement and may be purchased upon the exercise of
warrants exercisable on September 30, 2000 or sixty (60) days thereafter.
(13) Includes 10,300 shares owned by his spouse.
45
<PAGE> 73
FEDERAL TAX CONSEQUENCES
It is a condition to the effectiveness of the Plan of Conversion that
AmerUs and ILICO receive an opinion from special tax counsel or a ruling from
the Internal Revenue Service regarding the Federal income tax consequences of
the Conversion and Combination. AmerUs and ILICO will receive an opinion from
special tax counsel providing as follows:
- No income, gain or loss will be recognized by ILICO as a result of
ILICO's conversion from a mutual to a stock company or the merger of CLA
into ILICO.
- No income, gain or loss will be recognized by ILICO members who receive
solely shares of AmerUs Common Stock as a result of the Conversion and
Combination.
- ILICO members receiving solely cash in redemption of their Membership
Interests pursuant to the Conversion and Combination will be treated as
having sold their Membership Interests for the amount of cash received,
and any gain will generally be taxed at capital gains rates to the extent
that the Membership Interest was a capital asset in the member's hands.
- The transfer of consideration in the form of policy credits with respect
to ILICO Membership Interests associated with tax sheltered annuities,
individual retirement annuities or individual life insurance policies or
annuity contracts issued to participants in qualified retirement plans
will not adversely affect the tax-favored status of such policies and
contracts under the Internal Revenue Code, will not be a distribution
that is subject to withholding or is taxable to the employee or
beneficiary under the contract or policy, and will not result in the
imposition of any penalty for premature distributions or excessive
contributions.
- No income, gain or loss will be recognized by ILICO, AmerUs or CLA as a
result of the Combination.
- No income, gain or loss will be recognized by AmerUs shareholders as a
result of the Combination.
The opinions of special tax counsel described above will be based on the
accuracy of representations, statements and undertakings made by AmerUs and
ILICO. These opinions will be under the Internal Revenue Code, and applicable
Treasury regulations, administrative interpretations, and judicial
interpretations, all as in effect on the date of the opinions. There can be no
assurance that future changes in applicable law or administrative or judicial
interpretations thereof, which changes may have retroactive effect, will not
adversely affect the tax consequences described above. The discussion above is
for general information only, addresses only Federal income tax consequences,
and does not attempt to address all possible tax consequences that might apply
to any given taxpayer. Members of ILICO and shareholders of AmerUs should
consult their own tax advisors as to the tax treatment applicable to their
specific circumstances, including the potential impact of state, local and
foreign taxes.
ACCOUNTING MATTERS
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of ILICO and its subsidiaries and
AmerUs and its subsidiaries included in this Statement have been prepared in
accordance with accounting principles generally accepted in the United States
("GAAP"). All significant intercompany balances and transactions have been
eliminated.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The Unaudited Pro Forma Condensed Consolidated Financial Data in this
Statement is based upon certain assumptions, as described in the Unaudited Pro
Forma Condensed Consolidated Financial Data, and is included for informational
purposes only. The Combination will be accounted for under the purchase method
of accounting, in accordance with generally accepted accounting principles.
Giving effect to the Combination under purchase accounting, the total purchase
cost of ILICO will be allocated to the assets and liabilities acquired based on
the relative fair values as of the date of acquisition, with any excess of the
fair value of the
46
<PAGE> 74
assets acquired less the fair value of the liabilities assumed over the purchase
price recorded as a reduction of non-current assets (value of business
acquired). The cost allocations, primarily related to value of business
acquired, deferred acquisition costs, and mortgage loans, are based on studies
which are not yet completed. Accordingly, the final allocations may differ from
the amounts reflected here due to interest rate fluctuations, operating
experience, and results of operations through the date of closing. Although the
final allocations may differ, the Unaudited Pro Forma Condensed Consolidated
Financial Data reflects management's best estimate based on currently available
information and the differences between the current and final allocations are
not expected to be material.
INDEPENDENT AUDITORS
The consolidated financial statements ILICO and subsidiaries at December
31, 1999 and 1998, and for each of the three years in the period ended December
31, 1999, appearing elsewhere herein, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given the authority of
such firm as experts in accounting and auditing. Representatives of Ernst &
Young LLP are expected to be present at the Special Meeting of ILICO's members,
and to be given the opportunity to make a statement if they desire to do so and
to be available to respond to appropriate questions.
The consolidated financial statements and financial statement schedules of
AmerUs as of December 31, 1999, and for each of the three years in the period
ended December 31, 1999, have been incorporated by reference herein (see
"FINANCIAL INFORMATION CONCERNING AMERUS AND SUBSIDIARIES" and "WHERE YOU CAN
FIND MORE INFORMATION") in reliance upon the reports of KPMG LLP, independent
auditors, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. Representatives of KPMG LLP are expected to
be present at the Special Meeting of AmerUs shareholders, and to be given the
opportunity to make a statement if they desire to do so and to be available to
respond to appropriate questions.
47
<PAGE> 75
SELECTED CONSOLIDATED FINANCIAL DATA OF ILICO
The following table sets forth certain financial data of ILICO. The
selected consolidated financial data below for each of the four years ending
December 31, 1999 are derived from the Consolidated Financial Statements of
ILICO, which financial statements have been audited by Ernst & Young LLP,
independent auditors. The selected consolidated financial data provided below
for the nine months ended September 2000 and 1999 are derived from the unaudited
consolidated financial statements of ILICO. In the opinion of management, the
unaudited financial data for the nine months ended September 30, 2000 and 1999
present fairly the consolidated financial statements for such periods in
conformity with GAAP.
The information in the following tables is based on, and should be read
together with, the historical financial information set forth in Appendix 1 and
Appendix 2 of Part 2 of this Statement.
<TABLE>
<CAPTION>
AS OF OR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) AS OF OR FOR THE YEAR ENDED DECEMBER 31,(C)
------------------- ---------------------------------------------
2000 1999 1999 1998 1997 1996
-------- -------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Revenues:
Premiums.................................. $ 127.8 $ 128.5 $ 165.2 $ 168.5 $ 186.4 $ 170.5
Policy and contract charges............... 55.3 45.3 64.5 44.4 26.0 26.7
Net investment income..................... 206.4 192.0 256.9 194.1 145.8 127.1
Net realized capital gains (losses)....... 8.8 (8.3) 4.8 8.2 4.4 (0.9)
-------- -------- -------- -------- -------- --------
Total revenues.......................... 398.3 357.5 491.4 415.2 362.6 323.4
-------- -------- -------- -------- -------- --------
Benefits and expenses:
Policy benefits........................... 263.3 232.2 312.8 256.9 224.0 200.2
Underwriting, acquisition and insurance
expenses................................ 97.7 99.1 140.4 92.6 78.1 74.5
Dividends to policyowners................. 22.4 25.4 33.0 32.3 34.2 34.0
-------- -------- -------- -------- -------- --------
Total benefits and expenses............. 383.4 356.7 486.2 381.8 336.3 308.7
-------- -------- -------- -------- -------- --------
Income before interest expense.............. 14.9 0.8 5.2 33.4 26.3 14.7
Interest expense............................ 1.6 1.6 2.2 2.2 2.1 1.4
-------- -------- -------- -------- -------- --------
Income (loss) before federal income taxes
and minority interest..................... 13.3 (0.8) 3.0 31.2 24.2 13.3
Federal income taxes........................ 7.2 0.3 1.6 8.6 8.8 5.4
Minority interest in consolidated
subsidiaries(B)........................... 2.2 3.9 2.2 1.4 -- --
-------- -------- -------- -------- -------- --------
Net income (loss)....................... $ 3.9 $ (5.0) $ (0.8) $ 21.2 $ 15.4 $ 7.9
======== ======== ======== ======== ======== ========
Earnings per share (A)...................... N/A N/A N/A N/A N/A N/A
CONSOLIDATED BALANCE SHEET DATA:
Total cash and investments.................. $4,941.4 $4,944.0 $5,093.8 $4,056.5 $2,482.0 $1,817.1
Total assets................................ 6,017.9 5,956.1 6,123.8 4,864.7 2,996.5 2,137.0
Total liabilities........................... 5,604.7 5,576.7 5,754.3 4,479.6 2,682.2 1,854.1
Minority interest in consolidated
subsidiaries.............................. 104.5 75.2 71.7 57.7 8.9 --
Total policyowners' surplus................. 308.7 304.2 297.8 327.4 305.4 282.9
</TABLE>
---------------
(A) ILICO is a mutual life insurance company and therefore has no shares of
common stock.
(B) Minority interest in consolidated subsidiaries represents the minority
stockholders' ownership percentage share of net income of ILICO's
subsidiary, ILGC. The minority stockholder ownership percentage was 38.7%
and 27.8% for the years ended December 31, 1999 and 1998, respectively, and
45.0% and 38.7% for the nine months ended September 30, 2000 and 1999,
respectively.
(C) GAAP financial information is not available for 1995.
48
<PAGE> 76
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION OF ILICO AND SUBSIDIARIES
The following analysis of the consolidated results of operations and
financial condition of the Company (as defined in the next paragraph) should be
read in conjunction with the Selected Consolidated Financial Data of ILICO and
ILICO's Consolidated Financial Statements and related notes set forth in the
Appendices to this Statement.
NATURE OF OPERATIONS
ILICO is a mutual insurance company engaged in the business of marketing,
underwriting and distributing individual life and annuity products. ILICO is
incorporated in the State of Indiana and conducts business in 46 states and the
District of Columbia. ILICO owns a 55% interest in ILGC. ILGC is a holding
company that owns four principal subsidiaries: IL Annuity, Bankers Life, Western
Security and IL Securities. The Consolidated Financial Statements of ILICO and
Management's Discussion and Analysis of Financial Condition and Results of
Operations include the accounts and operations of ILICO and ILGC, IL Annuity,
Bankers Life, Western Security and IL Securities (for purposes of the
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION OF ILICO AND SUBSIDIARIES" in this section of the Statement and
ILICO's Consolidated Financial Statements set forth in the Appendices, these
companies are referred to collectively as the "Company").
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In accordance with GAAP, 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. Interest sensitive life insurance premiums
and annuity deposits received are reflected as increases in liabilities for
policyowner account balances and not as revenues. Revenues reported for interest
sensitive 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 interest
sensitive 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 interest sensitive life and annuity 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 interest sensitive life and annuity policyowners, the majority of
which is passed through to such policyowners in the form of interest credited or
a total return adjustment.
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 to the
extent that such costs are deemed collectible. The method of amortizing deferred
policy acquisition costs for life insurance product 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 and interest sensitive 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
49
<PAGE> 77
ability to mitigate adverse experience through adjustments to credited interest
rates, policyowner dividends or cost of insurance charges.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999.
The following table sets forth information regarding the Company's
insurance sales activity by product:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2000 1999
--------- ----------
($ IN THOUSANDS)
<S> <C> <C>
Life Premiums:
Traditional life insurance:
Whole life................................................ $ 1,278 $ 2,302
Term life................................................. 5,805 7,779
Interest sensitive life..................................... 23,844 15,775
--------- ----------
Sub-total................................................. 30,927 25,856
Reinsurance assumed......................................... 3,841 4,725
Reinsurance ceded........................................... (7,082) (6,980)
--------- ----------
Total life premiums, net of reinsurance(1)................ $ 27,686 $ 23,601
========= ==========
Annuity Premiums:
Fixed..................................................... $ 190,844 $1,161,026
Variable.................................................. 56,695 74,816
--------- ----------
Sub-total................................................. 247,539 1,235,842
Reinsurance assumed......................................... -- --
Reinsurance ceded........................................... (123,754) (859,980)
--------- ----------
Total Annuity Premiums(2)................................. $ 123,785 $ 375,862
========= ==========
</TABLE>
---------------
(1) Annualized premiums
(2) Annuity collected premium 1st year
Total direct life insurance sales as measured by annualized premiums
increased $5.0 million to $30.9 million for the nine months ended September 30,
2000 compared to $25.9 million for the same period in 1999. The Company has
shifted its focus from traditional life products to interest sensitive products
which resulted in a decline in whole life and term products in 2000 as compared
to 1999 and an increase in interest sensitive life products between the periods.
The Company also private labels various whole life, term and interest sensitive
life products. The products are issued by the Company's private label partners
and then assumed in whole or in part by the Company. Sales through this
distribution channel totaled $3.8 million for the first nine months of 2000 and
$4.7 million for the same period in 1999.
Annuity sales declined significantly to $247.5 million for the first nine
months of 2000 from $1,235.8 million for the same period in 1999. The majority
of the Company's fixed annuity sales are produced by one independent marketing
organization, Legacy Marketing Group ("LMG"). Due to a variety of factors such
as product performance, competition, market conditions and delays with the
introduction of new products, fixed annuity sales from LMG decreased during the
first nine months of 2000 by $970 million from prior year sales levels. Sales of
fixed annuities by LMG for the entire year of 2000 are projected to be
approximately $200 million as compared to full year sales for 1999 in excess of
$1.3 billion. Variable annuity sales also declined in the first nine months of
2000 as compared to the same period in 1999 primarily due to delays in the
introduction of new products.
50
<PAGE> 78
A summary of the Company's revenue follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
Premiums.................................................... $127,785 $128,541
Policy and contract charges................................. 55,313 45,310
Net investment income....................................... 206,385 191,975
Net realized capital gains (losses)......................... 8,846 (8,334)
-------- --------
Total..................................................... $398,329 $357,492
======== ========
</TABLE>
Premiums were $127.8 million for the nine months ended September 30, 2000
compared to $128.5 million for the same period in 1999. Premiums primarily
consist of traditional term and participating product premiums. The decrease in
premiums in 2000 as compared to 1999 was primarily due to the shift in sales
focus from these traditional products to interest sensitive life products. As
explained previously, interest sensitive life insurance premiums are reflected
as increases in liabilities for policyowner account balances and the revenues on
these products are reflected as policy charges, which are discussed below. This
shift in sales focus is expected to continue in future periods.
Policy and contract charges increased $10 million to $55.3 million for the
nine months ended September 30, 2000 as compared to $45.3 million for the same
period in 1999. Policy and contract charges primarily consist of charges for the
cost of insurance, administrative charges and surrender charges assessed on
interest sensitive life and annuity product policyowner account balances. The
increase in 2000 as compared to 1999 primarily resulted from the growth in
interest sensitive life product sales mentioned above combined with increased
surrender charges on annuities. Annuity withdrawal rates averaged 17.6% for the
first nine months of 2000 compared to 7.25% for the first nine months of 1999.
The Company experienced a higher than expected increase in annuity withdrawal
rates due to product performance, increased competition and market conditions.
Annuity withdrawal rates for the near term are anticipated to run at a higher
level as compared to a year ago.
Net investment income was $206.4 million for the nine months ended
September 30, 2000 compared to $192.0 million for the same period in 1999. The
increase in 2000 was primarily attributable to higher average invested assets
(excluding market value adjustments). Average invested assets were approximately
$517.3 million higher between the nine-month periods primarily due to the growth
of the Company's annuity business. Partially offsetting this increase in average
invested assets was a lower effective yield. The effective yield of the
investment portfolio decreased 21 basis points to 5.48% for the first nine
months of 2000 as compared to 5.69% for the same period in 1999. The decrease in
yield primarily resulted from lower investment yields on assets acquired in 2000
versus the portfolio yield in the prior period. The effective yield of the
portfolio is lower than would typically be expected due to the Company's higher
mix of convertible bonds in its investment portfolio. The convertible bonds back
a majority of the Company's annuity products, and while convertible bonds
typically result in lower investment income, they provide the potential for
superior total returns through realized capital gains, which are passed through
to the annuity policyholders through a total return adjustment.
Realized capital gains on investments were $8.8 million for the nine months
ended September 30, 2000 compared to realized capital losses of $8.3 million for
the same period in 1999. The level of realized capital gains and losses will
fluctuate from period to period depending on the prevailing interest rate and
economic environment and the timing of the sale of investments.
51
<PAGE> 79
A summary of the Company's benefits and expenses follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
Policy benefits............................................. $263,265 $232,182
Underwriting, acquisition and insurance expenses............ 50,616 69,222
Amortization of deferred policy acquisition costs........... 47,039 29,850
Interest.................................................... 1,624 1,624
Dividends to policyowners................................... 22,441 25,378
-------- --------
Total....................................................... $384,985 $358,256
======== ========
</TABLE>
Policy benefits increased $31.1 million to $263.3 million for the nine
months ended September 30, 2000 as compared to $232.2 million for the same
period in 1999. Policy benefits primarily consist of death and surrender
benefits and changes in reserves on traditional products, death benefits in
excess of account value and interest credited on policyowner account balances
for interest sensitive and annuity products, and mod-co reinsurance interest
payments. In addition, in 1999, policy benefits included approximately $4.0
million of non-recurring expenses related to the settlement of a reinsurance
agreement. The increase in policy benefits in 2000 was due in part to increased
life insurance benefits of approximately $9.2 million. Interest credited on
interest sensitive life and annuity policyowner account balances also
contributed to the increase in policy benefits. Average interest sensitive life
and annuity account balances increased approximately $130 million in 2000 and
the weighted average crediting rate on interest sensitive life and deferred
fixed annuities increased 41 basis points to 3.82%, resulting in approximately a
$3.5 million increase in interest credited. The interest crediting rate on
annuities represents a base crediting rate. In addition to this base rate,
policyowners are credited with a total return adjustment based on the
performance of the Company's annuity investment portfolio. The remainder of the
increase in policy benefits was primarily due to increased mod-co reinsurance
interest payments associated with the increased annuity portfolio. This increase
is offset by the growth in net investment income discussed previously.
Underwriting, acquisition and insurance expenses decreased $18.6 million to
$50.6 million for the nine months ended September 30, 2000 compared to $69.2
million for the same period in 1999. The 1999 period included approximately
$32.2 million of non-recurring expenses of which approximately $31.8 million
related to the legal settlement of a class action lawsuit and $0.4 million
related to Year 2000 external readiness costs. Excluding these non-recurring
expenses from the 1999 nine-month expense amount, underwriting, acquisition and
insurance expenses increased approximately $13.6 million in 2000. The 2000
period also included non-recurring expenses which totaled approximately $14.9
million. The 2000 non-recurring expenses consisted of $10.7 million of
demutualization expenses and $4.2 million of integration expenses.
Amortization of deferred policy acquisition costs was $47.0 million for the
nine months ended September 30, 2000 compared to $29.9 million for the same
period in 1999. Deferred policy acquisition costs are generally amortized in
proportion to gross margins. The increase in amortization in 2000 reflected the
increase in annuity withdrawals, lower projected future margins related to the
Company's annuity business, and increased current margins related to increased
realized capital gains. As discussed previously, annuity withdrawal rates have
increased in 2000 which resulted in increased amortization of the deferred
acquisition costs associated with these surrendered annuities. In addition, the
higher withdrawal rates are expected to continue at these higher levels into the
following year, which results in lower projected future margins. Approximately
$7.6 million of the increased amortization in 2000 related to the higher
withdrawal rates and approximately $7.0 million related to the increased
realized capital gains. The remainder of the increase is related to the growth
of the deferred acquisition cost asset being amortized as the Company's life
business continues to grow.
52
<PAGE> 80
Interest expense was $1.6 million for both the nine months ended September
30, 2000 and 1999. Interest expense for both periods reflected nine months of
interest expense on the Company's $25 million, 8.66% outstanding surplus note.
Dividends to policyowners decreased $3.0 million to $22.4 million for the
nine months ended September 30, 2000 from $25.4 million for the same period in
1999 due to the reduction the Company made in its dividend scale September 30,
1999.
Income before federal income taxes and minority interest was $13.3 million
for the nine months ended September 30, 2000 compared to a loss before federal
income taxes and minority interest of $0.8 million for the same period in 1999.
The increase in pre-tax and minority interest income in 2000 primarily resulted
from $17.2 million more realized capital gains, $17.7 million less non-recurring
policy and insurance expenses, partially offset by approximately $14.6 million
higher deferred policy acquisition cost amortization related to the increased
annuity withdrawals and higher realized capital gains and approximately $9.2
million increased life insurance benefits.
Federal income tax expense was $7.2 million for the nine months ended
September 30, 2000 compared to $0.3 million for the same period in 1999. The
effective income tax rate for the 2000 period was 54.1%. The 2000 rate exceeded
the prevailing corporate rate of 35% primarily due to non-deductible expenses
associated with the Company's demutualization. For the 1999 period, the Company
had income tax expense, even though it had incurred a pre-tax loss, primarily
due to the differential earnings tax applicable to mutual insurance companies.
Minority interest represents the minority stockholders ownership percentage
share of consolidated net income of ILICO's subsidiary, ILGC. The minority
stockholder ownership percentage was 45.0% and 38.7% for the nine months ended
September 30, 2000 and 1999, respectively.
Net income was $3.9 million for the nine months ended September 30, 2000
compared to a net loss of $5.0 million for the same period in 1999. The increase
in net income in 2000 primarily resulted from the increased realized gains and
decreased non-recurring expenses discussed previously. Partially offsetting
these increases to net income were the increased life insurance benefit expenses
and increased amortization of annuity related deferred policy acquisition costs.
However, the increased amortization expense only impacted net income by
approximately 55% of the after-tax amount since this expense is part of the ILGC
consolidated operations and only the Company's ownership percentage share of
these operations impact the Company's net income. In contrast, the Company's
1999 net income was impacted by 100% of the non-recurring insurance expenses as
these expenses were incurred by the parent company.
53
<PAGE> 81
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The following table sets forth information regarding the Company's
insurance sales activity by product:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Life Premiums:
Traditional life insurance:
Whole life.................................... $ 3,133 $ 5,779 $ 6,036
Term life..................................... 9,878 6,049 4,246
Interest sensitive life......................... 22,624 18,545 13,381
---------- ---------- --------
Sub-total..................................... 35,635 30,373 23,663
Reinsurance assumed............................. 6,449 6,379 5,498
Reinsurance ceded............................... (11,595) (6,895) (3,497)
---------- ---------- --------
Total life premiums, net of reinsurance(1).... $ 30,489 $ 29,857 $ 25,664
========== ========== ========
Annuity Premiums:
Fixed......................................... $1,315,744 $1,523,682 $584,960
Variable...................................... 95,659 127,080 63,772
---------- ---------- --------
Sub-total..................................... 1,411,403 1,650,762 648,732
Reinsurance assumed............................. -- -- --
Reinsurance ceded............................... (968,415) (1,188,332) (454,130)
---------- ---------- --------
Total Annuity Premiums(2)..................... $ 442,988 $ 462,430 $194,602
========== ========== ========
</TABLE>
---------------
(1) Annualized premiums
(2) Annuity collected premium 1st year
Total direct life insurance sales as measured by annualized premiums
increased $5.2 million to $35.6 million in 1999 compared to $30.4 million in
1998 and $23.7 million in 1997. As discussed previously, the Company has shifted
its focus from traditional products to interest sensitive products which has
resulted in a decline in whole life product sales and an increase in interest
sensitive life sales. Although the Company's focus has primarily been on
interest sensitive products, the Company did experience an increase in term
sales in 1998 and 1999. This increase was primarily driven by increased consumer
demand for term products during that period as consumers anticipated term
product price increases beginning in 2000. Assumed sales from the Company's
private label partners totaled $6.4 million in 1999 and 1998 as compared to $5.5
million in 1997. The increase was primarily the result of the addition of new
private label partners in 1998.
Annuity sales were $1,411.4 million in 1999 compared to $1,650.8 million in
1998 and $648.7 million in 1997. As discussed previously, the majority of the
Company's annuity sales are from LMG. This relationship with LMG, which began in
late 1996, resulted in increased sales in 1998 and 1999 as compared to 1997.
Total sales from LMG were $1,284.9 million, $1,485.4 million and $532.2 million
for 1999, 1998 and 1997, respectively. Variable annuity sales were $95.7 million
in 1999 compared to $127.1 million in 1998 and $63.8 million in 1997. The
decline in 1999 sales was primarily due to increased competition while the
growth in 1998 sales was primarily driven by new products.
54
<PAGE> 82
A summary of the Company's revenue follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Premiums........................................... $165,234 $168,538 $186,386
Policy and contract charges........................ 64,466 44,453 26,050
Net investment income.............................. 256,905 194,081 145,757
Net realized capital gains (losses)................ 4,823 8,201 4,435
-------- -------- --------
Total............................................ $491,428 $415,273 $362,628
======== ======== ========
</TABLE>
Premiums were $165.2 million for 1999 compared to $168.5 million for 1998
and $186.4 million for 1997. The decrease in premiums in 1999 as compared to
1998 and 1997 was primarily due to the shift in sales focus from these
traditional products to interest sensitive life products. This shift in sales
focus is expected to continue in future periods.
Policy and contract charges increased $20.0 million to $64.5 million in
1999 as compared to $44.5 million in 1998 and $26.1 million in 1997. The
increase in 1999 as compared to 1998 and 1997 primarily resulted from the growth
in interest sensitive life products sales mentioned above combined with
increased surrender charges on annuities. Annuity withdrawal rates averaged
9.43% for 1999 compared to 4.38% and 2.97% for 1998 and 1997, respectively. An
increase in withdrawal rates is expected as the annuity block of business ages.
In addition, the Company experienced a higher than expected increase in annuity
withdrawal rates in 1999 due to increased competition, product performance and
market conditions.
Net investment income was $256.9 million in 1999 compared to $194.1 million
in 1998 and $145.8 million in 1997. The increase in 1999 was primarily
attributable to higher average invested assets (excluding market value
adjustments). Average invested assets were approximately $4.6 billion in 1999 as
compared to $3.3 billion in 1998 and $2.1 billion in 1997. The increase in
average invested assets was primarily due to the growth of the Company's annuity
business. Partially offsetting this increase in average invested assets was a
decline in the effective portfolio yield. The effective yield of the investment
portfolio decreased 32 basis points to 5.62% in 1999 as compared to 5.94% in
1998 and 6.78% in 1997. The decline in the effective yield resulted primarily
from the change in the Company's invested asset mix which was driven by the
annuity products the Company offered. The Company increased its portfolio
allocation to convertible bonds to back its annuity products. The convertible
bonds typically result in lower investment income but provide the potential for
superior total returns through realized capital gains, which are passed through
to the annuity policyholders through a total return adjustment.
Realized capital gains on investments were $4.8 million in 1999 compared to
$8.2 million in 1998 and $4.4 million in 1997. The level of realized capital
gains and losses will fluctuate from period to period depending on the
prevailing interest rate and economic environment and the timing of the sale of
investments.
A summary of the Company's benefits and expenses follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Policy benefits.................................... $312,845 $256,853 $223,955
Underwriting, acquisition and insurance expenses... 88,589 53,874 51,684
Amortization of deferred policy acquisition
costs............................................ 51,858 38,763 26,407
Interest........................................... 2,165 2,165 2,165
Dividends to policyowners.......................... 32,982 32,349 34,252
-------- -------- --------
Total............................................ $488,439 $384,004 $338,463
======== ======== ========
</TABLE>
Policy benefits increased $55.9 million to $312.8 million in 1999 as
compared to $256.9 million in 1998 and $224.0 million in 1997. The 1999 policy
benefits include approximately $5.2 million of non-recurring
55
<PAGE> 83
expenses related to the settlement of a reinsurance agreement. The remaining
increase in policy benefits in 1999 over 1998 and the increase in 1998 over 1997
was due in part to increased life insurance benefits of approximately $13.1
million in 1999 and $6.4 million in 1998. Interest credited on interest
sensitive life and annuity policyowner account balances also contributed to the
increase in 1999 and 1998 policy benefits as compared to the previous year.
Interest credited increased approximately $7.4 million in 1999 and $5.7 million
in 1998 primarily due to increases in average interest sensitive life and
annuity account balances. Average interest sensitive life and annuity account
balances increased approximately $242 million in 1999 while the weighted average
crediting rate decreased 56 basis points to 3.66%. In 1998, average interest
sensitive life and annuity account balances increased $222 million with a 69
basis point drop in crediting rates. As explained previously, these crediting
rates on annuities are base rates and policyowner account balances are also
credited with a total return adjustment based on the performance of the
Company's annuity investment portfolio. The remainder of the increase in 1999
and 1998 policy benefits was due to increased mod-co reinsurance interest
payments associated with the growth in the annuity block of business.
Underwriting, acquisition and insurance expenses increased $34.7 million to
$88.6 million in 1999 compared to $53.9 million in 1998 and $51.7 million in
1997. The 1999 period included approximately $33.6 million of non-recurring
expenses of which approximately $32.7 million related to the legal settlement of
a class action lawsuit and $0.9 million related to Year 2000 external readiness
costs. Excluding these non-recurring expenses from the 1999 expense amount,
underwriting, acquisition and insurance expenses increased approximately $1.1
million in 1999. Underwriting, acquisition and insurance expenses increased $2.2
million in 1998 compared to 1997. In 1998 there were approximately $3.0 million
of non-recurring expenses related to Year 2000 external readiness costs.
Excluding these non-recurring expenses from the 1998 expense amount,
underwriting, acquisition and insurance expenses decreased approximately $0.8
million.
Amortization of deferred policy acquisition costs was $51.9 million in 1999
compared to $38.8 million in 1998 and $26.4 million in 1997. Deferred policy
acquisition costs are generally amortized in proportion to gross margins. The
increase in amortization in 1999 and 1998 was primarily due to higher gross
margins due to reserve changes combined with the growth of the deferred
acquisition cost asset being amortized as the Company's annuity and life
business continued to grow.
Interest expense was $2.2 million for 1999, 1998 and 1997. Interest expense
for the periods reflected twelve months of interest expense on the Company's $25
million, 8.66% outstanding surplus note.
Dividends to policyowners increased $0.7 million to $33.0 million in 1999
as compared to $32.3 million in 1998. Dividends to policyowners decreased $1.9
million to $32.3 million in 1998 from $34.2 million in 1997, due to the
reduction the Company made in its dividend scale.
Income before federal income taxes and minority interest was $2.9 million
in 1999 compared to income before federal income taxes and minority interest of
$31.3 million in 1998 and $24.2 million in 1997. The decrease in pre-tax and
minority interest income in 1999 as compared to 1998 primarily resulted from the
$33.6 million of non-recurring expenses incurred that year while the increase in
1998 as compared to 1997 was primarily related to higher realized capital gains
and the growth of the annuity business.
Federal income tax expense was $1.6 million in 1999 compared to $8.6
million in 1998 and $8.8 million in 1997. The effective income tax rate was
53.3% for 1999 and 27.6% for 1998 and 36.3% for 1997. The effective tax rates
varied from the prevailing corporate rate of 35% primarily due to the
differential earnings tax applicable to mutual insurance companies and tax
credits generated by low income housing investments.
Minority interest represents the minority stockholders ownership percentage
share of consolidated net income of ILICO's subsidiary, ILGC. The minority
stockholder ownership percentage was 38.7% and 27.8% for the 1999 and 1998,
respectively.
Net loss was $0.8 million 1999 compared to a net income of $21.2 million
for 1998 and $15.4 million for 1997. The changes in net income each year were
primarily due to the changes in non-recurring expenses, capital gains and the
growth of the annuity business discussed previously.
56
<PAGE> 84
LIQUIDITY
Cash inflows of the Company consist of premiums and annuity considerations,
deposit funds, investment income and the proceeds from sales or maturities of
investments. Cash outflows consist primarily of payments for investments
acquired, interest on a surplus note, benefits to policyowners and
beneficiaries, operating expenses, commissions, dividends to policyowners and
taxes. Cash outflows also include payments for policy and contract surrenders,
withdrawals and loans.
In addition to a matching between assets and liabilities, certain of the
Company's assets are highly liquid and available to meet immediate cash flow
demands. The Company considers long term invested assets to be an appropriate
reserve for prospective "inordinate" liquidity demands due to the high quality
and marketability of bonds, the preponderance of publicly traded bonds and the
limitations placed on forward commitments for mortgages and private placement
bonds by the Company's investment policy.
The liquidity needs of the Company vary by product. Factors that affect
each products' relative liquidity needs include, but are not limited to,
interest rate levels, contract size and customer sophistication, termination and
surrender charges, federal income taxes, specificity of benefit payments and
level of underwriting risk.
Cash flow requirements are somewhat unpredictable because most of the life
insurance and annuity products offered by the Company permit the policyowner or
contract holder to borrow funds or withdraw or surrender cash values. Withdrawal
and surrender levels are related to a variety of factors, including fluctuations
in market interest rates, the financial strength and claims paying rating of the
Company, the level of surrender or withdrawal charges, events in the insurance
industry that affect policyowners' or contractholders' confidence, and the
perception of better investment returns from certain substitute products.
Reserves which totaled $103.6 million, or 3.0 % of the Company's $3.6 billion of
total annuity and fund deposit liabilities at the end of September 30, 2000,
cannot be withdrawn and thereby provide stability. The fair values for
liabilities under insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which reduces exposure to
changing interest rates through the matching of asset cash flows with amounts
due under insurance contracts. The following table reflects the withdrawal
characteristics of annuity reserves and deposit fund liabilities at September
30, 2000 and 1999, and at December 31, 1999, 1998 and 1997.
WITHDRAWAL CHARACTERISTICS OF ANNUITY RESERVES
AND DEPOSIT FUND LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1999 1998 1997
------------- ------------- ------------ ------------ ------------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Subject to withdrawal with
market value adjustment
or surrender charge..... $2,873.3 $3,078.0 $3,120.4 $2,127.3 $ 779.4
Subject to withdrawal at
fund balance............ 505.8 408.5 464.6 333.7 180.6
-------- -------- -------- -------- --------
3,379.1 3,486.5 3,585.0 2,461.0 960.0
Not Subject to
withdrawal.............. 103.6 73.6 81.0 63.2 55.9
-------- -------- -------- -------- --------
Total..................... $3,482.7 $3,560.1 $3,666.0 $2,524.2 $1,015.9
======== ======== ======== ======== ========
</TABLE>
INVESTMENT PORTFOLIO
GENERAL
The Company maintains a diversified portfolio of investments. The Company
employs sophisticated asset/liability management techniques in order to achieve
competitive yields, while maintaining risk at acceptable levels. The asset
portfolio is segmented by liability type, with tailored investment strategies
for
57
<PAGE> 85
specific product lines. Investment policies and significant individual
investments are subject to approval by the Board of Directors of each of the
life insurance companies and are overseen by the Investment and Risk Committee
of the Board of Directors of ILICO. 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
Investment philosophies of the Company are 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, and 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, and commercial mortgage loans. The
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 earnings goals.
The following table summarizes consolidated invested assets by asset
category as of December 31, 1999, and 1998.
CONSOLIDATED INVESTED ASSETS
DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
---------------------------------------- ----------------------------------
CARRYING VALUE PERCENT OF TOTAL CARRYING VALUE PERCENT OF TOTAL
-------------- ---------------------- -------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Fixed maturity securities
Available for sale.......... $4,083.7 80.2 $2,862.6 70.6
Held to maturity............ 252.2 5.0 251.6 6.2
Trading..................... -- -- 104.7 2.6
-------- ----- -------- -----
Subtotal................. 4,335.9 85.2 3,218.9 79.4
Equity securities............. 8.5 0.2 3.6 0.1
Mortgage loans................ 378.1 7.4 355.0 8.8
Policy loans.................. 184.7 3.6 184.9 4.6
Other invested assets......... 12.2 0.2 12.6 0.2
Cash & short-term
investments................. 174.4 3.4 281.4 6.9
-------- ----- -------- -----
Total invested assets....... $5,093.8 100.0% $4,056.4 100.0%
======== ===== ======== =====
</TABLE>
58
<PAGE> 86
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 $4,335.9 million, or 85.1% of the carrying value of invested
assets with securities considered available for sale constituting $4,083.7
million, or 94.2%, and securities which were held to maturity constituting
$252.2 million or 5.8% 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:
COMPOSITION OF FIXED MATURITY SECURITIES
DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
---------------------------------- ----------------------------------
CARRYING VALUE PERCENT OF TOTAL CARRYING VALUE PERCENT OF TOTAL
-------------- ---------------- -------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
US government/special revenue..... $ 213.2 4.9% $ 146.2 4.6%
Public utilities.................. 301.6 6.9% 390.8 12.1%
Industrial and miscellaneous...... 3,463.2 79.9% 2,265.9 70.4%
Mortgage-backed securities........ 357.9 8.3% 416.0 12.9%
-------- ----- -------- -----
Total................... $4,335.9 100.0% $3,218.9 100.0%
======== ===== ======== =====
</TABLE>
The following table summarizes fixed maturity securities by remaining
maturity as of December 31, 1999:
REMAINING MATURITY OF FIXED MATURITY SECURITIES
<TABLE>
<CAPTION>
DUE: CARRYING VALUE PERCENT OF TOTAL
---- -------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
In one year or less (2000)................................ $ -- --%
One to five years (2001-2005)............................. 849.6 19.6%
Five to 10 years (2006-2010).............................. 1,557.4 35.9%
After 10 years (2011 and after)........................... 1,571.0 36.2%
-------- ------
Subtotal............................................... 3,978.0 91.7%
MBS....................................................... 357.9 8.3%
-------- ------
Total.................................................. $4,335.9 100.00%
======== ======
</TABLE>
Mortgage-backed securities (MBS) include commercial mortgage-backed
securities (CMBS), collateralized mortgage obligations (CMOs), asset-backed
securities and pass-through mortgage securities. Asset-backed securities are
both residential and non-residential and may include 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. Management believes that the quality of assets in the MBS
portfolio is generally high, with a preponderance of such assets representing
agency backed or "AAA" rated securities.
MORTGAGE LOANS
As of December 31, 1999, mortgage loans in the Company's investment
portfolio were $378.1 million, or 7.4% of the aggregate carrying value of
invested assets.
Commercial mortgage loans consist primarily of fixed-rate mortgage loans.
As of December 31, 1999, less than 1% of the Company's loan portfolio (as
measured by principal balance) were classified as delinquent or in foreclosure.
As of the same date, less than 0.5% of the loan
59
<PAGE> 87
portfolio (as measured by principal balance) were classified as restructured.
During 1999, the Company had no foreclosures.
OTHER
The Company held $184.7 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 $8.5 million
primarily related to home office employee deferred compensation pension funds.
The Company held $12.2 million of other invested assets on December 31,
1999. Other invested assets consist primarily of various limited partnership
investments with the majority of such assets invested by the Company in low
income housing ventures which produce tax benefits for the parent company.
Total assets held in the form of cash and short-term investments totaled
$174.4 million on December 31, 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The main objectives in managing the investment portfolios of the Company is
to maximize investment income and total investment returns while minimizing
credit risks in order to provide maximum support to the insurance underwriting
operations. Investment strategies are developed based on many factors including
asset liability management, regulatory requirements, fluctuations in interest
rates and consideration of other market risks. Investment decisions are
centrally managed by investment professionals based on guidelines established by
management and approved by the boards of directors.
Market risk represents the potential for loss due to adverse changes in the
fair value of financial instruments. Market risks related to financial
instruments of the Company primarily relate to the investment portfolio, which
exposes the Company to risks related to interest rates and, to a lesser extent,
credit quality and prepayment variation. Analytical tools and monitoring systems
are in place to assess each of these elements of market risk.
Interest rate risk is the price sensitivity of a fixed income security to
changes in interest rates. Management views these potential changes in price
within the overall context of asset and liability management.
The table below provides information about the Company's fixed maturity
investments and mortgage loans at September 30, 2000. The table presents cash
flows of principal amounts and related weighted average interest rates by
expected maturity dates. The cash flows are based on the earlier of the call
date or the maturity date or, for mortgage-backed securities, expected payment
patterns. Actual cash flows could differ from the expected amounts.
EXPECTED CASH FLOWS
($ IN MILLIONS)
<TABLE>
<CAPTION>
3 MOS
AMORTIZED 2000 2001 2002 2003 2004 2005 THEREAFTER COST
--------- ----- ---- ---- ---- ---- ---- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturity
securities............. $40 $155 $254 $546 $356 $631 $2,139 $4,121
Average interest rate.... 7.0% 7.3% 6.0% 5.3% 6.2% 6.0% 6.2%
Mortgage loans........... $15 $ 21 $ 22 $ 22 $ 24 $ 25 $ 245 $ 374
Average interest rate.... 8.4% 8.4% 8.3% 8.3% 8.3% 8.3% 8.2%
Total.................... $55 $176 $276 $568 $380 $656 $2,384 $4,495
=== ==== ==== ==== ==== ==== ====== ======
</TABLE>
60
<PAGE> 88
The Company has 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.
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.
61
<PAGE> 89
SELECTED CONSOLIDATED FINANCIAL DATA OF AMERUS
The following table sets forth certain financial data of AmerUs. The
selected consolidated financial data below for each of the five years ending
December 31, 1999 are derived from the Consolidated Financial Statements of
AmerUs, which financial statements have been audited by KPMG LLP, independent
auditors. The selected consolidated financial data provided below for the nine
months ended September 2000 and 1999 are derived from the unaudited consolidated
financial statements of AmerUs. In the opinion of management, the unaudited
financial data for the nine months ended September 30, 2000 and 1999 present
fairly the consolidated financial statements for such periods in conformity with
GAAP.
The information in the following tables is based on, and should be read
together with, the historical financial information concerning AmerUs contained
in previous filings with the Securities and Exchange Commission and incorporated
by reference in this statement. (See "FINANCIAL INFORMATION CONCERNING AMERUS
AND SUBSIDIARIES" and "WHERE YOU CAN FIND MORE INFORMATION.")
<TABLE>
<CAPTION>
AS OF OR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) AS OF OR FOR THE YEAR ENDED DECEMBER 31,
--------------------- --------------------------------------------------------
2000 1999 1999 1998 1997(A) 1996 1995
--------- --------- --------- --------- --------- --------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT
DATA:
Revenues:
Insurance premiums............. $ 65.3 $ 67.0 $ 89.5 $ 81.2 $ 48.1 $ 138.5 $ 244.1
Product charges................ 65.5 55.5 74.7 73.0 47.3 52.2 57.4
Net investment income.......... 436.0 411.9 556.9 503.8 228.6 236.3 286.7
Realized gains (losses) on
investments.................. (0.9) 6.8 (2.1) 0.7 11.9 64.5 51.4
Other income................... 22.7 14.0 20.1 14.0 13.8 15.8 12.9
Contribution from the Closed
Block(B)..................... 17.1 19.1 25.2 31.5 31.0 19.9 --
--------- --------- --------- --------- --------- --------- --------
Total revenues............... 605.7 574.3 764.3 704.2 380.7 527.2 652.5
--------- --------- --------- --------- --------- --------- --------
Benefits and expenses:
Total policyowner benefits..... 330.5 327.5 442.4 430.8 196.0 264.7 374.6
Total insurance and other
expenses..................... 156.9 137.9 191.6 159.0 91.2 113.4 123.8
Dividends to policyowners...... 4.3 3.4 4.5 2.5 1.6 26.3 49.4
--------- --------- --------- --------- --------- --------- --------
Total benefits and
expenses................... 491.7 468.8 638.5 592.3 288.8 404.4 547.8
--------- --------- --------- --------- --------- --------- --------
Income from continuing
operations..................... 114.0 105.5 125.8 111.9 91.9 122.8 104.7
Interest expense................. 22.4 22.0 29.0 28.6 16.9 11.7 7.2
--------- --------- --------- --------- --------- --------- --------
Income before tax expense and
minority interest.............. 91.6 83.5 96.8 83.3 75.0 111.1 97.5
Income tax expense............... 36.7 28.0 33.3 25.5 19.3 41.6 38.3
Minority interest................ 21.7 21.3 28.1 26.9 16.2 -- --
--------- --------- --------- --------- --------- --------- --------
Net income from continuing
operations................. 33.2 34.2 35.4 30.9 39.5 69.5 59.2
Discontinued operations:
Income (loss) from discontinued
operations, net of tax....... 0.6 0.3 3.0 (2.3) 14.9 11.7 21.5
Gain on sale of discontinued
operations, net of tax....... -- -- -- 74.9 -- -- --
--------- --------- --------- --------- --------- --------- --------
Net income before
extraordinary item......... 33.8 34.5 38.4 103.5 54.4 81.2 80.7
Extraordinary item, net of tax... -- -- -- -- -- -- (0.8)
--------- --------- --------- --------- --------- --------- --------
Net Income................... $ 33.8 $ 34.5 $ 38.4 $ 103.5 $ 54.4 $ 81.2 $ 79.9
========= ========= ========= ========= ========= ========= ========
</TABLE>
62
<PAGE> 90
<TABLE>
<CAPTION>
AS OF OR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) AS OF OR FOR THE YEAR ENDED DECEMBER 31,
--------------------- --------------------------------------------------------
2000 1999 1999 1998 1997(A) 1996 1995
--------- --------- --------- --------- --------- --------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income from continuing
operations per share(C):
Basic.......................... $ 1.85 $ 1.97 $ 2.04 -- -- -- --
Diluted........................ $ 1.85 $ 1.96 $ 2.03 -- -- -- --
Weighted average number of shares
outstanding (in millions)(C):
Basic.......................... 17.9 17.4 17.4 -- -- -- --
Diluted........................ 17.9 17.5 17.5 -- -- -- --
CONSOLIDATED BALANCE SHEET DATA:
Total invested assets............ $ 7,962.3 $ 8,055.8 $ 7,783.4 $ 7,855.7 $ 7,820.0 $ 3,308.1 $4,020.8
Total assets..................... 11,560.5 11,305.5 11,097.7 10,780.5 12,004.8 6,052.8 5,781.1
Total liabilities................ 10,577.3 9,964.2 9,829.5 9,399.5 10,735.2 5,378.5 5,114.2
Minority interest................ -- 340.0 309.1 364.3 460.5 -- --
Company-obligated mandatorily
redeemable preferred
securities..................... 197.7 197.7 197.7 199.6 86.0 -- --
Total stockholders' equity....... 785.5 803.6 761.4 817.1 723.1 674.3 666.9
</TABLE>
---------------
(A) Consolidated Income Statement Data for 1997 includes the results for the
Delta Life Corporation ("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 Closed Block was formed 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 2000,
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) AmerUs was formed in 1996 as a mutual insurance holding company and,
therefore, had no shares of common stock outstanding until its
demutualization on September 20, 2000. At that time, it distributed 17.4
million shares of its common stock to its former members and exchanged its
common stock for the 12.6 million shares of common stock held by the public
in ALH on a one-for-one basis. Net income from continuing operations per
share has been calculated on the basis that the 17.4 million shares
distributed to members were outstanding from January 1, 1999 and the shares
exchanged for ALH shares were outstanding from the date of demutualization.
63
<PAGE> 91
FINANCIAL INFORMATION CONCERNING AMERUS AND SUBSIDIARIES
ILICO's members may review (i) AmerUs' interim unaudited financial
statements; (ii) audited financial statements for its 1999 and 1998 fiscal
years; and (iii) AmerUs' management discussion and analysis of financial
condition and results of operation of AmerUs and subsidiaries by referring to
certain selected materials provided in AMHC's Registration Statement on Form
S-4, dated May 12, 2000, and AmerUs' Quarterly Report on Form 10-Q, dated
September 30, 2000, the relevant sections of which are reprinted as Appendices [
] and [ ], respectively, in the Supplemental Booklet provided to ILICO's
members.
AmerUs' shareholders may obtain such information by referring to pages
29-55 and F-1 to F-50 of AMHC's Registration Statement on Form S-4, dated May
12, 2000, pages 2-11 of ALH's Form 10-K, dated December 31, 1999, and pages 4-46
of AmerUs' Quarterly Report Form 10-Q, dated September 30, 2000, each of which
are incorporated herein by reference. (See "WHERE YOU CAN FIND MORE
INFORMATION").
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following tables show financial information after giving effect to the
Combination as though it had occurred on an earlier date (which we refer to as
"pro forma" information). In the Combination, ILICO Eligible Members will
receive AmerUs Common Stock, cash and policy credits. The actual composition of
cash, policy credits and AmerUs Common Stock cannot be determined at this time,
although at least 80% of the payment by value will be made in the form of AmerUs
Common Stock in order to satisfy certain federal income tax requirements. The
value of the aggregate payment will be equal to at least the value of 9.3
million shares of AmerUs Common Stock. (If the value of that number of shares of
AmerUs Common Stock is less than $186 million, the amount of the payment may,
under certain circumstances, be increased. See "THE COMBINATION -- Termination
of the Combination Agreement.") The amount of cash and value of policy credits
distributed will be determined based on the market price of AmerUs Common Stock
during a specified period following the closing of the Combination and the
number of shares AmerUs elects to distribute in the form of cash. The following
pro forma information also reflects that AmerUs purchased a 45% interest in ILGC
for $100 million, of which $77.2 million was used by ILGC to repurchase its
former minority interest (stock held by two other investors). The financial
information is provided as of September 30, 2000, and for the nine months ended
September 30, 2000 and for the year ended 1999. In presenting the pro forma
balance sheet information, we assumed that the Combination had occurred
September 30, 2000. In presenting the pro forma income statement information for
September 30, 2000 and 1999, we assumed that the Combination had occurred as of
January 1, 1999. The pro forma information gives effect to the Combination under
the purchase method of accounting in accordance with GAAP.
We expect that we will incur transaction and integration charges as a
result of combining the companies. The pro forma information, while helpful in
illustrating the financial characteristics of the combined company under one set
of assumptions, does not reflect these expenses and, accordingly, does not
attempt to predict or suggest future results. It also does not necessarily
reflect what the historical results of the combined company would have been had
the Combination occurred on January 1, 1999 or any other date.
The information in the following table is based on, and should be read
together with, the historical financial information set forth in this Statement
and, in the case of AmerUs' shareholders, in AmerUs' prior SEC filings which we
have incorporated into this document by reference. See "Where You Can Find More
Information."
64
<PAGE> 92
AMERUS GROUP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
ILICO COMBINATION COMBINATION
HISTORICAL HISTORICAL WITH ILICO WITH ILICO
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments:
Securities available for sale at fair value:
Fixed maturity securities............................... $ 6,880.6 $4,195.1 $ 1.7(A) $10,646.2
(431.2)(M)
Equity securities....................................... 149.8 23.8 -- 173.6
Short-term investments.................................. 0.3 -- -- 0.3
Loans..................................................... 486.7 374.3 7.2(A) 757.0
(111.2)(M)
Real estate............................................... 7.6 0.7 0.1(A) 8.4
Policy loans.............................................. 111.3 189.0 (151.2)(M) 149.1
Other investments......................................... 326.0 7.9 -- 333.9
--------- -------- --------- ---------
Total investments.................................. 7,962.3 4,790.8 (684.6) 12,068.5
--------- -------- --------- ---------
Cash and cash equivalents................................... 458.0 150.6 (77.2)(B) 493.0
(10.0)(G)
(20.7)(M)
(7.7)(A)
Accrued investment income................................... 102.3 57.7 (12.8)(M) 147.2
Premiums, fees and other receivables........................ 2.1 -- -- 2.1
Reinsurance receivables..................................... 2.1 227.0 (6.2)(A) 213.0
(9.9)(M)
Deferred policy acquisition costs........................... 382.7 341.1 (341.1)(C) 382.7
Value of business acquired.................................. 447.5 7.1 281.5(D) 736.1
Goodwill.................................................... 174.3 19.1 (19.1)(E) 174.3
Premises and equipment, net................................. 53.6 27.3 8.1(A) 89.0
Other assets................................................ 409.0 25.0 (3.1)(M) 430.9
Separate account assets..................................... -- 372.2 -- 372.2
Closed block assets......................................... 1,566.6 -- 740.1(M) 2,306.7
--------- -------- --------- ---------
Total Assets............................................ $11,560.5 $6,017.9 $ (162.7) $17,415.7
========= ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Policy reserves and policyowner funds....................... $ 7,960.3 $4,883.6 $ 40.8(A) $11,763.6
(1,121.1)(M)
Other liabilities........................................... 550.5 323.9 (21.3)(F) 824.10
(29.0)(M)
Notes and contracts payable................................. 197.8 25.0 (0.2)(A) 222.6
Separate account liabilities................................ -- 372.2 -- 372.2
Closed block liabilities.................................... 1,868.8 1,150.1(M) 3,018.9
--------- -------- --------- ---------
Total Liabilities....................................... 10,577.4 5,604.7 19.3 16,201.4
--------- -------- --------- ---------
MINORITY INTEREST........................................... -- 104.5 (104.5)(A) --
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED CAPITAL
SECURITIES................................................ 197.7 -- -- 197.7
STOCKHOLDERS' EQUITY:
Common stock, $1.00 stated value, 39,004,744 shares
assumed outstanding September 30, 2000 on a pro forma
basis................................................... 30.0 -- 9.0(A) 39.0
Additional paid-in capital................................ 809.1 -- 222.2(A) 1,031.3
Unearned compensation..................................... (0.2) -- -- (0.2)
Accumulated other comprehensive income.................... (52.1) (3.1) 3.1(A) (52.1)
Unallocated ESOP shares................................... (1.4) -- -- (1.4)
Retained Earnings......................................... -- -- -- --
Unassigned surplus.......................................... -- 311.8 (311.8)(A) --
--------- -------- --------- ---------
Total Stockholders' Equity.............................. 785.4 308.7 (77.5) 1,016.6
--------- -------- --------- ---------
Total Liabilities and Stockholders' Equity.............. $11,560.5 $6,017.9 $ (162.7) $17,415.7
========= ======== ========= =========
Book value per share........................................ $ 26.18 $ 26.07
Shares used in the calculation of book value per share
(in millions)............................................. 30.0 39.0
</TABLE>
(The Accompanying Notes are an integral part of this Unaudited Pro Forma
Consolidated Balance Sheet)
65
<PAGE> 93
AMERUS GROUP
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2000
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
ILICO COMBINATION WITH COMBINATION
HISTORICAL HISTORICAL ILICO WITH ILICO
---------- ---------- ---------------- -----------
<S> <C> <C> <C> <C>
Revenues
Insurance premiums....................... $ 65.3 $127.8 $(48.6)(M) $144.5
Universal life and annuity product
charges............................... 65.5 55.3 (3.0)(I) 117.8
Net investment income.................... 436.0 206.4 (8.9)(H) 607.1
(26.4)(M)
Realized gains (losses) on investments... (0.9) 8.8 (0.3)(M) 7.6
Other income............................. 22.7 -- -- 22.7
Contribution from Closed Block........... 17.1 -- (8.1)(M) 25.2
------ ------ ------ ------
605.7 398.3 (79.1) 924.9
------ ------ ------ ------
Operating Expenses
Policyowner benefits..................... 330.5 263.3 (12.7)(J) 527.7
(53.4)(M)
Underwriting, acquisition, and insurance
expenses.............................. 100.6 49.6 (0.6)(K) 148.8
(0.8)(M)
Amortization of deferred policy
acquisition costs & VOBA.............. 56.3 48.0 (4.8)(D) 99.5
Dividends to policyowners................ 4.3 22.4 (13.0)(M) 13.7
------ ------ ------ ------
491.7 383.3 (85.3) 789.7
------ ------ ------ ------
Income from continuing operations
before income taxes and minority
interest............................ 114.0 15.0 6.2 135.2
Interest expense........................... 22.4 1.6 24.0
------ ------ ------ ------
Income before taxes and minority
interest............................ 91.6 13.4 6.2 111.2
Income tax (expense) benefit............... (36.8) (7.2) (1.8)(L) (45.8)
Minority interest.......................... (21.7) (2.3) 2.3(A) (21.7)
------ ------ ------ ------
Net income from continuing
operations.......................... $ 33.1 $ 3.9 $ 6.7 $ 43.7
====== ====== ====== ======
Net income from continuing operations per
share(N):
Basic.................................... $ 1.85 $ 1.62
Diluted.................................. $ 1.85 $ 1.62
Shares used in the calculation of net
income from continuing operations per
share (in millions)(N):
Basic.................................... 17.9 26.9
Diluted.................................. 17.9 26.9
</TABLE>
(The Accompanying Notes are an integral part of this Unaudited Pro Forma
Consolidated Statement of Income)
66
<PAGE> 94
AMERUS GROUP
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE
ILICO COMBINATION COMBINATION
HISTORICAL HISTORICAL WITH ILICO WITH ILICO
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Insurance premiums............................. $ 89.5 $165.2 $(117.4)(M) $ 137.3
Universal life and annuity product charges..... 74.7 64.5 (2.1)(I) 137.1
Net investment income.......................... 557.0 256.9 (15.5)(H) 751.3
(47.1)(M)
Realized gains (losses) on investments......... (2.1) 4.8 -- 2.7
Other income................................... 20.2 -- -- 20.2
Contribution from Closed Block................. 25.2 -- 22.9(M) 48.1
------ ------ ------- --------
764.5 491.4 (159.2) 1,096.7
------ ------ ------- --------
Operating Expenses
Policyowner benefits........................... 442.4 312.8 (14.2)(J) 628.8
(112.2)(M)
Underwriting, acquisition, and insurance
expenses.................................... 123.8 85.8 (0.6)(K) 206.9
(2.1)(M)
Amortization of deferred policy acquisition
costs & VOBA................................ 67.8 54.6 (5.2)(D) 117.2
Dividends to policyowners...................... 4.6 33.0 (27.3)(M) 10.3
------ ------ ------- --------
638.6 486.2 (161.6) 963.2
------ ------ ------- --------
Income from continuing operations before
income taxes and minority interest........ 125.9 5.2 2.4 133.5
Interest expense................................. 29.0 2.2 -- 31.2
------ ------ ------- --------
Income before taxes and minority interest... 96.9 3.0 2.4 102.3
Income tax (expense) benefit..................... (33.4) (1.6) 2.1(L) (32.9)
Minority interest................................ (28.1) (2.2) 2.2(A) (28.1)
------ ------ ------- --------
Net income from continuing operations....... $ 35.4 $ (0.8) $ 6.7 $ 41.3
====== ====== ======= ========
Net income from continuing operations per
share(N):
Basic....................................... $ 2.03 $ 1.56
Diluted..................................... $ 2.02 $ 1.55
Shares used in the calculation of net income from
continuing operations per share (in
millions)(N):
Basic....................................... 17.4 26.4
Diluted..................................... 17.5 26.5
</TABLE>
(The Accompanying Notes are an integral part of this Unaudited Pro Forma
Consolidated Statement of Income)
67
<PAGE> 95
AMERUS GROUP
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(A) Giving effect to the Combination under purchase accounting, the total
purchase cost of ILICO will be allocated to the assets and liabilities acquired
based on the relative fair values as of the effective date of the Combination,
with any excess of the fair value of the assets acquired less the fair value of
the liabilities assumed over the purchase price recorded as a reduction of
non-current assets (value of business acquired). The cost allocations, primarily
related to value of business acquired, deferred acquisition costs, and mortgage
loans, are based on studies which are not yet completed. Accordingly, the final
allocations may differ from the amounts reflected here due to interest rate
fluctuations, operating experience, and results of operations through the date
of closing. Although the final allocations may differ, the pro forma financial
statements reflect AmerUs' best estimate based on currently available
information and the differences between the current and final allocations are
not expected to be material.
The average closing price of the AmerUs Common Stock used in this pro forma
data is $25.6875 per share, which represents the average of the closing prices
of the AmerUs Common Stock on the date of the announcement of the amended terms
of the Combination, two days preceding, and two days succeeding the
announcement.
The Combination Agreement calls for payment to ILICO's Eligible Members of
shares of AmerUs Common Stock, cash and policy credits equal in value to the
value of at least 9.3 million shares of AmerUs Common Stock. If the value of
that number of shares of AmerUs Common Stock is less than $186 million, the
amount of the payment may, under certain circumstances, be increased. See "THE
COMBINATION -- Termination of the Combination Agreement -- Termination Due to
Uncontrollable Event; Termination by Mutual Agreement." Under the terms of the
Combination Agreement, AmerUs is committed at a minimum to distribute in cash
the equivalent value of approximately 300,000 shares of its common stock to
ILICO's Eligible Members. The actual amount of cash consideration will vary
dependent upon the price of AmerUs Common Stock at or about the closing date and
the number of shares within the range that AmerUs elects to distribute in the
form of cash. It has been assumed for pro forma purposes that the combination
consideration will consist of cash equal to the value of the minimum share
amount of approximately 300,000 shares at an estimated fair value of $25.6875
per share and the remaining consideration will be in the form of AmerUs Common
Stock.
The Member Consideration will be distributed to and allocated among the
Eligible Members of ILICO as provided in the Plan.
Issuance of 9 million shares of AmerUs Common Stock to Eligible Members of
ILICO at an estimated fair value of $25.6875 per share with $1.00 stated value.
<TABLE>
<S> <C>
Common stock................................................ $ 9.0
Additional paid-in capital.................................. 222.2
------
Total value of common stock exchanged..................... $231.2
Cash paid to ILICO's Eligible Members, equivalent to 300,000
shares at $25.6875........................................ 7.7
Cash paid to acquire minority interest...................... 77.2
Costs of the combination.................................... 10.0
Obligations accrued for early retirement, severance and
employment agreements..................................... 10.0
------
Total purchase price...................................... $336.1
======
</TABLE>
After issuance of 9 million shares of AmerUs Common Stock as Member
Consideration, AmerUs would have 39,004,744 shares of Common Stock outstanding
on a pro forma basis.
68
<PAGE> 96
AMERUS GROUP
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The allocation of the purchase price of ILICO is as follows (in millions):
<TABLE>
<S> <C>
Investments (including cash and short-term Investments)..... $ 4,950.4
Receivables and other assets................................ 338.9
Value of business acquired.................................. 288.6
Separate Account Assets..................................... 372.2
Policyowner reserves and funds.............................. (4,924.4)
Other liabilities........................................... (292.6)
Debt........................................................ (24.8)
Separate Account Liabilities................................ (372.2)
---------
$ 336.1
=========
</TABLE>
The historical components of ILICO's equity have been eliminated in
accordance with purchase accounting. In addition, common stock is adjusted to
reflect the assumed number of shares issued in conjunction with the Combination,
amounting to $9.0 million. Additional paid-in capital is also adjusted, based on
the assumptions, for the excess of the Member Consideration exchanged over the
stated value of the AmerUs Common Stock, amounting to $222.2 million.
(B) Represents the cash paid by ILGC to acquire the minority interest.
(C) Represents the unamortized balance of deferred policy acquisition
costs.
(D) Value of the insurance business acquired reflects the estimated fair
value of the business in force and represents the portion of the cost to acquire
ILICO that is allocated to the value of the right to receive future cash flows
from the life insurance and annuity contracts existing as of the assumed date of
the acquisition. Amortization is recognized in proportion to expected future
gross profits over periods between 20 and 30 years and is based on the average
interest crediting rates which range from 3.5% to 6.2% for 2000 and over the
next five years. The estimated amortization for the next five years is as
follows (in millions):
<TABLE>
<S> <C>
2000........................................................ $25.6
2001........................................................ $24.6
2002........................................................ $24.1
2003........................................................ $23.6
2004........................................................ $22.9
2005........................................................ $22.6
</TABLE>
The value of business acquired has been reduced by $59.6 million, the
amount by which the fair value of the assets acquired (less the liabilities
assumed) exceeded the purchase cost.
(E) Represents the unamortized balance of goodwill at the assumed effective
date of the Combination.
(F) Represents various liabilities assumed in connection with the
Combination and the net impact on the deferred tax liability as a result of the
purchase accounting adjustments as follows (in millions):
<TABLE>
<S> <C>
Deferred income taxes on purchase accounting adjustments.... $(31.3)
Establish liability for employment and severance
agreements................................................ 10.0
------
$(21.3)
======
</TABLE>
(G) Represents estimated transaction costs, primarily investment banking
and legal fees paid in connection with the Combination.
69
<PAGE> 97
AMERUS GROUP
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(H) Represents the following adjustments to net investment income as a
result of the Combination and purchase accounting adjustments (in millions):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Reduction of net investment income from change in carrying
value of the investment portfolio at the assumed
effective date of the Combination........................ $(6.4) $ (9.7)
Elimination of the earnings on the cash paid to ILICO's
Eligible Members based upon a rate of 5% per annum....... (0.3) (0.4)
Elimination of the equity earnings on ILICO included in
AmerUs historical net investment income.................. (1.6) --
Elimination of the earnings on the cash paid to acquire the
minority interest of ILICO based upon a rate of 7% per
annum.................................................... (0.6) (5.4)
----- ------
$(8.9) $(15.5)
===== ======
</TABLE>
(I) Represents the reduction of product charges due to the elimination of
unearned revenues at the assumed effective date of the Combination. The unearned
revenues are eliminated due to their inclusion in the determination of the value
of the business acquired.
(J) Represents the reduction in policyowner benefits resulting from
decreased investment income as previously discussed and the increase in
policyowner reserves at the assumed effective date of the Combination due to
market value adjustments to the investment portfolio.
(K) Includes the effects of increased depreciation of $0.2 million and $0.3
million for the nine months ended September 30, 2000 and the year ended December
31, 1999, respectively, on the write-up of the ILICO home office premises
calculated over 30 years on the straight-line method and the decreased goodwill
amortization of $0.8 million and $0.9 million for the nine months ended
September 30, 2000 and the year ended December 31, 1999, respectively, due to
the elimination of historical goodwill.
(L) Represents the income tax effects on the net pro forma adjustments
based upon a 35% effective tax rate and the elimination of the mutual company
differential earnings tax of $0.1 million and $2.6 million for the nine months
ended September 30, 2000 and the year ended December 31, 1999, respectively.
(M) Reflects the formation of the closed block for ILICO and the
reclassification of the related assets and liabilities, and the reclassification
of the related components of the income statement to the contribution from
closed block.
70
<PAGE> 98
AMERUS GROUP
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information assuming the Closed Block was formed as of
January 1, 1999 for pro forma income statement purposes and as of September 30,
2000 for pro forma balance sheet purposes is as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000
-------------
<S> <C>
ASSETS
Investments
Fixed maturity securities................................. $ 431.2
Loans..................................................... 111.2
Policy loans.............................................. 151.2
--------
693.6
Cash........................................................ 20.7
Other Assets................................................ 25.8
--------
Total Assets........................................... $ 740.1
========
LIABILITIES
Policy reserves and policyowner funds....................... $1,121.1
Other liabilities........................................... 29.0
--------
Total Liabilities...................................... $1,150.1
========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Revenues
Insurance Premiums....................................... $48.6 $117.4
Net Investment Income.................................... 26.4 47.1
Realized gains on Investments............................ 0.3 --
----- ------
75.3 164.5
Expenses
Policyowner benefits..................................... 53.4 112.2
Underwriting, acquisition and insurance expenses......... 0.8 2.1
Dividends to policyowners................................ 13.0 27.3
----- ------
Contribution from Closed Block before income taxes....... $ 8.1 $ 22.9
===== ======
</TABLE>
(N) The basic earnings per share calculation reflects net income from
continuing operations divided by the weighted average number of shares
outstanding for the nine months ended September 30, 2000 and the year ended
December 31, 1999, assuming that 9 million shares of AmerUs Common Stock were
issued January 1, 1999 in connection with the Combination. The diluted earnings
per share amount is calculated in the same manner with the weighted average
number of shares outstanding increased for the dilutive effect of options,
warrants, and stock appreciation rights.
71
<PAGE> 99
CERTAIN CONSIDERATIONS; INTERESTS OF CERTAIN
PERSONS IN THE COMBINATION
In considering the recommendation of the ILICO Board with respect to the
Plan, Eligible Members should be aware that certain directors and officers of
ILICO have interests in the Combination with AmerUs different from the interests
of ILICO's Eligible Members.
EXECUTIVE OFFICER COMPENSATION FOLLOWING THE COMBINATION
Following the Combination, the compensation for ILICO's President and Chief
Executive Officer and the five other senior executives of ILICO ("ILICO's Senior
Executives") is anticipated to initially be generally at the same level as such
compensation prior to the Combination, except as described below.
As a result of the Combination, ILICO's Senior Executives will receive the
additional benefits described below.
Retirement Plan Information
ILICO currently sponsors the Indianapolis Life Insurance Company Employees
Pension Plan (the "Pension Plan"), as supplemented by the Indianapolis Life
Insurance Company Excess Benefit Plan (the "Excess Plan"). ILICO expects to
"freeze" the Pension Plan and the Excess Plan sometime in 2001, which means
that, after that date, no employees will earn any further benefits under those
plans. ILICO expects that, following the effective date of the Combination,
ILICO's Senior Executives will begin to participate in the All AmerUs Savings
and Retirement Plan (the "AmerUs Savings Plan"), a defined contribution plan
that provides for up to three different types of employer contributions, in
addition to employee 401(k) elective deferrals and rollover contributions, and
in the All AmerUs Supplemental Executive Retirement Plan and the All AmerUs
Excess Benefit Plan (collectively, the "AmerUs Supplemental Plan"), unfunded
non-qualified deferred compensation plans that supplement the AmerUs Savings
Plan.
ILICO's Senior Executives also currently participate in the Indianapolis
Life Insurance Company Salary Reduction Plan (the "401(k) Plan"), as
supplemented by an unfunded non-qualified deferred compensation plan (the
"Shadow 401(k) Plan"). ILICO expects that, beginning January 1, 2002,
contributions under ILICO's 401(k) Plan and Shadow 401(k) Plan will cease, and
ILICO's Senior Executives will begin to participate in the AmerUs Savings Plan
and the AmerUs Supplemental Plan.
Long-Term Incentive Compensation
ILICO currently maintains the Indianapolis Life Long-Term Incentive Plan
(the "LTIP"), which was established in 1996. The Board of Directors has
determined that no awards will be made under the LTIP for 2000, the LTIP will
terminate as of the effective date of the Combination, and all participants'
accounts will become 100% vested. Earnings through the date of termination of
the LTIP will be calculated after the effective date of the Combination under a
formula based on the closing price of AmerUs Common Stock during the first 10
trading days following the effective date of the Combination. Amounts
accumulated under the LTIP will be distributed to the participating executives
in a lump sum payment as soon as practicable after the termination of the LTIP.
Upon the effective date of the Combination, certain of ILICO's executives will
become eligible to participate in the AmerUs Stock Incentive Plan.
Executive Employment Agreements
Following the signing of the Combination Agreement, ILICO entered into
written employment agreements (the "Employment Agreements") with ILICO's Senior
Executives. The Employment Agreements provide for an aggregate of $1,667,935 to
be paid to ILICO's Senior Executives, including Mr. Prible, in the form of
annual base salary for the year 2000 . The Employment Agreements also provide
that, following the closing of the Combination, ILICO's Senior Executives,
including Mr. Prible, will be granted an aggregate of 214,000 options to
purchase AmerUs Common Stock. The options will be granted under the terms of the
AmerUs Stock Incentive Plan. Also, ILICO's Senior Executives will become
entitled to lump sum cash
72
<PAGE> 100
bonuses to be paid promptly after the effective date of the Combination. The
amount of each bonus will be a percentage of the officer's annual base salary.
The percentage will depend on the average closing price of AmerUs Common Stock
during the first ten trading days following the closing of the Combination.
Based upon the annual base salaries of ILICO's Senior Executives for the year
2000, the maximum aggregate amount of such cash bonuses would be $666,774.
The Employment Agreements provide for separation benefits in the event that
an executive's employment is terminated as a result of a change in control
within two years of the change of control, other than for cause, or the
executive terminates employment for "good reason" within two years after a
change in control. The Combination will constitute such a change in control. For
these purposes, "good reason" means any of the following occurring within two
years after a change in control: certain changes in the executive's duties,
position, or responsibilities; removal of the executive from or failure to
re-elect the executive to his or her position; a reduction in the executive's
base salary; certain material reductions in award opportunities under bonus and
incentive plans; requiring the executive to be based in an office located other
than in the metropolitan area specified in the agreement; failure of a successor
to assume and agree to perform the Employment Agreement; a material breach by
ILICO of any provision of the Employment Agreement; the failure of AmerUs, after
the closing of the Combination, to issue the stock options promised in the
Employment Agreement; and, in the case of some of ILICO's Senior Executives, a
material departure, without the executive's prior written consent, from certain
understandings set forth in an attachment to the Employment Agreement (generally
pertaining to the officer's role in the combined organization following the
Combination). Payment of the separation benefits is in all cases contingent on
the executive's timely execution of an effective waiver of claims (which must
meet certain specifications set forth in the Employment Agreement).
The separation benefits payable upon such a termination include severance
pay, a stipend to subsidize the cost of COBRA continuation coverage for the
executive and his family during the 18-month period following the executive's
termination, and continued life insurance coverage (subsidized to the same
extent as when the executive was employed) for 24 months following the
executive's termination of employment. Generally, the amount of the severance
pay is equal to two times the sum of (1) the executive's then current base
salary and (2) the greater of (a) the target bonus applicable to the executive
as of the effective date of the Employment Agreement or (b) the target bonus
applicable to the executive as of the termination date. Larry R. Prible is also
entitled to an additional benefit to make up for the effect of any excise taxes
due under Internal Revenue Code Section 4999 with respect to the separation
benefits payable to him under the Employment Agreement.
Mr. Prible's Employment Agreement provides for an annual base salary of
$527,840 for the year 2000 and options to purchase up to 100,000 shares of
AmerUs Common Stock under the terms of the AmerUs Stock Incentive Plan. As one
of ILICO's Senior Executives, Mr. Prible's Employment Agreement provides for a
lump sum cash bonus to be paid promptly after the effective date of the closing
of the Combination. Based upon Mr. Prible's annual base salary for the year
2000, the maximum amount of such cash bonus would be $211,141. His Employment
Agreement also provides for an enhanced retirement benefit, which applies upon
any retirement, irrespective of whether a change of control such as the
Combination has occurred. For this purpose, the Employment Agreement defines
retirement as any termination of Mr. Prible's employment (other than a
termination by ILICO for cause) after Mr. Prible has reached age 53. Upon
retirement at or after age 65, the Employment Agreement provides for a total
annual retirement benefit (under the combination of the Employment Agreement,
all defined benefit plans, and all post-Combination employer contributions under
defined contribution plans) equal to 75% of Mr. Prible's final annual base
salary (determined as of his termination date). In the event of retirement
before age 65, the annual benefit is reduced by the early retirement actuarial
reduction factors specified in the Pension Plan (but not in any case below 50%
of Mr. Prible's final base salary).
John J. Fahrenbach, currently Senior Vice-President and Chief Financial
Officer of ILICO, did not enter into an Employment Agreement because he has
decided to retire pursuant to ILICO's 2000 Early Retirement Window program.
Pursuant to that program, Mr. Fahrenbach will waive any separation benefits
otherwise payable under his Executive Employment Agreement, dated December 31,
1997, as amended April 16, 1997, and Separation Benefit Agreement, dated
December 31, 1997, with ILICO entered into in December of 1997.
73
<PAGE> 101
Mr. Fahrenbach will retire, on a date approved by ILICO, after the close of the
Combination and no later than March 31, 2001. In addition to the enhanced
pension benefits payable to him under the 2000 Early Retirement Window Program,
Mr. Fahrenbach will receive a lump sum severance payment of $250,000, as well as
a lump sum incentive bonus equal to 55% of his annual base salary if certain
goals are achieved prior to his retirement, and an additional lump sum of
approximately $28,629 to cover a portion of the income taxes on his lump sum
LTIP payment. As a condition to receiving all of these benefits, Mr. Fahrenbach
will execute a waiver and release of claims in the form required of all 2000
Early Retirement Window participants. Following his retirement, Mr. Fahrenbach
will perform certain services for ILICO through December 31, 2002, as an
independent contractor consultant pursuant to a written consulting agreement.
Those services will include monitoring the Closed Blocks under ILICO's and
AmerUs' demutualizations and maintaining and preserving relationships between
ILICO and rating agencies and other key industry contacts. For his services, Mr.
Fahrenbach will receive a consulting fee $175,000 per calendar year, payable
monthly.
Indemnification for Officers, Directors and Employees
The Combination Agreement provides for the continuation of all rights to
indemnification currently existing in favor of employees, directors and officers
of ILICO, ILGC or their subsidiaries as provided in the articles of
incorporation and bylaws of ILICO, ILGC or their subsidiaries. (See "THE
COMBINATION AGREEMENT -- Indemnification for Officers, Directors and Employees")
AMERUS MANAGEMENT FOLLOWING THE COMBINATION
Under the Combination Agreement, the AmerUs Board will be adjusted to
include the Chief Executive Officer of ILICO (as Vice-Chairman of the AmerUs
Board) and at least two additional members of the ILICO Board. The Combination
Agreement contemplates that (i) AmerUs will use its best efforts to cause the
AmerUs Board to appoint two of the additional directors to terms expiring at
AmerUs' May 2001 annual meeting (assuming the Combination is consummated by May
2001) and to nominate such directors for election to three year terms on the
AmerUs Board commencing at this annual meeting; (ii) AmerUs will use its best
efforts to cause the AmerUs Board to appoint the third additional director to a
term expiring at AmerUs' May 2003 annual meeting (assuming the Combination is
consummated by May 2001); and (iii) Larry R. Prible, current Chairman, President
and CEO of ILICO, will become Vice-Chairman of AmerUs. AmerUs does not
anticipate any other changes to senior management as a result of the
Combination. Set forth below is information regarding the individuals who will
be proposed to the AmerUs Board for appointment, including Mr. Prible:
DIRECTORS
<TABLE>
<CAPTION>
NAME POSITION AGE ILICO DIRECTOR SINCE
---- -------- --- --------------------
<S> <C> <C> <C>
Alecia Ann DeCoudreaux................................... Director 46 January 1997
Andrew Jackson Paine, Jr. ............................... Director 63 February 1982
Larry R. Prible.......................................... Director 54 June 1990
</TABLE>
ALECIA A. DECOUDREAUX, JD, is Secretary and Deputy General Counsel of Eli
Lilly and Company. She is a Director of ILICO and Bank One, Indianapolis, NA.
Ms. DeCoudreaux is a member of the Indiana University School of Law Board of
Visitors, Women's Fund of Central Indiana Advisory Board, Indianapolis Committee
for the IU School of Law -- Bloomington Capital Campaign, Business-Government
Relations Council, and United Way of Central Indiana, Inc., Strategic Planning
Committee.
ANDREW J. PAINE, JR. is retired Executive Vice President, First Chicago NBD
Corporation and President and Chief Executive Officer, NBD Indiana, Inc. He is a
Director of ILICO, Bankers Life, IPALCO and Indianapolis Power & Light Company,
Provalent, and Bank One, Indiana. Mr. Paine has served as a Director of the
Hammond Company and INV Financial Corporation.
LARRY R. PRIBLE, JD, CLU, joined ILICO in 1980 after serving as Advisory
Industry Specialist with IBM. He became a Vice President of ILICO in July 1983.
From 1988 to 1990, his title was Senior Vice President,
74
<PAGE> 102
Administration. On January 18, 1990, his title became President and Chief
Operating Officer and Director. Since August 1, 1991, his title has been
President and Chief Executive Officer. Mr. Prible became Chairman of ILICO in
1998. Mr. Prible is Chairman of the Board of ILGC, IL Annuity, IL Securities and
Western Security, and he is a Director of Bankers Life. He is also a Director of
Habitat for Humanity and the 500 Festival Associates.
AMERUS MANAGEMENT'S COMPENSATION
ILICO's members may obtain information concerning compensation of directors
and executive officers of AmerUs by referring to certain sections of AMHC's
Registration Statement on Form S-4, dated May 12, 2000, which are reprinted as
Appendix [ ] in the Supplemental Booklet provided to ILICO's members, and ALH's
annual proxy statement for 2000, dated March 31, 2000, which is reprinted as
Appendix [ ] in the Supplemental Booklet.
AmerUs' shareholders may obtain such information by referring to page 26 of
AMHC's Registration Statement on Form S-4, dated May 12, 2000, and ALH's annual
proxy statement for 2000, dated March 31, 2000, pages 5-19, each of which are
incorporated herein by reference. (See "WHERE YOU CAN FIND MORE INFORMATION").
AmerUs and ILICO have agreed to certain principles and guidelines for the
post-Combination integration, operation and leadership of the combined
companies. For more information about these principles and guidelines, see "THE
COMBINATION -- Memorandum of Understanding".
ILICO MANAGEMENT FOLLOWING THE COMBINATION
The Combination Agreement contemplates that the management of ILICO will
generally remain the same, except that the ILICO Board will use its best efforts
to appoint two directors designated by AmerUs (see "THE
COMBINATION -- Directors"). Set forth below is information regarding the two
individuals who will be proposed to the ILICO Board for appointment:
DIRECTORS
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Roger K. Brooks............................................. Director of ILICO 63
D T Doan.................................................... Director of ILICO 68
</TABLE>
ROGER K. BROOKS is Chairman, President and Chief Executive Officer of
AmerUs and Chairman of ALIC, one of the Company's principal subsidiaries, since
May 1997. Previous positions with AmerUs and its subsidiaries include Chief
Executive Officer of ALIC from December 1994 to May 1997, Chairman and Chief
Executive Officer of ALIC from August 1992 to December 1994 and President and
Chief Executive Officer of ALIC from February 1975 to August 1992. He is a
director of AMAL, AmerUs, ALIC, AmVestors Financial Corporation and Delta. Mr.
Brooks was a director of ALH from 1996 through the merger of AMHC and ALH and
demutualization of AMHC in September 2000, at which time he continued his
service as a director of AmerUs. Mr. Brooks has also been a director of ALIC
since 1971. His current term on the Board of AmerUs expires May 10, 2001.
D T DOAN JD, CPA has served with AmerUs as a consultant since May 1997.
Prior to that time, Mr. Doan was Vice Chairman and President -- Insurance
Operations of ALIC from August 1995 until May 1997. Previous positions with ALIC
include Vice Chairman of ALIC from January 1995 until August 1995,
President -- Insurance Operations of ALIC from August 1992 until January 1995
and Executive Vice President -- Corporate from 1988 until August 1992. Mr. Doan
was a director of ALIC from January 1995 until May 1997 and has been a director
of ILGC since February 2000.
75
<PAGE> 103
BOARD COMPENSATION FOLLOWING THE COMBINATION
ILICO directors who are not otherwise compensated by ILICO or AmerUs will
receive a monthly retainer of $1,300 and a meeting fee of $900 for each monthly
meeting attended. Each Committee member will receive an additional meeting fee
of $900 for each committee meeting attended, and the Chairman of each Committee
will receive an additional $300 for each committee meeting attended. An
additional meeting fee of $300 will be paid for consecutive meetings, and an
additional meeting fee of $300 will be paid for each Bankers Life Board of
Directors meeting attended.
Under a written deferred compensation agreement with ILICO, a Director may
elect to defer until retirement a portion of the compensation that he or she
would otherwise receive as a Director for a calendar year. Amounts deferred, and
earnings on those amounts, however, remain the general assets of ILICO until
distribution. A Director's deferrals and earnings are generally payable to the
Director beginning at retirement or to the Director's beneficiary upon the
Director's death. If a Director terminates service before he or she is eligible
to retire, the Director's deferrals and earnings will become payable as of the
date he or she would have been eligible to retire. The normal form of
distribution is annual installments over a period of ten years. A Director may
choose, however, another form of distribution or a later distribution
commencement date (which cannot be later than April 1 following the end of the
year in which the Director reaches age 70 1/2).
EXECUTIVE OFFICERS
The executive officers of ILICO following the Combination will generally be
the same individuals as prior to the Combination, except that Roger K. Brooks,
current Chairman, President and CEO of AmerUs, will become Chairman of ILICO.
For information regarding the compensation and related benefits of certain
of ILICO's executive officers following the Combination, see "CERTAIN
CONSIDERATIONS; INTERESTS OF CERTAIN PERSONS IN THE COMBINATION."
AmerUs and ILICO have agreed to certain principles and guidelines for the
post-Combination integration, operation and leadership of the combined
companies. For more information about these principles and guidelines, see "THE
COMBINATION AGREEMENT -- Memorandum of Understanding."
OTHER REGULATORY APPROVALS
OTHER INSURANCE REGULATORY APPROVALS
In addition to the Indiana Commissioner's approval of the Plan, the
Conversion and the Combination, various other insurance regulatory approvals are
required for consummation of the Combination. The Combination is subject to the
receipt of necessary approvals from various other state insurance regulatory
authorities. The insurance laws and regulations of all U.S. states generally
require that prior to the acquisition of control of an insurance company
domiciled or commercially domiciled in such jurisdiction through the acquisition
of a parent company of the insurance company, the acquiror must obtain prior
approval of the commissioner of insurance of such jurisdiction for the
acquisition of control of the domestic insurance company. As a result of the
Combination, AmerUs will acquire control of ILICO and each of its insurance
company subsidiaries, which include Western Security, an Arizona domiciled life
insurance company, Bankers Life, a New York domiciled life insurance company,
and IL Annuity, a Massachusetts domiciled life insurance company. AmerUs
therefore filed applications for approval of the acquisition of control of a
domestic insurer (Form A) with the Indiana Commissioner of Insurance, Arizona
Commissioner of Insurance, the Massachusetts Commissioner of Insurance and the
New York Superintendent of Insurance. AmerUs' application for acquisition of
control of ILICO is still pending, but it has obtained approvals from the
Arizona, Massachusetts and New York Departments of Insurance. The Indiana
Insurance Department could determine to take action to impose conditions on the
Combination. (See "THE COMBINATION -- Initial AmerUs Investment in ILICO.")
76
<PAGE> 104
HSR ACT
Under the HSR Act, and the rules promulgated under the HSR Act by the
Federal Trade Commission ("FTC"), the Combination may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Justice Department ("Antitrust Division")
and specified waiting period requirements have either been satisfied or earlier
terminated.
On June 6, 2000, each of AmerUs and ILICO filed, pursuant to the HSR Act,
notification and report forms with the FTC and the Antitrust Division with
respect to the Combination. The 30-day waiting period applicable to such filings
expired on July 6, 2000. However, at any time before or after the Combination
Closing Date, and notwithstanding that the HSR Act waiting period has expired or
been earlier terminated, the FTC, the Antitrust Division or any state could take
such action under the Antitrust Laws as it deems necessary or desirable to the
public interest. Such action could include seeking to enjoin the consummation of
the Combination or seeking divestiture of ILICO or assets of ILICO. Private
parties, as well as state governments, may also bring legal action under the
Antitrust Laws under certain circumstances. Both ILICO and AmerUs believe that
the Combination will not violate the Antitrust Laws. Nevertheless, there can be
no assurance that a challenge to the Combination on antitrust grounds will not
be made or, if such a challenge is made, of the result. (See "THE
COMBINATION -- Conditions to Completion of the Combination")
As used in this Statement, "Antitrust Laws" shall mean and include the
Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal
Trade Commission Act, as amended, and all other Federal and state statutes,
rules, regulations, orders, decrees, administrative and judicial doctrines, and
other laws that are designed or intended to prohibit, restrict or regulate
actions having the purpose or effect of monopolization or restraint of trade.
LEGAL PROCEEDINGS
During 1999, ILICO reached an agreement to settle a market conduct class
action lawsuit. The terms of the agreement call for ILICO to make payments of
cash, policy credits or additional death benefits to owners of eligible
policies. These costs, plus legal expenses, totaled approximately $21.3 million,
net of federal income taxes, were recorded in the 1999 consolidated financial
statements.
77
<PAGE> 105
INFORMATION PERTAINING TO FORWARD-LOOKING STATEMENTS
A number of matters and subject areas discussed in the documents
incorporated herein by reference and in this Statement are not limited to
historical or current facts and deal with potential future circumstances and
developments.
In some cases, you can identify "forward-looking statements" by the use of
words such as "may," "will," "should," "anticipate," "estimate," "expect,"
"plan," "believe," "predict," "potential," or "intend." All statements regarding
the expected benefits of the Conversion and Combination and related matters are
forward-looking statements. You should be aware that these statements and any
other forward-looking statements in this document only reflect current
expectations and are not guarantees of performance.
Under the "safe harbor" of the Private Securities Litigation Reform Act of
1995, an issuer and any person acting on behalf of the issuer will not be liable
for an untrue statement of a material fact or a misleading statement because of
an omission of a material fact in any private action based on "forward-looking
statements." The safe harbor provisions only apply to companies who have
previously offered securities to the public. As AmerUs has previously offered
shares to the public, forward-looking statements related to AmerUs are intended
to be covered by the safe harbor provisions.
Factors that may cause actual results to differ materially from those
contemplated or projected in such forward-looking statements include, among
others, the following possibilities: heightened competition, including the entry
of new competitors and the development of new products by competitors; adverse
state and federal legislation and regulation, including increases in minimum
capital and reserves, and other financial viability requirements; failure to
maintain effective distribution channels in order to obtain new customers or
failure to retain existing customers; inability to carry out marketing and sales
plans, including, among others, changes to certain products and acceptance of
the revised products in the market; loss of key executives; changes in interest
rates causing a reduction of investment income or a reduction in demand for
certain products; reduction in income as a result of investment losses; general
economic and business conditions which are less favorable than expected;
unanticipated changes in industry trends; inaccuracies in assumptions regarding
future persistency, mortality, and interest rates used in calculating reserve
amounts; adverse changes in ratings assigned by rating agencies; changes in tax
laws which negatively affect demand for certain products or the applicability of
certain taxes; and the risk factors or uncertainties listed herein or listed
from time to time in any prospectus supplement or any document incorporated by
reference herein
ILICO and AmerUs undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
78
<PAGE> 106
WHERE YOU CAN FIND MORE INFORMATION
For information concerning ILICO and the Plan, ILICO's members may phone
toll-free to (888) 689-1893 or write ILICO's Demutualization Information Center,
Indianapolis Life Insurance Company, c/o ChaseMellon Shareholder Services,
L.L.C., P.O. Box 3327, South Hackensack, New Jersey 07606-9843.
AmerUs files reports, proxy statements and other information with the SEC
under the Exchange Act. You may read and obtain copies of this information by
mail from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, at prescribed rates. The SEC also maintains an
Internet worldwide web site that contains reports, proxy statements and other
information about issuers, like AmerUs, who file electronically with the SEC.
The address of the site is http://www.sec.gov. You can also inspect reports,
proxy statements and other information about AmerUs at the offices of the NYSE,
20 Broad Street, New York, New York 10005.
The version of this Statement prepared for AmerUs' shareholders
incorporates by reference the documents listed below that AmerUs and ALH have
previously filed with the SEC. They contain important information about AmerUs
and its financial condition. The information incorporated by reference is
considered to be a part of this Statement, except for any information that is
superseded by information that is included directly in this document.
<TABLE>
<CAPTION>
AMERUS SEC FILINGS PERIOD
------------------ ------
<S> <C>
Current Report on 8K12G3 September 21, 2000
AMHC Registration Statement on S-4 May 12, 2000
Quarterly Report Form 10-Q September 30, 2000
</TABLE>
<TABLE>
<CAPTION>
ALH SEC FILINGS PERIOD
--------------- ------
<S> <C>
Proxy Statement Dated March 31, 2000
Current Reports on Form 8-K and 8-K/A January 13 and 20, February 22,
March 6 and 24, and June 26, 2000
Quarterly Reports Form 10-Q Dated March 31 and June 30, 2000
Annual Reports on Form 10-K and 10-K/A December 31, 1999
</TABLE>
AmerUs incorporates by reference additional documents that it may file with
the SEC between the date of this Statement and the date of the Special Meeting.
These documents include periodic reports of AmerUs, such as Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, as well as proxy statements.
Documents incorporated by reference are available from AmerUs without
charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this Statement. ILICO's
members may also obtain the documents referred to above by requesting them in
writing from ILICO's Demutualization Information Center, Indianapolis Life
Insurance Company, c/o ChaseMellon Shareholder Services, L.L.C., P.O. Box 3327,
South Hackensack, New Jersey 07606-9843.
IN ORDER TO OBTAIN TIMELY DELIVERY IN ADVANCE OF THE SPECIAL MEETING, THIS
INFORMATION MUST BE REQUESTED NO LATER THAN [ ].
79
<PAGE> 107
INDEX TO APPENDICES
APPENDIX
<TABLE>
<S> <C>
Appendix 1 Unaudited Interim Consolidated Financial Statements of
Indianapolis Life Insurance Company and Subsidiaries
Appendix 2 Consolidated Financial Statements of Indianapolis Life
Insurance Company and Subsidiaries
Appendix 3 Amendment to Combination Agreement; Combination Agreement
Appendix 4 Goldman Sachs Opinion and Letter
Appendix 5 Merrill Lynch Opinion
Appendix 6 Memorandum of Understanding; Amendment to Memorandum of
Understanding
Appendix 7 Letter to Indiana Commissioner of Insurance
</TABLE>
80
<PAGE> 108
APPENDIX 1
Unaudited Interim Consolidated Financial Statements of
Indianapolis Life Insurance Company and Subsidiaries
Period ended September 30, 2000 and 1999
A1-1
<PAGE> 109
APPENDIX 1-A
UNAUDITED INTERIM CONSOLIDATED BALANCE SHEETS OF
INDIANAPOLIS LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
ASSETS
Cash and investments:
Fixed maturity securities:
Available for sale, at fair value...................... $3,962,527,503 $3,714,984,525
Held to maturity, at amortized cost.................... 232,550,846 247,745,493
Trading, at fair value................................. -- 149,704,433
Equity securities, at fair value.......................... 23,804,363 10,597,975
Mortgage loans............................................ 374,271,489 381,267,803
Policy loans.............................................. 189,042,965 183,355,993
Other invested assets..................................... 8,579,337 16,361,871
Cash and cash equivalents................................. 150,630,666 240,027,036
-------------- --------------
Total cash and investments.................................. 4,941,407,169 4,944,045,129
Accrued investment income................................... 57,702,132 59,805,576
Reinsurance recoverable..................................... 226,998,255 257,249,620
Deferred acquisition costs.................................. 341,084,732 327,009,284
Receivables and other assets................................ 20,400,228 10,056,624
Federal income taxes........................................ 4,675,333 24,163,882
Property and equipment...................................... 27,322,944 22,862,865
Present value of future profits............................. 7,123,929 8,311,777
Goodwill.................................................... 19,061,568 14,914,657
Separate account assets..................................... 372,177,241 287,711,169
-------------- --------------
Total assets................................................ $6,017,953,531 $5,956,130,583
============== ==============
LIABILITIES AND POLICYOWNERS' SURPLUS
Liabilities:
Policy reserves for future benefits....................... 4,849,550,332 5,013,096,389
Other policyowner funds................................... 173,052,616 139,583,562
Accrued commissions and general expenses.................. 7,263,733 7,600,278
Surplus notes............................................. 25,000,000 25,000,000
Other liabilities and reserves............................ 153,302,955 76,218,263
Deferred federal income taxes............................. 24,374,042 27,519,176
Separate account liabilities.............................. 372,177,241 287,711,168
Total liabilities........................................... 5,604,720,919 5,576,728,836
Minority interest in consolidated subsidiaries.............. 104,501,013 75,175,977
Policyowners' surplus:
Accumulated other comprehensive income (loss)............. (3,136,278) 140,380
Surplus................................................... 311,867,877 304,085,390
-------------- --------------
Total policyowners' surplus................................. 308,731,599 304,225,770
-------------- --------------
Total liabilities and policyowners' surplus................. $6,017,953,531 $5,956,130,583
============== ==============
</TABLE>
A1-2
<PAGE> 110
APPENDIX 1-B
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF INCOME OF
INDIANAPOLIS LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
REVENUES
Premiums.................................................... $127,785,457 $128,540,947
Policy and contract charges................................. 55,312,852 45,310,391
Net investment income....................................... 206,385,452 191,975,082
Net realized capital gains(losses).......................... 8,846,267 (8,334,593)
------------ ------------
Total revenues.............................................. 398,330,028 357,491,827
BENEFITS AND EXPENSES
Policy benefits............................................. 263,265,396 232,181,726
Underwriting, acquisition and insurance expenses............ 97,655,433 99,072,840
Interest.................................................... 1,623,751 1,623,750
Dividends to policyowners................................... 22,440,757 25,377,758
------------ ------------
Total benefits and expenses................................. 384,985,337 358,256,074
------------ ------------
Income (loss) before federal income taxes and minority
interest.................................................. 13,344,691 (764,247)
Federal income taxes (benefit).............................. 7,225,804 306,831
------------ ------------
Income(loss) before minority interest....................... 6,118,887 (1,071,078)
Minority interest in consolidated subsidiaries.............. 2,253,642 3,937,384
------------ ------------
Net income (loss)........................................... $ 3,865,245 $ (5,008,462)
============ ============
</TABLE>
B1-1
<PAGE> 111
APPENDIX 1-C
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF POLICYOWNERS' SURPLUS OF
INDIANAPOLIS LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE POLICYOWNERS'
INCOME (LOSS) SURPLUS SURPLUS
------------- ------------ -------------
<S> <C> <C> <C>
Balance at January 1, 1997....................... $ 10,713,558 $272,233,447 $282,947,005
Net income....................................... -- 15,393,489 15,393,489
Change in net unrealized gains on available for
sale securities, net of deferred taxes......... 7,090,353 -- 7,090,353
------------
Comprehensive income............................. 22,483,842
------------ ------------ ------------
Balance at December 31, 1997..................... 17,803,911 287,626,936 305,430,847
Net income....................................... -- 21,191,780 21,191,780
Change in net unrealized gains on available for
sale securities, net of deferred taxes......... 757,181 -- 757,181
------------
Comprehensive income............................. 21,948,961
------------ ------------ ------------
Balance at December 31, 1998..................... 18,561,092 308,818,716 327,379,808
Net loss......................................... -- (5,008,462) (5,008,462)
Change in net unrealized gains on available for
sale securities, net of deferred taxes, and
other.......................................... (18,420,712) 275,135 275,135
(18,420,712)
------------
Comprehensive income............................. (23,154,039)
------------ ------------ ------------
Balance at September 30, 1999.................... 140,380 304,085,389 304,225,769
Net income....................................... -- 3,917,241 3,917,241
Change in net unrealized gains on available for
sale securities, net of deferred taxes......... (10,369,358) -- (10,369,358)
------------
Comprehensive income............................. (6,452,117)
------------ ------------ ------------
Balance at December 31, 1999..................... (10,228,978) 308,002,630 297,773,652
Net income....................................... -- 3,865,245 3,865,245
Change in net unrealized gains on available for
sale securities, net of deferred taxes......... 7,092,702 -- 7,092,702
------------
Comprehensive income............................. 10,957,947
------------ ------------ ------------
Balance at September 30, 2000.................... $ (3,136,276) $311,867,875 $308,731,599
============ ============ ============
</TABLE>
C1-1
<PAGE> 112
INDIANAPOLIS LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles considered necessary for annual
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the nine months ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. Interim financial statements should be read in
conjunction with the Company's annual audited financial statements.
NEW ACCOUNTING STANDARDS
During 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Investments and Hedging Activities (SFAS No. 133)
which is effective January 1, 2001. SFAS No. 133 defines derivative instruments
and provides comprehensive accounting and reporting standards for the
recognition and measurement of derivative and hedging activities. The statement
requires derivatives to be recorded in the consolidated balance sheet at fair
value. The Company is evaluating SFAS No. 133 and has not determined its effect
on the consolidated financial statements.
The Company's statutory-basis financial statements are prepared in
accordance with accounting practices prescribed or permitted by the Indiana
Department of Insurance. In 1998, the National Association of Insurance
Commissioners adopted codified statutory accounting practices (Codification) to
become effective January 1, 2001. Codification will change, to some extent,
prescribed statutory accounting practices and may result in changes to the
accounting practices that the Company uses to prepare its statutory-basis
financial statements. Management believes that the impact of Codification will
not be material to the Company's statutory-basis financial statements.
2. COMBINATION
On February 18, 2000, the Company entered into a definitive agreement with
American Mutual Holding Company (AMHC) and AmerUs Life Holdings, Inc. (AmerUs),
which contemplates the ultimate combination of AMHC, AmerUs and the Company. The
transaction, which includes demutualization of the Company, is subject to
various member, governmental and insurance department approvals.
Under the terms of the agreement, AHMC also acquired a 45% interest in The
Indianapolis Life Group of Companies Inc., a downstream holding company, for
$100 million. It is contemplated that the transaction will be completed during
the first quarter of 2001.
3. FEDERAL INCOME TAXES
The actual federal income tax expense on gain from operations varied from
the amount computed at the statutory rate primarily due to non-deductible
expenses and the differential earnings tax applicable to mutual insurance
companies.
4. CONTINGENCIES
The Company is involved in pending and threatened litigation incidental to
the life insurance industry and the business transacted. Management believes
that the conclusion of the litigation will not have a material adverse effect on
the Company's financial position or results of operations.
C1-2
<PAGE> 113
APPENDIX 2
CONSOLIDATED FINANCIAL STATEMENTS
OF
INDIANAPOLIS LIFE INSURANCE COMPANY AND SUBSIDIARIES
PERIOD ENDED DECEMBER 31, 1999 AND 1998
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors..............................
Audited Consolidated Financial Statements...................
Consolidated Balance Sheets.................................
Consolidated Statements of Income...........................
Consolidated Statements of Policyowners' Surplus............
Consolidated Statements of Cash Flows.......................
Notes to Consolidated Financial Statements..................
</TABLE>
A2-1
<PAGE> 114
APPENDIX 2-A
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Indianapolis Life Insurance Company
We have audited the accompanying consolidated balance sheets of
Indianapolis Life Insurance Company and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of income, policyowners' surplus
and cash flows each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Indianapolis
Life Insurance Company and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
February 25, 2000
Indianapolis, Indiana
A2-2
<PAGE> 115
APPENDIX 2-B
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS
Cash and investments:
Fixed maturity securities:
Available for sale, at fair value...................... $4,083,679,362 $2,862,569,894
Held to maturity, at amortized cost.................... 252,226,207 251,622,891
Trading, at fair value................................. -- 104,749,857
Equity securities, at fair value.......................... 8,484,261 3,631,961
Mortgage loans............................................ 378,053,935 355,034,577
Policy loans.............................................. 184,737,369 184,910,752
Other invested assets..................................... 12,248,011 12,618,722
Cash and cash equivalents................................. 174,417,353 281,380,963
-------------- --------------
Total cash and investments.................................. 5,093,846,498 4,056,519,617
Accrued investment income................................... 65,417,285 49,461,962
Reinsurance recoverable..................................... 236,849,542 227,119,402
Deferred acquisition costs.................................. 328,711,527 255,580,121
Receivables and other assets................................ 8,377,412 8,671,838
Federal income taxes........................................ 2,504,823 1,839,703
Property and equipment...................................... 23,826,898 22,451,530
Present value of future profits............................. 10,293,213 7,589,856
Goodwill.................................................... 12,841,316 14,594,029
Separate account assets..................................... 341,088,253 220,862,443
-------------- --------------
Total assets................................................ $6,123,756,767 $4,864,690,501
============== ==============
LIABILITIES AND POLICYOWNERS' SURPLUS
Liabilities:
Policy reserves for future benefits....................... 5,039,879,222 3,986,061,676
Other policyowner funds................................... 142,752,796 121,243,101
Accrued commissions and general expenses.................. 8,658,801 8,618,558
Surplus notes............................................. 25,000,000 25,000,000
Other liabilities and reserves............................ 157,076,129 52,476,120
Deferred federal income taxes............................. 39,870,241 65,373,292
Separate account liabilities.............................. 341,088,253 220,862,443
-------------- --------------
Total liabilities........................................... 5,754,325,442 4,479,635,190
Minority interest in consolidated subsidiaries.............. 71,657,673 57,675,503
Policyowners' surplus:
Accumulated other comprehensive income (loss)............. (10,228,978) 18,561,092
Surplus................................................... 308,002,630 308,818,716
-------------- --------------
Total policyowners' surplus................................. 297,773,652 327,379,808
-------------- --------------
Total liabilities and policyowners' surplus................. $6,123,756,767 $4,864,690,501
============== ==============
</TABLE>
See accompanying notes.
B2-1
<PAGE> 116
APPENDIX 2-C
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Premiums......................................... $165,234,240 $168,538,387 $186,385,676
Policy and contract charges...................... 64,466,246 44,452,479 26,049,832
Net investment income............................ 256,904,634 194,081,412 145,757,342
Net realized capital gains....................... 4,822,798 8,200,716 4,435,089
------------ ------------ ------------
Total revenues................................... 491,427,918 415,272,994 362,627,939
BENEFITS AND EXPENSES
Policy benefits.................................. 312,845,116 256,853,599 223,955,437
Underwriting, acquisition and insurance
expenses....................................... 140,447,107 92,636,739 78,090,869
Interest......................................... 2,165,000 2,165,000 2,165,000
Dividends to policyowners........................ 32,981,886 32,348,774 34,251,633
------------ ------------ ------------
Total benefits and expenses...................... 488,439,109 384,004,112 338,462,939
------------ ------------ ------------
Income before federal income taxes and minority
interest....................................... 2,988,809 31,268,882 24,165,000
Federal income taxes............................. 1,592,549 8,636,298 8,771,511
------------ ------------ ------------
Income before minority interest.................. 1,396,260 22,632,584 15,393,489
Minority interest in consolidated subsidiaries... 2,212,346 1,440,804 --
------------ ------------ ------------
Net income (loss)................................ $ (816,086) $ 21,191,780 $ 15,393,489
============ ============ ============
</TABLE>
See accompanying notes.
C2-1
<PAGE> 117
APPENDIX 2-D
CONSOLIDATED STATEMENTS OF POLICYOWNERS' SURPLUS
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE POLICYOWNERS'
INCOME (LOSS) SURPLUS SURPLUS
------------- ------------ -------------
<S> <C> <C> <C>
Balance at January 1, 1997....................... $ 10,713,558 $272,233,447 $282,947,005
Net income....................................... -- 15,393,489 15,393,489
Change in net unrealized gains on available for
sale securities, net of deferred taxes......... 7,090,353 -- 7,090,353
------------
Comprehensive income............................. 22,483,842
------------ ------------ ------------
Balance at December 31, 1997..................... 17,803,911 287,626,936 305,430,847
Net income....................................... -- 21,191,780 21,191,780
Change in net unrealized gains on available for
sale securities, net of deferred taxes......... 757,181 -- 757,181
------------
Comprehensive income............................. 21,948,961
------------ ------------ ------------
Balance at December 31, 1998..................... 18,561,092 308,818,716 327,379,808
Net income....................................... -- (816,086) (816,086)
Change in net unrealized gains on available for
sale securities, net of deferred taxes......... (28,790,070) -- (28,790,070)
------------
Comprehensive income............................. (29,606,156)
------------ ------------ ------------
Balance at December 31, 1999..................... $(10,228,978) $308,002,630 $297,773,652
============ ============ ============
</TABLE>
See accompanying notes.
D2-1
<PAGE> 118
APPENDIX 2-E
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------
1999 1998 1997
--------------- --------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income(loss)............................... $ (816,086) $ 21,191,780 $ 15,393,489
Minority interest in consolidated
subsidiaries................................. 2,212,346 1,440,804 --
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating
activities
Depreciation and amortization expense........ 6,682,094 6,509,511 (1,184,934)
Amortization of bond discount................ (2,256,102) (28,406,065) (4,109,098)
Net realized capital gains................... (4,822,798) (8,200,716) (4,435,089)
Changes in operating assets and liabilities:
Current and deferred income taxes......... (26,168,171) 25,444,472 8,778,884
Deferred acquisition costs................ (103,826,849) (95,711,160) (62,171,552)
Amortization of deferred acquisition
costs................................... 52,932,857 38,700,076 27,465,963
Accrued investment income................. (15,955,323) (17,017,725) (7,290,512)
Reinsurance recoverable................... (9,730,140) (88,982,087) (36,123,118)
Other assets.............................. 12,597,397 (15,112,307) (59,785,717)
Other liabilities......................... 103,942,438 741,337 8,717,796
--------------- --------------- -------------
Net cash provided (used) by operating
activities................................... 14,791,663 (159,402,080) (114,743,888)
INVESTING ACTIVITIES
Proceeds from sales, calls or maturities:
Fixed maturities, available for sale......... 856,930,309 372,305,685 227,952,210
Fixed maturities, trading.................... -- 31,972,993 13,576,106
Fixed maturities, held to maturity........... 18,238,138 27,091,144 23,499,893
Equity securities............................ 20,827,171 2,068,161 302,906
Mortgage loans............................... 27,790,227 31,108,079 27,109,687
Other invested assets........................ 1,111,191 521,313 2,057,719
Purchases:
Fixed maturities, available for sale......... (2,011,854,922) (1,591,940,461) (710,421,972)
Fixed maturities, trading.................... -- (110,308,342) (39,650,252)
Fixed maturities, held to maturity........... (14,672,704) (8,540,379) (24,172,667)
Equity securities............................ (25,148,486) (22,719,732) (11,619,293)
Mortgage loans............................... (50,217,045) (53,806,953) (56,910,000)
Other invested assets........................ (4,718,163) (6,083,802) (4,898,687)
--------------- --------------- -------------
Net cash used by investing activities.......... (1,181,714,284) (1,328,332,294) (553,174,350)
FINANCING ACTIVITIES
Capital contributions from minority interest in
subsidiaries................................. 16,500,000 59,256,667 8,910,000
Deposits to insurance liabilities.............. 1,223,148,412 1,691,451,606 836,730,081
Withdrawals from insurance liabilities......... (179,689,401) (108,117,004) (104,081,649)
--------------- --------------- -------------
Net cash provided by financing activities...... 1,059,959,011 1,642,591,269 741,558,432
--------------- --------------- -------------
Net increase (decrease) in cash................ (106,963,610) 154,856,895 73,640,194
Cash and cash equivalents at beginning of
year......................................... 281,380,963 126,524,068 52,883,874
--------------- --------------- -------------
Cash and cash equivalents at end of year....... $ 174,417,353 $ 281,380,963 $ 126,524,068
=============== =============== =============
</TABLE>
See accompanying notes.
E2-1
<PAGE> 119
APPENDIX 2-F
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Indianapolis Life Insurance Company (the "Company") is incorporated in the
State of Indiana and is qualified to do business in forty-six states and the
District of Columbia. Being a mutual company, it is owned and operated
exclusively for the benefit of its policyowners. The Company's business consists
primarily of providing individual life and annuity policies. The consolidated
financial statements include the Company and its majority-owned subsidiary, The
Indianapolis Life Group of Companies, Inc. ("IL Group"). IL Group is a holding
company that owns IL Annuity and Insurance Company, Bankers Life Insurance
Company of New York, Western Security Life Insurance Company, IL Securities,
Inc. and IL Term Insurance Company. IL Term Insurance Company was voluntarily
dissolved effective December 31, 1998; net assets at that date were contributed
to IL Group.
At December 31, 1997, Bankers Life Insurance Company of New York and
Western Security Life Insurance Company were wholly-owned subsidiaries of the
Company. During 1998 the Company contributed its ownership of these entities to
IL Group.
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
("GAAP"). All significant intercompany balances and transactions have been
eliminated.
Preparation of the consolidated financial statements requires management to
make estimates and assumptions that affect amounts reported in the consolidated
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
The Company and its insurance subsidiaries also each prepare their
financial statements in conformity with accounting practices prescribed or
permitted by the Department of Insurance of the respective state of domicile,
which practices differ from GAAP, for the purpose of filing with regulatory
authorities. The Company's statutory surplus at December 31, 1999 and 1998 was
$102,608,552 and $136,023,910, respectively. The Company's statutory net income
(loss), excluding subsidiaries, for 1999, 1998 and 1997 was ($11,483,379),
$14,052,835, and $13,855,923, respectively.
Generally, the net assets of the Company's insurance subsidiaries available
for transfer to the Company are limited to the amounts that the insurance
subsidiaries' net assets of approximately $80,241,000 at December 31, 1999, 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.
INVESTMENTS
Fixed maturity securities which may be sold to meet liquidity and other
needs of the Company are categorized as available for sale and are reported at
fair value with unrealized gains and losses reported as a separate component of
policyowners' surplus, net of deferred income taxes. Fixed maturity securities
which the Company has the positive intent and ability to hold to maturity are
categorized as held-to-maturity and are reported at amortized cost. Fixed
maturity securities that are bought and held principally for the purpose of
selling them in the near term to generate profits from short-term differences in
price are categorized as trading and are reported at fair value with unrealized
holding gains and losses reported in operations. Equity securities (preferred
and common stocks) are classified as available-for-sale and carried at fair
value.
Cash and cash equivalents include all highly liquid debt instruments which
have original maturities of three months or less, and are stated at cost which
approximates fair value.
Mortgage loans and policy loans are stated at aggregate unpaid balances.
F2-1
<PAGE> 120
Realized gains and losses on sale or maturity of investments are based on
specific identification of the investments sold and do not include amounts
allocable to separate accounts. At the time a decline in value of an investment
is determined to be other than temporary, a provision for loss is recorded which
is included in realized investment gains and losses.
DEFERRED ACQUISITION COSTS
Costs of acquiring new business which vary with and are primarily related
to the production of new business have been deferred to the extent that such
costs are deemed recoverable. Such costs include commissions, certain costs of
policy underwriting and issue and certain variable agency expenses. These costs
are amortized with interest as follows:
For participating whole life insurance products, over 30 years in relation
to the present value of estimated gross margins from expenses, surrender
gains, investments and mortality, discounted using the expected investment
yield.
For universal life-type policies and investment contracts, 30 years and 15
years, respectively, in relation to the present value of estimated gross
profits from surrender charges and investment, mortality and expense
margins, discounted using the interest rate credited to the policy.
Recoverability of the unamortized balance of deferred policy acquisition
costs is evaluated regularly. For universal life-type contracts, investment
contracts and participating whole life policies, the accumulated amortization is
adjusted (increased or decreased) whenever there is a material change in the
estimated gross profits or gross margins expected over the life of a block of
business in order to maintain a consistent relationship between cumulative
amortization and the present value of gross profits or gross margins. For all
contracts, the unamortized asset balance is reduced by a charge to income when
the present value of future cash flows, net of policy liabilities, is not
sufficient to cover such asset balance.
PROPERTY AND EQUIPMENT
Property and equipment are stated on the basis of cost, less allowances for
depreciation of $29,087,910 and $30,186,199 at December 31, 1999 and 1998,
respectively. Depreciation has been computed using the straight-line method at
rates based on estimated useful lives.
INTANGIBLE ASSETS
Present value of future profits has been recorded in connection with the
acquisition of subsidiaries. The initial value is based on the actuarially
determined present value of the projected future gross profits from the in-force
business acquired. The value of insurance in force purchased is amortized on a
constant yield basis over the estimated life of the insurance in force at the
date of acquisition in proportion to the emergence of profits over a period of
approximately 20 years. Accumulated amortization of present value of future
profits is $13,053,567 and $11,271,497 at December 31, 1999 and 1998,
respectively.
Goodwill represents the excess of cost of acquisition of subsidiaries over
the fair value of net assets acquired and is amortized using the straight-line
method over 20 years. Accumulated amortization of goodwill is $4,471,710 and
$3,569,508 at December 31, 1999 and 1998, respectively.
SEPARATE ACCOUNTS
Separate account assets and liabilities represent funds that are separately
administered, principally for variable annuity contracts, and for which the
contractholder, rather than the Company, bears the investment risk. Separate
account contractholders have no claim against the assets of the general account
of the Company. Separate account assets are reported at fair value. The
operations of the separate accounts are not included in the accompanying
consolidated financial statements.
F2-2
<PAGE> 121
POLICY RESERVES FOR FUTURE BENEFITS
Reserves for participating whole life policies are calculated using the net
level premium method and assumptions as to interest and mortality. The interest
rates and the mortality rates are those guaranteed in the calculation of cash
surrender values described in the contract. Deposit administration funds are
reserved using various rates as the interest credited generally fluctuates with
interest rate changes in the market place. Reserves for term life policies are
determined using the 1980 4% Commissioner's Reserve Valuation Method.
Reserves for universal life policies and investment contracts are the
account values (premiums and interest credits less mortality and expense
charges) plus a deferred revenue liability, if any, for excess first-year
policyowner charges and net unrealized gains on investments allocated to
policyowners.
The Company waives deduction of deferred fractional premiums upon death of
insureds and returns any portion of the final premium beyond the date of death.
Surrender values are not promised in excess of the legally computed reserves.
Reinsurance premiums, expenses, recoveries and reserves related to
reinsured business are accounted for on bases consistent with those used in
accounting for the original policies issued and the terms of the reinsurance
contracts, and reported on a gross basis.
PREMIUMS AND RELATED BENEFITS AND EXPENSES
Premium income is recognized as revenue when due.
The dividend scales used for determination of dividends payable to
policyowners are approved by the Board of Directors. The liability for policy
dividends payable in the following year is estimated based on approved dividend
scales and historical experience and is charged to current operations.
Participating policies representing approximately 31% and 39% of the life
insurance in force at December 31, 1999 and 1998, respectively, and
approximately 71% and 77% of premiums in 1999 and 1998, respectively.
THIRD-PARTY ADMINISTRATORS
The Company has contractual arrangements with three third-party
administrators to distribute and administer its annuity products. One of the
third-party administrators, Legacy Marketing Group, distributes and administers
the majority of this business.
COMPREHENSIVE INCOME
Comprehensive income is reported separately in policyowners' surplus and is
comprised of the results of operations and the change in a portion of unrealized
gains or losses in the Company's available-for-sale securities.
The Company's reclassification adjustment for 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------
GROSS TAX EFFECT NET
------------- ------------ ------------
<S> <C> <C> <C>
Unrealized holding gains arising during
year.................................. $ 88,171,160 $(30,859,906) $ 57,311,254
Reclassification adjustment for gains
realized in net income................ (10,949,979) 3,832,493 (7,117,486)
Allocated to future policy benefit
reserves.............................. (113,900,988) 39,865,346 (74,035,642)
Deferred acquisition costs valuation.... (7,612,609) 2,664,413 (4,948,196)
------------- ------------ ------------
Change in net unrealized gains on
available for sale securities......... $ (44,292,416) $ 15,502,346 $(28,790,070)
============= ============ ============
</TABLE>
F2-3
<PAGE> 122
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------
GROSS TAX EFFECT NET
------------ ------------ ------------
<S> <C> <C> <C>
Unrealized holding gains arising during
year................................... $138,646,372 $(48,526,230) $ 90,120,142
Reclassification adjustment for gains
realized in net income................. (21,935,229) 7,677,330 (14,257,899)
Allocated to future policy benefit
reserves............................... (86,663,175) 30,332,111 (56,331,064)
Deferred acquisition costs valuation..... (28,883,074) 10,109,076 (18,773,998)
------------ ------------ ------------
Change in net unrealized gains on
available for sale securities.......... $ 1,164,894 $ (407,713) $ 757,181
============ ============ ============
</TABLE>
NEW ACCOUNTING STANDARDS
During 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Investments and Hedging Activities" (SFAS No.
133) which is effective January 1, 2001. SFAS No. 133 defines derivative
instruments and provides comprehensive accounting and reporting standards for
the recognition and measurement of derivative and hedging activities. It
requires derivatives to be recorded in the consolidated balance sheet at fair
value. The Company is evaluating SFAS No. 133 and has not determined its effect
on the consolidated financial statements.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. AFFILIATION
In 1997, the Company announced its intent to affiliate with American United
Life Insurance Company ("AUL"), an Indiana-domiciled mutual life insurance
company. As of December 31, 1999 and 1998, AUL had invested a total of
$54,041,667 and $49,541,667, respectively, in IL Group, representing a 33%
minority interest. In addition, Legacy Marketing Group ("Legacy"), a third party
administrator, invested $12,000,000 in IL Group during 1999, representing a 6%
minority interest.
On February 18, 2000, the Company entered into a definitive agreement with
American Mutual Holding Company ("AMHC") and AmerUs Life Holdings, Inc.
("AmerUs"), which contemplates the ultimate combination of AMHC, AmerUs and the
Company. The transaction, which includes demutualization by the Company, is
subject to various governmental and insurance department approvals. Under the
agreement, AMHC initially acquired a 45% ownership interest in IL Group for $100
million, and IL Group used the proceeds of the investment to repurchase the
ownership interests of AUL and Legacy in their entirety.
3. INVESTMENTS
Fixed maturity securities and equity securities consist of the following at
December 31:
<TABLE>
<CAPTION>
1999
-------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Fixed maturity securities:
United States government... $ 214,268,865 $ 367,082 $ 7,169,042 $ 207,466,905
Special revenue............ 1,000,000 132,410 -- 1,132,410
Public utilities........... 289,208,457 1,219,116 10,893,279 279,534,294
Industrial and
miscellaneous........... 3,133,179,647 272,706,062 161,899,314 3,243,986,395
Mortgage-backed
securities.............. 354,234,781 3,840,442 6,515,865 351,559,358
-------------- ------------ ------------ --------------
Total fixed maturity
securities................. 3,991,891,750 278,265,112 186,477,500 4,083,679,362
</TABLE>
F2-4
<PAGE> 123
<TABLE>
<CAPTION>
1999
-------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Equity securities:
Preferred stock............ 1,062,970 -- 103,720 959,250
Common stock............... 7,574,702 607,955 657,646 7,525,011
-------------- ------------ ------------ --------------
Total equity securities...... 8,637,672 607,955 761,366 8,484,261
-------------- ------------ ------------ --------------
$4,000,529,422 $278,873,067 $187,238,866 $4,092,163,623
============== ============ ============ ==============
HELD TO MATURITY:
United States government..... $ 3,096,231 $ 55,267 $ -- $ 3,151,498
Special revenue.............. 1,500,000 132,585 -- 1,632,585
Public utilities............. 22,095,418 435,455 360,085 22,170,788
Industrial and
miscellaneous.............. 219,182,080 3,337,154 5,412,635 217,106,599
Mortgage-backed securities... 6,352,478 -- 256,372 6,096,106
-------------- ------------ ------------ --------------
$ 252,226,207 $ 3,960,461 $ 6,029,092 $ 250,157,576
============== ============ ============ ==============
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Fixed maturity securities:
United States government.... $ 128,524,889 $ 2,949,238 $ 103,035 $ 131,371,092
Special revenue............. 1,965,157 452,994 -- 2,418,151
Public utilities............ 331,724,101 18,216,972 190,947 349,750,126
Industrial and
miscellaneous............ 1,858,281,651 131,753,912 21,434,562 1,968,601,001
Mortgage-backed
securities............... 393,204,489 17,401,672 176,637 410,429,524
-------------- ------------ ----------- --------------
Total fixed maturity
securities.................. 2,713,700,287 170,774,788 21,905,181 2,862,569,894
Equity securities:
Preferred stock............. 10,500 -- -- 10,500
Common stock................ 3,535,718 310,391 224,648 3,621,461
-------------- ------------ ----------- --------------
Total equity securities....... 3,546,218 310,391 224,648 3,631,961
-------------- ------------ ----------- --------------
$2,717,246,505 $171,085,179 $22,129,829 $2,866,201,855
============== ============ =========== ==============
HELD TO MATURITY:
United States government...... $ 3,038,842 $ 213,312 $ -- $ 3,252,154
Special revenue............... 1,500,000 350,055 -- 1,850,055
Public utilities.............. 34,282,843 3,186,353 -- 37,469,196
Industrial and
miscellaneous............... 207,254,920 19,300,715 289,082 226,266,553
Mortgage-backed securities.... 5,546,286 485,199 -- 6,031,485
-------------- ------------ ----------- --------------
$ 251,622,891 $ 23,535,634 $ 289,082 $ 274,869,443
============== ============ =========== ==============
TRADING:
United States government...... $ 8,003,369 $ 26,500 $ 130,372 $ 7,899,497
Special revenue............... 100,370 -- 80,370 20,000
Public utilities.............. 6,578,169 332,988 87,932 6,823,225
Industrial and
miscellaneous............... 92,528,033 1,551,485 4,072,383 90,007,135
-------------- ------------ ----------- --------------
$ 107,209,941 $ 1,910,973 $ 4,371,057 $ 104,749,857
============== ============ =========== ==============
</TABLE>
F2-5
<PAGE> 124
Effective January 1, 1999, the Company transferred fixed maturity
securities, with a fair value of $104,749,857, previously classified as trading
securities to available for sale securities.
The amortized cost and fair value of fixed maturity securities at December
31, 1999, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
------------------------------- ---------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Due in one year or less...... $ -- $ -- $ -- $ --
Due after one year through
five years................. 760,242,509 788,141,216 61,450,384 61,225,182
Due after five years through
ten years.................. 1,489,024,842 1,448,201,217 109,153,782 108,685,949
Due after ten years.......... 1,388,389,619 1,495,777,570 75,269,563 74,150,339
Mortgage-backed securities... 354,234,781 351,559,359 6,352,478 6,096,106
-------------- -------------- ------------ ------------
$3,991,891,750 $4,083,679,362 $252,226,207 $250,157,576
============== ============== ============ ============
</TABLE>
Net investment income consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Fixed maturity securities................ $210,785,436 $148,322,043 $108,521,105
Equity securities........................ 165,680 97,018 121,884
Mortgage loans........................... 32,708,068 29,697,737 27,698,145
Real estate.............................. -- 8,280 7,605
Policy loans............................. 12,159,354 13,256,324 12,086,183
Short term investments................... 11,594,939 10,322,418 4,027,446
Other.................................... 7,259,596 4,183,019 2,496,189
------------ ------------ ------------
Gross investment income.................. 274,673,073 205,886,839 154,958,557
Less investment expenses................. 17,768,439 11,805,427 9,201,215
------------ ------------ ------------
Net investment income.................... $256,904,634 $194,081,412 $145,757,342
============ ============ ============
</TABLE>
Net unrealized gains on available-for-sale securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1999 1998
------------- ------------
<S> <C> <C>
Fixed maturities:
Gross unrealized gains............................... $ 278,265,112 $170,774,788
Gross unrealized losses.............................. (186,477,500) (21,905,181)
------------- ------------
91,787,612 148,869,607
Equity securities:
Gross unrealized gains............................... 607,955 310,391
Gross unrealized losses.............................. 761,366 (224,648)
------------- ------------
(153,411) 85,743
Deferred income taxes.................................. (34,640,881) (52,105,250)
Allocated to future policy benefit reserves............ (74,035,642) (56,331,064)
Deferred acquisition costs and present value future
profits valuation.................................... 5,236,231 (19,080,030)
Minority interest in consolidated subsidiaries......... 1,577,113 (2,877,914)
------------- ------------
$ (10,228,978) $ 18,561,092
============= ============
</TABLE>
F2-6
<PAGE> 125
Proceeds from the sales of investments in fixed maturities during 1999,
1998 and 1997 were $716,775,997, $226,690,947 and $176,335,768, respectively.
Gross gains of $27,245,476, $20,437,597 and $7,963,187 and gross losses of
$17,377,449, $1,563,754 and $1,082,349 were realized in 1999, 1998 and 1997,
respectively.
The Company maintains a diversified mortgage loan portfolio and exercises
internal limits on concentrations of loans by geographic area, industry, use and
individual mortgagor. Net realized capital gains include write downs and changes
in the reserve for losses on mortgage loans and foreclosed real estate of
$232,548, $248,135 and $89,956 for 1999, 1998, and 1997, respectively.
The Company has outstanding mortgage loan commitments at December 31, 1999,
of approximately $13,948,000.
Included in net realized capital gains is a gain (loss) of $275,148 and
($3,815,119) incurred on the sale of a minority interest in IL Group during 1999
and 1998, respectively.
4. FEDERAL INCOME TAXES
A reconciliation of federal income taxes computed at statutory tax rates to
federal income tax expense is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income tax computed at statutory tax
rates..................................... $ 1,046,038 $10,944,109 $ 8,457,750
Mutual company differential earning
amount.................................... 2,637,919 (2,754,247) 1,453,702
Tax credits................................. (1,801,377) (1,383,442) (1,459,000)
Amortization of goodwill.................... 279,988 650,710 692,402
Other....................................... (570,019) 1,179,168 (373,343)
----------- ----------- -----------
Federal income taxes........................ $ 1,592,549 $ 8,636,298 $ 8,771,511
=========== =========== ===========
</TABLE>
Federal income taxes consist of the following:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current taxes............................... $ 9,324,472 $14,380,161 $10,683,727
Deferred tax credits........................ (7,731,923) (5,743,863) (1,912,216)
----------- ----------- -----------
Total....................................... $ 1,592,549 $ 8,636,298 $ 8,771,511
=========== =========== ===========
</TABLE>
Tax benefits of $287,130, $1,124,395 and $899,979 for 1999, 1998 and 1997,
respectively, reduced goodwill related to the acquisition of Bankers Life
Insurance Company of New York because the tax benefit was not recognized at the
date of acquisition.
Significant components of the deferred tax assets (liabilities) at December
31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Insurance reserves...................................... $ 86,202,023 $ 60,959,977
Deferred policy acquisition costs....................... (79,514,798) (68,768,570)
Unrealized appreciation of securities................... (34,241,704) (52,134,479)
Investments............................................. (9,604,925) (3,054,223)
Present value of future profits......................... (2,806,055) (3,429,780)
Other................................................... 930,471 2,326,473
------------ ------------
Total deferred tax liabilities.......................... (39,034,988) (64,100,602)
Valuation allowance..................................... (835,253) (1,272,690)
------------ ------------
Net deferred tax liabilities............................ $(39,870,241) $(65,373,292)
============ ============
</TABLE>
F2-7
<PAGE> 126
Valuation allowances have been created for operating losses, credit
carryovers and alternative minimum tax credit carryovers. The amount of the tax
net operating loss carryforwards are $1,596,818 at December 31, 1999. The
operating loss carryovers expire between 2012 and 2017.
The Company paid federal income taxes of $13,839,934, $18,102,557 and
$13,827,397 in 1999, 1998 and 1997, respectively and received refunds of
$3,257,067 and $824,100 in 1999 and 1998, respectively.
5. REINSURANCE
The Company has entered into reinsurance cession agreements with other
insurance companies to limit the net loss arising from large risks and maintain
its exposure to loss within its capital resources. The Company remains liable
for ceded risks in the event that reinsurers do not meet their obligations.
Management believes its reinsurers will meet their obligations under existing
contracts.
The effects of reinsurance on premiums were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Reinsurance assumed...................... $ 47,600,550 $ 41,940,233 $ 74,239,472
Reinsurance ceded........................ (68,031,375) (56,776,068) (80,084,294)
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $28,126,006,
$23,457,066 and $15,695,935 during 1999, 1998 and 1997, respectively.
IL Annuity and Insurance Company entered into a modified coinsurance
cession agreements covering flexible premium deferred annuity policies
distributed through a third-party administrator. Future policy benefit reserves
include reinsurance payable of $2,279,437,605 and $1,511,542,946 at December 31,
1999 and 1998, respectively. Net realized capital gains are net of realized
gains allocated to the reinsurer of $15,316,835, $14,194,580 and $2,587,253 in
1999,1998 and 1997, respectively.
6. BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan, which
generally covers all qualified employees that have attained the age of
twenty-one. Benefits are based on years of service and compensation levels
during employment. All plan assets consist primarily of deposit administration
funds and group annuity contracts held by the Company. Company contributions to
the employee plan are computed actuarially and funded annually.
In addition to the Company's defined benefit plan, the Company offers
retired employees, retired full-time agents and eligible spouses and dependents
certain postretirement benefits such as medical, life, and dental insurance.
The most recent actuarial valuation date for pension benefits was September
30 while the most recent date for postretirement benefits was December 31.
The reconciliation of the benefit obligation is as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Benefit obligation at beginning of year..... $31,443,397 $26,371,315 $24,678,651
Service cost................................ 1,593,714 1,224,152 1,125,145
Interest cost............................... 2,043,821 1,845,992 1,665,809
Actuarial (gain) loss....................... (1,129,236) 3,013,204 (231,144)
Benefits paid............................... (1,040,698) (1,011,266) (867,146)
----------- ----------- -----------
Benefit obligation at end of year........... $32,910,998 $31,443,397 $26,371,315
=========== =========== ===========
</TABLE>
F2-8
<PAGE> 127
<TABLE>
<CAPTION>
POSTRETIREMENT BENEFITS
------------------------------------------
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
Benefit obligation at beginning of year.... $ 6,717,388 $ 6,450,925 $ 6,193,641
Service cost............................... 281,668 229,772 214,740
Interest cost.............................. 558,538 437,536 421,331
Actuarial loss............................. 1,200,682 -- --
Benefits paid.............................. (428,172) (400,845) (377,787)
----------- ------------ -----------
Benefit obligation at end of year.......... $ 8,330,104 $ 6,717,388 $ 6,450,925
=========== ============ ===========
</TABLE>
The changes in pension plan assets were as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Fair value of plan assets at beginning of
year...................................... $25,191,760 $23,046,044 $21,123,697
Actual return on plan assets................ 1,790,758 1,681,535 1,600,582
Employer contributions...................... 1,608,017 1,473,610 1,306,200
Benefits paid............................... (1,002,432) (1,009,429) (984,435)
----------- ----------- -----------
Fair value of plan assets at end of year.... $27,588,103 $25,191,760 $23,046,044
=========== =========== ===========
</TABLE>
The reconciliation of the funded status to the net benefit cost recognized
is as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Funded status............................... $(5,322,895) $(6,251,637) $(3,325,271)
Unrecognized net loss....................... 4,101,140 5,154,917 1,955,475
Unrecognized transition obligation.......... 1,248,046 1,404,052 1,560,058
----------- ----------- -----------
Prepaid benefit cost at December 31......... $ 26,291 $ 307,332 $ 190,262
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
POSTRETIREMENT BENEFITS
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Funded status............................... $(8,330,104) $(6,717,388) $(6,450,925)
Unrecognized net loss....................... 834,481 1,512,229 1,657,138
Unrecognized prior service cost............. 435,809 (1,486,994) (1,774,999)
----------- ----------- -----------
Accrued benefit cost at December 31......... $(7,059,814) $(6,692,153) $(6,568,786)
=========== =========== ===========
</TABLE>
The weighted average assumptions used in calculating the accrued
liabilities are as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
-------------------- -----------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Discount rate............................ 6.75% 6.50% 7.00% 7.25% 7.00% 7.00%
Rate of compensation increase............ 4.50% 4.50% 4.50% 5.00% 5.00% 5.00%
Expected rate of return on plan assets... 8.00% 8.00% 8.00% -- -- --
</TABLE>
F2-9
<PAGE> 128
The assumed health care cost trend rate used in measuring the
postretirement benefit obligations were as follows:
<TABLE>
<S> <C>
1999
Under age 65 8.2% with an assumed graded decrease to 5%
Over age 65 7.8% with an assumed graded decrease to 5%
1998
Under age 65 8.6% with an assumed graded decrease to 5%
Over age 65 8.2% with an assumed graded decrease to 5%
1997
Under age 65 9.0% with an assumed graded decrease to 5%
Over age 65 8.5% with an assumed graded decrease to 5%
</TABLE>
Below are the components of net periodic benefit cost:
<TABLE>
<CAPTION>
PENSION BENEFITS
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Service cost................................ $ 1,593,714 $ 1,224,152 $ 1,125,145
Interest cost............................... 2,008,426 1,809,049 1,635,222
Expected return on assets................... (2,007,071) (1,832,667) (1,682,793)
Amortization of unrecognized net loss....... 137,985 -- --
Amortization of transition obligation....... 156,006 156,006 156,006
----------- ----------- -----------
Net periodic benefit cost................... $ 1,889,060 $ 1,356,540 $ 1,233,580
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
POSTRETIREMENT BENEFITS
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Service cost................................ $ 281,668 $ 229,772 $ 214,740
Interest cost............................... 558,538 437,536 420,331
Expected return on assets................... (169,106) -- --
Amortization of unrecognized prior service
cost...................................... -- (288,005) (288,005)
Amortization of unrecognized net loss....... 124,733 144,909 149,046
----------- ----------- -----------
Net periodic benefit cost................... $ 795,833 $ 524,212 $ 496,112
=========== =========== ===========
</TABLE>
The Company sponsors a salary reduction/savings plan for employees as
defined by Section 401(k) of the Internal Revenue Code. Participants may
contribute on a pre-tax basis from 1% to 15% of their eligible earnings up to a
maximum amount as permitted by law. Voluntary employee contributions are matched
at an amount equal to 50% of the first 3% of each participants contribution.
Contributions made by the Company totaled $271,307, $282,510 and $328,342 for
1999, 1998 and 1997, respectively. Other liabilities and reserves include
$11,915,375 and $11,075,419 at December 31, 1999 and 1998, respectively,
relating to the plan.
The Company has a defined contribution pension plan covering substantially
all of the agents. Company contributions are based on agent compensation and are
funded annually; contributions for 1999, 1998 and 1997 were $202,000, $266,000
and $639,000, respectively. Other policyowner funds include $13,631,072 and
$13,186,031 at December 31, 1999 and 1998, respectively, relating to the plan.
The Company also sponsors a deferred compensation plan for agents and a
separate deferred compensation plan for officers and directors. Other
liabilities and reserves include $5,797,227 and $4,557,099 at December 31, 1999
and 1998, respectively, relating to these plans. The deferred compensation plans
are contributory and non-qualified.
F2-10
<PAGE> 129
7. SURPLUS NOTES
Any payment of interest and repayment of principal on the surplus notes may
be paid only out of the Company's earnings, subject to approval by the Indiana
Department of Insurance. A summary of the terms of these surplus notes follows:
<TABLE>
<CAPTION>
ANNUAL ACCRUED
DATE INTEREST AMOUNT INTEREST INTEREST AT DATE OF
ISSUED RATE OF NOTES PAID DECEMBER 31 MATURITY
----------- -------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
May 8, 1996 8.66% $25,000,000 $2,165,000 $541,250 April 1, 2011
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
The Company is involved in pending and threatened litigation of the
character incidental to the business transacted. Management believes that the
conclusion of the litigation will not have a material adverse affect on the
Company's financial position or results of operations.
During 1999, the Company reached an agreement to settle a market conduct
class action lawsuit. The terms of the agreement call for the Company to make
payments of cash, policy credits or additional death benefits to owners of
eligible policies. These costs, plus legal expenses, total approximately
$21,284,500 (net of taxes of $11,460,885) and have been recorded in the
accompanying consolidated financial statements.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments in the accompanying
financial statements and notes thereto:
Cash and cash equivalents, accrued investment income and policy
loans: The carrying amounts reported in the accompanying balance sheets
for these financial instruments approximate their fair values.
Fixed maturity and equity securities: Fair values of bonds and stocks
are based on quoted market prices where available. For bonds not actively
traded, fair values are estimated using values obtained from independent
pricing services, or in the case of private placements, are estimated by
discounting expected future cash flow using a current market rate
applicable to the yield, credit quality and maturity of the investments.
Mortgage loans: The fair value of mortgage loans was estimated by
discounting the future cash flows using current rates at which similar
loans would be made to borrowers with similar credit ratings for similar
maturities.
Investment-type contracts: The fair value of deferred annuities is
believed to approximate the cash surrender value. The carrying amounts of
other investment-type contracts approximate their fair value.
Surplus notes: The fair value of surplus notes are estimated using
values obtained from an independent pricing service based on the bid price
of the notes on the given date.
F2-11
<PAGE> 130
The carrying value and fair values of the Company's financial instruments
at December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------- --------------------------------
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Fixed maturity securities:
Available for sale...... $4,083,679,362 $4,083,679,362 $2,862,569,894 $2,862,569,894
Trading................. -- -- 104,749,857 104,749,857
Held to Maturity........ 252,226,207 250,157,576 251,622,891 274,869,443
Equity securities......... 8,484,261 8,484,261 3,631,961 3,631,961
Mortgage loans............ 378,053,935 382,843,780 355,034,577 395,190,779
LIABILITIES:
Deferred annuities........ 3,268,272,248 3,087,879,171 2,323,647,052 2,185,660,794
Surplus notes............. 25,000,000 25,906,250 25,000,000 29,508,700
</TABLE>
The fair values of the Company's liabilities for insurance contracts other
than investment-type contracts are not required to be disclosed. However, the
estimated fair values for all insurance liabilities are taken into consideration
in the Company's overall management of interest rate risk, which minimizes
exposure to changing interest rates through the matching of investment
maturities with amounts due under insurance contracts.
10. YEAR 2000 (UNAUDITED)
In 1997, the Company's Board of Directors adopted a Year 2000 Plan to
address all major computing information systems including hardware, software,
equipment and business partners. The objective of the Year 2000 Plan was to
ensure that the Company can continue to serve its customers with minimal
business disruptions and business risk. The Year 2000 Plan was supported by
Company officers and executive management, and is closely monitored by the Board
of Directors.
As a result of the foregoing, the Company conducted business as usual on
work day one of the new year. All business units experienced a smooth transition
into the Year 2000. A few minor issues were quickly identified and resolved, but
there was no impact to business operations and no need to invoke the Company's
contingency plans. Although it anticipates no problems, the Company will
continue to monitor systems and business applications to ensure the first
quarter and full year processing dates are successfully completed.
The costs to address the Company's Year 2000 issues for 1999, 1998 and 1997
were approximately $2,500,000, $11,000,000 and $1,000,000, respectively.
F2-12
<PAGE> 131
APPENDIX 3
COMBINATION AGREEMENT
<PAGE> 132
AMENDMENT
DATED SEPTEMBER 18, 2000
TO
COMBINATION AND INVESTMENT AGREEMENT
AMONG
AMERICAN MUTUAL HOLDING COMPANY,
AMERUS LIFE HOLDINGS, INC.,
INDIANAPOLIS LIFE INSURANCE COMPANY
AND
THE INDIANAPOLIS LIFE GROUP OF COMPANIES, INC.
DATED FEBRUARY 18, 2000
<PAGE> 133
AMENDMENT
TO
COMBINATION AND INVESTMENT AGREEMENT
THIS AMENDMENT TO COMBINATION AND INVESTMENT AGREEMENT ("Amendment") is
made as of the 18th of September, 2000, by and among AMERICAN MUTUAL HOLDING
COMPANY ("AMHC"), AMERUS LIFE HOLDINGS, INC. ("AmerUs"), INDIANAPOLIS LIFE
INSURANCE COMPANY ("Indianapolis Life") and THE INDIANAPOLIS LIFE GROUP OF
COMPANIES, INC. ("ILGC") (collectively referred to in this Amendment as the
"Parties").
RECITALS
A. AMHC, AmerUs, Indianapolis Life and ILGC entered into a Combination and
Investment Agreement ("Agreement") dated February 18, 2000.
B. The Parties recognize that certain changes in circumstances following
February 18, 2000 necessitate changes to the Agreement.
C. The Parties have accordingly determined that amending certain terms of
the Agreement, and clarifying certain other matters relating to the transactions
contemplated by the Agreement, would be in the best interests of their
respective companies, members and policyholders, and shareholders.
D. The Parties acknowledge that the Stock Purchase contemplated under the
Agreement has already occurred. The parties intend that the original
representations and warranties made as of the date of the Agreement and at the
Stock Purchase Closing Date, as well as each of the other original provisions
related to the Stock Purchase, shall remain in effect as to that transaction as
and to the extent provided herein.
E. Promptly upon the signing of this Amendment, AMHC and AmerUs shall
proceed to close the AMHC Demutualization in a manner and upon terms
substantially consistent with the Plan of Demutualization for the AMHC
Demutualization approved by the Commissioner of Insurance of the State of Iowa
on August 1, 2000.
AGREEMENTS
In consideration of the premises and the mutual covenants set forth herein,
the Parties agree as follows:
1. AMENDMENTS TO AGREEMENT
a. The definition of "AMHC Offer" set forth in Section 1.1 of the Agreement
is amended to read in its entirety as follows:
"AMHC Offer' shall mean an amount equal to the product of (x)
9,300,000 and (y) the greater of (A) $25.20 and (B) the average closing
price per share of the AmerUs Common Stock on the five (5) Trading Days
immediately prior to (i) the announcement of a Competing Transaction
Proposal that forms the basis for a termination under Section 11.1 hereof,
if a Termination Date has occurred thereunder or, (ii) otherwise, the
Termination Date pursuant to Section 11.5 hereof."
b. The definition of "Material Adverse Effect" set forth in Section 1.1 of
the Agreement is amended to read in its entirety as follows:
"Material Adverse Effect' shall mean a material adverse effect on the
business, results of operations, or financial or other condition of any
Person and its Subsidiaries taken as a whole, or on the ability of a Person
to consummate the transactions contemplated by this Combination and
Investment Agreement; provided, however, the following events, occurrences,
developments or state of circumstances or facts
<PAGE> 134
shall not in and of themselves be deemed to constitute a material adverse
effect on the business, results of operations, or financial or other
condition of such Person and its Subsidiaries taken as a whole:
i) a downgrade of any Indianapolis Life Company by any rating
agency but excluding (A) a rating downgrade of one or more of
Indianapolis Life, Bankers Life or Western Security by A.M. Best
Company, Inc. to less than 'A-' and (B) the potential and/or actual
cause(s) and effect(s) of such downgrade(s);
ii) any decrease in sales of fixed annuities at IL Annuity;
iii) an annualized lapse rate for fixed annuities at IL Annuity,
calculated for any month based on the three-month period ending with
such month, that does not exceed 27%;
iv) an increase in the annualized lapse rate for fixed annuities at
IL Annuity for any two-month period commencing on or after the
Commencement Date (as defined below) (referred to in this section iv as
"Lapse Rate"), over the average Lapse Rate for the two-month periods
ending November 30 and December 31, 2000, respectively, but only:
(A) to the extent that such increase in Lapse Rate for any such
period is primarily because of an average monthly total investment
return on the convertible bond investment portfolio of IL Annuity
(for purposes of this item iv, the "Portfolio Return") that, when
compared to the monthly total investment return reported for the
Merrill Lynch Investment Grade Convertible Bond Index (Index Code
VOS1) (for purposes of this item iv, the "Index Return"), is less
than both:
(1) 40% below the Index Return, and
(2) 150 basis points below the Index Return, if the Index
Return is greater than or equal to 0%, or 100 basis points below
the Index Return, if the Index Return is a negative number,
where both the Portfolio Return and the Index Return are calculated
for any month as the average of the monthly return for such month and
the prior month, with the first such two-month period commencing on
the first day of the first month (the "Commencement Date") after
AmerUs Capital Management has directly managed the convertible bond
portfolio of IL Annuity without the presence of any other investment
advisor advising on or trading any assets of such portfolio for a
period of at least 60 days; and
(B) if IL Annuity follows AmerUs' advice and direction
concerning the acquisition and disposition of assets in the
convertible bond portfolio of IL Annuity, to the extent such advice
and direction are consistent with IL Annuity's investment guidelines
as of the date hereof;
v) total out-of-pocket demutualization expenses that do not exceed
$21 million in the aggregate, not including fees paid or payable to
Goldman, Sachs & Co. pursuant to the engagement letter, dated September
21, 1999, without regard to any amendment thereof;
vi) year 2000 mutual company surplus tax payable by Indianapolis
Life;
vii) the elimination of sales of participating policies (both
direct and private label) by Indianapolis Life commencing in October,
2000;
viii) the events, occurrences, developments or state of
circumstances or facts listed on Schedules 7.1, 7.1(f) and 7.1(k), but
only to the extent described in such Schedules;
ix) the Combination Closing; and
x) the direct effect on any Indianapolis Life Company Statement
(the direct effect on any Indianapolis Life Company Statement includes
the effect on the GAAP and SAP financial statements of (A) the majority
shareholder of such company (the "Parent") and (B) the majority
shareholder of such Parent) or on the financial condition or income
statement of any Indianapolis
2
<PAGE> 135
Life Company of any of the events, occurrences, developments or state of
circumstances or facts listed in the foregoing items ii) through ix),
provided that such effect is clearly foreseeable as of the date of such
event, occurrence, development or state of circumstances or facts."
a. Section 3.1(a)(i) of the Agreement is amended to read in its entirety as
follows:
"Indianapolis Life shall demutualize pursuant to a plan of conversion
satisfying all the provisions of Section 3.5(a) hereof (together with all
exhibits and attachments thereto, the "Plan of Conversion");"
b. Section 3.1(a)(ii) of the Agreement is amended to read in its entirety
as follows:
"The membership interests of the eligible members (as defined under
Applicable Law) of Indianapolis Life shall be exchanged for AMHC Shares,
cash and policy credits which shall have an aggregate value equal to that
of 9,300,000 AMHC Shares (determined as stated in Schedule 3.5(a) hereto,
and subject to any adjustment provided for in Section 11.2(i) hereof);
provided, however, that in the event of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of AMHC
Shares or, prior to the AMHC Demutualization, the AmerUs Common Stock, such
number of AMHC Shares shall be correspondingly adjusted to the extent
appropriate to reflect such occurrence;"
c. Schedule 3.5(a) to the Agreement is amended and replaced in its entirety
with the documents attached hereto as Exhibit A and labeled as "Revised Schedule
3.5(a)" to the Agreement. References in the Agreement to Schedule 3.5(a) shall
be deemed to refer to such attached Exhibit A.
d. The heading to Section 3.5 of the Agreement is amended to read in its
entirety as follows: "Plan of Conversion and Rights of Consultation."
e. Section 3.5(a) of the Agreement is amended to read in its entirety as
follows:
"Schedule 3.5 (a) hereto sets forth the current draft of the Plan of
Conversion. No later than November 1, 2000, Indianapolis Life shall file
the Plan of Conversion with the Indiana Commissioner in full satisfaction
of all the requirements with respect thereto set forth in Chapters 27-15-2
and 27-15-3 of the Indiana Code, subject, however, to compliance with the
following sentence; and thereafter shall take such additional actions,
consistent with Schedule 3.5(a), as it may be required or permitted to take
under Chapters 27-15-4, 27-15-5 and 27-15-6 of the Indiana Code to complete
its demutualization pursuant to the provisions hereof and the Plan of
Conversion. The Plan of Conversion filed with the Indiana Commissioner
shall be substantially identical to the current draft of the Plan of
Conversion set forth in Schedule 3.5(a), except to the extent that AMHC and
AmerUs have consented in writing to any variance in the current draft of
the Plan of Conversion in their sole discretion. Any amendment or
modification by Indianapolis Life to the Plan of Conversion as filed with
the Indiana Commissioner, including, without limitation, any withdrawal or
termination by Indianapolis Life of the Plan of Conversion filed with the
Indiana Commissioner, shall require the written consent of AMHC and AmerUs
in their sole discretion."
f. Section 3.5(b) of the Agreement is amended to read in its entirety as
follows:
"On and after August 25, 2000, AMHC and AmerUs shall be consulted and
informed concerning all matters pertaining to the Plan of Conversion,
including preparation of the Member Information Statement, the final
version of which shall be in form and content reasonably acceptable to AMHC
and AmerUs. It is expressly understood by the parties hereto that, on and
after August 25, 2000, Representatives of AMHC and AmerUs shall have the
right to attend and participate in any hearing, proceeding, meeting,
conference or similar event before or with a Governmental Entity or rating
agency relating to the Plan of Conversion, and the parties shall confer
prior to such event concerning the content of such presentation to the
extent not expressly addressed in the Plan of Conversion prepared in
compliance with Section 3.5(a). In furtherance of the foregoing,
Indianapolis Life shall provide AMHC and AmerUs reasonable advance notice
of any such hearing, proceeding, meeting, conference or similar event. The
notice required to be given under this paragraph shall be given to the
Representatives of AMHC and AmerUs entitled to receive notices hereunder,
or such other individuals as AMHC and AmerUs may designate."
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<PAGE> 136
g. Section 3.6 is deleted in its entirety and is intentionally left blank.
h. Section 4.6(a) of the Agreement is amended to read in its entirety as
follows:
"ILGC and Indianapolis Life have delivered to AMHC true and complete
copies of the following:
(i) the individual Annual Audited GAAP Statements of IL Annuity and
IL Securities and the individual and consolidated Annual Audited GAAP
Statements of Indianapolis Life and ILGC as of and for the years ended
December 31, 1996, 1997, 1998 and 1999;
(ii) the individual Annual GAAP Statements of Bankers Life and
Western Security as of and for the years ended December 31, 1996, 1997,
1998 and 1999;
(iii) the individual Annual SAP Statements and Annual Audited SAP
Statements for Indianapolis Life and each of the Indianapolis Life
Insurer Subsidiaries as of and for the years ended December 31, 1996,
1997, 1998 and 1999; and
(iv) the individual and, where applicable as described in Section
4.6(a)(i) above, consolidated Quarterly GAAP Statements for each of the
Indianapolis Life Companies and the individual Quarterly SAP Statements
for Indianapolis Life and each of the Indianapolis Life Insurer
Subsidiaries as of and for the calendar quarters ended March 31, 2000
and June 30, 2000 (collectively with the items described in Sections
4.6(a)(i), (ii) and (iii) and financial statements of the kinds
described above as of and for the annual and quarterly periods ending on
or after the dates mentioned above, the 'Indianapolis Life Company
Statements')."
i. Section 4.7(i) of the Agreement is amended to read in its entirety as
follows:
"any events, occurrences, developments or state of circumstances or
facts which, individually or in the aggregate, have had or would reasonably
be expected to have a Material Adverse Effect on the Indianapolis Life
Companies taken as a whole;"
l. Section 4.15(b) of the Agreement is amended to read in its entirety as
follows, and a Schedule 4.15(b) is hereby added to the Agreement in the form
attached hereto as Exhibit B and labeled "Schedule 4.15(b)" to the Agreement:
"The copyright, trademark, service mark and patent registrations
listed on Schedule 4.15(a) are valid and subsisting, in full force and
effect in all material respects, and have not been canceled, expired or
abandoned. Except as identified on Schedule 4.15(b), to the knowledge of
the Indianapolis Life Companies, there is no pending, existing or
threatened, opposition, interference, cancellation proceeding or other
legal or governmental proceeding before any court or registration authority
in any jurisdiction against or relating to the registrations listed on
Schedule 4.15(a), or against any of the Intellectual Property owned by an
Indianapolis Life Company."
m. Section 4.19 of the Agreement is amended by adding the following new
introductory language immediately after the heading (Taxes) and before
subparagraphs (a) through (v):
"Except as set forth on Schedule 4.19 hereto,"
n. Section 6.6(a) of the Agreement is amended to read in its entirety as
follows:
"AMHC and AmerUs have previously made available to Indianapolis Life
true and complete copies of the following:
(i) the consolidated Annual Audited GAAP Statements for AMHC and
AmerUs and the individual Annual SAP Statements and Annual Audited SAP
Statements for each of the AMHC Insurer Subsidiaries as of and for the
years ended December 31, 1996, 1997, 1998 and 1999; and
(ii) the consolidated Quarterly GAAP Statements for AMHC and AmerUs
and the individual Quarterly SAP Statements for each of the AMHC Insurer
Subsidiaries as of and for the calendar quarters ended March 31, 2000,
June 30, 2000 (collectively with the items described in Section
4
<PAGE> 137
6.6(a)(i) and financial statements of the kinds described above as of
and for the annual and quarterly periods ending on or after the dates
mentioned above, the 'AMHC Statements')."
o. The introductory paragraph to Section 7.1 of the Agreement is amended to
read in its entirety as follows, and a Schedule 7.1 is hereby added to the
Agreement in the form attached hereto as Exhibit C and labeled as "Schedule 7.1"
to the Agreement:
"Conduct of Business of Indianapolis Life and ILGC Prior to the
Combination Closing Date. Indianapolis Life and ILGC each covenant and
agree that, after the date hereof and prior to the Combination Closing Date
(unless AMHC and AmerUs shall otherwise approve in writing, and except as
otherwise (i) specifically set forth on Schedule 7.1 hereto (but only to
the extent set forth on Schedule 7.1) or (ii) expressly contemplated by
this Combination and Investment Agreement or the Investment Management
Agreements):"
p. Section 7.4(a) of the Agreement is amended to read in its entirety as
follows:
"Indianapolis Life shall, and Indianapolis Life and ILGC shall cause
the Indianapolis Life Insurer Subsidiaries to, consistent with the terms of
the Investment Management Agreements, terminate and/or amend any agreement
(other than the Investment Management Agreements) under which Indianapolis
Life or an Indianapolis Life Insurer Subsidiary receives investment
management services."
q. Section 9.3 of the Agreement is amended to read in its entirety as
follows:
"Cooperation. On and after August 25, 2000 Indianapolis Life, ILGC,
AMHC and AmerUs shall cooperate with one another (i) in determining whether
any action by or in respect of, or filing with, any Governmental Entity is
required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any contracts, in connection with the consummation
of the transactions contemplated hereby; (ii) in taking such reasonable
actions or making any such filings, furnishing information required in
connection therewith and reasonably seeking to obtain in timely fashion any
such actions, consents, approvals or waivers; and (iii) in making any
presentation to, or responding to any inquiry relating to a transaction
contemplated hereby from, a rating agency or organization. It is expressly
understood by the parties hereto that, on and after August 25, 2000, the
Representatives of AMHC, AmerUs, Indianapolis Life and ILGC shall have the
right to attend and participate in any hearing, proceeding, meeting,
conference or similar event before or with a Governmental Entity or rating
agency or other organization relating to this Combination and Investment
Agreement and/or the transactions contemplated herein. In furtherance of
the foregoing, on and after August 25, 2000, AMHC, AmerUs, Indianapolis
Life and ILGC shall provide each other reasonable advance notice of any
such hearing, proceeding, meeting, conference or similar event. The notice
required to be given under this Section 9.3 shall be given to the
Representatives of Indianapolis Life and ILGC or AMHC and AmerUs entitled
to receive notices hereunder, or such other individuals as AMHC and AmerUs
or Indianapolis Life and ILGC, as the case may be, shall designate."
r. Article 9 of the Agreement is amended by adding a new Section 9.9
thereto, which shall read in its entirety as follows:
"Section 9.9 Commission Free Program. AMHC shall, within twelve (12)
months after the Combination Closing Date, commence offering a program, all
the costs of which shall be borne by AMHC, to all of its shareholders
holding less than one hundred (100) shares of stock ("Odd Lot Holders")
(expressly including those Odd Lot Holders who were Eligible Members)
pursuant to which the Odd Lot Holders may sell their shares (or round up to
100 shares by purchase) without paying any brokerage commissions. The
program shall include a mailing to Odd Lot Holders and the maintenance of a
toll-free help line, and shall be made available for a minimum of sixty
(60) days. The program shall in all respects be subject to all applicable
laws and regulations, including the receipt of a satisfactory no-action
letter from the SEC, and to AMHC's determination, based on consultation
with and the advice of Tax Counsel (as that term is defined in the Plan of
Conversion), that it will not adversely affect the tax treatment
contemplated by the Plan of Conversion."
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s. Section 10.2(i) of the Agreement is amended to read in its entirety as
follows, and a Schedule 10.2(i) is hereby added to the Agreement in the form
attached hereto as Exhibit D and labeled "Schedule 10.2(i)" to the Agreement:
"All Permits, regulatory consents, approvals or clearances necessary
for or in connection with the consummation of the Combination Closing shall
have been obtained, and no Governmental Entity having jurisdiction over the
business of AMHC or its Subsidiaries or any of the Indianapolis Life
Companies shall have imposed any condition to such approval, other than
conditions that involve solely ministerial acts and/or routine reporting
requirements and/or entry into a commitment agreement substantially
identical to the letter dated June 15, 1995 captioned 'Commitment Agreement
to the New York Insurance Department' from Indianapolis Life and Bankers
Life or substantially in the form of the 'Special Commitment Agreement to
the New York Insurance Department', dated July 1, 2000 attached hereto as
Schedule 10.2(i)."
t. Section 11.2(f) of the Agreement is amended to read in its entirety as
follows:
"by AMHC or AmerUs if, since the date hereof, there shall have been
any events, occurrences, developments or state of circumstances or facts
which would not be construed by a reasonable Person to have been within the
control of an Indianapolis Life Company and which, individually or in the
aggregate, (i) have had a Material Adverse Effect with respect to
Indianapolis Life or (ii) would reasonably be expected to have such a
Material Adverse Effect, on both the date an initial notice thereof is
given by AMHC or AmerUs to Indianapolis Life and on the earlier of (A) the
date 120 days following the date of such initial notice or (B) June 20,
2001; or"
u. Section 11.2(h) of the Agreement is amended to read in its entirety as
follows:
"by Indianapolis Life or ILGC if, since the date hereof, there shall
have been any events, occurrences, developments or state of circumstances
or facts which would not be construed by a reasonable Person to have been
within the control of AMHC, AmerUs or a Subsidiary thereof and which,
individually or in the aggregate, (i) have had a Material Adverse Effect
with respect to AMHC or (ii) would reasonably be expected to have such a
Material Adverse Effect, on both the date an initial notice thereof is
given by Indianapolis Life or ILGC to AMHC and on the earlier of (A) the
date 120 days following the date of such initial notice or (B) June 20,
2001; or"
v. Section 11.2(i) of the Agreement is amended to read in its entirety as
follows:
"by Indianapolis Life, by giving a Termination Notice to AMHC at least
six (6) Business Days prior to the Combination Closing Date, if the
aggregate value of the AMHC Shares, cash and policy credits projected to be
received (calculated as described below) by the Indianapolis Life members
as of the Combination Effective Time is less than $186 million, provided,
however, that such Termination Notice shall be null and void in the event
that AMHC agrees, within five (5) Business Days after receipt of such
Termination Notice under this Section 11.2(i), to increase the number of
AMHC Shares and/or the amount of cash and policy credits to be delivered so
that the aggregate value of such AMHC Shares, cash and policy credits
provided to such members (calculated as described below) equals $186
million (using, for purposes of determining the value of the AMHC Shares as
referenced in this Section 11.2(i), the average daily closing price of the
AMHC Shares over the five (5) Trading Days ending ten (10) Business Days
prior to the Combination Closing Date); or"
w. Section 11.3(b) of the Agreement is amended to read in its entirety as
follows:
"by AMHC or AmerUs if, since the date hereof, there shall have been
any events, occurrences, developments, or state of circumstances or facts
which would be construed by a reasonable Person to have been within the
control of an Indianapolis Life Company and which, individually or in the
aggregate, (i) have had a Material Adverse Effect with respect to
Indianapolis Life, or (ii) would reasonably be expected to have such a
Material Adverse Effect, on both the date an initial notice thereof is
given by AMHC or AmerUs to Indianapolis Life and on the earlier of (A) the
date 120 days following the date of such initial notice or (B) June 20,
2001; or"
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x. Section 11.4(b) of the Agreement is amended to read in its entirety as
follows:
"by Indianapolis Life or ILGC if, since the date hereof, there shall
have been any events, occurrences, developments or state of circumstances
or facts which would be construed by a reasonable Person to be within the
control of AMHC, AmerUs or a Subsidiary thereof and which, individually or
in the aggregate, (i) have had a Material Adverse Effect with respect to
AMHC or (ii) would reasonably be expected to have such a Material Adverse
Effect, on both the date an initial notice thereof is given by Indianapolis
Life or ILGC to AMHC and on the earlier of (A) the date 120 days following
the date of such initial notice or (B) June 20, 2001; or"
y. In Section 11.5 of the Agreement, the date of "October 1, 2000" is
amended to read "November 1, 2000."
z. Subject to Section 2.b. of this Amendment, (a) Schedules 1.1(i), 4.2(a),
4.3, 4.7, 4.8, 4.9, 4.10, 4.11, 4.13(a), 4.14, 4.15(a), 4.15(c), 4.17, 4.19,
4.20, 4.23, 4.24, 5.1, 5.3, 5.4, 5.5, 7.1(f), 7.1(k), 6.2, 6.3, 6.4, 6.6(b),
6.7, 6.12, and 6.13(c) provided as part of the Disclosure Schedules to the
Agreement are amended and replaced with the Revised Schedules 1.1(i), 4.2(a),
4.3, 4.7, 4.8, 4.9, 4.10, 4.11, 4.13(a), 4.14, 4.15(a), 4.15(c), 4.17, 4.19,
4.20, 4.23, 4.24, 5.1, 5.3, 5.4, 5.5, 7.1(f), 7.1(k), 6.2, 6.3, 6.4, 6.6(b),
6.7, 6.12, and 6.13(c) attached hereto as Exhibit E (the "Revised Schedules")
and except as otherwise provided herein references in the Agreement to such
Schedules shall be deemed to refer to the Revised Schedules. Subject to Section
2.b. of this Amendment, such Revised Schedules, together with Revised Schedule
3.5(a) (Exhibit A hereto), Schedule 4.15(b) (Exhibit B hereto), Schedule 7.1
(Exhibit C hereto) and Schedule 10.2(i) (Exhibit D hereto), are expressly made a
part of this Amendment and the Agreement as fully as though completely set forth
herein and therein.
2. INTERPRETATION OF AMENDED AGREEMENT
a. Subject to Section 2.b. of this Amendment, (a) the term "Combination and
Investment Agreement," as used in the Agreement, shall refer to the Agreement as
amended by this Amendment and (b) references to the "date of the Combination and
Investment Agreement" or the "date hereof" in Articles 4, 5, 6, 7, 10 and 11 of
the Agreement shall refer to the date of this Amendment rather than to February
18, 2000.
b. Notwithstanding anything to the contrary anywhere in this Amendment or
the Revised Schedules, the Parties expressly agree that this Amendment and the
Revised Schedules (with the exception of Sections 1.a., k. and p. of the
Amendment, which shall be deemed to relate to the Stock Purchase, and with the
further exception that a Party's rights to terminate expressly provided in
Article 11 shall be governed by the Agreement as amended by this Amendment),
shall have no effect and are not intended to amend or apply in any manner to the
provisions of the Agreement relating or applicable to the Stock Purchase or a
Party's or Holder's rights, remedies, obligations and responsibilities under or
arising out of provisions of the Agreement relating or applicable in any way to
the Stock Purchase, including, in each case and without limitation, to such
Person in its capacity as an investor in or the Holder of Non-Voting Common
Stock or Converted Shares, as the case may be. With the exception of the
amendments in Section 1.a., k. and p. of this Amendment, and with the further
exception that a Party's rights to terminate expressly provided in Article 11
shall be governed by the Agreement as amended by this Amendment, the Agreement
in its unamended form shall govern the Parties' and any Holder's rights,
remedies, obligations and responsibilities in connection with or arising out of
the Stock Purchase.
3. CERTAIN MATTERS RELATING TO MEMORANDUM OF UNDERSTANDING
The Parties desire to clarify and specify certain matters relating to the
Memorandum of Understanding and its implementation, as follows:
a. AMHC and AmerUs shall provide to Indianapolis Life an initial draft
of the Post-Combination Plan referred to in Section 10.3(xii) of the
Agreement by October 13, 2000.
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b. The following language is added to the Memorandum of Understanding
as if fully set forth therein:
"Indianapolis Life, directly or through IL Annuity, may proceed to
develop administration capabilities in Indianapolis, Indiana for the
variable products of Indianapolis Life and its Subsidiaries consistent
with the plans contained in the IL Annuity Feasibility Study: Variable
Product Processing dated August 3, 2000 -- Final Version (but the
parties acknowledge that such development will not commence as early as
described in such study)."
4. MISCELLANEOUS
c. Capitalized terms used in this Amendment shall have the respective
meanings ascribed thereto in the Agreement unless specifically defined
herein.
d. The headings and enumeration in this Amendment are solely for
convenient reference and shall not be deemed to affect the meaning or
interpretation of any provision of this Amendment.
e. The Agreement shall remain in full force and effect in accordance
with its terms, except as expressly modified by this Amendment.
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IN WITNESS WHEREOF, the Parties have caused this Amendment to Combination
and Investment Agreement to be executed by their duly authorized officers as of
the date first above written.
AMERICAN MUTUAL HOLDING COMPANY
By: /s/ ROGER K. BROOKS
-------------------------------------
Roger K. Brooks, Chairman,
President and Chief Executive
Officer
AMERUS LIFE HOLDINGS, INC.
By: /s/ ROGER K. BROOKS
-------------------------------------
Roger K. Brooks, Chairman,
President and Chief Executive
Officer
INDIANAPOLIS LIFE INSURANCE COMPANY
By: /s/ LARRY R. PRIBLE
-------------------------------------
Larry R. Prible, Chairman,
President and Chief Executive
Officer
THE INDIANAPOLIS LIFE GROUP OF
COMPANIES, INC.
By: /s/ LARRY R. PRIBLE
-------------------------------------
Larry R. Prible, Chairman,
President and Chief Executive
Officer
9
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COMBINATION AND INVESTMENT AGREEMENT
AMONG
AMERICAN MUTUAL HOLDING COMPANY,
AMERUS LIFE HOLDINGS, INC.,
INDIANAPOLIS LIFE INSURANCE COMPANY
AND
THE INDIANAPOLIS LIFE GROUP OF COMPANIES, INC.
DATED FEBRUARY 18, 2000
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TABLE OF CONTENTS
<TABLE>
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DEFINITIONS................................................. 1
ARTICLE 2 PURCHASE AND SALE OF NON-VOTING COMMON STOCK...... 8
Section 2.1 Purchase and Sale of Non-Voting Common
Stock.................................................. 8
Section 2.2 Stock Purchase Covenants.................... 8
Section 2.3 Mechanics for Exchange of Non-Voting Common
Stock.................................................. 10
Section 2.4 Rights upon Termination of Combination and
Investment Agreement................................... 10
Section 2.5 Use of Stock Purchase Price................. 15
Section 2.6 Closing of the Stock Purchase............... 15
Section 2.7 Stock Purchase Closing Conditions........... 15
Section 2.8 Conduct of Business of Indianapolis Life and
ILGC Prior to Purchase or Repurchase........ 17
Section 2.9 Reporting Requirements...................... 18
Section 2.10 Effect of Breach........................... 18
ARTICLE 3 COMBINATION TRANSACTIONS.......................... 19
Section 3.1 The Combination............................. 19
Section 3.2 Combination Closing......................... 19
Section 3.3 Combination Effective Time.................. 19
Section 3.4 Articles of Incorporation and By-laws....... 19
Section 3.5 Essential Terms of and Rights of Consultation
Relating to Indianapolis Life Plan of
Conversion................................... 20
Section 3.6 Rights of Consultation Relating to AMHC
Plan................................................... 20
Section 3.7 Post-Combination Matters.................... 21
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF ILGC AND
INDIANAPOLIS LIFE......................................... 22
Section 4.1 Corporate Existence and Power............... 22
Section 4.2 Subsidiaries................................ 22
Section 4.3 Corporate Authorization..................... 22
Section 4.4 Governmental Authorization.................. 22
Section 4.5 Non-Contravention........................... 22
Section 4.6 Financial Statements........................ 23
Section 4.7 Absence of Certain Changes.................. 23
Section 4.8 No Undisclosed Material Liabilities......... 24
Section 4.9 Significant Agreements...................... 25
Section 4.10 Litigation.................................. 26
Section 4.11 Compliance with Laws........................ 26
Section 4.12 Properties.................................. 26
Section 4.13 Environmental Matters....................... 27
Section 4.14 Intercompany Accounts....................... 27
Section 4.15 Intellectual Property....................... 28
Section 4.16 Loans and Advances.......................... 29
Section 4.17 All Assets Necessary........................ 29
Section 4.18 Solvency.................................... 29
Section 4.19 Taxes....................................... 29
Section 4.20 Benefit Plans; ERISA........................ 32
Section 4.21 Employees................................... 34
Section 4.22 Books and Records........................... 34
Section 4.23 Threats of Cancellation..................... 34
Section 4.24 Operations Insurance........................ 34
</TABLE>
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<TABLE>
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Section 4.25 Information Supplied........................ 35
Section 4.26 Brokers; Schedule of Fees and Expenses...... 35
ARTICLE 5 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF
INDIANAPOLIS LIFE AND ILGC RELATING TO INSURANCE
BUSINESS AND RELATED MATTERS...................... 35
Section 5.1 Insurance Regulatory Approvals.............. 35
Section 5.2 Reserves.................................... 35
Section 5.3 Absence of Certain Changes.................. 36
Section 5.4 Regulatory Filings.......................... 36
Section 5.5 Reinsurance Agreements...................... 38
Section 5.6 Member Information Statement................ 38
Section 5.7 Shares to be Issued Upon Implementation of
the Plan of Conversion................................. 38
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF AMHC AND
AMERUS.................................................... 38
Section 6.1 Corporate Existence and Power............... 38
Section 6.2 Subsidiaries................................ 39
Section 6.3 Corporate Authorization..................... 39
Section 6.4 Governmental Authorization.................. 39
Section 6.5 Non-Contravention........................... 39
Section 6.6 Financial Statements........................ 39
Section 6.7 Absence of Certain Changes.................. 40
Section 6.8 Capital Structure........................... 40
Section 6.9 SEC Reports................................. 41
Section 6.10 Information Supplied........................ 42
Section 6.11 Taxes....................................... 42
Section 6.12 Litigation.................................. 42
Section 6.13 Compliance with Laws........................ 43
Section 6.14 Solvency.................................... 43
Section 6.15 Brokers; Schedule of Fees and Expenses...... 43
ARTICLE 7 COVENANTS OF INDIANAPOLIS LIFE AND ILGC........... 44
Section 7.1 Conduct of Business of Indianapolis Life and
ILGC Prior to the Combination Closing Date... 44
Section 7.2 Competing Transaction Proposals............. 46
Section 7.3 IL Annuity Business and Capital Stock....... 47
Section 7.4 Investment Management Agreements............ 47
ARTICLE 8 COVENANTS OF AMHC AND AMERUS...................... 47
Section 8.1 Conduct of Business of AMHC and AmerUs Prior
to the Combination Closing Date.............. 47
Section 8.2 Indemnification............................. 48
Section 8.3 No Prohibitive Transactions................. 48
Section 8.4 Compliance with Federal Securities Laws..... 49
ARTICLE 9 COVENANTS OF AMHC, AMERUS, INDIANAPOLIS LIFE AND
ILGC...................................................... 49
Section 9.1 Reasonable Efforts.......................... 49
Section 9.2 Notices of Certain Events................... 49
Section 9.3 Cooperation................................. 49
Section 9.4 Public Announcements; Confidentiality....... 50
Section 9.5 Supplemental Disclosure..................... 52
Section 9.6 Access to Information....................... 52
Section 9.7 Information Provided........................ 52
Section 9.8 Board Representation Until Final Purchase or
Repurchase............................................. 53
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<TABLE>
<S> <C>
ARTICLE 10 CONDITIONS TO CLOSING OF THE COMBINATION......... 53
Section 10.1 Conditions to Obligations of AMHC, AmerUs,
Indianapolis Life and ILGC............................. 53
Section 10.2 Conditions to Obligation of AMHC and
AmerUs................................................. 53
Section 10.3 Conditions to Obligation of Indianapolis
Life and ILGC.......................................... 54
ARTICLE 11 TERMINATION...................................... 56
Section 11.1 Termination Due to Third Party Offer........ 56
Section 11.2 Termination Due to Uncontrollable Event;
Termination by Mutual Agreement........................ 56
Section 11.3 Termination Due to Act Within the Control of
Indianapolis Life...................................... 58
Section 11.4 Termination Due to Act Within the Control of
AMHC................................................... 58
Section 11.5 Failure to File Plan of Conversion.......... 59
Section 11.6 Effect of Termination; Termination Date..... 59
ARTICLE 12 MISCELLANEOUS PROVISIONS......................... 60
Section 12.1 Costs and Expenses.......................... 60
Section 12.2 Liquidation Damages......................... 60
Section 12.3 Actions Subsequent to Combination Closing... 61
Section 12.4 Entire Agreement............................ 61
Section 12.5 Binding Effect.............................. 61
Section 12.6 No Third-Party Beneficiaries................ 61
Section 12.7 Invalidity.................................. 61
Section 12.8 Governing Law............................... 61
Section 12.9 Survival.................................... 62
Section 12.10 Counterparts................................ 62
Section 12.11 Headings.................................... 62
Section 12.12 Construction................................ 62
Section 12.13 Notices..................................... 62
</TABLE>
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This COMBINATION AND INVESTMENT AGREEMENT, dated February 18, 2000 (the
"Combination and Investment Agreement"), is made by and among American Mutual
Holding Company, an Iowa mutual insurance holding company (with any successor
entity thereto, "AMHC"), AmerUs Life Holdings, Inc., an Iowa corporation which
is a publicly traded subsidiary of AMHC (with any successor entity thereto,
"AmerUs"), Indianapolis Life Insurance Company, an Indiana mutual insurance
company (with any successor entity thereto, "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").
WITNESSETH:
WHEREAS, AMHC proposes to consummate a plan of conversion under the
applicable provisions of the insurance law of the State of Iowa and a merger of
AmerUs with and into AMHC, with AMHC as the surviving company in such merger
(all of which such transactions are collectively referred to herein as the "AMHC
Demutualization"); and
WHEREAS, Indianapolis Life, AMHC and AmerUs desire to enter into a
strategic combination pursuant to a series of transactions in which AMHC will
first complete the AMHC Demutualization and Indianapolis Life will thereafter
consummate a plan of conversion under the applicable provisions of the insurance
law of the State of Indiana (the "Indianapolis Life Demutualization"), with
Indianapolis Life remaining an Indiana domiciled life insurer while becoming an
indirect wholly-owned stock insurer subsidiary of AMHC and Indianapolis Life's
policyholders becoming shareholders of AMHC upon consummation of the
Indianapolis Life Demutualization, all subject to the terms and conditions set
forth herein; and
WHEREAS, Indianapolis Life owns 61.3% of the ILGC Shares (as defined
below), and the remainder of the ILGC Shares are held by American United Life
Insurance Company ("AUL") and Legacy Marketing Group ("Legacy"); and
WHEREAS, AMHC and AmerUs desire to invest $100 million in ILGC, subject to
the terms and conditions set forth herein; and
WHEREAS, Indianapolis Life and ILGC desire to use the proceeds of the
investment by AMHC and AmerUs to repurchase the ILGC Shares currently held by
AUL and Legacy and to contribute additional capital to ILGC's current
subsidiaries;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises and covenants set forth herein and in reliance upon the
representations, warranties, conditions and covenants contained herein, and
intending to be legally bound hereby and thereby, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions. The following terms, when used in this
Combination and Investment Agreement, shall have the meanings set forth herein.
The terms defined below, which may be used in their singular or plural forms,
shall be deemed to refer to the singular or plural as the context requires.
"Adjusted Capital and Surplus" shall mean the sum of (i) a Person's capital
and surplus as set forth in the SAP Financial Statements of such Person as of
the last day of any calendar quarter plus (ii) the amount of any asset valuation
reserve maintained by such Person at such time in accordance with SAP.
"Affiliate" shall mean, with respect to any Person, at the time in question
any other Person directly or indirectly controlling, controlled by, or under
common control with such Person.
"American Investors Life" shall mean American Investors Life Insurance
Company, a Kansas corporation.
"AmerUs Capital Management" shall mean AmerUs Capital Management Group,
Inc., an Iowa corporation.
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"AmerUs Class B Common Stock" shall have the meaning set forth in Section
6.8.
"AmerUs Common Stock" shall have the meaning set forth in Section 6.8.
"AmerUs Filed SEC Documents" shall mean all reports, schedules, forms,
statements and other documents (including exhibits and all other information
incorporated therein) filed with the SEC by AmerUs or AMHC.
"AmerUs Life" shall mean AmerUs Life Insurance Company, an Iowa
corporation.
"AmerUs Preferred Stock" shall have the meaning set forth in Section 6.8.
"AmerUs SEC Documents" shall have the meaning set forth in Section 6.9.
"AMHC and AmerUs Facilities" shall mean any offices, buildings and other
real property that are owned or leased by AMHC, AmerUs or any of their
Subsidiaries, which are used in the operation of the business of AMHC, AmerUs or
any of their Subsidiaries.
"AMHC Assets" shall mean any assets (whether or not required by GAAP or SAP
to be reflected on a balance sheet) beneficially owned by AMHC, AmerUs or any of
their Subsidiaries, including, without limitation, REO, bonds, notes,
debentures, mortgage loans, collateral loans and all other instruments of
indebtedness, stocks, partnership or joint venture interests and all other
equity interests, certificates issued by or interests in trusts and derivatives.
"AMHC Control Event" shall have the meaning set forth in Section 11.2(d).
"AMHC Demutualization" shall have the meaning set forth in the recitals to
this Combination and Investment Agreement.
"AMHC Insurer Subsidiaries" shall mean the Subsidiaries of AMHC as of the
date hereof engaged in the business of insurance or reinsurance underwriting, or
deemed to be engaged in the business of insurance or reinsurance underwriting by
an insurance regulatory body asserting jurisdiction over the activities of any
such Subsidiary.
"AMHC Material Insurer Subsidiaries" shall mean AmerUs Life, Delta Life and
Annuity Company and American Investors Life.
"AMHC Material Subsidiaries" shall mean the AMHC Material Insurer
Subsidiaries, AmerUs and AmerUs Capital Management.
"AMHC Offer" shall mean an amount equal to the product of (x) 11,250,000
and (y) the greater of (A) $22.61 (which represents the average closing price
per share of the AmerUs Common Stock on the five (5) Trading Days immediately
following the parties' public announcement of their intention to enter into this
Combination and Investment Agreement on January 12, 2000) and (B) the average
closing price per share of the AmerUs Common Stock on the five (5) Trading Days
immediately prior to (i) the announcement of a Competing Transaction Proposal
that forms the basis for a termination under Section 11.1 hereof, if a
Termination Date has occurred thereunder or, (ii) otherwise, the Termination
Date pursuant to Section 11.5 hereof.
"AMHC Plan" shall have the meaning set forth in Section 3.6(a).
"AMHC SEC Documents" shall mean all reports, schedules, forms, statements
and other documents (including exhibits and all other information incorporated
therein) to be filed with the SEC by AMHC in contemplation of or following the
AMHC Demutualization.
"AMHC Shares" shall mean AMHC common stock.
"AMHC Statements" shall have the meaning set forth in Section 6.6(a)(ii).
"Annual Audited GAAP Statements" shall mean, with respect to any Person,
the audited annual GAAP Financial Statements of such Person.
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"Annual Audited SAP Statements" shall mean, with respect to any Person, the
audited Annual SAP Statements of such Person, including, but not limited to, any
reconciliation with the corresponding Annual SAP Statements of such Person.
"Annual GAAP Statements" shall mean, with respect to any Person, the
unaudited annual GAAP Financial Statements of such Person.
"Annual SAP Statements" shall mean, with respect to any Person, the annual
SAP Financial Statements of such Person filed with or submitted to the insurance
regulatory body in the jurisdiction in which such Person is domiciled on forms
prescribed or permitted by such regulatory body.
"Applicable Law" shall mean any applicable order, law, regulation, rule,
ordinance, order, writ, injunction, directive, judgment, decree, principle of
common law, constitution or treaty enacted, promulgated, issued, enforced or
entered by any Governmental Entity applicable to the parties hereto, or any of
their respective Subsidiaries, properties, or assets as the case may be.
"AUL" shall have the meaning set forth in the recitals to this Combination
and Investment Agreement.
"Bankers Life" shall mean Bankers Life Insurance Company of New York, a New
York corporation.
"Board of Directors" shall mean, with respect to any Person, such Person's
board of directors.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in either Iowa or Indiana are permitted or obligated
by law to be closed for regular banking business.
"Closing Dates" shall mean the Stock Purchase Closing Date and the
Combination Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Combination" shall have the meaning set forth in Section 3.1(b).
"Combination Closing" shall have the meaning set forth in Section 3.2.
"Combination Closing Date" shall have the meaning set forth in Section 3.2.
"Combination Effective Time" shall have the meaning set forth in Section
3.3.
"Company Plans" shall have the meaning set forth in Section 4.20(a).
"Competing Transaction Proposal" shall have the meaning set forth in
Section 7.2.
"Computer Programs" shall mean (i) any and all computer software programs,
including all source and object code, (ii) databases and compilations, including
any and all data and collections of data, whether machine readable or otherwise,
(iii) all descriptions, flow-charts and other work product used to design, plan,
organize and develop any of the foregoing, (iv) all content contained on a
Person's Internet site(s), and (v) all documentation, including user manuals and
training materials, relating to any of the foregoing.
"Confidential Material" shall have the meaning set forth in Section 9.4(b).
"Consolidated Indebtedness" shall mean, at any time and as to any Person,
all indebtedness of such Person and its Subsidiaries at such time determined on
a consolidated basis in accordance with GAAP.
"Consolidated Total Capital" shall mean, at any time and as to any Person,
the sum of such Person's Consolidated Indebtedness and all accounts which, in
accordance with GAAP, constitute stockholders equity, but excluding (i) treasury
stock and (ii) the effects of Financial Accounting Standard No. 115.
"Converted Shares" shall have the meaning set forth in Section 2.1(a).
"Environmental Laws" shall mean any and all foreign, federal, state or
local statutes, laws, regulations, ordinances, rules or codes now in effect
relating to the environment, to the effect of the environment on human health or
safety or to the use, generation, manufacturing, treatment, disposal, storage,
discharge or release of Hazardous Substances into the environment, including
without limitation, ambient air, surface water, groundwater or land, or the
remediation thereof.
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"Environmental Reports" shall have the meaning set forth in Section
4.13(c).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"Exchange Act" shall have the meaning set forth in Section 6.9(a).
"Exchange Date" shall have the meaning set forth in Section 2.3(a).
"Exchange Right" shall have the meaning set forth in Section 2.1(a).
"Furnishing Party" shall have the meaning set forth in Section 9.4(b).
"GAAP" shall mean United States generally accepted accounting principles.
"GAAP Financial Statements" shall mean balance sheets and related
statements of income and statements of change in capital and surplus and cash
flows, prepared in accordance with GAAP, consistently applied, including, but
not limited to, all notes, schedules, exhibits and other attachments thereto and
any reports thereon, whether consolidated, combined or separate or audited or
unaudited, together with the consolidating balance sheet of such Person and each
of its Subsidiaries as of the end of the period covered by such statements and
the related consolidating statements of income, of stockholders' equity and of
cash flows for such period.
"Governmental Entity" shall mean any foreign, domestic, federal,
territorial, state or local U.S. or non-U.S. governmental authority,
quasi-governmental authority, instrumentality, court, government,
self-regulatory organization, commission, tribunal or organization or any
political or other subdivision, department, branch or Representative of any of
the foregoing.
"Hazardous Substances" shall mean any toxic, radioactive, caustic or
otherwise hazardous substance, including, but not limited to, petroleum and its
derivatives and by-products, or any substance having any constituent elements
displaying any of the foregoing characteristics, regulated under Environmental
Laws.
"Holder" shall have the meaning set forth in Section 2.2(a).
"Holding Sub" shall have the meaning set forth in Section 3.1(a)(iii).
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"IL/AmerUs Directors Ratio" shall have the meaning set forth in Section
3.7(a).
"IL Annuity" shall mean IL Annuity and Insurance Company, a Massachusetts
corporation.
"IL Annuity Put Option" shall have the meaning set forth in Section
2.4(b)(v)(A).
"IL Annuity Put Exercise Date" shall have the meaning set forth in Section
2.4(b)(v)(A).
"IL Securities" shall mean IL Securities, Inc., an Indiana corporation..
"ILGC Shares" shall mean the issued and outstanding voting shares of common
stock of ILGC.
"Independent Appraiser" shall have the meaning set forth in Section
2.4(b)(v)(A).
"Indiana Commissioner" shall mean the Indiana Commissioner of Insurance.
"Indianapolis Life and ILGC Facilities" shall mean any offices, buildings
and other real property that are owned or leased by Indianapolis Life, ILGC or
any of their Subsidiaries, which are used in the operation of the business of
Indianapolis Life, ILGC or any of their Subsidiaries.
"Indianapolis Life Assets" shall mean any assets (whether or not required
by GAAP or SAP to be reflected on a balance sheet) beneficially owned by
Indianapolis Life, ILGC or any of their Subsidiaries, including, without
limitation, REO, bonds, notes, debentures, mortgage loans, collateral loans and
all other instruments of indebtedness, stocks, partnership or joint venture
interests and all other equity interests, certificates issued by or interests in
trusts and derivatives.
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"Indianapolis Life Demutualization" shall have the meaning set forth in the
recitals to this Combination and Investment Agreement.
"Indianapolis Life Companies" shall mean Indianapolis Life, ILGC and their
Subsidiaries.
"Indianapolis Life Company Statements" shall have the meaning set forth in
Schedule 4.6.
"Indianapolis Life Insurer Subsidiaries" shall mean the Subsidiaries of
Indianapolis Life engaged in the business of insurance or reinsurance
underwriting, or deemed to be engaged in the business of insurance or
reinsurance underwriting by an insurance regulatory body asserting jurisdiction
over the activities of any such Subsidiary.
"Insurance Contract" shall mean any contract or agreement of insurance,
together with any riders or endorsements thereto, including, but not limited to,
life insurance policies, annuity contracts, variable contracts and reinsurance
contracts.
"Intellectual Property" shall mean all intellectual property rights used or
held in, or necessary for the conduct of, the business of Indianapolis Life,
ILGC or any of their Subsidiaries, or AMHC, AmerUs or any of their Subsidiaries
(as the context requires), as currently conducted or as presently contemplated
to be conducted, including, but not limited to, all patents and patent
applications; Trademarks, copyrights, copyright registrations and applications;
Computer Programs; technology, trade secrets, know-how, confidential
information, proprietary processes and formulae.
"Investment Management Agreements" shall mean the Investment Advisory
Agreements executed concurrently herewith, respectively, between AmerUs Capital
Management and (i) Indianapolis Life and (ii) each of the Indianapolis Life
Insurer Subsidiaries.
"IRS" shall mean the Internal Revenue Service.
"Knowledge" or "knowledge" shall mean, (i) as to any Indianapolis Life
Company, the knowledge which is or should be in the possession of those
officers, directors or employees listed on Schedule 1.1(i) hereto, and (ii) as
to AMHC and AmerUs, the knowledge which is or should be in the possession of
those officers, directors or employees listed on Schedule 1.1(ii) hereto, in
each case, assuming the exercise of reasonable diligence in the performance of
the respective functions of any such officer, director or employee.
"Legacy" shall have the meaning set forth in the recitals to this
Combination and Investment Agreement.
"Liability" shall mean a liability, obligation, claim or cause of action
(of any kind or nature whatsoever, whether absolute, accrued, contingent or
other, and whether known or unknown), including, but not limited to,
extra-contractual liabilities and any liability, obligation, claim or cause of
action arising pursuant to or as a result of an Insurance Contract.
"License" shall mean a license, certificate of authority, franchise, permit
or other authorization to transact an activity or business, whether granted by a
Governmental Entity or by any other Person.
"Lien" shall mean any mortgage, pledge, lien, encumbrance, charge, adverse
claim (whether pending or, to the knowledge of the Person against whom the
adverse claim is being asserted, threatened) or restriction of any kind
affecting title or resulting in an encumbrance against property, real or
personal, tangible or intangible, or a security interest of any kind, including,
without limitation, any conditional sale or other title retention agreement, any
right of first refusal, any lease in the nature thereof, and any filing of or
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statute) of any jurisdiction (other than a financing statement which
is filed or given solely to protect the interest of a lessor).
"Material Adverse Effect" shall mean a material adverse effect on the
business, results of operations, or financial or other condition of any Person
and its Subsidiaries taken as a whole, or on the ability of a Person to
consummate the transactions contemplated by this Combination and Investment
Agreement; provided, however, that neither (i) a down-grade of one level in the
A.M. Best Company, Inc.'s rating of Indianapolis Life, Bankers Life and/or IL
Annuity or of AmerUs Life and/or American Investors Life, nor (ii) a decrease in
Indianapolis Life's or an Indianapolis Life Insurer Subsidiary's or in an AMHC
Insurer Subsidiary's sales
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or sales prospects during the calendar year 2000 attributable to either the
announcement of the Combination or the identity or ratings of another party
hereto that is not an Affiliate of the first party shall constitute a Material
Adverse Effect as to Indianapolis Life or AMHC, respectively; provided further,
however, that a down-grade of two or more levels in the A.M. Best Company,
Inc.'s rating of Indianapolis Life, Bankers Life and/or IL Annuity or of AmerUs
Life and/or American Investors Life shall constitute a Material Adverse Effect
as to Indianapolis Life or AMHC, respectively.
"Member Information Statement" shall mean the information statement
developed by Indianapolis Life or AMHC in connection with their respective
demutualizations, as contemplated or referenced, as the context may require, in
this Combination and Investment Agreement, for circulation to members or
policyholders.
"Memorandum of Understanding" shall have the meaning set forth in Section
3.7.
"Merrill Lynch" shall mean Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
"MEWA" shall have the meaning set forth in Section 4.20(f).
"Mortgaged Properties" shall mean the real property (including land and any
buildings or other improvements thereon) subject to a mortgage interest or other
Lien held by or in favor of Indianapolis Life, ILGC or any of their
Subsidiaries, or AMHC, AmerUs or any of their Subsidiaries (as the context
requires).
"Non-Voting Common Stock" shall have the meaning set forth in Section
2.1(a).
"PBGC" shall have the meaning set forth in Section 4.20(d)(iii).
"Permit" shall have the meaning set forth in Section 5.4(b).
"Person" shall mean an individual, corporation, partnership, association,
joint stock company, limited liability company, Governmental Entity, trust joint
venture, labor union, estate, unincorporated organization or other entity.
"Plan of Conversion" shall have the meaning set forth in Section 3.1.
"Pre-Termination Competing Transaction Proposal" shall mean any Competing
Transaction Proposal (whether in its final or a previous form) that was the
subject of any communications, substantive discussions or negotiations, directly
or indirectly, between any Person involved in making or consummating such a
Competing Transaction Proposal, or its Representatives, and any Indianapolis
Life Company, or its Representatives, after January 7, 2000 and prior to the
Termination Date.
"Prohibitive Transaction" shall have the meaning set forth in Section 8.3
"Purchase Date" shall have the meaning set forth in Section 2.4(f).
"Quarterly GAAP Statements" shall mean, with respect to any Person, the
quarterly GAAP Financial Statements of such Person.
"Quarterly SAP Statements" shall mean, with respect to any Person, the
quarterly SAP Financial Statements of such Person filed with or submitted to the
insurance regulatory body in the jurisdiction in which such Person is domiciled
on forms prescribed or permitted by such regulatory body.
"Receiving Party" shall have the meaning set forth in Section 9.4(b).
"REO" shall mean the real property (including land and any buildings or
other improvements thereon) owned by Indianapolis Life, ILGC or their
Subsidiaries, or AMHC, AmerUs or their Subsidiaries (as the context requires),
but not used in the operation of their respective businesses.
"Representative" shall mean, with respect to any Person, such Person's
officers, directors, employees, agents and representatives (including, without
limitation, any investment banker, financial advisor, accountant, legal counsel,
agent, representative or expert retained by or acting on behalf of such Person
or its Subsidiaries).
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"Risk-Based Capital" shall mean, for any Person, the ratio (expressed as a
percentage) of (i) the "Total Adjusted Capital" as defined by the National
Association of Insurance Commissioners or any successor organization thereto
(the "NAIC") to (ii) the "Authorized Control Level Risk-Based Capital" as
defined by the NAIC from time to time, and, in both cases, as applied by the
domiciliary state of such Person in the context of the Risk Based Capital
Guidelines promulgated by the NAIC (or any terms substituted therefor by the
NAIC).
"SAP" shall mean, with respect to any Person, the statutory accounting
principles and practices prescribed or permitted by the domiciliary state of the
relevant Person, consistently applied.
"SAP Financial Statements" shall mean balance sheets and related statements
of income and statements of change in capital and surplus and cash flows,
prepared in accordance with SAP, including, but not limited to, all notes,
schedules, exhibits and other attachments thereto and any reports thereon,
whether consolidated, combined or separate or audited or unaudited.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall have the meaning set forth in Section 6.9(a).
"Significant Agreements" shall have the meaning set forth in Section
4.9(b).
"Stock Purchase Closing Date" shall have the meaning set forth in Section
2.6(a)(ii).
"Stock Purchase Price" shall have the meaning set forth in Section 2.1.
"Subsidiary" shall mean each of those Persons (i) of which another Person,
directly or indirectly through one or more Subsidiaries, owns beneficially
securities having more than 50% of the voting power in the election of directors
(or Persons fulfilling similar functions or duties) of the owned Person (without
giving effect to any contingent voting rights), or (ii) which another Person,
directly or indirectly through one or more Subsidiaries, controls as the general
partner, managing member or Person exercising a similar function.
"Superior Proposal" shall have the meaning set forth in Section 7.2(c).
"Tangible Net Worth" shall mean, for any Person, its accounts which, in
accordance with GAAP, constitute stockholders equity (excluding treasury stock
and the effects of Financial Accounting Standard No. 115), less goodwill,
deferred acquisition costs and present value of future profits, as reflected on
such Person's consolidated balance sheet, plus an amount equal to thirty-five
percent (35%) of deferred acquisition costs and present value of future profits.
"Taxes" shall mean all taxes, charges, duties, fees, levies, or other
similar assessments or Liabilities, including without limitation all net and
gross income, gross receipts, ad valorem, premium, excise, real property,
personal property, windfall profit, sales, use, transfer, license, withholding,
employment, payroll, profit, estimated, severance, stamp, occupation, value
added, registration, environmental, workers compensation, social security and
franchise taxes imposed by the United States of America, any possession thereof,
or any state, or foreign government, or any subdivision, agency, or other
similar Person of any of the foregoing; and such term shall include any
interest, fines, penalties, correction fees, sanction amounts, assessments, or
additions to tax relating to, resulting from, attributable to, or incurred in
connection with any such tax or any contest or dispute thereof.
"Tax Returns" of a Person shall mean any report, return, information
return, or other document (including any related or supporting information and
any amendments thereto) filed or required to be filed with any federal, state or
foreign governmental entity or other authority in connection with the
determination, assessment or collection of any Tax (whether or not such Tax is
imposed on such Person) or the administration of any laws, regulations or
administrative requirements relating to any Tax, or any statement required to be
furnished to any Person under any Tax Law.
"Termination Date" shall have the meaning set forth in Section 11.6(b).
"Termination Notice" shall have the meaning set forth in Section 11.6(b).
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"Trading Day" shall mean any day on which the New York Stock Exchange is
open for business and the trading of securities.
"Trademarks" shall mean all United States and foreign trademarks (including
service marks and trade names, whether registered or at common law),
registrations and applications therefor, domain names, logos, designs, slogans
and general intangibles of like nature owned by Indianapolis Life, ILGC or a
Subsidiary thereof, together with the goodwill of each of the respective
businesses associated therewith, together with any and all (i) renewals thereof
and (ii) rights to sue for past, present and future infringements or
misappropriation thereof.
"Western Security" shall mean Western Security Life Insurance Company, an
Arizona corporation.
ARTICLE 2
PURCHASE AND SALE OF NON-VOTING COMMON STOCK
Section 2.1 Purchase and Sale of Non-Voting Common Stock. (a) On the terms
and subject to the conditions set forth herein, ILGC agrees to issue and sell to
AMHC or AmerUs (or a Subsidiary thereof that agrees to be bound by all of the
restrictions and provisions of this Article 2), and AMHC or AmerUs agrees to
purchase (or to cause such Subsidiary thereof to purchase) from ILGC, 105.9627
shares of non-voting common stock of ILGC (the shares so purchased are referred
to herein as the "Non-Voting Common Stock"), each share of which shall be
authorized by ILGC's articles of incorporation and shall, upon receipt of
necessary approvals from Governmental Entities under Applicable Law, be
exchangeable, at the option of the Holder, into one newly-issued share of
authorized voting common stock of ILGC and which shall, together with the
Converted Shares, at all times collectively represent 45% of all outstanding
equity interests in ILGC on a fully diluted basis (the "Exchange Right"), after
taking into account the repurchase of ILGC Shares held by AUL and Legacy as
required under Section 2.5. The Non-Voting Common Stock and the ILGC Shares into
which such Non-Voting Common Stock is exchangeable upon exercise of the Exchange
Right (the "Converted Shares") (i) shall not, prior to the occurrence of a
Termination Date, be transferred, sold, exchanged, assigned, gifted, pledged,
made the subject of any lien or security interest or option to purchase,
hypothecated, or otherwise alienated, disposed of or encumbered, by contract or
by operation of law, except (A) to a Subsidiary of AMHC or AmerUs or (B) with
the prior written consent of ILGC and Indianapolis Life, to a Person who is not
a Subsidiary of AMHC or AmerUs, subject in the case of either (A) or (B) to
Applicable Law and the execution by the transferee or other party of an
agreement reasonably satisfactory to ILGC in which such transferee or other
party agrees to be bound by all of the restrictions and provisions of this
Combination and Investment Agreement relating to the Non-Voting Common Stock or
Converted Shares; and any attempted transfer or other alienation, disposition or
encumbrance in violation of this provision shall be void and of no effect;
provided, however, that after the occurrence of a Termination Date, such shares
shall be freely transferable except to the extent such transferability may be
limited under Applicable Law and such transferee shall have all the rights and
benefits conferred by this Agreement; and (ii) shall be subject to optional and
mandatory purchase by Indianapolis Life or repurchase by ILGC as expressly
provided in Section 2.4 hereof. The purchase price for the issuance and sale of
the Non-Voting Common Stock shall be $100,000,000 (the "Stock Purchase Price").
The sale and purchase of the Non-Voting Common Stock pursuant to this Section is
referred to herein as the "Stock Purchase."
(b) Indianapolis Life and ILGC represent and warrant to AMHC and AmerUs as
of the Stock Purchase Closing Date and assuming payment of the Stock Purchase
Price that the shares of Non-Voting Common Stock are, and as of and following
exercise of the Exchange Right each of the Converted Shares will be, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights.
Section 2.2 Stock Purchase Covenants. (a) ILGC and Indianapolis Life agree
that the shares of Non-Voting Common Stock and/or the Converted Shares shall at
all times have a priority in any and all dividends and other distributions made
on account of the equity ownership interests in ILGC (including, but not limited
to, in connection with any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of ILGC) until the Holder receives the full amount to
which it would be entitled in a purchase or repurchase as
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set forth in Section 2.4(b)(i)(C) hereof if a Termination Date has not occurred
prior to the date of such purchase or repurchase (or, if a Termination Date has
occurred, the full amount set forth in the applicable subsection of Section
2.4), prior to any distribution with respect to any equity ownership interests
in ILGC owned by (i) Indianapolis Life or (ii) any other Person that becomes an
owner of any ILGC Shares or other equity ownership interest in ILGC after the
date hereof. From and after the date hereof, Indianapolis Life and ILGC shall
not initiate, solicit or enter into an agreement, instrument, transaction,
letter of intent or other arrangement providing, permitting or contemplating,
directly or indirectly, priority in any distribution of assets or capital stock
of ILGC to any holder of capital stock of ILGC over the Person or Persons who is
or are at any time and from time to time the holder of right, title and interest
to the Non-Voting Common Stock or the Converted Shares issued pursuant to this
Combination and Investment Agreement (individually or collectively, as context
may require, the "Holder"). As of the date hereof, there is no (and there is no
commitment to enter into any) agreement, instrument, transaction, letter of
intent or other arrangement which provides, permits or contemplates, directly or
indirectly, priority in any distribution on account of any other shares of ILGC
over the priority granted herein to the Non-Voting Common Stock or the Converted
Shares (after taking into account the repurchase of ILGC Shares held by AUL and
Legacy as contemplated by Section 2.5).
(b) The parties shall use their best efforts to obtain at the earliest
practicable time following the Stock Purchase Closing (as defined below) all
necessary approvals from Governmental Entities to permit the Holder to exercise
the Exchange Right. The parties shall cooperate with one another (i) in
determining whether any action by or in respect of, or filing with or approval
by, any Governmental Entity is required in connection with the exercise of the
Exchange Right and (ii) in taking such actions or making any such filings,
furnishing information required in connection therewith and reasonably seeking
to obtain in timely fashion any approval related thereto.
(c) During the period commencing as of the Stock Purchase Closing Date
until the purchase or repurchase, as the case may be, of all of the issued and
outstanding shares of Non-Voting Common Stock or Converted Shares pursuant to
the provisions of Section 2.4 hereof, except as otherwise expressly permitted
under Section 2.2(d) hereof, ILGC shall not make any issuance, sale (or other
transfer), distribution or dividend of Non-Voting Common Stock, ILGC Shares or
other debt or equity security not expressly contemplated by this Combination and
Investment Agreement. ILGC shall not at any time make any subdivision or
reclassification of the Non-Voting Common Stock or ILGC Shares, and shall not
take any action which would cause each share of Non-Voting Common Stock to be
exchangeable into less than one of the ILGC Shares. The total number of shares
of Non-Voting Common Stock and Converted Shares outstanding at any time prior to
the first purchase or repurchase of the Holder's shares hereunder shall
constitute at least forty-five percent (45%) of the then issued and outstanding
equity or ownership interests in ILGC (after taking into account the repurchase
of ILGC Shares held by AUL and Legacy as required under Section 2.5) and, at all
times after such first purchase or repurchase, the percentage of the outstanding
equity interests in ILGC held by the Holder shall be equal to the product of 45%
multiplied by a fraction, the numerator of which is the number of outstanding
shares of Non-Voting Common Stock and Converted Shares that have not been
repurchased by ILGC or purchased by Indianapolis Life, as the case may be, and
the denominator of which is 105.9627 (subject in either case to any adjustment
to the parties' relative ownership interests caused by issuance of equity
ownership interests as expressly permitted under and in compliance with Section
2.2(d) below).
(d) If and after a Termination Date occurs, ILGC shall have the right to
issue, sell or distribute equity ownership interests in ILGC, so long as (i)
such equity ownership interests in ILGC are expressly subject to the priority
described in Section 2.2(a) hereof in favor of the Holder; (ii) ILGC causes the
Person to whom such equity ownership interests in ILGC are issued (and any
subsequent transferee of such interests) to execute an agreement reasonably
satisfactory to the Holder in which such Person (or transferee) acknowledges and
agrees to be bound by the priority provided in Section 2.2 and the Holder's
other rights pursuant to this Agreement; and (iii) the certificates for any such
equity ownership interests in ILGC issued and outstanding at any time pursuant
to this Section 2.2(d) (or any replacement or reissue of such certificates)
contains an express reference to such priority. If and after a Termination Date
occurs, ILGC shall have the
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right to issue, sell or distribute debt securities of ILGC, subject to the
covenants set forth in Section 2.8 hereof.
(e) If and after a Termination Date occurs, Indianapolis Life shall have
the right to sell, pledge, dispose of or otherwise transfer any equity ownership
interests of ILGC owned by Indianapolis Life, provided that: (i) Indianapolis
Life shall not make any such transfer of the ILGC Shares or any other equity
ownership interests it holds in ILGC except upon requiring the transferee to
execute an agreement reasonably satisfactory to the Holder in which such
transferee acknowledges and agrees to be bound by the priority provided in
Section 2.2 and the Holder's other rights pursuant to this Agreement; and (ii)
Indianapolis Life shall at all times retain ownership, free and clear of any
Liens, of that portion of the voting equity ownership interests in ILGC that
would, together with the Converted Shares owned by the Holder, constitute a
majority of the voting equity ownership interests in ILGC.
Section 2.3 Mechanics for Exchange of Non-Voting Common Stock. (a) The
Holder of any shares of Non-Voting Common Stock may exercise the Exchange Right
in whole or in part, by delivery of an original executed notice of exchange and
the certificate or certificates representing the shares of Non-Voting Common
Stock to be exchanged to ILGC together with the Holder's written representation
and warranty that all necessary approvals from Governmental Entities to permit
the Holder to exercise the Exchange Right have been obtained and are in full
force and effect. The Exchange Right shall be deemed to have been effected on
the date when such notice of an election to exchange and the certificate or
certificates for the number of shares to be exchanged, together with such
representation and warranty concerning approvals by Governmental Entities, are
delivered to ILGC, and such date is referred to herein as the "Exchange Date."
As promptly as practicable thereafter, ILGC shall deliver to the Holder of the
exchanged Non-Voting Common Stock certificates representing one share of the
ILGC Shares for each share of the Non-Voting Common Stock exchanged and a new
certificate, if applicable, for any non-exchanged shares of Non-Voting Common
Stock represented by the surrendered certificate(s). The Holder of the
Non-Voting Common Stock receiving the Converted Shares shall be deemed to have
become a holder of record of such ILGC Shares on the applicable Exchange Date.
(b) Each share of Non-Voting Common Stock exchanged pursuant to this
Section 2.3 shall be canceled by ILGC as of the applicable Exchange Date.
Section 2.4 Rights upon Termination of Combination and Investment
Agreement. (a) Upon the occurrence of any Termination Date under Section 11.1
hereof,
(i) Indianapolis Life or ILGC shall purchase or repurchase, as the
case may be, all of the issued and outstanding shares of Non-Voting Common
Stock and the Converted Shares on or prior to the 10th Business Day
following such Termination Date. Such shares shall be purchased or
repurchased, as the case may be, for the sum of (A) the Stock Purchase
Price plus (B) an amount equal to the annually compounded interest that
would have accrued at the rate of 15% percent per annum on the Stock
Purchase Price from the Stock Purchase Closing Date until the Purchase Date
(as defined in Section 2.4(f) below);
(ii) ILGC shall pay to AMHC and/or AmerUs (as AMHC and AmerUs may
direct) in cash an amount equal to 3% of the Stock Purchase Price;
(iii) Indianapolis Life shall pay to AMHC and/or AmerUs (as AMHC and
AmerUs may direct) in cash an amount equal to 3% of the AMHC Offer; and
(iv) Indianapolis Life and/or ILGC shall also pay to AMHC and/or
AmerUs (as AMHC and AmerUs may direct) in cash (A) any and all out of
pocket costs and expenses incurred by AMHC and/or AmerUs in connection with
developing, negotiating or structuring, or otherwise incurred, directly or
indirectly, in connection with this Combination and Investment Agreement
and the transactions contemplated hereby, including, but not limited to,
any obligation incurred by AMHC or AmerUs to investment bankers or other
advisors in connection with the transactions contemplated by this
Combination and Investment Agreement (provided, however, that Indianapolis
Life and ILGC shall (i) reimburse only the first $2,000,000 in fees but
shall pay any other expenses or charges payable by
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AMHC or AmerUs to Merrill Lynch and (ii) not be responsible for any such
obligations incurred by AMHC or AmerUs to investment bankers or other
advisors primarily engaged by AMHC, AmerUs or their respective Boards of
Directors in connection with the AMHC Demutualization), plus (B) if
applicable, any and all out of pocket costs and expenses incurred by AMHC
and/or AmerUs in collecting any amounts due pursuant to this Section
2.4(a).
All sums to be paid under this Section 2.4(a) shall be paid within ten
(10) Business Days of the Termination Date by wire transfer of immediately
available funds; provided, however, that all sums to be paid pursuant to
Section 2.4(a)(iv) shall be paid within ten (10) Business Days following
AMHC's or AmerUs' presentation to Indianapolis Life of an itemized summary
of the costs and expenses referred to in such Section 2.4(a)(iv).
(b) Upon the occurrence of any Termination Date under Section 11.2 hereof,
(i) Indianapolis Life and ILGC shall have the right to purchase or
repurchase, as the case may be, at any time all or any portion of the
Non-Voting Common Stock and the Converted Shares, subject to following
requirements:
(A) For the portion of such shares as to which the Purchase Date
occurs on or prior to the first anniversary of the Stock Purchase
Closing, such shares shall be purchased or repurchased, as the case may
be, for the sum of (A) the Stock Purchase Price plus (B) an amount equal
to the annually compounded interest that would have accrued at the rate
of 15% percent per annum on the Stock Purchase Price from the Stock
Purchase Closing Date until the Purchase Date, multiplied by a fraction,
the numerator of which is the number of shares to be purchased or
repurchased and the denominator of which is 105.9627;
(B) For the portion of such shares as to which the Purchase Date
occurs following the first anniversary of the Stock Purchase Closing and
on or prior to the second anniversary of the Stock Purchase Closing,
such shares shall be purchased or repurchased, as the case may be, for
the sum of (A) the Stock Purchase Price plus (B) an amount equal to the
annually compounded interest that would have accrued at the rate of 15%
per annum on the Stock Purchase Price from the Stock Purchase Closing
Date until the first anniversary of the Stock Purchase Closing Date and
at the rate of 16% percent per annum on the Stock Purchase Price from
the first anniversary of the Stock Purchase Closing Date until the
Purchase Date, multiplied by a fraction, the numerator of which is the
number of shares to be purchased or repurchased and the denominator of
which is 105.9627;
(C) For the portion of such shares as to which the Purchase Date
occurs following the second anniversary of the Stock Purchase Closing,
such shares shall be purchased or repurchased, as the case may be, for
the sum of (A) the Stock Purchase Price plus (B) an amount equal to the
annually compounded interest that would have accrued at the rate of 15%
per annum on the Stock Purchase Price from the Stock Purchase Closing
Date until the first anniversary of the Stock Purchase Closing Date and
at the rate of 16% per annum on the Stock Purchase Price from the first
anniversary of the Stock Purchase Closing Date to the second anniversary
of the Stock Purchase Closing Date and at the rate of 18% percent per
annum on the Stock Purchase Price from the second anniversary of the
Stock Purchase Closing Date until the Purchase Date, multiplied by a
fraction, the numerator of which is the number of shares to be purchased
or repurchased and the denominator of which is 105.9627; and
(D) Notwithstanding the foregoing, if the Purchase Date occurs
after a Termination Date occasioned by Section 11.2(d), the shares to be
purchased or repurchased pursuant to this Section 2.4(b) shall be
purchased or repurchased, as the case may be, for the sum of (A) the
Stock Purchase Price plus (B) an amount equal to the annually compounded
interest that would have accrued at the rate of 12% percent per annum on
the Stock Purchase Price from the Stock Purchase Closing Date until the
Purchase Date, multiplied by a fraction, the numerator of which is the
number of shares to be purchased or repurchased and the denominator of
which is 105.9627;
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(ii) If, following the occurrence of any Termination Date under
Section 11.2, for any reason all of the issued and outstanding shares of
Non-Voting Common Stock and the Converted Shares have not been purchased or
repurchased, as the case may be, in full by Indianapolis Life or ILGC, as
the case may be, pursuant to the provisions of Section 2.4(b)(i) as of the
earlier of (A) the end of the thirtieth (30th) month from the Stock
Purchase Closing Date and (B) the end of the twenty-fourth (24th) month
from the Termination Date, Indianapolis Life and ILGC shall thereafter use
their best efforts to sell any assets, blocks of business or Subsidiaries,
and to declare any dividends, as may be necessary to allow Indianapolis
Life and/or ILGC to purchase or repurchase, as the case may be, such shares
within twelve (12) months of the earlier of (A) and (B) in this paragraph,
and all such shares shall be promptly purchased or repurchased, as the case
may be, as provided herein with proceeds of such sale and/or dividends
pursuant to the terms of Section 2.4(b)(i)(A), (B), (C) or (D), as
applicable;
(iii) If, following the occurrence of any Termination Date under
Section 11.2, for any reason all issued and outstanding shares of
Non-Voting Common Stock and the Converted Shares have not been purchased or
repurchased, as the case may be, in full by Indianapolis Life or ILGC
pursuant to the provisions of Section 2.4(b)(i), as of the earlier of (A)
the end of the forty-second (42nd) month from the Stock Purchase Closing
Date and (B) the end of the thirty-sixth (36th) month from the Termination
Date, then, in addition to the application of Section 2.4(b)(ii), the
Holder shall have the right to designate, by notice to the Chairman of the
Board of Directors of ILGC, Persons sufficient to constitute a majority of
the directors serving on the Board of Directors of ILGC, and ILGC and/or
Indianapolis Life (and any subsequent holders of voting equity ownership
interests in ILGC) shall promptly cause the election of such designated
Persons to the Board of Directors of ILGC, and shall maintain such Persons'
membership on the Board of Directors until all issued and outstanding
shares of Non-Voting Common Stock and the Converted Shares have been
purchased or repurchased, as the case may be; and
(iv) Notwithstanding anything in this Combination and Investment
Agreement to the contrary, following the occurrence of any Termination Date
under Section 11.2 all of the Non-Voting Common Stock and Converted Shares
shall be purchased by Indianapolis Life or repurchased by ILGC pursuant to
the terms of Sections 2.4(b)(i)(A), (B), (C) or (D), as applicable, on or
prior to the earlier of (A) the fourth (4th) anniversary of the Stock
Purchase Closing Date and (B) the date Indianapolis Life and/or ILGC has
obtained new equity or equity equivalent which in the aggregate is
sufficient to pay in full the amount required to effect such purchase or
repurchase.
(v) (A) On any Business Day after a Termination Date, the occurrence
of which results from the application of Section 11.2, but prior to the
purchase by Indianapolis Life or the repurchase by ILGC of all of the
Non-Voting Common Stock and the Converted Shares, the Holder shall have the
right to exchange an amount of Non-Voting Common Stock or Converted Shares
(together with any cash that may be required as provided in clause (C)
below) determined in accordance with this Section 2.4(b)(v) for all of the
issued and outstanding equity interests of IL Annuity (the "IL Annuity Put
Option"). ILGC shall take all actions necessary to cause the IL Annuity Put
Option to be consummated, including using all reasonable efforts to assist
the Holder in obtaining any necessary regulatory approvals for such
exchange. The number of shares required to be exchanged to exercise the IL
Annuity Put Option shall be determined as set forth in Section 2.4(b)(v)(C)
hereof based on the fair market value of IL Annuity as determined by an
independent appraiser (the "Independent Appraiser") to be selected by
mutual agreement of the parties hereto within ten (10) Business Days of the
Holder providing notice to Indianapolis Life that it requires a
determination of the fair market value of IL Annuity in order to determine
whether to exercise the IL Annuity Put Option. If the parties cannot so
agree, then the Independent Appraiser shall, within ten (10) Business Days
of the Holder's providing such notice to Indianapolis Life, be selected
from among the top five (5) "Leading Financial Advisors" listed for Life
and Health Deals in the most recently published annual issue of INSURANCE
Mergers & Acquisitions (published by SNLSecurities), with Indianapolis Life
striking one of such top five (5) advisors, followed by AMHC striking
another of such top five (5), and so on, so that the last remaining advisor
shall be the Independent Appraiser. The fees of the Independent Appraiser
shall be borne equally by Indianapolis Life and the Holder. The
Indianapolis Life Companies shall provide the Independent Appraiser with
full
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access, pursuant to the provisions of Section 9.6 hereof, to such
information relating to IL Annuity as the Independent Appraiser deems
necessary in its sole discretion to determine the fair market value of IL
Annuity. The Independent Appraiser shall deliver to the Holder and
Indianapolis Life as promptly as practicable, but no later than forty-five
(45) days after the commencement of its review, a report setting forth its
determination of IL Annuity's fair market value. Within twenty (20)
Business Days of its receipt of the Independent Appraiser's report, the
Holder may provide Indianapolis Life notice of its intention to exercise
the IL Annuity Put Option. The date on which the Holder transmits notice of
its intention to exercise the IL Annuity Put Option is referred to
hereinafter as the "IL Annuity Put Exercise Date."
(B) The Holder(s) of the majority of the Non-Voting Common Stock and
Converted Shares then outstanding shall have the right to initiate
selection of the Independent Appraiser and a determination of the fair
market value of IL Annuity pursuant to the provisions of this Section
2.4(b)(v) once in each calendar year after the Termination Date and prior
to the purchase or repurchase of all of the Non-Voting Common Stock and the
Converted Shares.
(C) The number of shares of Non-Voting Common Stock or ILGC Shares
required to be put to exercise the IL Annuity Put Option shall be equal to
the product of (i) a fraction, the numerator of which is the fair market
value of IL Annuity as determined by the Independent Appraiser and the
denominator of which is the sum of (A) the Stock Purchase Price plus (B) an
amount equal to the annually compounded interest that would have accrued at
the rate of 15% per annum on the Stock Purchase Price from the Stock
Purchase Closing Date until the first anniversary of the Stock Purchase
Closing Date and at the rate of 16% per annum on the Stock Purchase Price
from the first anniversary of the Stock Purchase Closing Date to the second
anniversary of the Stock Purchase Closing and at the rate of 18% percent
per annum on the Stock Purchase Price from the second anniversary of the
Stock Purchase Closing Date until the IL Annuity Put Exercise Date (or, in
the event of a Termination Date occasioned by Section 11.2(d), at the rate
of 12% per annum on the Stock Purchase Price from the Stock Purchase
Closing Date until the IL Annuity Put Exercise Date) and (ii) 105.9627. The
calculation described in the foregoing sentence is referred to herein as
the "Put Formula." If the number of shares held by the Holder at the time
of the exercise of the IL Annuity Put Option is less than the number of
shares required as determined pursuant to the Put Formula (whether due to a
prior purchase or repurchase of a portion of such shares or an increase in
the value of IL Annuity or otherwise), then the Holder shall, if it desires
to exercise the IL Annuity Put Option, supplement the available shares with
cash to pay the fair market value of IL Annuity. The amount of cash
required is an amount equal to the product of (x) a per share value
determined by dividing the denominator in the Put Formula by 105.9627 and
(y) the difference between the number of shares required to be put to
exercise the IL Annuity Put Option and the number of shares then held by
the Holder. The Holder shall not have the right to pay cash pursuant to the
preceding sentence unless it is concurrently putting to ILGC all of the
shares of Non-Voting Common Stock and Converted Shares issued and
outstanding as of the IL Annuity Put Exercise Date.
(D) Any exercise of the IL Annuity Put Option shall not affect or
extinguish any rights or remedies of AMHC or AmerUs or any other Holder to
demand compliance by Indianapolis Life and ILGC under any other provision
of this Section 2.4.
(c) Upon the occurrence of any Termination Date under Section 11.3 hereof,
all of the Non-Voting Common Stock and Converted Shares shall be purchased by
Indianapolis Life or repurchased by ILGC no later than the 60th day following
such Termination Date. Such shares shall be purchased or repurchased, as the
case may be, for the sum of (A) the Stock Purchase Price plus (B) an amount
equal to the annually compounded interest that would have accrued at the rate of
18% per annum on the Stock Purchase Price from the Stock Purchase Closing Date
until the Purchase Date; provided, however, that no such purchase or repurchase
following any Termination Date under Section 11.3 shall affect or extinguish any
rights or remedies of AMHC or AmerUs (or any of their Subsidiaries or
Affiliates) or any other Holder under any other provision of this Combination
and Investment Agreement or Applicable Law. If for any reason any of the
Non-Voting Common Stock and Converted Shares are not purchased by Indianapolis
Life on or prior to the 60th day following such Termination Date, then at any
time thereafter the Holder may, at its option, exercise IL Annuity Put Option as
described in Section 2.4(b)(v) (without giving effect to the references
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therein to Section 11.2, and using the sum of (A) and (B) above in place of the
stated denominator in the Put Formula); provided, however, that any such
exercise of the IL Annuity Put Option shall not affect or extinguish any rights
or remedies of AMHC or AmerUs (or any of their Subsidiaries or Affiliates) or
any other Holder under any other provision of this Combination and Investment
Agreement or Applicable Law.
(d) Upon the occurrence of any Termination Date under Section 11.4 hereof,
all or any portion of the Non-Voting Common Stock and the Converted Shares may
be purchased by Indianapolis Life or repurchased by ILGC at any time following
such Termination Date; provided, however, that Indianapolis Life or ILGC shall
purchase or repurchase, as the case may be, all such shares on or prior to the
earlier of (A) the fourth (4th) anniversary of the Stock Purchase Closing Date
and (B) the date Indianapolis Life and/or ILGC has obtained new equity or equity
equivalent which in the aggregate is sufficient to pay in full the amount
required to effect such purchase or repurchase. The Non-Voting Common Stock and
Converted Shares purchased or repurchased pursuant to this paragraph shall be
purchased or repurchased for the sum of (A) the Stock Purchase Price plus (B) an
amount equal to the annually compounded interest that would have accrued at the
rate of 10% percent per annum on the Stock Purchase Price from the Stock
Purchase Closing Date until the Purchase Date, multiplied by a fraction, the
numerator of which is the number of shares to be purchased or repurchased on
such Purchase Date and the denominator of which is 105.9627. Nothing in this
Section 2.4(d) is intended to extinguish any other rights or remedies of
Indianapolis Life or ILGC under any other provision of this Combination and
Investment Agreement or Applicable Law.
(e) Upon the occurrence of any Termination Date under Section 11.5 hereof,
(i) All of the Non-Voting Common Stock and Converted Shares shall be
purchased by Indianapolis Life or repurchased by ILGC no later than the
60th day following such Termination Date. Such shares shall be purchased or
repurchased, as the case may be, for the sum of (A) the Stock Purchase
Price plus (B) an amount equal to the annually compounded interest that
would have accrued at the rate of 15% per annum on the Stock Purchase Price
from the Stock Purchase Closing Date until the Purchase Date. If for any
reason any of the Non-Voting Common Stock and Converted Shares are not
purchased by Indianapolis Life or repurchased by ILGC on or prior to the
60th day following such Termination Date, the Holder may, at its option,
exercise the IL Annuity Put Option as described in Section 2.4(b)(v) hereof
(without giving effect to the references therein to Section 11.2, and using
the sum of (A) and (B) above in place of the stated denominator in the Put
Formula); and
(ii) Indianapolis Life shall also pay to AMHC and/or AmerUs (as AMHC
and AmerUs may direct) in cash an amount equal to (A) 3% of the Stock
Purchase Price plus (B) if applicable, any and all out of pocket costs and
expenses incurred by AMHC and/or AmerUs in collecting any amounts due
pursuant to Section 2.4(e).
(iii) Any action contemplated by this Section 2.4(e), including,
without limitation, exercise of the IL Annuity Put Option, shall not affect
or extinguish any rights or remedies of AMHC or AmerUs (or any of their
Subsidiaries or Affiliates) or any other Holder under any other provision
of this Combination and Investment Agreement or Applicable Law.
All sums to be paid under clause (A) of Section 2.4(e)(ii) shall be paid
within ten (10) Business Days of the Termination Date by wire transfer of
immediately available funds; and all sums to be paid pursuant to clause (B) of
Section 2.4(e)(ii) shall be made within ten (10) Business Days following AMHC's
or AmerUs' presentation to Indianapolis Life of an itemized summary of the costs
and expenses referred to in such clause (B).
(f) Purchase or repurchase of shares of Non-Voting Common Stock and
Converted Shares may be effected by exchanging (i) the certificate or
certificates of the Holder for the shares of Non-Voting Common Stock or
Converted Shares to be purchased or repurchased and (ii) a notice from the
Holder identifying an account to which proceeds are to be remitted by wire
transfer of immediately available funds for (iii) a new certificate, if
applicable, representing any non-purchased or non-repurchased shares of the
Non-Voting Common Stock or Converted Shares represented by such certificate(s)
and (iv) payment by wire transfer of immediately available funds of ILGC or
Indianapolis Life, as directed in the Holder's notice, of the full
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purchase or repurchase amount payable under this Section 2.4 in respect of the
purchased or repurchased shares. For full or partial purchases or repurchases
initiated by Indianapolis Life and/or ILGC, the Holder shall provide the notice
and by express courier within five (5) Business Days of written request by
Indianapolis Life or ILGC, and shall arrange to surrender the certificate(s)
when the purchase or repurchase proceeds are remitted and any new certificate is
exchanged as provided above. The date on which any purchase or repurchase
proceeds are remitted pursuant to the provisions of Sections 2.4(a), (b), (c),
(d) or (e) hereof is referred to herein as a "Purchase Date."
(g) The obligations of each of Indianapolis Life and ILGC under this
Section 2.4 are independent and are those of a primary obligor. The inability,
refusal or other failure of either Indianapolis Life or ILGC to perform its
obligations hereunder shall not affect or limit the obligations of the other of
such parties to perform its obligations hereunder, nor shall such inability,
failure or refusal of one of such parties be asserted as a defense in any action
to enforce the obligations of the other of such parties hereunder.
Section 2.5 Use of Stock Purchase Price. Indianapolis Life and ILGC shall
use the proceeds of the Stock Purchase Price to (i) repurchase the ILGC Shares
held by AUL and Legacy, in the amounts shown on Schedule 2.5 hereto, on the
Stock Purchase Date, pursuant to documentation reasonably satisfactory to AMHC
and AmerUs, and (ii) in the discretion of ILGC, following the Stock Purchase
Date, to repay a loan of up to $3 million owed by ILGC to Indianapolis Life. The
balance of the Stock Purchase Price not used as required under the foregoing
sentence shall, following discussion between ILGC and AMHC, be contributed as
additional capital to IL Securities, in an amount not to exceed $1 million, and
to the Indianapolis Life Insurer Subsidiaries as of the date hereof.
Section 2.6 Closing of the Stock Purchase. (a) The closing of the Stock
Purchase (the "Stock Purchase Closing") shall take place on (i) the date of this
Combination and Investment Agreement if the conditions specified in Section 2.7
are satisfied as of the date hereof or (ii) if the conditions to closing of the
Stock Purchase set forth in Section 2.7 (the "Stock Purchase Closing
Conditions") are not satisfied as of the date of this Combination and Investment
Agreement, two (2) Business Days following satisfaction of the Stock Purchase
Closing Conditions (the "Stock Purchase Closing Date"). The Stock Purchase
Closing will be held at the offices of Baker & Daniels, 300 North Meridian
Street, Suite 2700, Indianapolis, Indiana 46204 or at such other location as the
parties hereto shall agree to in writing.
(b) At the Stock Purchase Closing, (i) ILGC shall issue and deliver to AMHC
certificates, in the form attached hereto as Exhibit 2.6(b), representing the
Non-Voting Common Stock, each duly executed by ILGC and dated the Stock Purchase
Closing Date, in such denominations as shall be designated in writing by AMHC
and AmerUs not less than one Business Day prior to the Stock Purchase Closing
Date and registered in the name of AMHC or AmerUs (or the name of its
Subsidiary, as permitted by Section 2.1(a)), and (ii) AMHC or AmerUs (or such
Subsidiary) shall pay ILGC, in United States dollars and in immediately
available funds by wire transfer an amount equal to the Stock Purchase Price to
ILGC's account specified in writing to AMHC or AmerUs or to such other Persons
and accounts as may be specified in writing by ILGC, prior to the Stock Purchase
Closing Date.
Section 2.7 Stock Purchase Closing Conditions. (a) The obligations of the
parties to consummate the Stock Purchase Closing are subject to the following
conditions:
(i) All Permits, regulatory consents, approvals or clearances of
Governmental Entities necessary for consummation of the Stock Purchase
shall have been obtained, and no provision of any Applicable Law shall
prohibit the consummation of the Stock Purchase Closing.
(ii) All material consents, approvals or waivers of all
non-governmental Persons necessary for the consummation of the Stock
Purchase Closing shall have been obtained.
(iii) There shall not be in effect any temporary restraining order,
preliminary injunction or permanent injunction or other order issued by any
court of competent jurisdiction preventing the consummation of the Stock
Purchase Closing; provided that the party invoking this condition shall
have used its best efforts to have such order or injunction vacated; and no
Governmental Entity or third party shall have commenced any proceeding
seeking a temporary restraining order, preliminary or permanent
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injunction or other order preventing the consummation of the transactions
contemplated by this Combination and Investment Agreement, or damages,
other than any such proceeding which would not be reasonably likely to
materially interfere with the consummation of the transactions contemplated
hereby; provided that, if applicable, the party invoking this condition
shall have used its reasonable best efforts to have such proceeding
dismissed or terminated.
(iv) Each other document necessary for consummation of the Stock
Purchase Closing, including the Investment Management Agreements, shall
have been executed and delivered by the parties thereto.
(v) This Combination and Investment Agreement and the Investment
Management Agreements shall be in full force and effect.
(b) The obligation of AMHC and AmerUs to consummate the Stock Purchase
Closing is subject to the satisfaction of the following further conditions:
(i) (A) Indianapolis Life and ILGC shall have performed in all
material respects all of their obligations hereunder required to be
performed by them on or prior to the Stock Purchase Closing Date, (B) the
representations and warranties of Indianapolis Life and ILGC contained in
this Combination and Investment Agreement (including, but not limited to,
those set forth in Articles 4 and 5 hereof) shall be true at and as of the
Stock Purchase Closing Date, as if made at and as of such date and (C) AMHC
and AmerUs shall have received certificates signed by the Chief Executive
Officer and Chief Financial Officer of Indianapolis Life and ILGC to the
effect that the foregoing conditions have been satisfied.
(ii) AMHC and AmerUs shall have received all documents it may
reasonably request relating to the existence of Indianapolis Life and ILGC
and the authority of Indianapolis Life and ILGC for this Combination and
Investment Agreement and the Investment Management Agreements, all in form
and substance reasonably satisfactory to AMHC and AmerUs.
(iii) ILGC shall have amended its articles of incorporation to
authorize the issuance of the Non-Voting Common Stock.
(iv) Since the date of this Combination and Investment Agreement,
there shall not have been any events, occurrences, developments or state of
circumstances or facts which, individually or in the aggregate, have had or
would reasonably be expected to have a Material Adverse Effect on
Indianapolis Life.
(v) A representative of AMHC shall have been elected to the ILGC Board
of Directors.
(c) The obligation of Indianapolis Life and ILGC to consummate the Stock
Purchase Closing is subject to the satisfaction of the following further
conditions:
(i) (A) AMHC and AmerUs (and, if applicable, the Subsidiary referenced
in Section 2.1(a)) shall have performed in all material respects all of
their obligations hereunder required to be performed by them on or prior to
the Stock Purchase Closing Date, (B) the representations and warranties of
AMHC and AmerUs contained in this Combination and Investment Agreement
(including, but not limited to, those set forth in Article 6 hereof) shall
be true at and as of the Stock Purchase Closing Date, as if made at and as
of such date, and (C) Indianapolis Life and ILGC shall have received
certificates signed by the Chief Executive Officer and Chief Financial
Officer of AMHC and AmerUs to the effect that the foregoing conditions have
been satisfied.
(ii) Indianapolis Life and ILGC shall have received all documents it
may reasonably request relating to the existence of AMHC and AmerUs and the
authority of AMHC and AmerUs for this Combination and Investment Agreement
and the Investment Management Agreements, all in form and substance
reasonably satisfactory to Indianapolis Life and ILGC.
(iii) Since the date of this Combination and Investment Agreement,
there shall not have been any events, occurrences, developments or state of
circumstances or facts which, individually or in the aggregate, have had or
would reasonably be expected to have a Material Adverse Effect on AMHC.
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Section 2.8 Conduct of Business of Indianapolis Life and ILGC Prior to
Purchase or Repurchase. Indianapolis Life and ILGC each covenant and agree that,
on and after any Termination Date and until the purchase or repurchase of all
the shares of Non-Voting Common Stock or the Converted Shares, as the case may
be, pursuant to Section 2.4 hereof (unless AMHC and AmerUs shall otherwise
approve in writing, and except as otherwise expressly contemplated by Article 2
of this Combination and Investment Agreement):
(a) it will, and will cause each of its Subsidiaries to, exercise its
best efforts to maintain itself at all times in all material respects as a
corporation duly organized, validly existing, and duly qualified to conduct
its business;
(b) it will not, and will not cause or permit any of its Subsidiaries
to, engage in any material business other than the life insurance business
and businesses reasonably related thereto and other businesses in which
Indianapolis Life, ILGC or any of their Subsidiaries may be engaged as of
the date of this Combination and Investment Agreement or, consistent with
the terms of this Combination and Investment Agreement, at the Termination
Date; provided, however, that the foregoing shall not be deemed to limit
investment activities in the ordinary course of business consistent with
past practice and in accordance with such Person's investment policies;
(c) it shall not (i) issue, sell (or otherwise transfer), pledge,
dispose of or encumber any shares of, or securities convertible into or
exchangeable or exercisable for, or options, warrants, calls, commitments
or rights of any kind to acquire, any shares of the capital stock or other
debt or equity security of any of the Subsidiaries of ILGC, or permit or
cause such Subsidiaries to do the same; (ii) amend or permit the amendment
of the articles of incorporation or by-laws of any such Subsidiary; (iii)
authorize, declare, set aside or pay any policyholder dividend payable in
cash or property other than in the ordinary course of business consistent
with past practice and in accordance with approved dividend plans; or (iv)
in the case of ILGC, authorize, declare, set aside or pay any shareholder
dividend except in accordance with Section 2.2(a) hereof;
(d) except for fair value and in the exercise of reasonable and
prudent business judgment, it shall not (i) other than in the ordinary and
usual course of business consistent with past practice, transfer, lease,
license, guarantee, sell, mortgage, pledge, dispose of or encumber any
other property or assets or permit or cause its Subsidiaries to do the
same; or (ii) make or authorize or commit to any capital expenditures
(including entering into capital lease obligations) for tangible assets or
enter into any lease of real or personal property, or permit or cause its
Subsidiaries to do the same;
(e) it shall not, and shall not permit or cause any of its
Subsidiaries to, effect any transactions with any Affiliates, other than
pursuant to arrangements existing as of the date hereof or as of the
Termination Date or in the ordinary course of business consistent with past
practice or on terms no less favorable to it than may be obtained from
third parties;
(f) it shall not permit ILGC's leverage ratio (calculated as the ratio
of its Consolidated Indebtedness to its Consolidated Total Capital) at any
time to be greater than 20%;
(g) it shall not permit the Risk-Based Capital at any time for any
Indianapolis Life Insurer Subsidiary to be less than 325%;
(h) it shall not permit the Indianapolis Life Insurer Subsidiaries to
have at any time an Adjusted Capital and Surplus of less than the following
amounts, as applicable: IL Annuity -- $60 million; Bankers Life -- $20
million; and Western Security -- $5 million.
(i) it shall not permit ILGC at any time to have a Tangible Net Worth
of less than 85% of its Tangible Net Worth as of December 31, 1999; and
(j) it shall not permit or cause any of ILGC's Subsidiaries to, after
the Termination Date, contract, create, incur or assume, or suffer to exist
any indebtedness arising on or after the Termination Date, including
without limitation reinsurance transactions in the nature of indebtedness
(other than traditional coinsurance and yearly renewable term agreements in
the ordinary course of business and consistent with past practice).
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Section 2.9 Reporting Requirements. Indianapolis Life and ILGC will
furnish to AMHC, AmerUs and any other Holder:
(i) Indianapolis Life Company Statements of the kinds described in
Section 4.6 hereof as of and for each year and quarter, within the periods
prescribed for unaudited statements in Section 9.7 hereof and, for audited
statements, as follows: (A) Annual Audited GAAP Statements shall be
delivered within sixty-seven (67) days after December 31 of each year; and
(B) Annual Audited SAP Statements shall be delivered within one hundred
twenty (120) days after December 31 of each year; and
(ii) A copy of the "Statement of Actuarial Opinion" and "Management
Discussion and Analysis" for Indianapolis Life and each Indianapolis Life
Insurer Subsidiary (prepared in accordance with SAP) for each year ending
on and after December 31, 1999 and as filed with or submitted to the
insurance regulatory body in the jurisdiction in which such Person is
domiciled in compliance with the requirements thereof (or a report
containing equivalent information for any such Person not so required to
file or submit the foregoing); and
(iii) Promptly, and in any event within five (5) Business Days, after
the Indianapolis Life Companies obtain knowledge thereof after the
Termination Date, notice of (A) the occurrence of any event which, in
itself or with notice and/or lapse of time, would breach any
representation, warranty, covenant or agreement set forth in this
Combination and Investment Agreement that remains effective after the
Termination Date pursuant to Section 11.6(a) hereof, which notice shall
specify the nature thereof, the period of existence thereof and what action
the Indianapolis Life Companies propose to take with respect thereto; (B)
any outstanding litigation or governmental or regulatory proceeding against
an Indianapolis Life Company that could have a Material Adverse Effect; or
(C) any other events, occurrences, developments or state of circumstances
or facts which have had or will have a Material Adverse Effect.
Section 2.10 Effect of Breach. (a) An event of default shall occur
hereunder if after a Termination Date:
(i) Indianapolis Life or ILGC shall fail to deliver the Indianapolis
Life Company Statements within the time periods prescribed in Section
2.9(i) hereof (including without limitation the references therein to
Section 9.7 hereof), and such failure shall continue unremedied for a
period of at least forty-eight (48) hours or, if longer, one (1) Business
Day, after notice by AMHC, AmerUs or any other Holder of such failure;
(ii) Indianapolis Life and ILGC shall default in the payment when
required of any purchase or repurchase payments as provided in this Article
2; or
(iii) Indianapolis Life or ILGC shall default in the due performance
or observance by it of any other representation, warranty, covenant or
agreement set forth in this Combination and Investment Agreement that
remains effective after the Termination Date pursuant to Section 11.6(a)
hereof, and such default shall continue unremedied for a period of at least
thirty (30) days after notice by AMHC, AmerUs or any other Holder of such
default; provided, however, that if Indianapolis Life or ILGC has failed to
give notice as required under Section 2.9(iii) with respect to a matter
that would constitute a breach of any term, covenant or agreement described
in this Section 2.10(i), then the thirty (30) day period described in this
Section 2.10(i) shall be reduced to five (5) days.
(b) If an event of default (as described in Section 2.10(a)) occurs and is
continuing, AMHC, AmerUs and any other Holder shall have the right, by notice to
Indianapolis Life and ILGC, without prejudice to its rights to enforce any other
rights or claims against Indianapolis Life and ILGC, to demand the immediate
purchase by Indianapolis Life and/or repurchase by ILGC, as the case may be, of
all outstanding shares of Non-Voting Common Stock and Converted Shares as
provided in this Article 2, and immediately to enforce its right to obtain such
purchase or repurchase, as the case may be. No such action shall affect or
extinguish any other rights or remedies of any Person under any other provision
of this Combination and Investment Agreement or Applicable Law.
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ARTICLE 3
COMBINATION TRANSACTIONS
Section 3.1 The Combination. (a) Upon the terms and subject to the
conditions set forth in this Combination and Investment Agreement, the following
transactions shall be consummated as soon as practicable following the
consummation of the AMHC Demutualization, and such transactions shall be
effective as of the Combination Effective Time (as defined in Section 3.3):
(i) Indianapolis Life shall demutualize pursuant to a Plan of
Conversion satisfying all the provisions of Section 3.5(a) hereof (the
"Plan of Conversion");
(ii) The membership interests of the eligible members (as defined
under Applicable Law) of Indianapolis Life shall be exchanged for AMHC
Shares, cash and policy credits which shall have an aggregate value equal
to that of 11.25 million AMHC Shares (determined as stated in Schedule
3.5(a) hereto, and subject to any adjustment provided for in Section
11.2(i) hereof); provided, however, that in the event of any stock
dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of AMHC Shares or, prior to the AMHC
Demutualization, the AmerUs Common Stock, such number of AMHC Shares shall
be correspondingly adjusted to the extent appropriate to reflect such
occurrence;
(iii) A corporation to be organized by AMHC under the Indiana Business
Corporation Law (sec. 23-1 of the Indiana Code) as its wholly owned
subsidiary ("Holding Sub") shall acquire all of the common stock of
Indianapolis Life as provided in Schedule 3.5(a), in accordance with the
Indiana Demutualization Law (sec. 27-15 of the Indiana Code) and other
applicable laws of the State of Indiana, and the status of Indianapolis
Life as a mutual insurance company shall cease; and
(iv) Indianapolis Life shall become a direct wholly owned stock
insurance company subsidiary of Holding Sub domiciled in the State of
Indiana.
(b) The transactions contemplated by the Plan of Conversion are referred to
herein as the "Combination." The parties intend to effectuate the Combination
(i) on a tax free basis to AMHC, AmerUs, Indianapolis Life and the eligible
members of Indianapolis Life who receive only AMHC Shares and (ii) with respect
to individual retirement accounts and individual retirement annuities (within
the meaning of Code Section 408), tax sheltered annuities governed by Code
Section 403(b) and "employee benefit plans" (within the meaning of Section 3(3)
of ERISA), in such a manner that it does not adversely affect the compliance
thereof with the applicable requirements of ERISA or the Code.
Section 3.2 Combination Closing. The closing of the Combination (the
"Combination Closing") will take place at 10:00 a.m. on a date to be specified
by the parties (the "Combination Closing Date"), which shall be no later than
twenty (20) Business Days after satisfaction or waiver of the conditions set
forth in Article 10, unless another time or date is mutually agreed to by the
parties hereto. The Combination Closing will be held at the offices of Baker &
Daniels, 300 North Meridian Street, Suite 2700, Indianapolis, Indiana 46204 or
at such other location as the parties hereto shall agree to in writing.
Section 3.3 Combination Effective Time. Subject to the conditions set
forth in Article 10 of this Agreement, on the Combination Closing Date, the
parties shall cause Articles of Amendment providing for the amendment and
restatement of the Articles of Incorporation of Indianapolis Life, consistent
with the Plan of Conversion, to be filed with the Indiana Department of
Insurance and the Indiana Secretary of State and such other filings to be made
with the Iowa Commissioner of Insurance, the Iowa Secretary of State, the
Indiana Commissioner and the Indiana Secretary of State as are necessary to
bring the transactions contemplated hereby into effect, and the Combination
shall be effective at the date and time specified in such filings (the
"Combination Effective Time"). Upon the terms and subject to the conditions of
this Agreement, the parties hereto will use all reasonable efforts to assure
that the filings contemplated hereby are made, and that the Combination
Effective Time occurs, as soon as is practicable.
Section 3.4 Articles of Incorporation and By-laws. As of the Combination
Effective Time, the Amended and Restated Articles of Incorporation and By-laws
of Indianapolis Life approved by the Indiana
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Commissioner and, as applicable, by the Indiana Secretary of State pursuant to
Applicable Law shall be the articles of incorporation and by-laws, respectively,
of Indianapolis Life until thereafter changed or amended as provided therein or
under Applicable Law.
Section 3.5 Essential Terms of and Rights of Consultation Relating to
Indianapolis Life Plan of Conversion. (a) Schedule 3.5(a) hereto sets forth the
essential terms of the Plan of Conversion. No later than October 1, 2000,
Indianapolis Life shall prepare the Plan of Conversion and shall file with the
Indiana Commissioner the Plan of Conversion in full satisfaction of all of the
requirements with respect thereto set forth in Chapters 27-15-2 and 27-15-3 of
the Indiana Code, subject, however, to compliance with the following two
sentences; and thereafter shall take such additional actions, consistent with
Schedule 3.5(a), as it may be required or permitted to take under Chapters
27-15-4, 27-15-5 and 27-15-6 of the Indiana Code to complete its demutualization
pursuant to the provisions hereof and the Plan of Conversion. The Plan of
Conversion filed with the Indiana Commissioner shall be consistent with the
terms set forth in Schedule 3.5(a), except to the extent that AMHC and AmerUs
have consented in writing to any variance in such terms in their sole
discretion. The Plan of Conversion may contain additional terms that are not
addressed in any of the terms set forth in Schedule 3.5(a); provided, however,
that any such additional term that could have an adverse impact on either (A)
AMHC or AmerUs or (B) the benefits that AMHC and AmerUs reasonably expect to
derive from consummation of the transactions contemplated herein shall require
the prior written consent of AMHC and AmerUs. Any amendment or modification by
Indianapolis Life to the Plan of Conversion as filed with the Indiana
Commissioner, including, without limitation, any withdrawal or termination by
Indianapolis Life of the Plan of Conversion filed with the Indiana Commissioner,
shall require the written consent of AMHC and AmerUs in their sole discretion.
(b) AMHC and AmerUs shall be consulted and informed concerning all matters
pertaining to the Plan of Conversion, including preparation of the Member
Information Statement, the final version of which shall be in form and content
reasonably acceptable to AMHC and AmerUs. It is expressly understood by the
parties hereto that Representatives of AMHC and AmerUs shall have the right to
attend and participate in any hearing, proceeding, meeting, conference or
similar event before or with a Governmental Entity or rating agency relating to
the Plan of Conversion, and the parties shall confer prior to such event
concerning the content of such presentation to the extent not expressly
addressed in the Plan of Conversion prepared in compliance with Section 3.5(a).
In furtherance of the foregoing, Indianapolis Life shall provide AMHC and AmerUs
reasonable advance notice of any such hearing, proceeding, meeting, conference
or similar event. The notice required to be given under this paragraph shall be
given to the Representatives of AMHC and AmerUs entitled to receive notices
hereunder, or such other individuals as AMHC and AmerUs may designate.
(c) In the event that the Plan of Conversion filed in accordance with
Section 3.5(a) cannot be consummated due to the structure under which Holding
Sub is to acquire the common stock of Indianapolis Life as provided in Schedule
3.5(a), despite the parties' exercise of their best efforts to obtain regulatory
approvals as provided in Section 9.1 hereof, then the parties will proceed to
consummate the Combination using a different structure, if one exists, that is
reasonably acceptable to both Indianapolis Life and AMHC in their discretion and
satisfies all other conditions to closing set forth in Article 10 hereof.
(d) Notwithstanding any other provision of this Combination and Investment
Agreement, the Plan of Conversion shall be terminated following a Termination
Date pursuant to the provisions of Article 11 hereof.
Section 3.6 Rights of Consultation Relating to AMHC Plan. (a) Attached
hereto as Schedule 3.6 is the current version of AMHC's plan of conversion and
Agreement and Plan of Merger with AmerUs pursuant to the provisions of Iowa
Insurance Law Chapter 508B (as modified in accordance with this Section 3.6(a),
the "AMHC Plan"). No later than August 1, 2000, AMHC shall finalize and file
with the appropriate regulatory authorities the AMHC Plan, which shall be
consistent with Schedule 3.6 hereto and Iowa Insurance Law sec. 521A.14(5)(B)
and Chapter 508B. Any variance (including any amendment or modification to the
AMHC Plan after it has been filed with the Iowa Commissioner of Insurance) from
the version of the AMHC Plan attached as Schedule 3.6 that could have an adverse
impact on the benefits that Indianapolis Life reasonably expects to derive from
consummation of the transactions contemplated herein shall require the prior
written consent of Indianapolis Life and ILGC.
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(b) Indianapolis Life and ILGC shall be consulted and informed concerning
all matters pertaining to the AMHC Plan that materially affect such parties,
including preparation of any portions of AMHC's Member Information Statement
that relate to the transactions contemplated hereby, which portions shall be in
form and content reasonably acceptable to Indianapolis Life and ILGC. It is
expressly understood by the parties hereto that Representatives of Indianapolis
Life and ILGC shall have the right to attend and participate in any hearing,
proceeding, meeting, conference or similar event before or with a Governmental
Entity or rating agency relating to the AMHC Plan. In furtherance of the
foregoing, AMHC shall provide Indianapolis Life and ILGC reasonable advance
notice of any such hearing, proceeding, meeting, conference or similar event.
The notice required to be given under this paragraph shall be given to the
representatives of Indianapolis Life and ILGC entitled to receive notices
hereunder, or such other individuals as Indianapolis Life and ILGC may
designate.
(c) In any matter described in this Section 3.6 in which Indianapolis
Life's or ILGC's consent or approval is or may be required, such consent shall
be deemed given if Indianapolis Life and ILGC fail to object in writing within
five (5) Business Days to any matter of which they are given specific written
notice coupled with a request for such consent or approval which includes an
express reference to this Section 3.6(c) and its consequences.
Section 3.7 Post-Combination Matters.
(a) Upon consummation of the Combination, the Board of Directors of AMHC
shall be adjusted to include the Chief Executive Officer of Indianapolis Life as
of immediately prior to the Combination Closing (as Vice-Chairman of the AMHC
Board of Directors) and at least two additional members of the Board of
Directors of Indianapolis Life as of immediately prior to the Combination
Closing (the "IL/AmerUs Directors"). AMHC shall use its best efforts to cause
its Board of Directors to appoint two of the IL/AmerUs Directors, at the
Combination Closing Date, for a term expiring at AMHC's next Annual Meeting, and
to nominate such IL/AmerUs Directors for election at such Annual Meeting to a
three-year term of membership on the Board of Directors of AMHC. AMHC shall use
its best efforts to cause its Board of Directors to appoint the third IL/AmerUs
Director for the remainder of a three-year term of office that commenced at the
Annual Meeting preceding the Combination Closing Date. The number of IL/AmerUs
Directors shall be a number sufficient to cause the ratio of IL/AmerUs Directors
to the number of directors on the AMHC Board to be proportional (subject to
conventional rounding) to the percentage of AMHC Shares held by Indianapolis
Life policyholders upon consummation of the Combination (the "IL/AmerUs
Directors Ratio").
(b) Upon consummation of the Combination, the Board of Directors of
Indianapolis Life shall be adjusted and Indianapolis Life shall use its best
efforts to cause individuals nominated by the Chief Executive Officer of AMHC to
be elected as may be necessary to ensure that the proportion of current
Indianapolis Life directors serving on the Indianapolis Life Board of Directors
shall be inversely proportional (subject to conventional rounding) to the
IL/AmerUs Directors Ratio.
(c) The parties have exchanged a Memorandum of Understanding setting forth
the essential terms of the parties' understanding concerning the integration,
operation and leadership of AMHC's and Indianapolis Life's respective businesses
upon and following the Combination (the "Memorandum of Understanding").
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ILGC
AND
INDIANAPOLIS LIFE
ILGC and Indianapolis Life represent and warrant to AMHC and AmerUs as of
the date hereof and as of each of the Closing Dates that:
Section 4.1 Corporate Existence and Power. Each Indianapolis Life Company
(i) has been duly organized and is validly existing under the laws of its state
of domicile, (ii) has all corporate powers required to carry on its business as
now conducted, (iii) has all material governmental licenses, authorizations,
permits, consents and approvals required to carry on its business as now
conducted and (iv) except where failure to so qualify or be licensed would
materially and adversely affect such Indianapolis Life Company, is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where such qualification is necessary, or is duly licensed to
do business and is in good standing in each jurisdiction where such licensing is
necessary, as the case may be. Each of ILGC and Indianapolis Life has heretofore
delivered or made available to AMHC true and complete copies, certified by its
corporate secretary, of its articles of incorporation and bylaws, as in effect
on the date hereof. Neither ILGC nor Indianapolis Life is in violation of any of
the provisions of its articles of incorporation or bylaws.
Section 4.2 Subsidiaries. (a) Schedule 4.2(a) lists all the Subsidiaries
of ILGC and Indianapolis Life and the number and holders of all authorized,
issued and outstanding capital stock of, or other equity ownership interests in,
each such Subsidiary.
(b) All the outstanding shares of capital stock of, or other equity
interests in, each such Subsidiary (i) have been validly issued and are fully
paid and nonassessable, (ii) except as provided in Schedule 4.2(a), are owned
directly or indirectly by ILGC and Indianapolis Life, as the case may be, free
and clear of all Liens and (iii) are free of any other restriction (including
any restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests) other than Applicable Law.
Section 4.3 Corporate Authorization. The execution, delivery and, subject
to the receipt of the approvals referred to in Section 4.4 or listed on Schedule
4.3, performance by ILGC and Indianapolis Life of this Combination and
Investment Agreement and, with respect to the Investment Management Agreements,
by ILGC, Indianapolis Life and their Subsidiaries, are within ILGC's,
Indianapolis Life's and their Subsidiaries' powers and have been duly authorized
by all necessary corporate action. This Combination and Investment Agreement and
the Investment Management Agreements constitute valid and legally binding
agreements, enforceable against each party thereto in accordance with their
terms, subject to (i) bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium, rehabilitation, liquidation, conservatorship, receivership
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and the rights of creditors of insurance companies
generally and (ii) general principles of equity (regardless of whether
considered in a proceeding at law or in equity).
Section 4.4 Governmental Authorization. The execution, delivery and
performance by ILGC and Indianapolis Life of this Combination and Investment
Agreement and, with respect to the Investment Management Agreements, by ILGC,
Indianapolis Life and their Subsidiaries, requires no action by or in respect
of, or filing with or approval by, any governmental body, agency, or official on
the part of ILGC or Indianapolis Life or their Subsidiaries other than (i)
compliance with any applicable requirements of the HSR Act, (ii) filings and
notices not required to be made or given until after either of the Closing
Dates, (iii) filings, at any time, of tax returns, tax reports and tax
information statements, (iv) the insurance regulatory approvals set forth on
Schedule 5.1, and (iv) any such other action or filing, where the failure to
take such other action or make such other filing would not, individually or in
the aggregate, materially impair the ability of any Indianapolis Life Company to
conduct its business or adversely affect its ability to consummate the
transactions contemplated hereunder.
Section 4.5 Non-Contravention. Except as set forth in Schedule 4.5, the
execution, delivery and performance by ILGC and Indianapolis Life of this
Combination and Investment Agreement and, with
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respect to the Investment Management Agreements, by ILGC, Indianapolis Life and
their Subsidiaries, does not and will not (i) violate the articles of
incorporation or bylaws of any Indianapolis Life Company, (ii) assuming
compliance with the matters referred to in Section 4.4, violate any Applicable
Law, (iii) require any consent or other action by any Person under, constitute a
default under, or give rise to any right of termination, cancellation or
acceleration of any right or obligation of any Indianapolis Life Company or to a
loss of any benefit to which any Indianapolis Life Company is entitled under,
any material agreement or other material instrument binding upon any
Indianapolis Life Company, or any material license, franchise, permit or other
similar authorization held by any Indianapolis Life Company, or (iv) result in
the creation or imposition of any material Lien on any asset of any Indianapolis
Life Company.
Section 4.6 Financial Statements. (a) ILGC and Indianapolis Life have
delivered to AMHC true and complete copies of the following:
(i) the individual Annual Audited GAAP Statements of IL Annuity and IL
Securities and the individual and consolidated Annual Audited GAAP
Statements of Indianapolis Life and ILGC as of and for the years ended
December 31, 1996, 1997 and 1998;
(ii) the individual Annual GAAP Statements of Bankers Life and Western
Security as of and for the years ended December 31, 1996, 1997 and 1998;
(iii) the individual Annual SAP Statements and Annual Audited SAP
Statements for Indianapolis Life and each of the Indianapolis Life Insurer
Subsidiaries as of and for the years ended December 31, 1996, 1997 and
1998; and
(iv) the individual and, where applicable as described in Section
4.6(i) above, consolidated Quarterly GAAP Statements for each of the
Indianapolis Life Companies and the individual Quarterly SAP Statements for
Indianapolis Life and each of the Indianapolis Life Insurer Subsidiaries as
of and for the calendar quarters ended March 31, 1999, June 30, 1999, and
September 30, 1999 (collectively with the items described in Sections
4.6(a)(i), (ii) and (iii) and financial statements of the kinds described
above as of and for the annual and quarterly periods ending on or after the
dates mentioned above, the "Indianapolis Life Company Statements").
(b) Since December 31, 1994, Indianapolis Life has filed, and has caused
each Indianapolis Life Company to file, all Indianapolis Life Company Statements
required to be filed with or submitted to the appropriate regulatory
authorities.
(c) Each Indianapolis Life Company Statement complied (and, as to
Indianapolis Life Company Statements filed after the date of this Combination
and Investment Agreement, will comply) with all Applicable Laws when so filed,
and all material deficiencies with respect to any Indianapolis Life Company
Statement have been cured or corrected. Each Indianapolis Life Company Statement
was prepared (and, as to Indianapolis Life Company Statements filed after the
date of this Combination and Investment Agreement, will be prepared) in
accordance with SAP or GAAP, as applicable, and presents (and, as to
Indianapolis Life Company Statements filed after the date of this Combination
and Investment Agreement, will present) fairly the financial position of the
relevant Indianapolis Life Company, as of the respective dates thereof and the
related summaries of operations and changes in capital and surplus and cash
flows of such entity for the respective periods covered thereby (subject, in the
case of Quarterly GAAP Statements and Quarterly SAP Statements, to the absence
of notes and normal year-end adjustments and accruals).
(d) Prior to each of the Closing Dates, ILGC and Indianapolis Life shall
have delivered to AMHC and AmerUs true and complete copies of each Indianapolis
Life Company Statement prepared after the date hereof, and each such
Indianapolis Life Company Statement shall conform to the representations and
warranties contained in this Section 4.6.
Section 4.7 Absence of Certain Changes. Except as disclosed in Schedule
4.7 or as expressly contemplated by this Combination and Investment Agreement,
since December 31, 1998, the business of each of the Indianapolis Life Companies
has been conducted in the ordinary course consistent with past practices
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(including, without limitation, with regard to underwriting, pricing, actuarial
and investment policies generally) and there has not been:
(i) any events, occurrences, developments or state of circumstances of
facts which, individually or in the aggregate, have had or would reasonably
be expected to have a Material Adverse Effect on the Indianapolis Life
Companies taken as a whole;
(ii) any incurrence, assumption or guarantee by an Indianapolis Life
Company of any indebtedness in excess of $50,000 in the aggregate, other
than in the ordinary course of business and in amounts and on terms
consistent with past practices;
(iii) any transaction or commitment made, or any contract or agreement
entered into, by an Indianapolis Life Company (including the acquisition or
disposition of any assets) or any relinquishment by an Indianapolis Life
Company of any contract or other right, other than transactions and
commitments in the ordinary course of business consistent with past
practices;
(iv) any material change in the financial, tax or accounting policies
of an Indianapolis Life Company, except for any such change as a result of
a concurrent change in GAAP or SAP;
(v) to the extent payable, directly or indirectly, by an Indianapolis
Life Company any (A) employment, deferred compensation, severance,
retirement or other similar agreement entered into with any director,
officer or employee (or any amendment to any such existing agreement), (B)
grant of any severance or termination pay to any director, officer or
employee other than in the ordinary course of business, (C) change in
compensation or other benefits payable to any director, officer or
employee, other than (x) increases in base compensation in the ordinary
course of business consistent with past practice, (y) with respect to
directors or officers, changes in benefits required by plans and
arrangements in effect as of December 31, 1998 and (z) with respect to
employees who are not directors or officers, changes in benefits in
accordance with plans or arrangements in effect as of December 31, 1998 in
the ordinary course of business consistent with past practice or (D) loans
or advances to any directors, officers or employees, except for ordinary
travel and business expenses in the ordinary course of business consistent
with past practice;
(vi) any damage, theft or casualty loss to an Indianapolis Life
Company in an amount exceeding $500,000, without regard to insurance
coverage;
(vii) any material transaction by an Indianapolis Life Company
involving Indianapolis Life Assets other than in the ordinary course of
business consistent with past practice;
(viii) any investment of Indianapolis Life Assets other than in
accordance with the investment policies of an Indianapolis Life Company set
forth in Schedule 4.7(viii);
(ix) any agreement or commitment (contingent or otherwise) to do any
of the foregoing; or
(x) any transaction or commitment, or any contract or agreement
entered into, between an Indianapolis Life Company and any of its
Affiliates other than in the ordinary course of business and consistent
with past practice.
Section 4.8 No Undisclosed Material Liabilities. There are no liabilities
of an Indianapolis Life Company of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, other than:
(i) liabilities provided for in their respective individual and
consolidated Annual SAP Statements, Annual Audited SAP Statements, Annual
GAAP Statements or Annual Audited GAAP Statements, as applicable, in each
case for the year ending December 31, 1998 or in their respective
individual and consolidated Quarterly SAP Statements and Quarterly GAAP
Statements, in each case for the quarter ended September 30, 1999, and
liabilities incurred in the ordinary course of business consistent with
past practice following the date of such Financial Statements;
(ii) liabilities disclosed on Schedule 4.8 hereto; and
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(iii) other undisclosed liabilities that are not, individually or in
the aggregate with undisclosed liabilities of all other Indianapolis Life
Companies, material to the Indianapolis Life Companies taken as a whole.
Section 4.9 Significant Agreements. (a) Except as disclosed in Schedule
4.9, and except as expressly contemplated by this Combination and Investment
Agreement, as of the date hereof, no Indianapolis Life Company is a party to or
bound by:
(i) any lease of real property where an Indianapolis Life Company is a
tenant (A) providing for annual base rentals of $100,000 or more, (B)
expiring after December 31, 2005, or (C) where an Indianapolis Life Company
holds an equity interest in such real property;
(ii) any agreement for the purchase of materials, supplies, goods,
services, equipment or other assets (other than an investment of
Indianapolis Life Assets in accordance with investment policies set forth
on Schedule 4.7(viii) hereto) by or from an Indianapolis Life Company that
provides for aggregate payments by or to an Indianapolis Life Company of
$300,000 or more;
(iii) any limited partnership, joint venture or other unincorporated
business organization or similar arrangement or agreement in which an
Indianapolis Life Company serves as a general partner or otherwise has
unlimited liability, or any other material similar agreement or
arrangement;
(iv) any agreement relating to the acquisition or disposition of any
material asset or business (without limitation, whether by merger, sale of
stock, sale of assets, commutation of reinsurance or otherwise, but not
including agreements relating to the investment of Indianapolis Life Assets
in accordance with investment policies set forth on Schedule 4.7(viii)
hereto);
(v) any agreement relating to indebtedness or any guarantee or similar
agreement or arrangement relating thereto, other than any such agreement
with, or relating to, an aggregate outstanding principal amount or
guaranteed obligation not exceeding $100,000;
(vi) any agreement that restricts or prohibits an Indianapolis Life
Company from competing with any Person in any line of business or from
competing in, engaging in or entering into any line of business in any area
and which would so restrict or prohibit an Indianapolis Life Company after
either of the Closing Dates;
(vii) any material agreement containing "change in control" or similar
provisions relating to change in control of an Indianapolis Life Company;
(viii) any powers of attorney;
(ix) any agreements (other than Insurance Contracts issued by
Indianapolis Life or the Indianapolis Life Insurer Subsidiaries in the
ordinary course of their business) material to an Indianapolis Life Company
pursuant to which an Indianapolis Life Company is obligated to indemnify
any other person;
(x) any agreement between Indianapolis Life, ILGC or their
Subsidiaries and any of their Affiliates; or
(xi) any other agreements or contracts (other than Insurance Contracts
issued in the ordinary course of business and consistent with past
practice) that are material to the businesses or operations of the
Indianapolis Life Companies taken as a whole.
(b) Indianapolis Life and ILGC heretofore furnished or made available to
AMHC and AmerUs complete and correct copies of the contracts, agreements and
instruments listed on Schedule 4.9, each as amended or modified to the date
hereof (including any waivers with respect thereto) (the "Significant
Agreements"). Except as specifically disclosed on Schedule 4.9, and except to
the extent not material to an Indianapolis Life Company, each of the Significant
Agreements is in full force and effect and enforceable against the Indianapolis
Life Company party thereto and, to the knowledge of any Indianapolis Life
Company, the other party thereto in accordance with its terms, subject to (i)
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium
rehabilitation, liquidation, conservatorship, receivership and other similar
laws
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now or hereafter in effect relating to or affecting creditors' rights generally
and the rights of creditors of insurance companies generally and (ii) general
principles of equity (regardless of whether considered in a proceeding at law or
in equity); no Indianapolis Life Company has received any written notice of
cancellation or termination of, or any expression or indication of an intention
or desire to cancel or terminate, any of the Significant Agreements; no
Significant Agreement is the subject of, or has been threatened to be made the
subject of, any arbitration, suit or other legal proceeding; with respect to any
Significant Agreement which by its terms will terminate as of a certain date
unless renewed or unless an option to extend such Significant Agreement is
exercised, no Indianapolis Life Company has received any written notice, or
otherwise has any knowledge, that any such Significant Agreement will not be so
renewed or that any such extension option will not be exercised; and there
exists no material event of default or occurrence, condition or act on the part
of an Indianapolis Life Company or, to the knowledge of an Indianapolis Life
Company, on the part of the other parties to the Significant Agreements, which
constitutes or would constitute (with notice or lapse of time or both) a
material breach of or material default under any of the Significant Agreements.
Section 4.10 Litigation. Except as set forth on Schedule 4.10, there is no
action, suit, investigation, judgment or proceeding pending against, or
threatened against, or affecting the properties of, an Indianapolis Life Company
or any of their respective properties before any court or arbitrator or any
governmental body, agency or official (i) which individually or together with
other claims alleging a similar course of conduct involves a claim or claims for
any injunction or similar relief or for damages exceeding $250,000 or an
unspecified amount of damages or (ii) which alleges a course of conduct that is
based on alleged facts that may give rise to a class action lawsuit or (iii)
which alleges price-fixing or (iv) which alleges bad faith and, in the case of
this clause (iv), may entail ultimate liability in excess of $250,000 over any
reserves which have been established in respect of such case, or (v) which in
the aggregate have or would reasonably be expected to have a Material Adverse
Effect on such Indianapolis Life Company. There is no action, suit,
investigation or proceeding pending against, or affecting the properties of, an
Indianapolis Life Company before any court or arbitrator or any governmental
body, agency or official which challenges or seeks to prevent the transactions
contemplated hereby. Except as disclosed in Schedule 4.10, no Indianapolis Life
Company nor any of its properties is subject to any order, writ, judgment,
injunction, decree, determination or award which would prevent or delay the
consummation of transactions contemplated hereby.
Section 4.11 Compliance with Laws. Except as set forth on Schedule 4.11,
no Indianapolis Life Company has received any written notice since January 1,
1997 from any Governmental Entity alleging any material violation of any
Applicable Law or directing an Indianapolis Life Company to take any material
remedial action with respect to such Applicable Law, and there is no proceeding
or investigation pending or threatened which would reasonably be expected to
lead to the revocation, amendment, failure to renew, limitation, modification or
suspension or restriction of any licenses, authorizations, permits, consents or
approvals referred to in Section 4.1 hereof.
Section 4.12 Properties. Except as set forth on Schedule 4.12, each
Indianapolis Life Company has good title to, or in the case of leased property
has valid leasehold interests in, all of its respective property and assets
(whether real or personal, tangible or intangible), except for imperfections in
title or invalidations of leasehold interests that do not, individually or in
the aggregate, materially detract from the value reflected on its individual and
consolidated December 31, 1998 Annual GAAP Statements, Annual Audited GAAP
Statements or Annual SAP Statements, as applicable. None of such property or
assets is subject to any Liens, except:
(i) Liens reflected on its individual and consolidated Annual GAAP
Statements, Annual Audited GAAP Statements or Annual SAP Statements, in
each case as of the year ending December 31, 1998, and/or on its individual
and consolidated September 30, 1999 Quarterly GAAP Statements, and
Quarterly SAP Statements, as applicable;
(ii) Liens for taxes not yet due or being contested in good faith (and
for which adequate accruals or reserves have been established); and
(iii) Liens which do not, individually or in the aggregate, materially
detract from the value reflected on its individual and consolidated
December 31, 1998 Annual GAAP Statements, Annual Audited
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GAAP Statements or Annual SAP Statements, as applicable, as the case may
be, or materially interfere with any present or intended use of any
material property or assets.
Section 4.13 Environmental Matters. (a) Other than as may be disclosed in
the Environmental Reports or in Schedule 4.13(a), (i) there are no Hazardous
Substances present on the current or former REO, the current or former Mortgaged
Properties or the current or former Indianapolis Life or ILGC Facilities
requiring material remediation under Environmental Laws (provided that to the
extent the foregoing representation relates to Hazardous Substances placed on
former REO, former Mortgaged Properties or former Indianapolis Life or ILGC
Facilities by any third party subsequent to the date on which such properties
were sold or otherwise transferred by Indianapolis Life, ILGC or any of their
Subsidiaries, as the case may be, to a person other than Indianapolis Life, ILGC
or any of their Subsidiaries, such representation is to the knowledge of
Indianapolis Life, ILGC and each of their Subsidiaries, as the case may be), and
(ii) Indianapolis Life, ILGC and each of their Subsidiaries are in compliance in
all material respects with all applicable Environmental Laws.
(b) Other than as may be disclosed in the Environmental Reports, as defined
below, or in Schedule 4.13(b), there has been (i) no written notice issued or
threatened to be issued of a material claim against Indianapolis Life, ILGC or
any of their Subsidiaries arising under Environmental Laws concerning Hazardous
Substances present on the current or former REO, the current or former Mortgaged
Properties or the current or former Indianapolis Life or ILGC Facilities; (ii)
no written notice issued or threatened to be issued from a Governmental Entity
alleging a material violation of Environmental Laws by Indianapolis Life, ILGC
or any of their Subsidiaries with respect to the ownership or operation of the
REO or the Indianapolis Life or ILGC Facilities; (iii) no written notice issued
or threatened to be issued of a material claim against Indianapolis Life, ILGC
or any of their Subsidiaries alleging that such Person is liable under the
Environmental Laws as a result of the treatment, storage, release,
transportation, manufacture, installation, containment or disposal of Hazardous
Substances at properties other than the current or former REO's, the current or
former Mortgaged Properties, or the current or former Indianapolis Life or ILGC
Facilities; and (iv) no written notice issued or threatened to be issued of a
material claim under any Environmental Law against Indianapolis Life, ILGC or
any of their Subsidiaries as a successor to any other Person.
(c) Indianapolis Life, ILGC and their Subsidiaries have made available to
AMHC and AmerUs for review and copying, all environmental reports in
Indianapolis Life's, ILGC's and their Subsidiaries' possession (or reasonably
available to them) prepared by third party environmental consultants concerning
the current REO, the current Mortgaged Properties or the current Indianapolis
Life and ILGC Facilities (the "Environmental Reports").
(d) Other than as may be disclosed in Schedule 4.13(d), with respect to the
current or former Mortgaged Properties, there have been no acts or omissions of
Indianapolis Life, ILGC and their Subsidiaries in their capacity as lenders, on
the basis of which Indianapolis Life, ILGC or their Subsidiaries has been found
or would be found to be materially responsible or liable parties under
Environmental Laws or relating to Hazardous Substances.
(e) Other than as may be disclosed in Schedule 4.13(e), the execution,
delivery and performance by Indianapolis Life and ILGC of this Combination and
Investment Agreement and the Investment Management Agreements require no action
by or in respect of, or filing with, any Governmental Entity on the part of
Indianapolis Life, ILGC or their Subsidiaries or Affiliates pursuant to any
Environmental Law.
Section 4.14 Intercompany Accounts. Schedule 4.14 contains a complete list
of (A) all intercompany balances, including loans and advances and commitments
with respect thereto, in excess of $50,000 individually or in the aggregate, and
(b) all Liabilities in excess of $50,000 individually or in the aggregate, in
each case as of September 30, 1999, between an Indianapolis Life Company and any
of its Affiliates. Except as disclosed on Schedule 4.14, since September 30,
1999, there has not been any incurrence or accrual of liability (as a result of
allocations or otherwise) in excess of $50,000 individually or in the aggregate
by an Indianapolis Life Company to any of its Affiliates or other transaction
between an Indianapolis Life Company and any of its Affiliates, except (i) in
the ordinary course of business in accordance with past practice or
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(ii) as contemplated by this Combination and Investment Agreement or the
Investment Management Agreements.
Section 4.15 Intellectual Property. (a) Indianapolis Life, ILGC and each
of their Subsidiaries is the owner of, or has the valid right to use, its
Intellectual Property free and clear of all Liens. Schedule 4.15(a) sets forth a
complete and accurate list (including whether Indianapolis Life, ILGC or a
particular Subsidiary is the owner or licensee thereof) of all current U.S. and
foreign (i) patents and patent applications, (ii) trademark or service mark
registrations and applications, and (iii) copyright registrations and
applications, owned or licensed by an Indianapolis Life Company. Except as
specifically identified in Schedule 4.15(a), an Indianapolis Life Company is
currently listed in the records of the appropriate United States, state or
foreign agency as owner of record for each patent, trademark, service mark and
copyright application and registration listed on Schedule 4.15(a).
(b) The copyright, trademark, service mark and patent registrations listed
on Schedule 4.15(a) are valid and subsisting, in full force and effect in all
material respects, and have not been canceled, expired or abandoned. To the
knowledge of the Indianapolis Life Companies, there is no pending, existing or
threatened, opposition, interference, cancellation proceeding or other legal or
governmental proceeding before any court or registration authority in any
jurisdiction against or relating to the registrations listed on Schedule
4.15(a), or against any of the Intellectual Property owned by an Indianapolis
Life Company.
(c) Each material Computer Program currently used by the Indianapolis Life
Companies in connection with the operation of their businesses as conducted on
the date hereof is listed on Schedule 4.15(c) and is either (i) owned by an
Indianapolis Life Company, (ii) currently in the public domain or otherwise
available to an Indianapolis Life Company without the license, lease or consent
of any third party, or (iii) used under rights granted to an Indianapolis Life
Company pursuant to a written agreement, license or lease from a third party,
which written agreement, license or lease is identified on Schedule 4.15(c). To
the knowledge of any Indianapolis Life Company, the Indianapolis Life Companies'
use of the Computer Programs listed on Schedule 4.15(c) does not violate the
rights of any third party. With respect to Computer Programs referred to in
clause (i) of the first sentence of this paragraph, all such Computer Programs
identified in Schedule 4.15(c) were either developed by (i) employees of an
Indianapolis Life Company within the scope of their employment; (ii) third
parties as "works-made-for-hire", as that term is defined under Section 101 of
the United States copyright laws, pursuant to written agreements; or (iii)
independent contractors who have assigned their rights to an Indianapolis Life
Company pursuant to written agreements.
(d) To the knowledge of the Indianapolis Life Companies, the conduct of the
business of the Indianapolis Life Companies does not infringe upon any
intellectual property right owned or controlled by any third party, no third
party is infringing upon any Intellectual Property owned by any Indianapolis
Life Company, and no such claims are pending against a third party by
Indianapolis Life, ILGC or their Subsidiaries. There are no claims or suits
pending or, to the knowledge of the Indianapolis Life Companies, threatened, and
neither Indianapolis Life, ILGC nor any of their Subsidiaries has received
written notice of a third party claim or suit that has not been resolved prior
to the date hereof (a) alleging that Indianapolis Life's, ILGC's or their
Subsidiaries activities or the conduct of its businesses infringes upon or
constitutes the unauthorized use of the proprietary rights of any third party,
or (b) challenging the ownership, use, validity or enforceability of the
Intellectual Property owned by Indianapolis Life, ILGC or their Subsidiaries.
Except as set forth on Schedule 4.15(d), to the knowledge of the Indianapolis
Life Companies there are no settlements, consents, judgments, or orders or other
agreements which restrict an Indianapolis Life Company's rights to use any
Intellectual Property, and no concurrent use or other agreements which restrict
an Indianapolis Life Company's rights to use any Intellectual Property owned by
an Indianapolis Life Company. To the knowledge of the Indianapolis Life
Companies no trade secret or confidential know-how material to the business of
an Indianapolis Life Company as currently operated or planned to be operated has
been disclosed or authorized to be disclosed to any third party, other than
pursuant to a non-disclosure agreement that protects such Indianapolis Life
Company's proprietary interests in and to such trade secrets and confidential
know-how.
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(e) The consummation of the transactions contemplated hereby will not
result in the loss or impairment of an Indianapolis Life Company's right to own
or use any of its Intellectual Property nor will it require the consent of any
Governmental Entity or third party in respect of any such Intellectual Property.
(f) No present or former employee, officer or director of an Indianapolis
Life Company has any right, title, or interest, directly or indirectly, in whole
or in part, in any of the Intellectual Property owned by an Indianapolis Life
Company.
(g) To the knowledge of the Indianapolis Life Companies, the computer
software, computer firmware, computer hardware (whether general or special
purpose), and other similar or related items of automated, computerized, and/or
software system(s) that comprise the Computer Programs will not malfunction,
will not cease to function, will not generate incorrect data, and will not
provide incorrect results due to date-related issues during the processing,
providing, and/or receiving of (i) date-related data into and between the
twentieth and twenty-first centuries and (ii) date-related data in connection
with any valid date in the twentieth and twenty-first centuries.
Section 4.16 Loans and Advances. Except as set forth in Schedule 4.16 with
respect to the Persons, amounts and contractual commitments listed therein, no
Indianapolis Life Company has any contractual commitment to make any loan,
advance or capital contribution to, or investment (other than an investment of
Indianapolis Life Assets in accordance with investment policies set forth in
Schedule 4.7(viii) hereto) in, any other Person in excess of $100,000
individually or in excess of $250,000 in the aggregate, or to any officer,
director or employee in excess of $10,000 individually or $50,000 in the
aggregate.
Section 4.17 All Assets Necessary. Except as set forth in Schedule 4.17,
each Indianapolis Life Company owns, leases or licenses independently of any of
their Affiliates all property and assets necessary to carry on its businesses
and operations as presently conducted, all such assets and properties (other
than as AMHC, AmerUs, Indianapolis Life and ILGC may mutually agree) will
continue to be owned, leased or licensed by an Indianapolis Life Company
independently of any Affiliate as of and after the Combination Closing and will
as of the Combination Closing permit each Indianapolis Life Company, as the case
may be, to continue to conduct such businesses and operations in the same manner
as such businesses and operations have been conducted prior to the Combination
Closing.
Section 4.18 Solvency. Indianapolis Life, ILGC and their Subsidiaries are
solvent and are not financially impaired, such that it would be unable to pay
its debts or to meet its obligations as they mature or such that its assets do
not exceed its Liabilities plus the greater of any capital and surplus required
by Applicable Law to be constantly maintained.
Section 4.19 Taxes.
(a) All Tax Returns required to be filed with respect to each Indianapolis
Life Company or the affiliated, combined or unitary group of which any such
Person is or was a member have been duly and timely filed and all such Tax
Returns are true, correct and complete in all material respects. Each
Indianapolis Life Company (i) has duly and timely paid all Taxes that are shown
as due on such Tax Returns, or claimed or asserted by any taxing authority to be
due, from such Person for the periods covered by such Tax Returns (unless such
Taxes are being contested in good faith and adequate reserves therefor have been
established in the Indianapolis Life Company's books and records) and have made
all required estimated payments of Taxes sufficient to avoid any penalties for
underpayment, or (ii) has duly provided for all such Taxes in the Indianapolis
Life Company Statements. There are no filed Liens with respect to Taxes (except
for Liens for Taxes not yet due and owing) upon any of the Assets of any
Indianapolis Life Company.
(b) With respect to any period or portion thereof through each of the
Closing Dates for which Tax Returns have not yet been filed, or for which Taxes
are not yet due or owing, each Indianapolis Life Company has established due and
sufficient reserves for the payment of such Taxes in accordance with SAP and
GAAP, as applicable, and such current reserves through each of the Closing Dates
are duly and fully provided for in all material respects in the Indianapolis
Life Company Statements of such Person for the period then ended.
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(c) Examinations of all Tax years for which (i) United States federal
income Tax Returns of each Indianapolis Life Company and of each affiliated
group (within the meaning of the Code) of which any Indianapolis Life Company is
or has been a member which have been audited or examined by the IRS, and (ii)
state, local and foreign income Tax Returns of each Indianapolis Life Company
and of each affiliated or consolidated group of which it is or has been a member
which have been audited or examined by the appropriate state, local or foreign
authority, have been completed with the exception of tax periods for which the
applicable statute of limitations has not, by its terms, expired and, with
respect to 1995, for which the statute of limitations has been extended. All
material deficiencies that have been asserted, proposed or assessed as a result
of the above referenced examinations specified in the first two sentences of
this Section 4.19(c) have been paid in full or finally settled or adequately
reserved against to the extent there is a reasonable possibility that the
position of any of the taxing authorities specified in the first two sentences
of this Section 4.19(c) will be sustained, and to the knowledge of the
Indianapolis Life Companies, no issue has been raised by any taxing authority in
any such examination which, by application of the same or similar principles,
reasonably could be expected to result in a material proposed deficiency for any
other period not so examined, except to the extent adequate reserves have been
established in the Indianapolis Life Companies books and records. To the
knowledge of the Indianapolis Life Companies, no state of facts exists or has
existed that would constitute grounds for the assessment of any material Tax
liability with respect to any Indianapolis Life Company for the periods that
have not been audited by the taxing authorities specified in the first two
sentences of this Section 4.19(c). Except as set forth on Schedule 4.19, there
are no outstanding agreements, waivers or arrangements extending the statutory
period of limitation applicable to any Tax Return or claim for, or the period
for the collection or assessment of, Taxes due from any Indianapolis Life
Company for any taxable period. Indianapolis Life and ILGC have previously
delivered or made available to AMHC and AmerUs copies, which are true, correct
and complete in all material respects, of each of (i) the most recent audit
reports relating to the United States federal, state, local and foreign income
Taxes due from each Indianapolis Life Company and (ii) the United States
federal, state, local and foreign income Tax Returns, for each of the last three
taxable years, filed by each Indianapolis Life Company, and the Indianapolis
Life Companies have made available to AMHC and AmerUs for inspection copies,
which are true, correct and complete in all material respects, of such Tax
Returns, (insofar as such Tax Returns relate to any Indianapolis Life Company)
filed by any affiliated or consolidated group of which any Indianapolis Life
Company was then a member.
(d) No audit or other proceeding by any U.S. or foreign governmental or
regulatory authority is pending before any court with respect to any Taxes due
from any Indianapolis Life Company or any Tax Return filed or required to be
filed by or relating to any Indianapolis Life Company. Except as provided in
Section 4.19(c), no material assessment, deficiency or adjustment of Tax has
been asserted or, based on existing facts and circumstances, is threatened
against any Indianapolis Life Company or any assets or properties of any
Indianapolis Life Company.
(e) Except as set forth on Schedule 4.19, no election under any of Section
108, 168, 338, 441, 472, 1017, 1033 or 4977 of the Code (or any predecessor
provisions) has been made or filed by or with respect to any Indianapolis Life
Company or any of their Assets. No consent to the application of Section
341(f)(2) of the Code (or any predecessor provision) has been made or filed by
or with respect to any Indianapolis Life Company or any of their Assets. None of
the Assets of any Indianapolis Life Company is an Asset that AMHC, AmerUs or any
of their Affiliates is or will be required to treat as being (i) owned by any
other Person pursuant to the provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended and in effect immediately before the enactment
of the Tax Reform Act of 1986 or (ii) tax-exempt use property within the meaning
of Section 168(h)(1) of the Code. No election has been made under Section
815(d)(1) of the Internal Revenue Code of 1954, as amended and in effect
immediately before the enactment of the Deficit Reduction Act of 1984. No
closing agreement pursuant to Section 7121 of the Code (or any predecessor
provision) or any similar provision of any state, local or foreign Applicable
Law has been entered into by or with respect to any Indianapolis Life Company or
any of their assets or properties.
(f) No Indianapolis Life Company has agreed to or is required to make any
material adjustment pursuant to Section 481(a) or 807(f)(1) of the Code (or any
predecessor provision) by reason of any change
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in any accounting method or change in basis for determining the reserves of such
company or otherwise, and no Indianapolis Life Company has any application
pending with any Governmental Entity requesting permission for any changes in
any accounting method or in the basis for determining reserves of any of them.
Except as may apply to the industry generally, the IRS has not proposed any such
adjustment or change in accounting method or in the basis of determining
reserves of any of them.
(g) No Indianapolis Life Company has been or is in material violation (or
with notice or lapse of time or both, would be in violation) of any Applicable
Law relating to the payment or withholding of Taxes (including, without
limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of the Code
or similar provisions under any foreign laws). Each Indianapolis Life Company
has duly and timely withheld in all material respects from employee salaries,
wages and other compensation and paid over to the appropriate taxing authorities
all amounts required to be so withheld and paid over for all periods under all
Applicable Laws.
(h) Except as disclosed in Schedule 4.19, no Indianapolis Life Company is a
party to, is bound by, or has any obligation under, any tax allocation
agreement, tax sharing agreement, or tax indemnification agreement.
(i) No Indianapolis Life Company has made any direct, indirect or deemed
distributions that have been or to the knowledge of the Indianapolis Life
Companies, could be taxed under Section 815 of the Code.
(j) For any open tax years, all ceding commission expenses paid or accrued
by each Indianapolis Life Company in connection with any reinsurance arrangement
or Contract or transaction have been capitalized and amortized over the life or
lives of such reinsurance arrangement or Contract in accordance with the
decision of the United States Supreme Court in Colonial American Life Insurance
Company v. Commissioner of Internal Revenue, 109 S.Ct. 240 (1989) or, in the
case of any such expense incurred on or after September 30, 1990, in accordance
with Sections 848 and 197 of the Code.
(k) Each reserve item with respect to each Indianapolis Life Company set
forth in its respective 1998 federal income Tax Return was determined in all
material respects in accordance with Section 807 of the Code or other applicable
Code sections, and has been consistently applied with respect to the filing of
the federal income Tax Returns for all years through December 31, 1998 for which
the statute of limitations has not expired, and will be consistently applied for
any Tax Return filed on or prior to each of the Closing Dates.
(l) As of December 31, 1998, no Indianapolis Life Company had and during
the period from December 31, 1998 through each of the Closing Dates will have,
any Tax Liability in respect of Taxes to any policyholder thereof, as
applicable, or any of such Person's Affiliates that resulted or will result from
a transaction with an Affiliate prior to each of the Closing Dates that would
require payment after December 31, 1998.
(m) Each of the Indianapolis Life Insurer Subsidiaries satisfies the
definition of a life insurance company under Section 816 of the Code.
(n) All material elections with respect to federal income Taxes affecting
the Indianapolis Life Companies are set forth in Schedule 4.19.
(o) Except as set forth in Schedule 4.19, there is no valid power of
attorney given by or binding upon any of the Indianapolis Life Companies with
respect to Taxes for any period for which the statute of limitations (including
any waivers or extensions) has not yet expired.
(p) There are no intercompany transactions within the meaning of Treasury
Regulations section 1.1502-13 for which gain has been deferred, and there are no
excess loss accounts as described in Treasury Regulations section 1.1502-19 that
exist with respect to any of the Indianapolis Life Companies.
(q) None of the Indianapolis Life Companies is a party to or otherwise
subject to any arrangement entered into in anticipation of either of the Closing
Dates and not required by this Combination and Investment Agreement, (i) having
the effect of or giving rise to the recognition of a deduction or loss before
either of the Closing Dates, and a corresponding recognition of taxable income
or gain after either of the Closing Dates, or (ii) that would reasonably be
expected to have the effect of or give rise to the recognition of
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taxable income or gain by any Indianapolis Life Company after either of the
Closing Dates without the receipt of or entitlement to a corresponding amount of
cash.
(r) Schedule 4.19 sets forth the amount of any existing policyholders
surplus account and shareholders surplus account with respect to the
Indianapolis Life Companies within the meaning of Section 815 of the Code.
(s) Except for federal income Tax Returns and certain Illinois and Nebraska
Tax Returns, the Indianapolis Life Companies do not file or join in filing any
consolidated, unitary, combined or similar Tax Returns with any corporation.
(t) Indianapolis Life has filed, as a common parent corporation of an
"affiliate group" (within the meaning of Section 1504(a) of the Code) a
consolidated return for federal income tax purposes on behalf of itself and each
other Indianapolis Life Company which is an "includible corporation" (within the
meaning of Section 1504(b) of the Code). No Indianapolis Life Company has been a
member of any other affiliated group of corporations within the meaning of
Section 1504 of the Code.
(u) No Indianapolis Life Company has been a United States real property
holding company (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(ii) of the Code.
(v) All transactions which could give rise to a substantial understatement
of federal income Tax (within the meaning of Section 6662(d) of the Code) were
adequately disclosed (or, with respect to Tax Returns filed before the Closing
Dates will be adequately disclosed) on the Tax Returns required in accordance
with Section 6662(d)(2)(B) of the Code.
Section 4.20 Benefit Plans; ERISA. (a) Schedule 4.20 contains a true and
complete list of each "employee benefit plan" (within the meaning of Section
3(3) of ERISA), stock purchase, stock option, severance, change-in-control,
fringe benefit, collective bargaining, bonus, incentive or deferred compensation
plan for the benefit of Indianapolis Life's and the Indianapolis Life Companies'
employees and non-employee agents, as the case may be, and all other
compensation and employee benefit plans, agreements, programs, policies or other
arrangements, whether or not subject to ERISA, under which employees or agents
of any Indianapolis Life Company have any present or future right to
compensation or benefits or under which any Indianapolis Life Company has any
present or future liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "Company Plans."
(b) With respect to each Company Plan, Indianapolis Life and ILGC have made
available to AMHC a current, accurate and complete copy (or, to the extent no
such copy exists, an accurate written description) thereof and, to the extent
applicable, (i) any related trust agreement, annuity contract, insurance policy
or other funding instrument, (ii) the most recent determination letter, (iii)
any summary plan description and other written communications (or a written
description of any oral communications) by any Indianapolis Life Company to its
employees or agents since January 1, 1998 concerning the extent of the benefits
provided under a Company Plan, and (iv) for the three most recent years (A) the
Form 5500 and attached Schedules, (B) audited financial statements, and (C)
actuarial valuation reports.
(c) Except as disclosed on Schedule 4.20, (i) each Company Plan has been
established and administered in accordance with its terms and in compliance in
all material respects with the applicable provisions of ERISA, the Code and
other Applicable Laws; (ii) each Company Plan that is intended to be qualified
within the meaning of Section 401(a) of the Code is so qualified and has
received a favorable determination letter as to its qualification and, to the
knowledge of the Indianapolis Life Companies, nothing has occurred, whether by
action or failure to act, that would cause the loss of such qualification; (iii)
except as listed on Schedule 4.20, with respect to any Company Plan, no actions,
suits or claims (other than routine claims for benefits in the ordinary course)
are pending or threatened that would adversely affect any Indianapolis Life
Company or their respective employees or agents and, to the knowledge of the
Indianapolis Life Companies, no facts or circumstances exist that would give
rise to any such actions, suits or claims; (iv) with respect to any Company
Plan, neither the Indianapolis Life Companies nor, to the knowledge of the
Indianapolis Life Companies, any other party has engaged in a prohibited
transaction, as such term is defined under
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Section 4975 of the Code or Section 406 of ERISA, that would subject
Indianapolis Life, ILGC or their Subsidiaries or AMHC or AmerUs to any Taxes,
penalties or other liabilities under Section 4975 of the Code or Section 409 or
Section 502(i) of ERISA; (v) to the knowledge of the Indianapolis Life
Companies, no event has occurred and no condition exists that would subject an
Indianapolis Life Company, either directly or indirectly or by reason of its
affiliation with any member of its "Controlled Group" (defined as any
organization which is a member of a controlled group of organizations within the
meaning of Sections 414(b), (c), (m) or (o) of the Code) to any Tax, fine or
penalty imposed by ERISA, the Code or other applicable laws, rules and
regulations including, but not limited to the Taxes imposed by Sections 4971,
4972, 4976, 4977, 4979, 4980B of the Code or any fine imposed by Section 502(c)
of ERISA; (vi) all insurance premiums required to be paid with respect to
Company Plans in respect of the Indianapolis Life Company's employees and agents
as of each of the Closing Dates have been or will be paid prior thereto and
adequate reserves have been provided for on their SAP Financial Statements or
GAAP Financial Statements, as the case may be, as of each of the Closing Dates
for any premiums, administrative fees and/or claims (or portions thereof)
attributable to service on or prior to each of the Closing Dates; (vii) all
contributions required to be made prior to each of the Closing Dates under the
terms of any Company Plan, the Code, ERISA or other applicable laws, rules and
regulations have been or will be timely made; and (ix) except as expressly
contemplated pursuant to this Combination and Reorganization Agreement, no
Company Plan provides for, and there is no binding commitment for, an increase
in the manner in which benefits are calculated under any Company Plan on or
after either of the Closing Dates.
(d) (i) No Company Plan has incurred any "accumulated funding deficiency"
as such term is defined in Section 302 of ERISA and Section 412 of the Code
(whether or not waived); (ii) no event or condition exists that would be deemed
a reportable event within the meaning of Section 4043 of ERISA (that has not
been waived) that could result in a liability to any Indianapolis Life Company
or any member of their respective Controlled Groups, and no condition exists
that could subject any Indianapolis Life Company or any member of their
respective Controlled Groups to a fine under Section 4071 of ERISA; (iii) as of
each of the Closing Dates, the Indianapolis Life Companies and each member of
their respective Controlled Groups will have made all premium payments required
to be made prior to each of the Closing Dates to the Pension Benefit Guaranty
Corporation ("PBGC"); (iv) neither the Indianapolis Life Companies nor any
member of their respective Controlled Groups is subject to any liability to the
PBGC for any plan termination occurring on or prior to either of the Closing
Date and, to the knowledge of the Indianapolis Life Companies, no condition
exists that is reasonably likely to result in any such liability; (v) the PBGC
has not instituted proceedings to terminate any Company Plan and, to the
knowledge of the Indianapolis Life Companies, no condition exists that presents
a material risk that such proceedings will be instituted; (vi) no amendment has
occurred that has required or would require any Indianapolis Life Company or any
member of their respective Controlled Groups to provide security pursuant to
Section 401(a)(29) of the Code; and (vii) neither the Indianapolis Life
Companies nor any member of their respective Controlled Groups has engaged in a
transaction that could subject it to liability under Section 4069 of ERISA.
(e) Except as disclosed on Schedule 4.20, no Company Plan is a multiple
employer plan as defined in Code section 4.13(c) or ERISA section 4063.
(f) Except as disclosed on Schedule 4.20, no Company Plan is part of, and
no benefits under any Company Plan are provided through, a multiple employer
welfare arrangement as defined in ERISA sec. 3(40) ("MEWA"). Each MEWA
associated with a Company Plan is in compliance with the terms of its governing
documents and all applicable laws, rules and regulations.
(g) There are no multiemployer plans (within the meaning of Section
4001(a)(3) of ERISA) to which any Indianapolis Life Company or any member of
their respective Controlled Groups has or had any liability or contributes.
(h) (i) Each Company Plan that is intended to meet the requirements for
tax-favored treatment under Subchapter F of Chapter 1 of Subtitle A of the Code
meets such requirements; and (ii) except as listed on Schedule 4.20, the
Indianapolis Life Companies have no trusts intended to be qualified within the
meaning of Section 501(c)(9) of the Code.
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(i) Except as set forth on Schedule 4.20, no Company Plan exists that could
result in the payment to any employee or agent of any Indianapolis Life Company
of any money or other property or accelerate or provide any other rights or
benefits to any employee or agent of any Indianapolis Life Company as a result
solely of any transaction contemplated hereby, whether or not such payment would
constitute a parachute payment within the meaning of Section 280G of the Code.
(j) Except as set forth on Schedule 4.20, no Company Plan operates within
or is subject to the jurisdiction of any foreign country.
(k) Except as disclosed on Schedule 4.20, none of the amounts payable to
any employee or agent of any Indianapolis Life Company under any Company Plan or
Company Plans will be non-deductible under Section 280G of the Code.
(l) Except as set forth on Schedule 4.20, no Company Plan provides
benefits, including without limitation health or medical benefits (whether or
not insured), with respect to current or former employees or agents beyond their
retirement or other termination of service, other than (i) coverage mandated by
applicable law or (ii) death or retirement benefits under any "employee pension
plan" as defined in ERISA section 3(2).
Section 4.21 Employees.
(a) Except as set forth in Schedule 4.21(a), each Indianapolis Life Company
is in compliance with all Applicable Laws respecting employment and employment
practices, and the terms and conditions of employment and wages and hours. No
Indianapolis Life Company is a party to or bound by any collective bargaining
agreement, nor have they experienced any strikes, grievances, claims of unfair
labor practices, or other collective bargaining disputes within the past year.
There is no labor strike, dispute, arbitration, grievance, slowdown, stoppage,
organizational effort, dispute or proceeding by or with any employee or former
employee of an Indianapolis Life Company or any labor union pending or, to the
knowledge of the Indianapolis Life Companies, threatened against an Indianapolis
Life Company. No Indianapolis Life Company is the subject of any pending claim
asserting that such entity has committed any unfair labor practice.
(b) Except as set forth in Schedule 4.21(b), no employee of an Indianapolis
Life Company has any employment contract or other agreement or arrangement by
which such employee is employed on any basis other than as an "at will" employee
or by which an Indianapolis Life Company is restricted in any manner from
terminating the services of such employee at any time without penalty or
payment, subject only to the provisions of employee benefit plans described
herein.
Section 4.22 Books and Records. The books and records, including, without
limitation, the corporate minute books, of each of the Indianapolis Life
Companies are complete and accurate in all material respects, have been
maintained in accordance with generally accepted business practices and have
been made available as requested by AMHC.
Section 4.23 Threats of Cancellation. Except as disclosed in Schedule
4.23, since December 31, 1998, no group of policyholders or Persons writing,
selling, or producing, either directly or through reinsurance assumed, insurance
business, that individually or in the aggregate for each such group or Person,
respectively, accounted for 3% or more of the premium or annuity income of an
Indianapolis Life Insurer Subsidiary for the year ended December 31, 1999, has
terminated or, to the knowledge of such Subsidiary, threatened to terminate its
relationship with any Indianapolis Life Insurer Subsidiary.
Section 4.24 Operations Insurance. Schedule 4.24 contains a true and
complete list and description of all liability, property, workers compensation,
directors and officers liability, and other similar insurance contracts that
insure the business, operations, or affairs of any Indianapolis Life Company or
affect or relate to the ownership, use, or operations of any of their respective
Assets and (a) that have been issued to such Indianapolis Life Company
(including without limitation the names and addresses of the insurers, the
expiration dates thereof, and the annual premiums and payment terms thereof) or
(b) that are held by any Affiliate of any Indianapolis Life Company (including
any stockholder of any Indianapolis Life Company) for the benefit of any
Indianapolis Life Company following the Closing Dates. All such insurance is in
full force
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and effect and (to the knowledge of the Indianapolis Life Companies) is with
financially sound and reputable insurers and, in light of the business,
operations, and affairs of the Indianapolis Life Companies, is in amounts and
provides coverage that are reasonable and customary for Persons in similar
businesses.
Section 4.25 Information Supplied. None of the information supplied by any
Indianapolis Life Company for inclusion or incorporation by reference in (i) any
AmerUs SEC Document or AMHC SEC Document will, at the time such document is
filed with the SEC, at any time it is amended or supplemented or at the time it
becomes effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or (ii) the AMHC Member Information Statement will, at the date
such statement is first mailed to AMHC's members or at the time of any meeting
of such members, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
Section 4.26 Brokers; Schedule of Fees and Expenses. Goldman, Sachs & Co.
("Goldman Sachs"), a copy of whose engagement agreement has been provided to
AMHC, is entitled to fees from Indianapolis Life in accordance with the
provisions of said engagement agreements by virtue of the transactions
contemplated hereby. Except for Goldman Sachs, there is no investment banker,
broker, finder or other intermediary which has been retained by or is authorized
to act on behalf of any Indianapolis Life Company who might be entitled to any
fee or commission upon consummation of the transactions contemplated by this
Combination and Investment Agreement.
ARTICLE 5
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF
INDIANAPOLIS LIFE AND ILGC RELATING TO INSURANCE BUSINESS
AND RELATED MATTERS
ILGC and Indianapolis Life represent and warrant to AMHC and AmerUs as of
the date hereof and as of each of the Closing Dates that:
Section 5.1 Insurance Regulatory Approvals. The execution, delivery and
performance by ILGC and Indianapolis Life of this Combination and Investment
Agreement and the Investment Management Agreements require no action by or in
respect of, or filing with or approval by, any insurance regulatory body, agency
or official on the part of any Indianapolis Life Company other than approvals or
filings described on Schedule 5.1 under the insurance laws of the jurisdictions
referenced therein.
Section 5.2 Reserves. The aggregate reserves and other amounts held in
respect of Liabilities with respect to Insurance Contracts of Indianapolis Life
and each Indianapolis Life Insurer Subsidiary, as established or reflected in
each of their SAP Financial Statements referred to in Section 4.6 hereof (i)
were computed (and, as to such SAP Financial Statements to be filed after the
date of this Combination and Investment Agreement, will be computed) in
accordance with then accepted actuarial standards consistently applied and are
fairly stated (and, as to such SAP Financial Statements to be filed after the
date of this Combination and Investment Agreement, will be fairly stated) in
accordance with sound actuarial principles, (ii) are (and, as to such SAP
Financial Statements to be filed after the date of this Combination and
Investment Agreement, will be) based on actuarial assumptions which produce
reserves at least as great as those called for in any policy or contract
provision as to reserve basis and method, and are (and, as to such SAP Financial
Statements to be filed after the date of this Combination and Investment
Agreement, will be) in accordance with all other policy or contract provisions,
(iii) meet (and, as to such SAP Financial Statements to be filed after the date
of this Combination and Investment Agreement, will meet) all requirements of
Applicable Law and exceed the minimum aggregate amounts required by the
domiciliary state of each such subsidiary, (iv) include (and, as to such SAP
Financial Statements to be filed after the date of this Combination and
Investment Agreement, will include) provisions for all actuarial reserves and
related actuarial statement items which ought to be established; and (v) are
(and, as to such SAP Financial
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Statements to be filed after the date of this Combination and Investment
Agreement, will be) adequate on a SAP basis.
Section 5.3 Absence of Certain Changes. Except as disclosed in Schedule
5.3 or as expressly contemplated by this Combination and Investment Agreement,
since December 31, 1998, there has not been:
(i) any acquisition of assets or incurrence of liabilities by an
Indianapolis Life Company which is not primarily related to the life
insurance or annuity business of Indianapolis Life or the Indianapolis Life
Insurer Subsidiaries;
(ii) any change in any material way by Indianapolis Life or the
Indianapolis Life Insurer Subsidiaries in underwriting, actuarial or
reserving policies or standards;
(iii) any material change in the basis for establishing reserves or
rates and depreciation or amortization policies of Indianapolis Life or the
Indianapolis Life Insurer Subsidiaries, except for any such change as a
result of a concurrent change in SAP or GAAP, as applicable;
(iv) (i) any entering into of any facultative reinsurance contract,
other than in the ordinary course of business consistent with past
practice, or (ii) any commutation of any facultative reinsurance contract,
or (iii) any entering into or any commutation of any reinsurance treaty, by
Indianapolis Life or an Indianapolis Life Insurer Subsidiary;
(v) in the case of Indianapolis Life or any Indianapolis Life Insurer
Subsidiary, any increase or decrease in the percentage of its reinsured
business, or any increase in its lapse ratio, or any decrease in the amount
of its in-force business which has had or would reasonably be expected to
have a Material Adverse Effect;
(vi) any material insurance transaction by Indianapolis Life or an
Indianapolis Life Insurer Subsidiary other than in the ordinary course of
business consistent with past practice;
(vii) any significant change by Indianapolis Life or an Indianapolis
Life Insurer Subsidiary in the compensation structure of, or benefits
available to, any significant agent or with respect to agents generally;
(viii) any agreement or commitment (contingent or otherwise) to do any
of the foregoing.
Section 5.4 Regulatory Filings.
(a) To the knowledge of the Indianapolis Life Companies, the business of
the Indianapolis Life Companies is being conducted in compliance in all material
respects with all Applicable Laws, including, without limitation, all insurance
laws, ordinances, rules, regulations, decrees and orders of any Governmental
Entity, and all material notices, reports, documents and other information
required to be filed thereunder within the last three years were properly filed
in all material respects and were in compliance in all material respects with
such laws.
(b) Each Indianapolis Life Company has all material permits and insurance
and other licenses, franchises, approvals, authorizations, exemptions,
classifications, certificates, registrations, and similar documents (each of
which, a "Permit") in each jurisdiction in which the Indianapolis Life Company
requires Permits by virtue of the business conducted or the properties owned is
required and which are necessary to conduct of its business as it is currently
conducted (which jurisdictions are listed in Schedule 5.4). To the knowledge of
the Indianapolis Life Companies, all such Permits are in full force and effect,
and there is no proceeding or investigation pending or threatened which would
reasonably be expected to lead to the revocation, amendment, failure to renew,
limitation, modification, suspension or restriction of any such Permit. No
Indianapolis Life Company is operating under any formal or informal agreement or
understanding with the regulatory authority of any state which restricts its
authority to do business or requires any Indianapolis Life Company to take, or
refrain from taking, any action otherwise permitted by law. No Indianapolis Life
Company is a "commercially domiciled insurer" for purposes of Section 1215.13 of
the California Insurance Code or is commercially domiciled in any other state
other than its state of domicile.
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(c) The Indianapolis Life Companies have made available for inspection by
AMHC complete copies of all material registrations, filings and submissions made
since January 1, 1995 by the Indianapolis Life Companies with any Governmental
Entity and any material reports of examinations, including financial, market
conduct and any other exams of any kind, issued since January 1, 1995 by any
such Governmental Entity that relate to the Indianapolis Life Companies.
(d) To the knowledge of each of the Indianapolis Life Companies, (i) all
policy forms issued, reinsured or underwritten by Indianapolis Life or such
Indianapolis Life Insurer Subsidiary that represent at least 3% of its 1999
annualized life insurance premium or at least 3% of its annuity account values
as of December 31, 1999 (i) have been identified and delivered to AMHC and
AmerUs prior to the date hereof; (ii) are, to the extent required under
Applicable Laws in all material respects, approved by the insurance regulatory
authority of the jurisdiction where issued or have been filed with and not
objected to by such authority within the period provided for objection; and
(iii) have been filed or registered as required with all other applicable
governmental authorities.
(e) To the knowledge of the Indianapolis Life Companies, no Indianapolis
Life Company has received information which would reasonably cause it to believe
that the financial condition of any other party to any material reinsurance or
coinsurance agreements, swap agreements, other derivative instruments or
contracts, or any Significant Agreement is so impaired as to result in a default
thereunder.
(f) (i) Schedule 5.4(f) contains a true and complete list of (A) each
master or prototype (as well as any individually designed) pension, profit
sharing, defined benefit, Code Section 401(k), and other retirement or employee
benefit plan or contract (including, but not limited to, simplified employee
pension plans, Code Section 403(a), (b) and (c) annuities, Keogh plans, and
individual retirement accounts and annuities) offered or sold by any
Indianapolis Life Company to, or maintained or sponsored for the benefit of any
employees of, any other Person, and (B) where applicable, each opinion letter or
determination letter, as the case may be, relating to the creation or amendment
of any such plan or contract. Each such plan or contract in all material
respects conforms with, and has been offered, sold, maintained and sponsored in
accordance with, all Applicable Laws. No Indianapolis Life Company is a
fiduciary with respect to any plan or contract referenced in this Section 5.4.
(ii) No Indianapolis Life Company provides administrative or other
contractual services for any plan or contract referenced in Section
5.4(f)(i), including, but not limited to, any third party administrative
services for any plan which is an "employee welfare benefit plan" within
the meaning of Section 3(1) of ERISA.
(iii) To the extent that any Indianapolis Life Company maintains any
collective or commingled funds or accounts which restrict the Persons who
may invest therein to tax-exempt entities or qualified plans, each such
fund or account (of which a true and complete list and description is
disclosed in Schedule 5.4) has been established, maintained and operated in
accordance with all Applicable Laws in all material respects, has
maintained its tax-exempt status and has no non-qualified plans or trusts
or other taxable entities investing within it.
(iv) In addition to the representations and warranties contained in
this Section 5.4, there are no claims pending, or (to the knowledge of the
Indianapolis Life Companies) threatened against any Indianapolis Life
Company or any of their respective assets or properties, under any
fiduciary liability insurance policy issued by or to any of them.
(g) The Insurance Contracts or insurance policies (including without
limitation annuity contracts, variable annuity contracts, and modified
guaranteed contracts) issued by any of the Indianapolis Life Insurer
Subsidiaries are in material compliance with the applicable provisions of
Sections 72, 817, 817A, 7702 and 7702A of the Code.
(h) The tax treatment under the Code of the Insurance Contracts, investment
policies, plans or contracts, financial products, employee benefit plans,
individual retirement accounts or annuities, or similar or related policies,
contracts, plans or products, whether individual, group or otherwise, issued or
sold by the Indianapolis Life Insurer Subsidiaries are and at all times have
been in all material respects the same or more
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favorable to the purchaser, policyholder or intended beneficiaries thereof as
the tax treatment under the Code for which such contracts qualified or purported
to qualify at the time of its issuance or purchase, except for changes resulting
from changes to the Code effective after the date of such issuance or purchase.
For purposes of this Section 5.4(h), the provisions of the Code relating to the
tax treatment of such contracts shall include, but not be limited to, Sections
72, 101, 104, 105, 106, 401, 403, 408, 419, 419A, 457, 817, 818, 7702 and 7702A
of the Code.
Section 5.5 Reinsurance Agreements. All reinsurance agreements to which
Indianapolis Life or an Indianapolis Life Insurer Subsidiary is a party, either
as cedant or reinsurer, are disclosed in its Annual SAP Statement for the year
ended December 31, 1998 or, as to such agreements entered into after December
31, 1998, (i) are disclosed in Schedule 5.5 hereto, if in force as of the date
hereof, or (ii) if entered into after the date hereof, were entered into in
compliance with the provisions of Section 7.1(l) hereof and were disclosed on
the Annual SAP Statement for the year (if one has been filed) in which such
agreements were entered into. Each reinsurance agreement to which Indianapolis
Life or an Indianapolis Life Insurer Subsidiary is a party is in full force and
effect (except where any such agreement has terminated as to new business
pursuant to its terms) and neither Indianapolis Life nor an Indianapolis Life
Insurer Subsidiary is in material breach of any provision thereof and, to the
knowledge of the Indianapolis Life Companies, no other party to such reinsurance
agreements is in breach or has threatened breach of any provision thereof.
Section 5.6 Member Information Statement. As of the date thereof,
Indianapolis Life's Member Information Statement, if circulated and/or filed on
or prior to the Combination Closing Date in conjunction with the Plan of
Conversion will comply in all material respects with Applicable Law, and will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation or warranty is made by Indianapolis
Life or ILGC with respect to information supplied by AMHC or AmerUs for
inclusion or incorporation by reference in such Member Information Statement.
Section 5.7 Shares to be Issued Upon Implementation of the Plan of
Conversion. Assuming consummation of and subject to the Plan of Conversion,
upon Indianapolis Life's demutualization as contemplated by the Plan of
Conversion all outstanding shares of capital stock of Indianapolis Life will be,
and all shares which may be issued will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights, in each case as of the Combination Effective Time.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF
AMHC AND AMERUS
Except as disclosed in the AmerUs Filed SEC Documents filed prior to the
date hereof, AMHC and AmerUs represent and warrant to Indianapolis Life and ILGC
as of the date hereof and as of each of the Closing Dates that:
Section 6.1 Corporate Existence and Power. Each of AMHC and AmerUs (i) has
been duly organized, is validly existing and is in good standing under the laws
of its state of domicile, (ii) has all corporate powers required to carry on its
business as now conducted, (iii) has all material governmental licenses,
authorizations, Permits, consents and approvals required to carry on its
business as now conducted and (iv) except where failure to so qualify or be
licensed would not materially and adversely affect such Person, is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where such qualification is necessary, or is duly licensed to
do business and is in good standing in each jurisdiction where such licensing is
necessary, as the case may be. Each of AMHC and AmerUs has heretofore delivered
or made available to Indianapolis Life true and complete copies, certified by
its corporate secretary, of its articles of incorporation and bylaws as in
effect on the date hereof. Neither AMHC nor AmerUs is in violation of any of the
provisions of its articles of incorporation or bylaws.
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Section 6.2 Subsidiaries. Schedule 6.2 lists all the Subsidiaries of AMHC
and AmerUs as of the date of this Combination and Investment Agreement and, for
the AMHC Material Subsidiaries, the number and holders of all authorized, issued
and outstanding capital stock of, or other equity ownership interests in, each
such AMHC Material Subsidiary. As of such date, except as stated on Schedule
6.2, all the outstanding shares of capital stock of, or other equity interests
in, each AMHC Material Subsidiary (i) have been validly issued and are fully
paid and nonassessable, (ii) are owned directly or indirectly by AMHC or AmerUs,
as the case may be, free and clear of all Liens and (iii) are free of any other
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests).
Section 6.3 Corporate Authorization. The execution, delivery and, subject
to the receipt of the approvals referred to in Section 6.4 or listed on Schedule
6.3, performance by AMHC and AmerUs of this Combination and Investment Agreement
and by AmerUs Capital Management of the Investment Management Agreements are
within such Persons' powers and have been duly authorized by all necessary
corporate action. This Combination and Investment Agreement and the Investment
Management Agreements constitute valid and legally binding agreements,
enforceable against AMHC, AmerUs and AmerUs Capital Management, as the case may
be, in accordance with their terms, subject to (i) bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium, rehabilitation, liquidation,
conservatorship, receivership and other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally and the rights of creditors
of insurance companies generally and (ii) general principles of equity
(regardless of whether considered in a proceeding at law or in equity).
Section 6.4 Governmental Authorization. Except as set forth in Schedule
6.4, the execution, delivery and performance by AMHC and AmerUs of this
Combination and Investment Agreement and by AmerUs Capital Management of the
Investment Management Agreements requires no action by or in respect of, or
filing with or approval by, any governmental body, agency, or official on the
part of AMHC, AmerUs or AmerUs Capital Management other than (i) filing with or
approvals described on Schedule 6.4 under the insurance laws of the
jurisdictions referenced therein, (ii) compliance with any applicable
requirements of the HSR Act, (iii) filings required to be made with the SEC
under Applicable Law, (iv) filings and notices not required to be made or given
until after each of the Closing Dates, (v) filings, at any time, of tax returns,
tax reports and tax information statements and (vi) any such action or filing as
to which the failure to make or obtain would not, individually or in the
aggregate, materially impair the ability of AMHC or any AMHC Material Subsidiary
to conduct their businesses.
Section 6.5 Non-Contravention. Except as set forth in Schedule 6.5, the
execution, delivery and performance by AMHC and AmerUs of this Combination and
Investment Agreement and by AmerUs Capital Management of the Investment
Management Agreements does not and will not (i) violate the articles of
incorporation or bylaws of AMHC, AmerUs or AmerUs Capital Management, as
presently constituted or as the same may be amended pursuant to the AMHC Plan,
(ii) assuming compliance with the matters referred to in Section 6.4, violate
any Applicable Law, (iii) require any consent or other action by any Person
under, constitute a default under, or give rise to any right of termination,
cancellation or acceleration of any right or obligation of AMHC, AmerUs or
AmerUs Capital Management or to a loss of any benefit to which AMHC, AmerUs or
AmerUs Capital Management is entitled under, any material agreement or other
material instrument binding upon such Person, or any material license,
franchise, Permit or other similar authorization held by AMHC, AmerUs or AmerUs
Capital Management, or (iv) result in the creation or imposition of any material
Lien on any asset of AMHC, AmerUs or AmerUs Capital Management.
Section 6.6 Financial Statements. (a) AMHC and AmerUs have previously made
available to Indianapolis Life true and complete copies of the following:
(i) the consolidated Annual Audited GAAP Statements for AMHC and
AmerUs and the individual Annual SAP Statements and Annual Audited SAP
Statements for each of the AMHC Insurer Subsidiaries as of and for the
years ended December 31, 1996, 1997 and 1998; and
(ii) the consolidated Quarterly GAAP Statements for AMHC and AmerUs
and the individual Quarterly SAP Statements for each of the AMHC Insurer
Subsidiaries as of and for the calendar quarters ended March 31, 1999, June
30, 1999, and September 30, 1999 (collectively with the items
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described in Section 6.6(a)(i) and financial statements of the kinds
described above as of and for the annual and quarterly periods ending on or
after the dates mentioned above, the "AMHC Statements").
(b) Since December 31, 1997, each of the AMHC Material Insurer Subsidiaries
has filed all material financial reports, together with any amendments required
to be made with respect thereto, that it has been required to file with state
insurance regulatory authorities (the "AMHC Insurer Subsidiary Filings"), and
all of the AMHC Insurer Subsidiary Filings prior to the date hereof complied,
and all such filings made hereafter prior to the Combination Closing Date will
comply, in all material respects with applicable insurance laws, rules and
regulations and, except as disclosed in Schedule 6.6(b), there are no material
open or unresolved issues which were raised by any insurance regulatory
authority and brought to the attention of such AMHC Material Insurer Subsidiary
by such regulatory authority with respect to any of such filings.
(c) Each AMHC Statement was prepared (and, as to AMHC Statements to be
prepared after the date of this Combination and Investment Agreement, will be
prepared) in accordance with GAAP or SAP, as applicable, and presents (and, as
to AMHC Statements to be prepared after the date of this Combination and
Investment Agreement, will present) fairly the financial position of AMHC,
AmerUs or the relevant Subsidiary, as the case may be, as of the respective
dates thereof and the related summaries of operations and changes in capital and
surplus and cash flows of such entity for the respective periods covered thereby
(subject, in the case of Quarterly GAAP Statements and Quarterly SAP Statements,
to the absence of notes and normal year-end adjustments and accruals).
(d) Prior to each of the Closing Dates, AMHC and AmerUs shall have
delivered to Indianapolis Life and ILGC true and complete copies of each AMHC
Statement prepared after the date hereof, and each such AMHC Statement shall
conform to the representations and warranties contained in this Section 6.6.
Section 6.7 Absence of Certain Changes. Except as disclosed in Schedule
6.7 or as expressly contemplated by this Combination and Investment Agreement,
since December 31, 1998, the business of AMHC and the AMHC Material Subsidiaries
has been conducted in the ordinary course (including, without limitation, with
regard to underwriting, pricing, actuarial and investment policies generally)
and there has not been:
(a) any events, occurrences, developments or state of circumstances or
facts which, individually or in the aggregate, have had or would reasonably
be expected to have Material Adverse Effect with respect to AMHC;
(b) any amendment, termination, waiver, disposal or lapse of, or other
failure to preserve, or regulatory agreement with respect to any Permit of
AMHC or any AMHC Material Subsidiary the result of which individually or in
the aggregate has or would reasonably be expected to have a Material
Adverse Effect on AMHC;
(c) any material change in the financial, tax or accounting policies
of AMHC or any AMHC Material Subsidiary, except for any such change as a
result of a concurrent change in GAAP or SAP; or
(d) any agreement or commitment (contingent or otherwise) to do any of
the foregoing.
Section 6.8 Capital Structure. (a) As of December 31, 1999, the authorized
capital stock of AmerUs consists of (i) 180,000,000 shares of Class A Common
Stock, without par value ("AmerUs Common Stock"), (ii) 50,000,000 shares of
Class B Common Stock, without par value, of AmerUs ("AmerUs Class B Common
Stock") and (iii) 20,000,000 shares of Preferred Stock, without par value, of
AmerUs ("AmerUs Preferred Stock"). At the close of business on January 12, 2000:
(i) 25,072,888 shares of AmerUs Common Stock were issued and outstanding; (ii)
5,000,000 shares of AmerUs Class B Common Stock were issued and outstanding; and
(iii) no shares of AmerUs Preferred Stock were issued and outstanding. All
outstanding shares of capital stock of AmerUs are, and all shares which may be
issued will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. As of December 31, 1999,
except as set forth in Schedule 6.8 or in the AmerUs Filed SEC Documents, there
are not issued, reserved for issuance or outstanding (A) any shares of capital
stock or other voting securities of AmerUs, (B) any securities of AmerUs
convertible into or exchangeable or exercisable for shares of capital stock or
voting securities of AmerUs and (C) any warrants, calls, options or other rights
to acquire from
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AmerUs or any Subsidiary of AmerUs, and no obligation of AmerUs or any
Subsidiary of AmerUs to issue, any capital stock, voting securities or
securities convertible into or exchangeable or exercisable for capital stock or
voting securities of AmerUs.
(b) Assuming consummation of and subject to the AMHC Plan, upon the AMHC
Demutualization as contemplated by the AMHC Plan all outstanding shares of
capital stock of AMHC will be, and all shares which may be issued will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights, in each case as of the effective date of the AMHC
Demutualization.
(c) Assuming consummation of and subject to the Plan of Conversion, upon
the Combination as contemplated by the Plan of Conversion all outstanding shares
of capital stock of AMHC will be, and all shares which may be issued will be,
when issued, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights, in each case as of the Combination Effective
Time.
Section 6.9 SEC Reports. (a) Except as disclosed in Schedule 6.9, AmerUs
has filed all required reports, schedules, forms, statements and other documents
(including exhibits and all other information incorporated therein) with the SEC
since January 1, 1997 (the "AmerUs SEC Documents"). As of their respective
dates, the AmerUs SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
or the Securities Exchange Act of 1934 (the "Exchange Act"), as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable to
such AmerUs SEC Documents, and none of the AmerUs SEC Documents when filed
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent that information contained in any AmerUs SEC
Document has been revised or superseded by a later filed AmerUs SEC Document,
none of the AmerUs SEC Documents contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of AmerUs
included in the AmerUs SEC Documents comply as to form, as of their respective
dates of filing with the SEC, in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP (except, in the case
of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present in all material respects the consolidated
financial position of AmerUs and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
recurring year-end audit adjustments).
(b) As of their respective dates, the AMHC SEC Documents shall comply in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such AMHC SEC Documents, and none of the
AMHC SEC Documents shall when filed contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Except to the extent that information
contained in any AMHC SEC Document is revised or superseded by a later filed
AMHC SEC Document, none of the AMHC SEC Documents shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of AMHC to be included in the AMHC SEC Documents shall comply as to
form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, shall have been prepared in
accordance with GAAP (except, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and shall fairly
present in all material respects the consolidated financial position of AMHC and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal recurring year-end audit
adjustments).
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(c) Except as set forth in Schedule 6.9, neither AMHC nor any AMHC Material
Subsidiary has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) required by GAAP to be set forth on a
consolidated balance sheet of AMHC or in the notes filed as a part thereof
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on AMHC.
Section 6.10 Information Supplied. None of the information supplied by
AMHC or AmerUs for inclusion or incorporation by reference in Indianapolis
Life's Member Information Statement will, at the date such statement is first
mailed to Indianapolis Life's policyholders or at the time of any meeting of
such policyholders, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
Section 6.11 Taxes. Except as disclosed in Schedule 6.11,
(a) All Tax Returns required to be filed with respect to AMHC and each AMHC
Material Insurer Subsidiary have been duly and timely filed, other than any Tax
Return the failure of which to timely file would not reasonably be expected to
have a Material Adverse Effect on AMHC. All such Tax Returns are true, correct
and complete in all material respects and AMHC and each AMHC Material Insurer
Subsidiary (i) has duly and timely paid all Taxes that are shown as due on such
Tax Returns, or claimed or asserted by any taxing authority to be due, from such
Person for the periods covered by such Tax Returns (unless such Taxes are being
contested in good faith and adequate reserves therefor have been established in
its books and records) and have made all required estimated payments of Taxes
sufficient to avoid any penalties for underpayment, or (ii) has duly provided
for all such Taxes in the AMHC Statements. There are no filed Liens with respect
to Taxes (except for Liens for Taxes not yet due and owing) upon any of the
Assets of AMHC or any AMHC Material Insurer Subsidiary.
(b) With respect to any period or portion thereof through each of the
Closing Dates for which Tax Returns have not yet been filed, or for which Taxes
are not yet due or owing, AMHC and each AMHC Material Insurer Subsidiary has
established due and sufficient reserves for the payment of such Taxes in
accordance with SAP and GAAP, as applicable, and such current reserves through
each of the Closing Dates are duly and fully provided for in all material
respects in the AMHC Statements of such Person for the period then ended.
(c) The United States consolidated federal income Tax Returns in which AMHC
and certain of its subsidiaries joined have been examined by the Internal
Revenue Service for taxable years through the year ended December 31, 1992 (and
through the year ended December 31, 1994 with respect to Delta Life and Annuity
Company) 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.
(d) Neither AMHC nor any AMHC Material Insurer Subsidiary has been or is in
violation (or with notice or lapse of time, or both, would be in violation) of
any Applicable Law relating to the payment or withholding of Taxes (including,
without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of
the Code or similar provisions under any foreign laws), other than a violation
which would not reasonably be expected to have a Material Adverse Effect on
AMHC. AMHC and each AMHC Material Insurer Subsidiary has duly and timely
withheld in all material respects from employee salaries, wages and other
compensation and paid over to the appropriate taxing authorities all amounts
required to be so withheld and paid over for all periods under all Applicable
Laws.
(e) As of December 31, 1998, neither AMHC nor any AMHC Material Insurer
Subsidiary had nor, during the period from December 31, 1998 through each of the
Closing Dates will have, any Tax Liability in respect of Taxes to any
policyholder thereof, as applicable, or any of such Person's Affiliates that
resulted or will result from a transaction with an Affiliate prior to each of
the Closing Dates that would require payment after December 31, 1998 which would
reasonably be expected to have a Material Adverse Effect on AMHC.
Section 6.12 Litigation. Schedule 6.12 contains a list of litigation
pending as of the date hereof against AMHC, AmerUs and any Subsidiary thereof
which individually involves a claim or claims for any injunction
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or similar relief or for damages exceeding $500,000 or an unspecified amount of
damages. Except as disclosed in Schedule 6.12, (i) there are no actions, suits,
investigations or proceedings pending or, to the knowledge of AMHC or AmerUs,
threatened, against AMHC or any AMHC Material Subsidiary or its Assets, at law
or in equity, in, before, or by any Person that individually or in the aggregate
have had or would reasonably be expected to have a Material Adverse Effect on
AMHC; (ii) there are no writs, judgments, decrees or similar orders of any
Governmental Entity with competent jurisdiction outstanding against AMHC or any
AMHC Material Subsidiary that individually exceed $100,000 or that individually
or in the aggregate have or would reasonably be expected to have a Material
Adverse Effect on AMHC; and (iii) as of the date hereof, there is no action,
suit, investigation or proceeding pending against, or affecting the properties
of AMHC or any AMHC Material Subsidiary before any court or arbitrator or any
governmental body, agency or official which challenges or seeks to prevent the
transactions contemplated hereby.
Section 6.13 Compliance with Laws. (a) The business of AMHC and the AMHC
Material Insurer Subsidiaries is being conducted in compliance in all material
respects with all Applicable Laws, including, without limitation, all insurance
laws, ordinances, rules, regulations, decrees and orders of any Governmental
Entity, and all notices, reports, documents and other information required to be
filed thereunder within the last three years were properly filed in all respects
and were in compliance in all respects with such laws, except where the failure
to be so conducted or filed or to be in such compliance would not, individually
or in the aggregate, be reasonably expected to have a Material Adverse Effect on
AMHC.
(b) Except where the failure of the following to be true would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect on AMHC, (i) AMHC and the AMHC Material Insurer Subsidiaries have
all Permits the use and exercise of which are necessary for the conduct of its
business as now conducted, (ii) the business of AMHC and the AMHC Material
Insurer Subsidiaries has been and is being conducted in compliance, in all
material respects, with all such Permits, (iii) all such Permits are in full
force and effect, and (iv) there is no proceeding or investigation pending or
threatened which would reasonably be expected to lead to the revocation,
amendment, failure to renew, limitation, suspension or restriction of any such
Permit.
(c) Except as set forth on Schedule 6.13(c), and except where any
inaccuracy in the following would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect, (i) no REO or AMHC and
AmerUs Facilities have been used for the storage, treatment, generation,
transportation, manufacture, processing, handling, production, distribution,
deposit, burial, use or disposal of any Hazardous Substance except in compliance
with Environmental Laws, (ii) neither AMHC nor any AMHC Material Subsidiary has
any liability arising out of or resulting from a release of any Hazardous
Substance on or from any such real estate and (iii) AMHC and each AMHC Material
Subsidiary has complied in all material respects with all applicable
Environmental Laws relating to such real estate and the business and activities
conducted thereon.
Section 6.14 Solvency. AMHC, AmerUs and the AMHC Material Subsidiaries are
solvent and are not financially impaired, such that they would be unable to pay
their debts or to meet their obligations as they mature or such that their
assets do not exceed their liabilities plus the greater of any capital and
surplus required by Applicable Law to be constantly maintained.
Section 6.15 Brokers; Schedule of Fees and Expenses. Merrill Lynch, a copy
of whose engagement agreement has been provided to Indianapolis Life, is
entitled to fees from AMHC in accordance with the provisions of said engagement
agreements by virtue of the transactions contemplated hereby. Except for Merrill
Lynch and any investment bankers or other advisors primarily engaged by AMHC,
AmerUs or their respective Boards of Directors in connection with the AMHC
Demutualization, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
AMHC or any Subsidiary thereof who might be entitled to any fee or commission
upon (i) the execution of this Combination and Investment Agreement, (ii) the
consummation of the transactions contemplated by this Combination and Investment
Agreement, or (iii) the termination of this Combination and Investment
Agreement.
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ARTICLE 7
COVENANTS OF INDIANAPOLIS LIFE AND ILGC
Section 7.1 Conduct of Business of Indianapolis Life and ILGC Prior to the
Combination Closing Date. Indianapolis Life and ILGC each covenant and agree
that, after the date hereof and prior to the Combination Closing Date (unless
AMHC and AmerUs shall otherwise approve in writing, and except as otherwise
expressly contemplated by this Combination and Investment Agreement or the
Investment Management Agreements):
(a) it will, and will cause each of its Subsidiaries to, exercise its
best efforts to maintain itself at all times in all material respects as a
corporation duly organized, validly existing, and duly qualified to conduct
its business;
(b) it will, and will cause each of its Subsidiaries to, conduct its
business in the ordinary course consistent with past practice and in
accordance with sound business practices and it will, and will cause each
of its Subsidiaries to, exercise its best efforts not to commit any act,
and not to fail to take any act, which act or failure to act would
constitute a material breach of or default under any contract, agreement,
plan, lease, policy, or License or which act or failure to act would fail
to comply in any material respects with any Applicable Laws relating to it
and to the conduct of its business which breach, default or failure to
comply would or would be likely to materially and adversely affect the
consummation of the transactions contemplated hereby, it being understood
and agreed that nothing herein shall permit Indianapolis Life or ILGC or
their Subsidiaries to enter into or engage in (through acquisition, product
extension or otherwise) the business of providing any products or services
materially different from existing products or services of Indianapolis
Life, ILGC or their Subsidiaries, as the case may be, or to enter into or
engage in new lines of business without AMHC's and AmerUs' prior written
approval;
(c) it will, and will cause each of its Subsidiaries to, promptly
advise AMHC and AmerUs in writing of any material adverse change in the
condition (financial or otherwise), assets, Liabilities, earnings, or
business of Indianapolis Life or of any of its Subsidiaries or of any
breach, default or failure to comply by such Person of the type referred to
in subparagraph (b) immediately above or of any litigation involving it
which is of such a character as to materially and adversely affect (or
might reasonably be expected to materially and adversely affect) any
Indianapolis Life Company or the consummation of the transactions
contemplated hereby;
(d) to the extent consistent with (b) above it will, and will cause
each of its Subsidiaries to, use its best efforts to preserve its business
organization intact and maintain its existing relations and goodwill with
customers, suppliers, reinsurers, distributors, creditors, lessors,
employees and business associates;
(e) it shall not (i) issue, sell, pledge, dispose of or encumber any
equity ownership interests in any of its Subsidiaries; (ii) amend its
articles of incorporation or by-laws; (iii) authorize, declare, set aside
or pay any policyholder dividend payable in cash or property other than in
the ordinary course of business consistent with past practice and in
accordance with approved dividend plans; or (iv) in the case of ILGC,
authorize, declare, set aside or pay any shareholder dividend except in
accordance with Section 2.2(a) hereof;
(f) with respect to any Indianapolis Life Company, it shall not (i)
issue, sell, pledge, dispose of or encumber any shares of, or securities
convertible into or exchangeable or exercisable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of its
capital stock of any class or any other property or assets, or permit or
cause its Subsidiaries to do the same; (ii) other than in the ordinary and
usual course of business consistent with past practice, transfer, lease,
license, guarantee, sell, mortgage, pledge, dispose of or encumber any
other property or assets or incur or modify any material indebtedness or
other liability, or permit or cause its Subsidiaries to do the same; (iii)
make or authorize or commit to any capital expenditures (including entering
into capital lease obligations) for tangible assets other than as set forth
in Schedule 7.1(f) or in amounts not exceeding $200,000 in the aggregate;
or (iv) by any means, make any acquisition of, or investment in, assets or
stock of any other Person or
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entity, including by way of assumption reinsurance (other than in
connection with ordinary course investment activities); or permit or cause
its Subsidiaries to do any of the foregoing;
(g) it shall not, and shall not permit or cause any of its
Subsidiaries to, pay, discharge, settle or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of claims,
liabilities or obligations legally due and payable and arising in the
ordinary and usual course of business, claims arising under the terms of
products, contracts or policies issued by Indianapolis Life or an
Indianapolis Life Insurer Subsidiary in the ordinary and usual course of
business and such other claims, liabilities or obligations as shall not
exceed $200,000 in the aggregate;
(h) it shall, and it shall cause its Subsidiaries to, (i) prepare
properly and file duly and validly all reports and all Tax Returns required
to be filed with any Governmental Entity with respect to its business,
operations, or affairs and (ii) pay in full and when due all Taxes
indicated by such Tax Returns or otherwise levied or assessed upon it or
any of its Assets, and withhold or collect or pay to the proper taxing
authorities or hold in separate bank accounts for such payment all Taxes
that is required to so withhold or collect and pay, unless reasonable
reserves therefor have been established and reflected in its books and
records;
(i) it shall not, and shall not permit or cause any of its
Subsidiaries to, make or change any tax election, settle any material
audit, file any amended tax returns or permit any insurance policy naming
it as a beneficiary or loss-payable payee to be canceled or terminated
except in the ordinary and usual course of business;
(j) it shall not, and shall not permit or cause any of its
Subsidiaries to, enter into any agreement containing any provision or
covenant limiting in any material respect the ability to (i) sell any
products or services of or to any other Person, (ii) engage in any line of
business or (iii) compete with or to obtain products or services from any
Person or limiting the ability of any person to provide products or
services to a Subsidiary;
(k) it shall not, and shall not permit or cause any of its
Subsidiaries to, terminate, or in any manner material thereto modify, amend
or waive compliance with, any provision of any of the Significant
Agreements other than the employment agreements between Indianapolis Life
and those employees listed on Schedule 7.1(k) hereto, in connection with
entry into new employment agreements as described and set forth on Schedule
7.1(k), and it shall not, and shall not permit or cause any of its
Subsidiaries to, terminate, or in any manner material thereto modify, amend
or waive compliance with, any Company Plan, other than as set forth on
Schedule 7.1(k); and it shall not (i) make any representation or promise,
oral or written, to any employee or agent that is inconsistent with the
terms of any Company Plan, (ii) approve any general or company wide pay
increases for its employees, (iii) make any change to, or amend in any way,
the salaries, wages, or other compensation of any employee whose annual
compensation exceeds $100,000 other than, in the case of clauses (ii) and
(iii), routine changes or amendments that are made in the ordinary course
of business and consistent with past practice and do not and will not
exceed, in the aggregate (including changes under both clauses (ii) and
(iii)), 5% of the total salaries, wages and other compensation of all its
employees;
(l) it shall not, and shall not permit or cause any of its
Subsidiaries to, enter into any new quota share or other reinsurance
transaction other than in the ordinary course of business consistent with
past practice, nor to make any commutation of any reinsurance treaty or
recapture of reinsured business;
(m) it shall not make, or permit or cause any of its Subsidiaries to
make, any investment of Indianapolis Life Assets other than in accordance
with the investment policies set forth in Schedule 4.7(viii);
(n) it shall not, and shall not permit or cause any of its
Subsidiaries to, change any of its or their material accounting principles,
methods or policies (including, without limitation, any reserving methods
or policies) used by it or them, except as may be required as a result of a
change in Applicable Law, GAAP or SAP;
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(o) it shall not, and shall not permit or cause any of its
Subsidiaries to, effect any transactions with any Affiliates, other than
pursuant to arrangements existing as of the date hereof or in the ordinary
course of business consistent with past practice;
(p) it shall not, and shall not permit or cause any of its
Subsidiaries to, take any actions or omit to take any actions that would
cause any of its representations and warranties herein to become untrue in
any material respect or that would, individually or in the aggregate, cause
or reasonably be expected to cause a Material Adverse Effect;
(q) it shall not terminate, cancel or amend any insurance coverage
maintained by it or any of its Subsidiaries with respect to any material
assets which is not replaced by a comparable amount of insurance coverage;
and
(r) it shall not, and shall not permit or cause any of its
Subsidiaries to, authorize or enter into an agreement prohibited by the
foregoing.
Section 7.2 Competing Transaction Proposals. (a) Indianapolis Life and
ILGC, will not, and will not permit or cause any of its officers and directors
to, and shall direct its Representatives not to, and will not permit or cause
any of their Subsidiaries or permit or cause their respective Representatives
to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate
any inquiries or the making of any proposal or offer with respect to (i) a
merger, reorganization, affiliation, sponsored demutualization, share exchange,
consolidation or similar transaction involving, or any purchase of 5% or more of
the assets or any equity securities of, or demutualization or conversion of,
Indianapolis Life, ILGC or any of their Subsidiaries, as the case may be, other
than as expressly required under this Combination and Investment Agreement or as
expressly authorized by AMHC and AmerUs; or (ii) a transaction involving a
pooling or affiliation of the business of either Indianapolis Life, ILGC or any
of their Subsidiaries with another Person or any similar business combination or
restructuring, other than a transaction expressly provided for herein (any of
the foregoing in (i) or (ii), a "Competing Transaction Proposal"). Subject to
Section 7.2(b), Indianapolis Life and ILGC will not, and will not permit or
cause any of their Subsidiaries or any of their respective officers and
directors to, and shall direct its, and shall cause them to direct their,
employees, agents and Representatives not to, directly or indirectly, engage in
any negotiations concerning, or provide any confidential information or data to,
or have any substantive discussions with, any Person relating to a Competing
Transaction Proposal, whether made before or after the date of this Combination
and Investment Agreement, or otherwise facilitate any effort or attempt to make
or implement a Competing Transaction Proposal. Indianapolis Life and ILGC will,
and will cause each of their Subsidiaries to, immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing, and agree that they
will take the necessary steps to promptly inform the individuals or entities
referred to in the first sentence hereof of the obligations undertaken in this
Section 7.2. Indianapolis Life and ILGC will notify AMHC and AmerUs immediately
if any such inquiries, proposals or offers are received by, any such information
is requested from, or any such discussions or negotiations are sought to be
initiated or continued with, any of their Representatives indicating, in
connection with such notice, the name of such Person and the material terms and
conditions of any proposals or offers and thereafter shall keep AMHC and AmerUs
informed, on a current basis, on the status and terms of any such proposals or
offers and the status of any such negotiations or discussions. Indianapolis Life
and ILGC also will promptly request each Person that has heretofore executed a
confidentiality agreement in connection with its consideration of a Competing
Transaction Proposal to return all confidential information heretofore furnished
to such Person by or on behalf of it.
(b) Nothing contained in Section 7.2(a) shall prevent Indianapolis Life or
its Board of Directors from (A) providing information in response to a request
therefor by a Person who has made an unsolicited bona fide written Competing
Transaction Proposal; (B) engaging in any negotiations or discussions with any
Person who has made an unsolicited bona fide written Competing Transaction
Proposal; or (C) recommending such a Competing Transaction Proposal to the
policyholders of Indianapolis Life and/or permitting such policyholders to vote
on such Competing Transaction Proposal, if and only to the extent that, (i) in
each such case referred to in clause (A), (B) or (C) above, the Board of
Directors of Indianapolis Life determines in good faith that the failure to take
such action is reasonably likely to result in a breach of such Board's fiduciary
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duties under, or otherwise violate, Applicable Law; and (ii) in each case
referred to in clause (B) or (C) above, the Board of Directors of Indianapolis
Life determines in good faith that such Competing Transaction Proposal is a
Superior Proposal. Indianapolis Life shall promptly inform AMHC of any actions
taken in reliance on this Section 7.2(b) and shall promptly forward copies of
any documents concerning a Competing Transaction Proposal to AMHC.
(c) For purposes of this Section 7.2, "Superior Proposal" shall mean a
Competing Transaction Proposal which, if accepted by Indianapolis Life, ILGC or
a Subsidiary thereof, is reasonably capable of being consummated, taking into
account all legal, financial and regulatory aspects of the proposal and the
Person making the proposal, and which, if consummated, would result in a more
favorable transaction for Indianapolis Life and its policyholders than the
transaction contemplated by this Combination and Investment Agreement, taking
into account all legal, financial and regulatory aspects of the proposal.
(d) Indianapolis Life shall provide AMHC ten (10) Business Days prior
written notice before any Board of Directors consideration of or the entering
into of any agreement, letter of intent or other arrangement contemplating,
directly or indirectly, a Competing Transaction Proposal or Superior Proposal.
Section 7.3 IL Annuity Business and Capital Stock. Until the purchase or
repurchase of all of the shares of Non-Voting Common Stock or the Converted
Shares, as the case may be, pursuant to Section 2.4 hereof, Indianapolis Life
and ILGC (i) will conduct IL Annuity's business in the ordinary course of such
annuity business, (ii) will not transfer any shares of capital stock or any
other instruments exchangeable into such stock of IL Annuity except as expressly
contemplated by this Combination and Investment Agreement or the Investment
Management Agreements, and (iii) will ensure that the shares of capital stock of
IL Annuity are free and clear of all Liens and are free of any other restriction
on transfer to the Holder (to the extent such transfer is permitted pursuant to
Section 2.1(a) hereof) other than Applicable Law.
Section 7.4 Investment Management Agreements. (a) Indianapolis Life shall,
and Indianapolis Life and ILGC shall cause the Indianapolis Life Insurer
Subsidiaries to, consistent with the terms of the Investment Management
Agreements, terminate and/or amend any agreement under which Indianapolis Life
or a Subsidiary thereof provides investment management services (including
without limitation any services to be provided by AmerUs Capital Management
under the applicable Investment Management Agreement) to any of the Indianapolis
Life Insurer Subsidiaries.
(b) Indianapolis Life shall, and Indianapolis Life and ILGC shall cause the
Indianapolis Life Insurer Subsidiaries to, continue the term of their respective
Investment Management Agreements until all of the shares of Non-Voting Common
Stock and Converted Shares have been purchased by Indianapolis Life and/or
repurchased by ILGC, as the case may be; provided, however, that the foregoing
shall not apply in the event this Combination and Investment Agreement is
terminated pursuant to Section 11.2(d) or 11.4, so long as at least 180 days
prior written notice of termination of such Investment Management Agreements is
given after the applicable Termination Date.
ARTICLE 8
COVENANTS OF AMHC AND AMERUS
Section 8.1 Conduct of Business of AMHC and AmerUs Prior to the Combination
Closing Date. AMHC and AmerUs each covenant and agree that, after the date
hereof and prior to the Combination Closing Date (unless Indianapolis Life and
ILGC shall otherwise approve in writing, and except as otherwise expressly
contemplated by this Combination and Investment Agreement or the Investment
Management Agreements):
(a) it will, and will cause each of the AMHC Material Subsidiaries to,
exercise its best efforts to maintain itself at all times in all material
respects as a corporation duly organized, validly existing, in good
standing, and duly qualified to conduct its business;
(b) it will, and will cause each of the AMHC Material Subsidiaries to
exercise its best efforts to not commit any act, and will not fail to take
any act, which such act or failure to act constitutes a material
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breach of or default under any material contract, agreement, plan, lease,
policy, or License or which fails to comply in any material respects with
any Applicable Laws relating to it and to the conduct of its business which
breach, default or failure to comply would or would be likely to materially
and adversely affect the consummation of the transactions contemplated
hereby;
(c) it will, and will cause each of the AMHC Material Subsidiaries to,
promptly advise Indianapolis Life and ILGC in writing of any material
adverse change in the condition (financial or otherwise), earnings, or
business of AMHC or of any of the AMHC Material Subsidiaries or of any
breach, default or failure to comply by such Person of the type referred to
in subparagraph (b) immediately above or of any litigation involving it
which is of such a character as to materially and adversely affect (or
might reasonably be expected to materially and adversely affect) AMHC or
the AMHC Material Subsidiaries or the consummation of the transactions
contemplated hereby;
(d) to the extent consistent with (b) above it will, and will cause
each of the AMHC Material Subsidiaries to, use its best efforts to preserve
its business organization intact and maintain its existing relations and
goodwill with customers, suppliers and employees;
(e) it shall not, and shall not permit or cause any of the AMHC
Material Subsidiaries to, change any of its or their material accounting
principles, methods or policies (including, without limitation, any
material reserving methods or policies) used by it or them, except as may
be required as a result of a change in Applicable Law, GAAP or SAP;
(f) it shall not, and shall not permit or cause any of its
Subsidiaries to, take any action or omit to take any action that would
cause any of its representations and warranties herein to become untrue in
any material respect or that would, individually or in the aggregate, cause
or reasonably be expected to cause a Material Adverse Effect;
(g) it shall not terminate, cancel or amend any insurance coverage
maintained by it or any of the AMHC Material Subsidiaries with respect to
any material assets which is not replaced by a comparable amount of
insurance coverage or is not necessary, in its reasonable judgment; and
(h) it shall not, and shall not permit or cause any of its
Subsidiaries to, authorize or enter into an agreement prohibited by the
foregoing.
Section 8.2 Indemnification. All rights to indemnification now existing in
favor of employees, directors and officers of Indianapolis Life, ILGC or their
Subsidiaries as provided in the articles of incorporation and bylaws of
Indianapolis Life, ILGC or their Subsidiaries, as the case may be, shall survive
the Combination Effective Time for a period of no less than six (6) years
duration, subject to Applicable Law; provided, further, that the employees,
directors and officers of Indianapolis Life, ILGC or their Subsidiaries shall
also be entitled to all rights to indemnification provided by AMHC or AmerUs to
the fullest extent permitted by Applicable Law and the articles of incorporation
of AMHC or AmerUs.
Section 8.3 No Prohibitive Transactions. AMHC and AmerUs will not, and
will not permit or cause any of their Subsidiaries to, enter into (i) any
merger, reorganization, exchange, consolidation or similar transaction with
another Person (other than with an Affiliate thereof or a party to this
Combination and Investment Agreement), if AMHC, AmerUs or such Subsidiary, as
the case may be, shall not be the continuing or surviving corporation of such
transaction or if the majority of such continuing or surviving corporation's
directors shall not have been affiliated with AMHC, AmerUs or such Subsidiary
(or with an Affiliate thereof or a party to this Combination and Investment
Agreement) prior to the consummation of such merger or consolidation, or (ii)
any transaction involving a reinsurance pooling of the business of either AMHC
or its Subsidiaries with another Person (other than with an Affiliate thereof or
a party to this Combination and Investment Agreement) or any similar business
combination or restructuring, if, in the case of either (i) or (ii) above, such
transaction would prevent AMHC or AmerUs from consummating the transactions
contemplated in this Agreement (any of the foregoing in (i) or (ii), a
"Prohibitive Transaction"). AMHC or AmerUs will notify Indianapolis Life and
ILGC immediately upon determining that a proposal has been made that would, if
consummated, constitute a Prohibitive Transaction, and thereafter shall keep
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Indianapolis Life and ILGC informed, on a current basis, of the status and terms
of any such proposal or offer and the status of any such negotiations or
discussions.
Section 8.4 Compliance with Federal Securities Laws. AMHC shall use
reasonable efforts to (i) take such action necessary to register under the
federal securities laws the issuance of the AMHC Shares to be received by the
policyholders of Indianapolis Life pursuant to the Combination and to maintain
the effectiveness of such registration or (ii) diligently pursue the receipt
from the SEC of assurance that the registration of the issuance of such AMHC
Shares is not required under federal securities laws.
ARTICLE 9
COVENANTS OF AMHC, AMERUS, INDIANAPOLIS LIFE AND ILGC
AMHC, AmerUs, Indianapolis Life and ILGC agree that:
Section 9.1 Reasonable Efforts. Subject to the terms and conditions of
this Combination and Investment Agreement and the Investment Management
Agreements, AMHC, AmerUs, Indianapolis Life and ILGC will use all reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things reasonably necessary or desirable under Applicable Law to
consummate the transactions contemplated hereby. AMHC, AmerUs, Indianapolis Life
and ILGC will promptly prepare and file all applications, notices, consents and
other documents necessary or advisable to obtain the regulatory approvals
specified in Schedules 4.4, 5.1 and 6.4, promptly file all supplements or
amendments thereto and use best efforts to obtain the regulatory approvals
specified in Schedules 4.4, 5.1 and 6.4 as promptly as practicable; provided,
however, that the foregoing shall not require AMHC and AmerUs to submit to any
action or condition by any state insurance regulatory authority other than the
Iowa Commissioner of Insurance that would interfere with or delay the AMHC
Demutualization. AMHC, AmerUs, Indianapolis Life and ILGC will provide each
other and their counsel the opportunity to review in advance and comment on all
such filings. AMHC, AmerUs, Indianapolis Life and ILGC will keep each other
informed of the status of matters relating to obtaining the regulatory approvals
specified in Schedules 4.4, 5.1 and 6.4.
Section 9.2 Notices of Certain Events. Each party shall, and shall cause
its Subsidiaries to, promptly notify the other party of:
(a) any notice or other communication received from any Person
alleging that the consent of such Person is or may be required in
connection with the transactions contemplated hereby;
(b) any notice or other communication received relating to the
transactions contemplated hereby and any other significant notices or other
communications from any Governmental Entity; and
(c) any actions, suits, claims, investigations or proceedings
commenced or, to such party's knowledge, threatened against, relating to or
involving or otherwise affecting such party that, if pending on the date of
this Combination and Investment Agreement, would have been required to have
been disclosed pursuant to Section 9.2 or that relate to and/or affect the
consummation of the transactions contemplated hereby.
Section 9.3 Cooperation. Indianapolis Life, ILGC, AMHC and AmerUs shall
cooperate with one another (i) in determining whether any action by or in
respect of, or filing with, any Governmental Entity is required, or any actions,
consents, approvals or waivers are required to be obtained from parties to any
contracts, in connection with the consummation of the transactions contemplated
hereby; (ii) in taking such reasonable actions or making any such filings,
furnishing information required in connection therewith and reasonably seeking
to obtain in timely fashion any such actions, consents, approvals or waivers;
and (iii) in making any presentation to, or responding to any inquiry relating
to a transaction contemplated hereby from, a rating agency or organization. It
is expressly understood by the parties hereto that the Representatives of AMHC,
AmerUs, Indianapolis Life and ILGC shall have the right to attend and
participate in any hearing, proceeding, meeting, conference or similar event
before or with a Governmental Entity or rating agency or other organization
relating to this Combination and Investment Agreement and/or the transactions
contemplated herein. In furtherance of the foregoing, AMHC, AmerUs, Indianapolis
Life and ILGC shall provide
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each other reasonable advance notice of any such hearing, proceeding, meeting,
conference or similar event. The notice required to be given under this Section
9.3 shall be given to the Representatives of Indianapolis Life and ILGC or AMHC
and AmerUs entitled to receive notices hereunder, or such other individuals as
AMHC and AmerUs or Indianapolis Life and ILGC, as the case may be, shall
designate.
Section 9.4 Public Announcements; Confidentiality. (a) The parties agree
to consult with each other before issuing any press release or making any public
statement with respect to this Combination and Investment Agreement or the
Investment Management Agreements or the transactions contemplated hereby and,
except as may be required by Applicable Law, will not make any such public
statement prior to such consultation.
(b) AMHC and AmerUs, on the one hand, and Indianapolis Life and ILGC, on
the other, acknowledge that they will in connection with the performance of this
Combination and Investment Agreement receive confidential and proprietary
information concerning the business and operations of each other. Any of such
parties providing information to another of such parties shall be referred to as
a "Furnishing Party," and any of such parties receiving information from such
Furnishing Party shall be referred to as a "Receiving Party." As a condition to
such information being provided by a Furnishing Party to a Receiving Party or
its Representatives, the Receiving Party agrees to treat any information
provided by the Furnishing Party, or any Representatives, whether before or
after the date of this Combination and Investment Agreement, by or on behalf of
the Furnishing Party (herein collectively referred to as the "Confidential
Material") in accordance with the provisions of this Section 9.4 and to take or
abstain from taking certain other actions herein set forth. The term
"Confidential Material" also shall be deemed to include all notes, analyses,
compilations, studies, interpretations or other documents prepared by a
Receiving Party or its Representatives, which contain, reflect or are based
upon, in whole or in part, the information provided by a Furnishing Party or its
Representatives pursuant hereto. The term "Confidential Material" does not
include information which (i) is already in the Receiving Party's possession,
provided that such information is not known by the Receiving Party to be subject
to another confidentiality agreement with or other obligation of secrecy to the
Furnishing Party or another person; or (ii) is or becomes generally available to
the public other than as a result of a disclosure by the Receiving Party or its
Representatives; or (iii) becomes available to a Receiving Party on a
non-confidential basis from a source other than the Furnishing Party or its
Representatives, provided that such source is not known by the Receiving Party
to be bound by a confidentiality agreement with or other obligation of secrecy
to the Furnishing Party or another Person.
(c) The Receiving Party hereby agrees that the Confidential Material will
be used solely for the purpose of performing its obligations under, and acts
contemplated by, this Combination and Investment Agreement, and that the
Confidential Material will be kept confidential and that the Receiving Party and
its Representatives will not disclose any of the Confidential Material in any
manner whatsoever, provided, however, that (i) any of such information may be
disclosed to a Receiving Party's Representatives who need to know such
information for the purpose of performing such Receiving Party's obligations
under, or acts contemplated by, the Combination and Investment Agreement (it
being understood that such Representatives shall be informed by such Receiving
Party of the confidential nature of such information and shall be directed by
such Receiving Party to treat such information confidentially and shall agree to
be bound by the terms hereof to the same extent as if they were parties hereto),
and (ii) any disclosure of such information may be made to which the Furnishing
Party consents in writing. In any event, the Receiving Party shall be
responsible for any breach of this Section 9.4 by any of its Representatives,
and such Receiving Party agrees, at its sole expense, to take all reasonable
measures (including but not limited to court proceedings) to restrain its
Representatives from prohibited or unauthorized disclosure or use of the
Confidential Material.
(d) In the event that a Receiving Party or any person to whom such
Receiving Party transmits any Confidential Material in accordance with this
Section 9.4 is requested or required (by deposition, interrogatories, requests
for information or documents in legal proceedings, subpoenas, regulatory
request, civil investigative demand or similar process), to disclose any
Confidential Material, such Receiving Party shall provide the Furnishing Party
prompt notice of such request or requirement so that the Furnishing Party may
seek an appropriate protective order or other remedy. In the event that such
protective order or other remedy is not obtained, the Receiving Party shall (i)
furnish only the portion of the Confidential Material which such
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Receiving Party deems necessary to disclose and (ii) upon the Furnishing Party's
request, use all reasonable efforts to obtain assurances that confidential
treatment will be accorded to such information. In no event shall disclosure of
Confidential Material in response to such request or requirement in accordance
with this Section 9.4(d) be deemed a breach of this Section 9.4 by a Receiving
Party or result in any liability to such Receiving Party. Nothing in this
Section 9.4 shall prohibit any party, after reasonable advance notice to the
Furnishing Party, from disclosing Confidential Material which, in the opinion of
counsel for the Receiving Party, is required to be disclosed in compliance with
any Applicable Laws. Confidential Material may be disclosed in an action or
proceeding brought by a party hereto in pursuit of its rights or in the exercise
of its remedies hereunder, provided that such party shall use such reasonable
efforts to maintain the confidentiality of the Confidential Material as may not
inhibit its ability to enforce such rights or remedies, including without
limitation requesting confidential treatment from any court.
(e) Indianapolis Life and ILGC acknowledge that they are both are aware,
and agree to advise their Representatives who are informed as to the matters
which are the subject of this Combination and Investment Agreement, that the
United States securities laws prohibit any Person who has material, nonpublic
information concerning the subject of this Combination and Investment Agreement
or AmerUs, which is publicly traded, or AMHC which will be publicly traded after
the AMHC Demutualization, from purchasing or selling securities of AmerUs or
AMHC, or from communicating any nonpublic information about AmerUs, AMHC or the
subject of this Combination and Investment Agreement to any other Person under
circumstances in which it is reasonably foreseeable that such Person is likely
to purchase or sell such securities. Furthermore, each party hereto agrees that,
for a period of one year from any Termination Date, unless specifically invited
in writing by the Board of Directors of another party hereto, such first party
will not in any manner, directly or indirectly, effect or seek, offer or propose
(whether publicly or otherwise) to effect, or participate in or in any way
assist any other Person to effect or seek, offer or propose (whether publicly or
otherwise) to effect or participate in any acquisition of any securities (or
beneficial ownership thereof) of such other party or any of its affiliates.
(f) In the event this Combination and Investment Agreement is terminated,
each Receiving Party shall promptly deliver to the appropriate Furnishing Party
any Confidential Material received from such Furnishing Party or destroy all
written Confidential Material and any other written material containing or
reflecting any information in the Confidential Material (whether prepared by the
Receiving Party, its Representatives or otherwise) and will not retain any
copies, extracts or other reproductions in whole or in part of such written
material. All documents, memoranda, notes and other writings whatsoever prepared
by the Receiving Party or its Representatives based on the information in the
Confidential Material shall be returned or destroyed. To the extent a Receiving
Party elects to destroy any Confidential Material, such destruction shall be
certified in writing to the appropriate Furnishing Party by an authorized
officer supervising such destruction. All Confidential Material not destroyed
shall be returned to the appropriate Furnishing Party. Notwithstanding the
return or destruction of the Confidential Material, the Receiving Party and its
Representatives will continue to be bound by their obligation of confidentiality
and other obligations hereunder.
(g) Until the earliest of (i) the Combination Closing Date, or (ii)
eighteen months from the Termination Date, neither AMHC or AmerUs, on the one
hand, nor Indianapolis Life or ILGC, on the other, shall, without the prior
written consent of such other parties, specifically target for solicitation for
employment or other contractual relationship any individual who is known to be
an officer, executive, manager or agent of one of such other parties or any of
their Subsidiaries; provided, however, that the use of advertisements in
publications or on-line and hiring as a result thereof shall not be deemed a
violation of this paragraph.
(h) It is further understood that any violation of this Section 9.4 could
result in irreparable damage. Accordingly, it is agreed that money damages would
not be a sufficient remedy for any breach of this Section 9.4 and that the
Furnishing Party (or the party whose officer, executive, manager or agent is
targeted for solicitation in violation of Section 9.4(g) hereof) shall be
entitled to equitable relief, including an injunction and specific performance,
as a remedy for any such breach. Such remedies shall not be deemed to be the
exclusive remedies for a breach of this Section 9.4, but shall be in addition to
all other remedies available at law or equity.
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Section 9.5 Supplemental Disclosure. Each of Indianapolis Life, ILGC, AMHC
and AmerUs shall have the continuing obligation promptly to advise the other
with respect to (i) any material matter hereafter arising and (ii) any material
matter hereafter discovered which, in the case of a matter being disclosed
pursuant to clause (i) hereof if existing at the date hereof or, in the case of
a matter being disclosed pursuant to clause (ii) hereof, if known at the date
hereof would have been required to be set forth or described in the respective
Schedules provided by them (provided, however, that AMHC and AmerUs shall be
deemed to have so advised Indianapolis Life and ILGC of any matter disclosed in
an AmerUs Filed SEC Document after the date hereof); provided, however, that for
the purpose of the rights and obligations of the parties hereunder, any such
supplemental or amended disclosure by any party shall not be deemed to have been
disclosed as of the date hereof, or constitute part of, or an amendment or
supplement to, such party's Schedules or cure any breach or inaccuracy of a
representation or warranty unless so agreed to in writing by the other party. If
prior to either of the Closing Dates, Indianapolis Life, ILGC, AMHC or AmerUs
becomes aware of a breach or inaccuracy of a representation or warranty made by
it herein, such party shall use its best efforts to cure such breach or
inaccuracy as promptly as practicable; provided, however, that no such cure will
relieve such party of any liability for such breach or inaccuracy.
Section 9.6 Access to Information. From the date hereof until the date all
of the shares of Non-Voting Common Stock and Converted Shares, as the case may
be, are purchased by Indianapolis Life or repurchased by ILGC, as the case may
be, subject to any applicable contractual restrictions and applicable legal
privileges, and to the extent Applicable Law would not thereby be violated, each
party hereto will (i) give, and will cause their Subsidiaries to give, each
other party, its counsel, financial advisors, auditors and other authorized
Representatives full access, upon reasonable prior notice and during normal
business hours, to their offices, properties, books and records, (ii) furnish,
and will cause their Subsidiaries to furnish, to each other party, its counsel,
financial advisors, auditors and other authorized Representatives such financial
and operating data and other information as such persons may reasonably request
and (iii) instruct their and their Subsidiaries' employees, counsel and
financial advisors to cooperate with each other party in relation to the
transactions contemplated hereby; provided that, to the extent contractual
restrictions limit a party's ability to take any of the actions set forth in
this paragraph, such party shall use its best efforts to obtain any necessary
contractual consent or accommodate any reasonable request by the other parties
with respect to such action by alternative means and provided, further, that to
the extent applicable legal privileges or Applicable Laws limit a party's
ability to take any of the actions set forth in this paragraph, such party shall
use reasonable efforts to accommodate any reasonable request by the other
parties with respect to such action by alternative means.
Section 9.7 Information Provided. From the date hereof until all of the
shares of Non-Voting Common Stock or Converted Shares, as the case may be, have
been purchased by Indianapolis Life or repurchased by ILGC, as the case may be,
each of the parties shall use all reasonable efforts to provide, on a timely
basis and upon reasonable request, accurate and complete information in their
possession for development of or inclusion in the other party's Member
Information Statement and/or in any other documents, including SEC filings,
reasonably necessary to obtain approvals in connection with consummation of the
transactions contemplated herein or otherwise required in connection with the
business of such other party. Indianapolis Life and ILGC understand and agree
that (i) all unaudited Indianapolis Life Financial Statements on a GAAP basis
(which shall, for purposes of these time periods only, consist of the balance
sheet and income statement) shall be provided to AMHC and AmerUs within the
following time periods: (A) for the first quarter of 2000, the Indianapolis Life
Financial Statements shall be provided on or before May 3, 2000; (B) for the
second quarter of 2000, the Indianapolis Life Financial Statements shall be
provided within 20 Business Days after the end of such calendar quarter; and (C)
for each quarterly and annual period thereafter, the Indianapolis Life Financial
Statements shall be provided within 20 days after the end of each calendar
quarter; and (ii) all unaudited Indianapolis Life Financial Statements on a SAP
basis shall be provided to AMHC and AmerUs within seven (7) days after the due
dates for the GAAP Financial Statements for the respective periods as set forth
in this Section 9.7. The party furnishing such information shall be solely
responsible for any untrue statement of a material fact or omission to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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Section 9.8 Board Representation Until Final Purchase or Repurchase. The
parties shall, subject to Applicable Law, cause a designee of AMHC to serve on
the ILGC Board of Directors until all of the shares of Non-Voting Common Stock
or Converted Shares, as the case may be, have been purchased by Indianapolis
Life or repurchased by ILGC, as the case may be.
ARTICLE 10
CONDITIONS TO CLOSING OF THE COMBINATION
Section 10.1 Conditions to Obligations of AMHC, AmerUs, Indianapolis Life
and ILGC. The obligations of the parties to consummate the Combination Closing
are subject to the satisfaction of the following conditions:
(i) Any applicable waiting period under the HSR Act relating to the
Combination shall have expired or been terminated.
(ii) All other Permits, clearances, regulatory consents, and
Governmental Entity, policyholder and shareholder approvals, as applicable,
that are necessary for the consummation of the Combination Closing shall
have been obtained, and no provision of any Applicable Law shall prohibit
the consummation of the Combination Closing.
(iii) All material consents, approvals or waivers of all
non-governmental Persons necessary for the consummation of the Combination
Closing shall have been obtained.
(iv) There shall not be in effect any temporary restraining order,
preliminary injunction or permanent injunction or other order issued by any
court of competent jurisdiction preventing the consummation of the
transactions contemplated hereby; provided that the party invoking this
condition shall have used its best efforts to have such order or injunction
vacated.
(v) Each other document necessary for consummation of the transactions
contemplated hereby shall have been executed and delivered by the parties
thereto in the form attached hereto together with such amendments as may
have been approved by the parties, and, to the extent not attached hereto,
in a form reasonably acceptable to the parties, and the conditions herein
and therein have been satisfied.
(vi) This Combination and Investment Agreement and the Investment
Management Agreements shall be in full force and effect.
Section 10.2 Conditions to Obligation of AMHC and AmerUs. The obligation
of AMHC and AmerUs to consummate the Combination Closing is subject to the
satisfaction of the following further conditions:
(i) All Permits, regulatory consents, approvals or clearances
necessary for or in connection with the consummation of the Combination
Closing shall have been obtained, and no Governmental Entity having
jurisdiction over the business of AMHC or its Subsidiaries or any of the
Indianapolis Life Companies shall have imposed any condition to such
approval, other than conditions that involve solely ministerial acts and/or
routine reporting requirements and/or entry into a commitment agreement
substantially identical to the letter dated June 15, 1995 captioned
"Commitment Agreement to the New York Insurance Department" from
Indianapolis Life and Bankers Life.
(ii) (A) Indianapolis Life and ILGC shall have performed in all
material respects all of their obligations hereunder required to be
performed by them on or prior to the Combination Closing Date, (B) the
representations and warranties of Indianapolis Life and ILGC contained in
this Combination and Investment Agreement shall be true at and as of the
Combination Closing Date, as if made at and as of such date, except where
the failure of such representations and warranties to be true has not had
and would not reasonably be expected to have a Material Adverse Effect, and
(C) AMHC and AmerUs shall have received certificates, in the forms attached
as Schedules 10.2(ii)(A) and (B), signed by the Chief Executive Officers
and Chief Financial Officers of Indianapolis Life and ILGC to the effect
that the foregoing conditions have been satisfied.
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(iii) AMHC and AmerUs shall have received certificates signed by the
corporate secretaries or assistant corporate secretaries of Indianapolis
Life and ILGC certifying as to: the Articles of Incorporation and By-Laws
of Indianapolis Life and ILGC, and that the resolutions (true and complete
copies of which shall be attached to the certificate) of the Boards of
Directors of Indianapolis Life and ILGC with respect to the Combination and
the transactions contemplated thereby have been duly and validly adopted
and are in full force and effect.
(iv) AMHC and AmerUs shall have received all documents it may
reasonably request relating to the existence of Indianapolis Life and ILGC
and the authority of Indianapolis Life and ILGC for this Combination and
Investment Agreement and the Investment Management Agreements, all in form
and substance reasonably satisfactory to AMHC and AmerUs.
(v) The Plan of Conversion shall satisfy the provisions of Section
3.5(a).
(vi) Since the date of this Combination and Investment Agreement,
there shall not have been any events, occurrences, developments or state of
circumstances or facts which, individually or in the aggregate, have had or
would reasonably be expected to have a Material Adverse Effect on
Indianapolis Life.
(vii) No Governmental Entity or third party shall have commenced any
proceeding seeking a temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the transactions
contemplated hereby, or damages other than any such proceeding which, in
the judgment of AMHC and AmerUs, would not be reasonably likely to
materially interfere with the consummation of the transactions contemplated
hereby; provided that, if applicable, AMHC and AmerUs shall have used their
reasonable best efforts to have such proceeding dismissed or terminated.
(viii) AMHC and AmerUs shall have received reasonably acceptable
opinions of tax counsel, dated as of the Combination Closing Date, or
rulings from the Internal Revenue Service, that the Combination effected
pursuant to the Plan of Conversion will be effected on a tax free basis to
AMHC and AmerUs.
(ix) A.M. Best Company, Inc. shall not have informed any of the
Indianapolis Life Companies or otherwise announced that it will make a
reduction in the ratings of Indianapolis Life, Bankers Life or IL Annuity
if the Combination is consummated or for any other reason, where such
reduction would or would reasonably be expected to constitute a Material
Adverse Effect.
(x) AMHC and AmerUs shall have received from counsel for Indianapolis
Life and ILGC an opinion dated the Combination Closing Date, substantially
in the form set forth in Schedule 10.2(x) hereto.
(xi) AMHC designees shall have been elected to the Board of Directors
of Indianapolis Life, to be effective upon the Combination Effective Time,
in accordance with Section 3.7(b) hereof.
(xii) AMHC shall either (i) have received from the SEC reasonable
assurance that the issuance of the AMHC Shares to the policyholders of
Indianapolis Life pursuant to the Combination may be accomplished without
registration of such AMHC Shares under the federal securities laws or (ii)
have in effect a registration statement covering issuance of such AMHC
Shares.
Section 10.3 Conditions to Obligation of Indianapolis Life and ILGC. The
obligation of Indianapolis Life and ILGC to consummate the Combination Closing
is subject to the satisfaction of the following further conditions:
(i) All Permits, regulatory consents, approvals or clearances
necessary for or in connection with the consummation of the Combination
Closing shall have been obtained, and no Governmental Entity having
jurisdiction over the business of the Indianapolis Life and ILGC shall have
imposed any condition to such approval which would materially and adversely
affect the aggregate value of the AMHC Shares, cash and policy credits to
be received by Eligible Members of Indianapolis Life upon consummation of
the Combination or the authority of AMHC to carry out the transactions
contemplated hereby.
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(ii) (A) AMHC and AmerUs shall have performed in all material respects
all of their obligations hereunder required to be performed by them on or
prior to the Combination Closing Date, (B) the representations and
warranties of AMHC and AmerUs contained in this Combination and Investment
Agreement shall be true at and as of the Combination Closing Date, as if
made at and as of such date, except where the failure of such
representations and warranties to be true has not had and would not
reasonably be expected to have a Material Adverse Effect and (C)
Indianapolis Life and ILGC shall have received a certificate, in the form
attached as Schedule 10.3(ii), signed by the Chief Executive Officer and
Chief Financial Officer of AMHC to the effect that the foregoing conditions
have been satisfied.
(iii) Indianapolis Life and ILGC shall have received certificates
signed by the corporate secretary or assistant corporate secretary of AMHC
certifying as to: the Articles of Incorporation and By-Laws of AMHC and
AmerUs, and that the resolutions (true and complete copies of which shall
be attached to the certificate) of the Boards of Directors of AMHC and
AmerUs with respect to the Combination and the transactions contemplated
thereby have been duly and validly adopted and are in full force and
effect.
(iv) Indianapolis Life and ILGC shall have received all documents they
may reasonably request relating to the existence of AMHC and AmerUs and the
authority of AMHC and AmerUs for this Combination and Investment Agreement
and the Investment Management Agreements, all in form and substance
reasonably satisfactory to Indianapolis Life and ILGC.
(v) Since the date of this Combination and Investment Agreement, there
shall not have been any events, occurrences, developments or state of
circumstances or facts which, individually or in the aggregate, have had or
would reasonably be expected to have a Material Adverse Effect on AMHC.
(vi) No Governmental Entity or third party shall have commenced any
proceeding seeking a temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the transactions
contemplated hereby, or damages other than any such proceeding which, in
the judgment of Indianapolis Life and ILGC, would not be reasonably likely
to materially interfere with the consummation of the transactions
contemplated hereby; provided that, if applicable, Indianapolis Life and
ILGC shall have used their reasonable best efforts to have such proceeding
dismissed or terminated.
(vii) Indianapolis Life and ILGC shall have received reasonably
acceptable opinions of tax counsel, dated as of the Combination Closing
Date, or rulings from the Internal Revenue Service, that the Combination
effected pursuant to the Plan of Conversion will be effected (i) on a tax
free basis to Indianapolis Life and the Indianapolis Life policyholders
receiving only AMHC Shares and (ii) with respect to individual retirement
accounts and individual retirement annuities (within the meaning of Code
Section 408), tax sheltered annuities governed by Code Section 403(b) and
"employee benefit plans" (within the meaning of Section 3(3) of ERISA), in
such a manner that it does not adversely affect the compliance thereof with
the applicable requirements of ERISA or the Code.
(viii) Indianapolis Life and ILGC shall have received from counsel for
AMHC and AmerUs an opinion dated the Combination Closing Date,
substantially in the form set forth in Schedule 10.3(viii) hereto.
(ix) A.M. Best Company, Inc. shall not have informed AMHC or any of
the AMHC Insurer Subsidiaries or otherwise announced that it will make a
reduction in the ratings of AmerUs Life or American Investors Life if the
Combination is consummated or for any other reason, where such reduction
would or would reasonably be expected to have a Material Adverse Effect.
(x) The AMHC Demutualization shall have occurred pursuant to the AMHC
Plan in accordance with Section 3.6(a).
(xi) The IL/AmerUs Directors shall have been elected to the Board of
Directors of AMHC and the Chief Executive Officer of Indianapolis Life
shall have been elected Vice Chairman of the AMHC Board of Directors, in
accordance with Section 3.7(a) hereof, to be effective upon the Combination
Effective Time.
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(xii) The Chief Executive Officer of AMHC shall have delivered to the
Chief Executive Officer of Indianapolis Life a Post-Combination Plan which
provides detail in addition to the essential terms set forth in the
Memorandum of Understanding and which is not, except to the extent
expressly otherwise agreed by the Chief Executive Officer of Indianapolis
Life, materially inconsistent with the Memorandum of Understanding.
ARTICLE 11
TERMINATION
Section 11.1 Termination Due to Third Party Offer. This Combination and
Investment Agreement may be terminated at any time prior to the Combination
Closing:
(a) by AMHC or AmerUs if the Board of Directors of Indianapolis Life,
in any way directly or indirectly, in connection with any Competing
Transaction Proposal, withdraws or modifies in a manner adverse to AMHC or
AmerUs a recommendation with respect to the Combination, recommends such a
Competing Transaction Proposal or votes to permit the Indianapolis Life
policyholders to consider such a Competing Transaction Proposal; or
(b) by AMHC or AmerUs if Indianapolis Life or ILGC enters into an
agreement, letter of intent or other arrangement contemplating the
effectuation of, directly or indirectly, a Competing Transaction Proposal
(provided, however, that if Indianapolis Life and ILGC comply with the last
sentence of Section 7.2(b), entry into a confidentiality agreement in
connection with a Superior Proposal as provided in Section 7.2(b) hereof
shall not in itself constitute a basis for termination under this Section
11.1(b)); or
(c) by AMHC or AmerUs if a third party obtains the right to elect a
majority of the Board of Directors of Indianapolis Life or ILGC or the
right to control 10% or more of the voting shares of capital stock of ILGC
or any of its Subsidiaries; or
(d) by Indianapolis Life or ILGC if the Board of Directors of
Indianapolis Life resolves to accept a Superior Proposal.
Section 11.2 Termination Due to Uncontrollable Event; Termination by Mutual
Agreement. This Combination and Investment Agreement may be terminated at any
time prior to the Combination Closing:
(a) by any party hereto, if consummation of the Combination Closing
becomes prohibited under any Applicable Law, and all rights of appeal with
respect thereto shall have been exhausted; or
(b) by any party hereto, if a party, as applicable, fails to obtain
any requisite policyholder, shareholder or Governmental Entity approval
necessary to consummate the Combination Closing, provided, however, that a
party may not exercise the right to terminate this Combination and
Investment Agreement under this subsection 11.2(b) if it shall not have in
good faith used all reasonable efforts to consummate the Combination
Closing; or
(c) by any party hereto, if the Combination Closing shall not have
been consummated on or before June 30, 2001, unless extended by mutual
agreement of the parties; or
(d) by Indianapolis Life or ILGC, if, except as contemplated herein,
(i)(A) AMHC accepts an offer or otherwise agrees to enter into, directly or
indirectly, a merger or consolidation with another Person (other than an
Affiliate of AMHC), in which AMHC would not be the continuing or surviving
corporation of such consolidation or merger and the majority of such
continuing or surviving corporation's directors would not have been
affiliated with AMHC prior to the consummation of such merger or
consolidation, or (B) AMHC sells or otherwise transfers (other than to an
Affiliate of AMHC) substantially all of its assets (in either case, an
"AMHC Control Event") and (ii) such AMHC Control Event is not reasonably
acceptable to Indianapolis Life; or
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(e) by AMHC or AmerUs, if there has been a material breach by
Indianapolis Life and ILGC of any representation, warranty, covenant or
agreement contained in this Combination and Investment Agreement that is
not curable or, if curable, is not cured within 30 days after written
notice of such breach is given by AMHC or AmerUs to Indianapolis Life and
ILGC, which material breach would not be construed by a reasonable Person
to have been within the control of Indianapolis Life, ILGC or a Subsidiary
thereof; provided, however, that AMHC and AmerUs shall not exercise their
termination right under this Section 11.2(e) for breach of any
representation or warranty that occurs after the date hereof unless the
events, occurrences, developments or state of circumstances or facts that
constitute such breach have had or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Indianapolis
Life; or
(f) by AMHC or AmerUs if there shall have been any events,
occurrences, developments or state of circumstances or facts which would
not be construed by a reasonable Person to have been within the control of
an Indianapolis Life Company and which, individually or in the aggregate,
(i) have had a Material Adverse Effect with respect to Indianapolis Life or
(ii) would reasonably be expected to have such a Material Adverse Effect,
on both the date an initial notice thereof is given by AMHC or AmerUs to
Indianapolis Life and on the earlier of (A) the date 120 days following the
date of such initial notice or (B) June 20, 2001; or
(g) by Indianapolis Life or ILGC, if there has been a material breach
by AMHC and AmerUs of any representation, warranty, covenant or agreement
contained in this Combination and Investment Agreement that is not curable
or, if curable, is not cured within 30 days after written notice of such
breach is given by Indianapolis Life or ILGC to AMHC and AmerUs, which
breach would not be construed by a reasonable Person to have been within
the control of AMHC, AmerUs or a Subsidiary thereof; provided, however,
that Indianapolis Life and ILGC shall not exercise their termination right
under this Section 11.2(g) for breach of any representation or warranty
that occurs after the date hereof unless the events, occurrences,
developments or state of circumstances or facts that constitute such breach
have had or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on AMHC; or
(h) by Indianapolis Life or ILGC if there shall have been any events,
occurrences, developments or state of circumstances or facts which would
not be construed by a reasonable Person to have been within the control of
AMHC, AmerUs or a Subsidiary thereof and which, individually or in the
aggregate, (i) have had a Material Adverse Effect with respect to AMHC or
(ii) would reasonably be expected to have such a Material Adverse Effect,
on both the date an initial notice thereof is given by Indianapolis Life or
ILGC to AMHC and on the earlier of (A) the date 120 days following the date
of such initial notice or (B) June 20, 2001; or
(i) by Indianapolis Life, by giving a Termination Notice to AMHC at
least six (6) Business Days prior to the Combination Closing Date, if the
aggregate value of the AMHC Shares, cash and policy credits projected to be
received (calculated as described below) by the Indianapolis Life members
as of the Combination Effective Time is less than $215 million, provided,
however, that such Termination Notice shall be null and void in the event
that AMHC agrees, within five (5) Business Days after receipt of such
Termination Notice under this Section 11.2(i), to increase the number of
AMHC Shares and/or the amount of cash and policy credits to be delivered so
that the aggregate value of such AMHC Shares, cash and policy credits
provided to such members (calculated as described below) equals $215
million (using, for purposes of determining the value of the AMHC Shares as
referenced in this Section 11.2(i), the average daily closing price of the
AMHC Shares over the five (5) Trading Days ending ten (10) Business Days
prior to the Combination Closing Date); or
(j) by mutual written agreement of Indianapolis Life and ILGC and AMHC
and AmerUs.
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Section 11.3 Termination Due to Act Within the Control of Indianapolis
Life. This Combination and Investment Agreement may be terminated at any time
prior to the Combination Closing:
(a) by AMHC or AmerUs, if there has been a material breach by
Indianapolis Life or ILGC of any representation, warranty, covenant or
agreement contained in this Combination and Investment Agreement that is
not curable or, if curable, is not cured within 30 days after written
notice of such breach is given by AMHC or AmerUs to Indianapolis Life and
ILGC, which breach would be construed by a reasonable Person to have been
within the control of Indianapolis Life, ILGC or a Subsidiary thereof;
provided, however, that AMHC and AmerUs shall not exercise their
termination right under this Section 11.3(a) for breach of any
representation or warranty that occurs after the date hereof unless the
events, occurrences, developments or state of circumstances or facts that
constitute such breach have had or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Indianapolis
Life; or
(b) by AMHC or AmerUs if there shall have been any events,
occurrences, developments or state of circumstances or facts which would be
construed by a reasonable Person to have been within the control of an
Indianapolis Life Company and which, individually or in the aggregate, (i)
have had a Material Adverse Effect with respect to Indianapolis Life, or
(ii) would reasonably be expected to have such a Material Adverse Effect,
on both the date an initial notice thereof is given by AMHC or AmerUs to
Indianapolis Life and on the earlier of (A) the date 120 days following the
date of such initial notice or (B) June 20, 2001; or
(c) by AMHC or AmerUs, if there has been a material breach of a
representation or warranty by Indianapolis Life or ILGC and any individual
listed on Schedule 1.1(i) hereto had actual knowledge of the material
breach of such representation or warranty as of the Stock Purchase Closing
Date (irrespective of whether such breach is within the control of
Indianapolis Life, ILGC or a Subsidiary thereof, and without limiting the
rights of AMHC and AmerUs under Section 11.3(a) or (b) hereof).
Section 11.4 Termination Due to Act Within the Control of AMHC. This
Combination and Investment Agreement may be terminated at any time prior to the
Combination Closing:
(a) by Indianapolis Life or ILGC, if there has been a material breach
by AMHC or AmerUs of any representation, warranty, covenant or agreement
contained in this Combination and Investment Agreement that is not curable
or, if curable, is not cured within 30 days after written notice of such
breach is given by Indianapolis Life or ILGC to AMHC and AmerUs, which
breach would be construed by a reasonable Person to be within the control
of AMHC, AmerUs or a Subsidiary thereof; provided, however, that
Indianapolis Life and ILGC shall not exercise their termination right under
this Section 11.4(a) for breach of any representation or warranty that
occurs after the date hereof unless the events, occurrences, developments
or state of circumstances or facts that constitutes such breach has had or
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on AMHC; or
(b) by Indianapolis Life or ILGC if there shall have been any events,
occurrences, developments or state of circumstances or facts which would be
construed by a reasonable Person to be within the control of AMHC, AmerUs
or a Subsidiary thereof and which, individually or in the aggregate, (i)
have had a Material Adverse Effect with respect to AMHC or (ii) would
reasonably be expected to have such a Material Adverse Effect, on both the
date an initial notice thereof is given by Indianapolis Life or ILGC to
AMHC and on the earlier of (A) the date 120 days following the date of such
initial notice or (B) June 20, 2001; or
(c) by Indianapolis Life or ILGC, if there has been a material breach
of a representation or warranty by AMHC or AmerUs and any individual listed
on Schedule 1.1(ii) hereto had actual knowledge of the material breach of
such representation or warranty as of the Stock Purchase Closing Date
(irrespective of whether such breach is within the control of AMHC, AmerUs
or a Subsidiary thereof, and without limiting the rights of Indianapolis
Life and ILGC under Section 11.4(a) or (b) hereof).
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Section 11.5 Failure to File Plan of Conversion. This Combination and
Investment Agreement may be terminated at any time prior to the Combination
Closing by AMHC or AmerUs if the Plan of Conversion complying with Section
3.5(a) hereof is not filed with the Indiana Commissioner because the Board of
Directors of Indianapolis Life, for any reason, has not adopted a resolution
proposing such Plan of Conversion by October 1, 2000 (including without
limitation due to failure to receive a fairness or actuarial opinion). If the
Plan of Conversion complying with Section 3.5(a) hereof is not filed with the
Indiana Commissioner for any other reason not specified in the first sentence of
this Section 11.5, or if it is withdrawn, amended, modified or terminated except
as expressly permitted under Section 3.5(a), or if there is a breach of a
covenant, agreement or other provision of Section 3.5(a) hereof not addressed in
the preceding sentence, then AMHC or AmerUs shall have the right to terminate
this Combination and Investment Agreement under Section 11.3(a) hereof, and such
breach shall be deemed to have been within the control of Indianapolis Life.
Section 11.6 Effect of Termination; Termination Date. (a) In the event of
the termination of this Combination and Investment Agreement, there shall be no
further obligation or liability of any party hereto (or of any of its directors,
officers, employees, agents, legal and financial advisors or other
Representatives), except that (i) the provisions of Article 2 shall continue in
full force and effect notwithstanding such termination until the purchase by
Indianapolis Life or repurchase by ILGC of all of the outstanding shares of
Non-Voting Common Stock and Converted Shares, as the case may be, held by the
Holder; (ii) the provisions of Sections 7.3, 7.4, 9.4, 9.6, 9.7 and 9.8 shall
continue in full force and effect in accordance with their terms; (iii) to the
extent applicable in any way to the transactions described in Article 2
(including without limitation exercise of the Exchange Right, exercise of the IL
Annuity Put Option and other rights and remedies under Section 2.4, and
effectuation of the priority described in Section 2.2 hereof), the provisions of
Sections 9.1, 9.2 and 9.3 shall continue in full force and effect
notwithstanding such termination until the purchase by Indianapolis Life or
repurchase by ILGC of all of the outstanding shares of Non-Voting Common Stock
and Converted Shares, as the case may be, held by the Holder; and (iv) the
provisions of Section 11.6 and Article 12 shall continue in full force and
effect notwithstanding such termination. Notwithstanding the foregoing, a
termination of this Combination and Investment Agreement shall be without
prejudice to the rights of a party hereto (or any of its Subsidiaries or
Affiliates) arising out of any breach by a party (or any of its Subsidiaries or
Affiliates) of any representation or warranty or covenant or agreement contained
in this Combination and Investment Agreement and, except as otherwise expressly
provided herein, shall not relieve any party hereto of any liability or damages
resulting from any breach of this Combination and Investment Agreement.
(b) For purposes of interpreting the provisions of this Combination and
Investment Agreement, the "Termination Date" shall mean the date on which a
party hereto gives notice to the other parties pursuant to Section 12.12 hereof
of its termination of this Combination and Investment Agreement pursuant to the
provisions of this Article 11. The notice given pursuant to the foregoing
sentence shall state, with particularity, the basis for such termination and
identify the section(s) and sub-section(s) of this Article 11 serving as the
basis for such termination (the "Termination Notice"). For purposes of
interpreting the provisions of Article 2 and Article 11 of this Combination and
Investment Agreement, the section(s) and sub-section(s) of this Article 11
identified in the Termination Notice shall govern (subject to the following
sentences). In the event that, within a period of three (3) Business Days, each
of the parties sends a Termination Notice to the other, then (i) if both
Termination Notices are given under Section 11.2, the first such notice shall be
deemed effective; (ii) if one Termination Notice is given under Section 11.2 and
the other is given under Section 11.3, 11.4 or 11.5, then the Termination Notice
based on Section 11.3, 11.4 or 11.5, as the case may be, shall govern; and (iii)
if one Termination Notice is given under Section 11.3 or 11.5 and the other is
given under Section 11.4, then the Termination Notice shall govern that relates
to the first to occur of such breach, events, occurrences, developments or state
of circumstances or facts that provides or provide the basis for such
termination under Section 11.3, 11.4 or 11.5, as the case may be.
Notwithstanding the foregoing, in the event a Termination Notice based on a
provision of Section 11.1 is given before or within five (5) Business Days after
a Termination Notice based on a provision of another Section hereof, the
Termination Notice based on Section 11.1 shall govern.
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(c) In the event that (i) this Combination and Investment Agreement is
terminated pursuant to Section 11.2 or 11.3 hereof, and (ii) at any time within
18 months following the applicable Termination Date, Indianapolis Life accepts
an offer or otherwise agrees to enter into a Competing Transaction Proposal
which is a Pre-Termination Competing Transaction Proposal, then (and, in the
case of a Section 11.3 termination, without prejudice to and without affecting
any other rights of AMHC or AmerUs hereunder) Indianapolis Life and/or ILGC
shall pay to AMHC in cash the amounts specified in Sections 2.4(a)(ii), (iii)
and (iv) hereof and shall purchase or repurchase, as the case may be, all issued
and outstanding shares of the Non-Voting Common Stock and the Converted Shares
as provided in Section 2.4(a)(i). All sums to be paid under this Section 11.6(c)
shall be paid within ten (10) Business Days of the date on which Indianapolis
Life enters into such an agreement, by wire transfer of immediately available
funds; provided, however, that payment of the amounts specified in clause (B) of
Section 2.4(a)(iv) shall be made within ten (10) Business Days following AMHC's
presentation to Indianapolis Life of an itemized summary of the costs and
expenses referred to in such clause (B).
ARTICLE 12
MISCELLANEOUS PROVISIONS
Section 12.1 Costs and Expenses. Except as expressly otherwise provided
herein, all costs and expenses incurred in connection with this Combination and
Investment Agreement and the Investment Management Agreements and the
transactions contemplated hereby shall be the obligation of the party incurring
such costs or expenses.
Section 12.2 Liquidated Damages. (a) In the event that Indianapolis Life
breaches any covenant, agreement or other provision of Section 3.5(a) and this
Combination and Investment Agreement is terminated pursuant to Section 11.5
hereof, the parties specifically acknowledge and agree that AMHC and AmerUs
would suffer direct and substantial damages, which damages cannot be determined
with reasonable certainty. To compensate AMHC and AmerUs for such damages,
Indianapolis Life and ILGC shall pay AMHC and AmerUs, within ten (10) Business
Days of the applicable Termination Date under Section 11.5, 3% of the AMHC Offer
as liquidated damages, together with reimbursement of any and all out of pocket
costs incurred by AMHC and/or AmerUs in connection with developing, negotiating,
structuring or otherwise incurred, directly or indirectly, in connection with
this Combination and Investment Agreement and the transactions contemplated
hereby, including, but not limited to, any obligation incurred by AMHC or AmerUs
to investment bankers or other advisors in connection with the transactions
contemplated by this Combination and Investment Agreement (provided, however,
that Indianapolis Life and ILGC shall (i) reimburse only the first $2,000,000 in
fees but shall pay any other expenses or charges payable by AMHC or AmerUs to
Merrill Lynch and (ii) not be responsible for any such obligations incurred by
AMHC or AmerUs to investment bankers or other advisors primarily engaged by
AMHC, AmerUs or their respective Boards of Directors in connection with the AMHC
Demutualization). Indianapolis Life and ILGC shall pay such amounts to AMHC and
AmerUs by wire transfer of immediately available funds to an account designated
by AMHC and AmerUs. Indianapolis Life and ILGC each acknowledge that their
obligations under Section 3.5(a) and this paragraph are an integral part of the
transactions contemplated by this Combination and Investment Agreement, and
that, without this Section 12.2, AMHC and AmerUs would not enter into this
Combination and Investment Agreement; accordingly, if Indianapolis Life and ILGC
fail to promptly pay the amount due pursuant to this paragraph, Indianapolis
Life and ILGC shall pay to AMHC and AmerUs their out of pocket costs and
expenses (including reasonable attorneys' fees) arising in connection with the
collection of such amount, together with interest on the amounts set forth in
this paragraph at the prime rate of The Chase Manhattan Bank in effect on the
date such payment was required to be made. It is specifically agreed that the
amount to be paid pursuant to this paragraph represent liquidated damages and
not a penalty or termination fee and is in full settlement of any damages
incurred by AMHC and AmerUs as a result of the termination of this Combination
and Investment Agreement pursuant to Section 11.5 hereof.
60
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(b) Without limiting the generality of Section 12.7 hereof, if any
provision of Section 12.2 or Section 3.5 or Article 2 shall be held invalid or
unenforceable by any court of competent jurisdiction or as a result of future
legislative action, such holding or action shall be strictly construed and shall
not prejudice to the rights of AMHC and AmerUs (or any of their Subsidiaries or
Affiliates) arising out of any breach by a party (or any of its Subsidiaries or
Affiliates) of any agreement contained in this Section 12.2 or under Section 3.5
or under Article 2. If the final judgment of a court of competent jurisdiction
or other authority declares that any term or provision of Section 12.2 or
Section 3.5 or Article 2 is invalid, void or unenforceable, the parties agree
that the court making such determination shall have the power to reduce the
scope, duration, area or applicability of the term or provision, to delete
specific words or phrases, or to replace any invalid, void or unenforceable term
or provision with a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision; provided, however, that the parties shall use reasonable efforts
to ensure that the application of Section 12.2 and Section 3.5 and Article 2
shall reflect as closely as practicable the intent of the parties hereto.
Section 12.3 Actions Subsequent to Combination Closing. From and after the
Combination Closing, each party shall, from time to time, at the reasonable
request of any other party and without further consideration (but at the expense
of the party that is requested to take such action) do, execute, acknowledge and
deliver all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney and assurances as may be reasonably required by such other
party more effectively to effect the transactions contemplated by this
Combination and Investment Agreement or the Investment Management Agreements.
Section 12.4 Entire Agreement. This Combination and Investment Agreement,
including all Schedules and Exhibits attached hereto or thereto, constitute the
entire contract between the parties and there are no understandings other than
as expressed in this Combination and Investment Agreement, the Investment
Management Agreements and the Memorandum of Understanding. All Schedules and
Exhibits hereto are expressly made a part of this Combination and Investment
Agreement as fully as though completely set forth herein. Any amendment or
modification hereto shall be null and void unless made by amendment to this
Combination and Investment Agreement and the Investment Management Agreements,
as applicable, and signed by the parties affected by such amendment.
Section 12.5 Binding Effect. This Combination and Investment Agreement and
the Investment Management Agreements are and shall apply to, and inure to the
benefit of and be binding upon and enforceable against, each party hereto and
its successors (including, without limitation, any successor entity of a party
resulting from consummation of the AMHC Plan and/or the Plan of Conversion) and
permitted assigns, including, without limitation, any subsequent direct or
indirect shareholder of any of the parties.
Section 12.6 No Third-Party Beneficiaries. Nothing in this Combination and
Investment Agreement, the Investment Management Agreements or the Memorandum of
Understanding is intended or shall be construed to give any person, other than
the parties hereto and any successor entities thereto, any legal or equitable
right, remedy or claim under or in respect of this Combination and Investment
Agreement or the Investment Management Agreements or the Memorandum of
Understanding or any provision contained herein.
Section 12.7 Invalidity. Unless the invalidity or unenforceability of any
provision or portion thereof frustrates the intent of the parties or the purpose
of this Combination and Investment Agreement or the Investment Management
Agreements, such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions or portions thereof. In the event that
such provision shall be declared unenforceable by a court of competent
jurisdiction, such provision or portion thereof, to the extent declared
unenforceable, shall be stricken. However, in the event any such provision or
portion thereof shall be declared unenforceable due to its scope, breadth or
duration, then it shall be modified to the scope, breadth or duration permitted
by law and shall continue to the be fully enforceable as so modified.
Section 12.8 Governing Law. This Combination and Investment Agreement
shall be deemed to have been made under and governed by the laws of Iowa,
without regard to Iowa choice of law rules.
61
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Section 12.9 Survival. (a) The covenants and agreements herein which, by
their terms, are to have effect or be performed after the Combination Effective
Time shall survive the Combination Effective Time until expressly provided
therein.
(b) The representations and warranties herein shall terminate at the
Combination Effective Time.
Section 12.10 Counterparts. This Combination and Investment Agreement may
be executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. This Combination and Investment Agreement shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties hereto.
Section 12.11 Headings. The headings in this Combination and Investment
Agreement are for the convenience of reference only and shall not affect its
interpretations.
Section 12.12 Construction. The terms and conditions of this Combination
and Investment Agreement represent the results of bargaining and negotiations
among the parties, each of which has been represented by counsel of its own
selection, and none of which has acted under duress or compulsion, whether
legal, economic or otherwise, and represent the results of a combined
draftsmanship effort. Consequently, the terms and conditions hereof shall be
interpreted and construed in accordance with their usual and customary meanings,
and the parties hereby expressly waive and disclaim in connection with the
interpretation and construction hereof any rule of law or procedures requiring
otherwise, specifically including but not limited to any rule of law to the
effect that ambiguous or conflicting terms or conditions contained herein shall
be interpreted or construed against the party whose counsel prepared this
Combination and Investment Agreement or any earlier draft hereof.
Section 12.13 Notices. All notices and other communications under this
Combination and Investment Agreement shall be in writing and shall be delivered
personally, telegraphed, telexed, sent by facsimile transmission or sent by
certified, registered or express mail, postage prepaid. Any such notice or other
communication shall be deemed given: (i) upon actual delivery if presented
personally or sent by prepaid telegram or telex or by facsimile transmission, or
(ii) three (3) Business Days following deposit in the United States mail, if
sent by certified, registered or express mail, postage prepaid, in each case to
the following addresses:
(i) If to AMHC and AmerUs:
American Mutual Holding Company
699 Walnut Street, Suite 2000
Des Moines, IA 50309
Attention: Roger K. Brooks &
Attention: General Counsel
With concurrent copies, which shall not constitute notice, to:
Jeffrey W. Tindell, Esq.
Skadden, Arps, Slate, Meagher & Flom, L.L.P.
Four Times Square
New York, NY 10036-6522
Telecopy No.: (212) 735-2000
(ii) If to Indianapolis Life and ILGC:
Indianapolis Life Insurance Company
2960 North Meridian Street
Indianapolis, IN 46208
Attention: Larry R. Prible &
Attention: General Counsel
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With concurrent copies, which shall not constitute notice, to:
Tibor D. Klopfer, Esq.
Baker & Daniels
300 North Meridian Street, Suite 2700
Indianapolis, IN 46204
Telecopy No.: 317/237-1000
IN WITNESS WHEREOF, this Combination and Investment Agreement has been duly
executed and delivered by the duly authorized officers of AMHC, AmerUs,
Indianapolis Life and ILGC as of the date first above written.
AMERICAN MUTUAL HOLDING COMPANY
By /s/ THOMAS C. GODLASKY
--------------------------------------
Name: Thomas C. Godlasky
Title: Executive Vice President
AMERUS LIFE HOLDINGS, INC.
By /s/ THOMAS C. GODLASKY
--------------------------------------
Name: Thomas C. Godlasky
Title: Executive Vice President
INDIANAPOLIS LIFE INSURANCE COMPANY
By /s/ LARRY R. PRIBLE
--------------------------------------
Name: Larry R. Prible
Title: Chairman, President and Chief
Executive Officer
THE INDIANAPOLIS LIFE GROUP
OF COMPANIES, INC.
By /s/ LARRY R. PRIBLE
--------------------------------------
Name: Larry R. Prible
Title: Chairman, President and Chief
Executive Officer
63
<PAGE> 209
APPENDIX 4
GOLDMAN SACHS OPINION AND LETTER
<PAGE> 210
PERSONAL AND CONFIDENTIAL
September 18, 2000
Board of Directors
Indianapolis Life Insurance Company
2960 North Meridian Street
Indianapolis, Indiana 46208
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the members of Indianapolis Life Insurance Company (the "Company") who
are Eligible Members, taken as a group, of the exchange of the aggregate
Membership Interests in the Company for the Aggregate Consideration (as defined
below) to be paid to the Eligible Members of the Company in accordance with the
Company's Plan of Conversion to a Stock Insurance Company dated September 18,
2000 (the "Plan") to be filed with the Indiana Insurance Commissioner (the
"Commissioner"). Capitalized terms not otherwise defined herein are used as
defined in the Plan.
The Plan provides for the conversion of the Company pursuant to Sections
27-15-1 through 27-15-16 of the Indiana Insurance Code and related regulations
(the "Indiana Insurance Law") and further provides, among other things, that
upon effectiveness of the Plan: (1) the Company will become a stock insurance
company; (2) all of the outstanding capital stock of the Company will be held by
a corporation organized and existing under the Indiana Business Corporation Law
and meeting the requirements of Indiana Insurance Law Section 27-15-16-1 (the
"Parent Company"); (3) all of the outstanding capital stock of the Parent
Company will be held, directly or indirectly, by AmerUs Group Co. ("AmerUs
Group"), an Iowa stock holding company, which is the successor to American
Mutual Holding Company ("AMHC") following its conversion to stock form; (4) all
Membership Interests will be extinguished; (5) Eligible Members will be entitled
to receive shares of common stock of AmerUs Group ("AmerUs Group Stock"), cash
or Policy Credits in exchange for their Membership Interests in accordance with
allocation methodologies defined in the Plan; and (6) the Closed Block Business
will be operated by the Company as a Closed Block of participating business for
the exclusive benefit of the Policies included in the Closed Block. We have been
advised that the Company will apply to the Department of Labor for an exemption
(the "DOL Exemption") with respect to the receipt of consideration pursuant to
the Plan by certain employee benefit plans that are Eligible Members. If the DOL
Exemption is not obtained prior to the Effective Date of the Plan, the Company
or AmerUs Group, as applicable, may delay payment of consideration to such
Eligible Members as provided in Section 6.6 of the Plan.
We have been advised that, pursuant to the Indiana Insurance Law, the Plan
will not become effective unless the Plan is approved by (a) the Commissioner
who, after a public hearing, must find, among other things, that the Plan is
fair, reasonable, and equitable to the Eligible Members and will not prejudice
the interests of the other policyholders of the Company and (b) at least
two-thirds of the votes of the Members eligible to vote voting thereon in person
or by proxy at a special meeting of Members. We express no view as to the
sufficiency of this opinion for purposes of obtaining such approvals or any
other regulatory or statutory purpose. We understand that the effectiveness of
the Plan is also subject to the receipt by the Company, on or prior to the
Effective Date, of one or more private letter rulings from the Internal Revenue
Service and/or one or more opinions from its special tax counsel, as described
in Section 1.4 of the Plan. According to Section 12.5 of the Plan, the Plan may
be modified, amended, withdrawn or terminated by action of the majority of the
Board of Directors of the Company and with the written consent of AmerUs Group.
If so approved by the Commissioner and Members, and if the other conditions set
forth in the Plan or required by law are satisfied, the Plan will become
effective on the Effective Date.
You have not asked our opinion and we do not express any opinion as to (1)
which of the Company's policyholders are considered Eligible Members, (2) any
matters relating to the establishment or operation of the Closed Block, (3) the
value to Eligible Members of one form of consideration to be received under the
Plan relative to that of other forms of consideration under the Plan, (4) the
fairness of the Plan to any
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Board of Directors
Indianapolis Life Insurance Company
September 18, 2000
Page 2
individual member or class of members of the Company, including any provisions
of the Plan relating to which Eligible Members receive AmerUs Group Stock, cash
or Policy Credits and other provisions of the Plan that distinguish among
Eligible Members, or (5) the effect of any delay in the payment of consideration
to certain employee benefit plans as provided for in Section 6.6 of the Plan. We
have been advised that Jesse M. Schwartz, of PricewaterhouseCoopers LLP,
independent consulting actuaries, has delivered his opinions to the Board of
Directors of the Company on the reasonableness and appropriateness of the
methodology or formulas used to allocate consideration among Eligible Members in
exchange for the Membership Interests and on certain matters relating to the
establishment and operation of the Closed Block, including the sufficiency of
assets allocated to the Closed Block (the "Actuarial Opinions"). We also have
been instructed by the Company to assume that the Company's special tax counsel,
Caplin and Drysdale, will deliver an opinion to the Board of Directors of the
Company on the Effective Date with respect to the federal income tax
consequences of the Plan to the Eligible Members of the Company in accordance
with Section 1.4 of the Plan.
The Company entered into a Combination and Investment Agreement, dated as
of February 18, 2000, among AMHC, AmerUs Life Holdings, Inc. ("AmerUs
Holdings"), The Indianapolis Life Group of Companies, Inc., the Company's
subsidiary stock holding company ("ILGC"), and the Company, as amended by the
Amendment to Combination and Investment Agreement dated September 18, 2000 (as
so amended, the "Combination Agreement"). The Combination Agreement, as
originally executed February 18, 2000, provided, among other things, that: (1)
AMHC, AmerUs Holdings or a subsidiary thereof would make an investment of $100
million in cash in ILGC (the "Initial Investment") in exchange for 105.96 shares
of non-voting common stock of ILGC; and (2) the proceeds from the Initial
Investment would be used by ILGC to repurchase current minority stakes in ILGC
owned by American United Life Insurance Company ("AUL") and Legacy Marketing
Group ("Legacy") with any excess capital to be contributed to ILGC's insurance
subsidiaries and otherwise used as provided in the Combination Agreement. We
have been advised that on February 18, 2000, AmerUs Holdings made the Initial
Investment in ILGC and the proceeds were used in the manner specified above. The
Combination Agreement further provides, among other things, that: (1) AMHC will
demutualize under Iowa law and subsequently the Company will demutualize under
the Indiana Insurance Law; (2) the Company's eligible members, as determined
under the Indiana Insurance Law, will exchange their membership interests in the
Company for shares of AmerUs Group Stock, cash and Policy Credits which will
have an aggregate value equal to the value of 9.30 million shares of AmerUs
Group Stock, as determined pursuant to the Combination Agreement (the "Aggregate
Consideration"); provided, however, that in the event that the aggregate value
of 9.30 million shares of AmerUs Group Stock is less than $186 million, based on
the average closing price of such shares for the five Trading Days (as defined
in the Combination Agreement) ending ten Business Days (as defined in the
Combination Agreement) prior to the Combination Closing Date (as defined in the
Combination Agreement), the Company has the right to terminate the Combination
Agreement unless AmerUs Group increases the number of shares of AmerUs Group
Stock on which the Aggregate Consideration is based to a total number having an
aggregate value, based on the foregoing average, together with any additional
cash or Policy Credits from AmerUs Group, of at least $186 million; and (3) the
Company will become a wholly-owned stock subsidiary of AmerUs Group.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services
from time to time, including having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
Combination Agreement. We also have provided certain investment banking services
to AMHC and its affiliates from time to time, including having acted as
financial advisor to AMHC in connection with its mutual holding company
reorganization in 1995 and 1996, as lead underwriter of AmerUs Holdings' initial
public offering of 5.4 million shares of
<PAGE> 212
Board of Directors
Indianapolis Life Insurance Company
September 18, 2000
Page 3
common stock, without par value (the "AmerUs Holdings Common Stock"), in January
1997, as lead manager of AmerUs Holdings' public offering of $86 million
aggregate principal amount of Capital Securities in January 1997, as lead
underwriter of AmerUs Holdings' public offering of 4.6 million Adjustable
Conversion-Rate Equity Security Units in July 1998, as a co-lead manager of
AmerUs Holdings' public offering of $125 million aggregate principal amount of
senior notes due 2005 in June 1998 and as agent on its stock repurchase program.
In addition, as we have advised you, another Goldman Sachs team, separate from
the team that has been providing services to the Company, acted as principal
financial advisor to AMHC in connection with its demutualization effort. Our
respective teams have not shared information or work product relating to or
obtained in performing their respective assignments. We also may provide
investment banking services to AmerUs Group and its affiliates in the future.
Goldman, Sachs & Co. provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions in and hold securities, including derivative
securities, of the Company or AmerUs Group or their respective affiliates for
its own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Combination Agreement; audited consolidated financial statements prepared in
accordance with generally accepted accounting principles ("GAAP") for the
Company for the four years and AmerUs Holdings for the five years ended December
31, 1999; annual statements of the Company and the insurance company
subsidiaries of AmerUs Holdings containing financial statements prepared in
accordance with Statutory Accounting Practices ("SAP") for the five years ended
December 31, 1999; certain interim SAP and GAAP financial reports of the Company
and AmerUs Holdings; certain internal financial analyses and forecasts for the
Company and AmerUs Group (on a standalone basis) prepared by their respective
managements, including certain cost savings and operating synergies projected by
the managements of the Company and AmerUs Holdings (the "Synergies"); the
Agreement to Affiliate dated as of November 3, 1997 between the Company and AUL
and the Amendments thereto dated as of May 14, 1998, August 23, 1999, October
28, 1999 and December 29, 1999; the Memorandum of Understanding dated October
28, 1999 between the Company and AUL; the Investment Agreement dated as of
November 3, 1997 among the Company, ILGC and AUL, and the Amendments thereto
dated as of December 30, 1997, January 19, 1998 and June 30, 1998; the Agreement
to Affiliate dated as of November 10, 1998 among the Company, AUL and Pioneer
Mutual Life Insurance Company, and the Amendment thereto dated as of December
31, 1998; the Investment and Funding Agreement, dated as of March 31, 1999,
among the Company, ILGC, AUL and Legacy; the Termination and Settlement
Agreement dated as of February 18, 2000 among the Company, ILGC and AUL; the
Plan of Conversion of AMHC, dated as of December 17, 1999, Amendment No. 1
thereto dated February 18, 2000 and Amendment No. 2 thereto dated April 3, 2000
(as amended, the "AMHC Plan"); the Proxy Statement/ Prospectus of AMHC and
AmerUs Holdings dated May 15, 2000, relating to the contemplated merger between
AMHC and AmerUs Holdings; the Agreement and Plan of Merger, dated as of December
17, 1999 between AMHC and AmerUs Holdings, Amendment No. 1 thereto dated as of
February 18, 2000 and Amendment No. 2 thereto dated as of April 3, 2000 (as
amended, the "AmerUs Merger Agreement"); the AMHC Member Information Statement
and Supplemental Information Booklet, dated May 18, 2000 regarding the AMHC
demutualization sent to AMHC members; the Plan dated September 18, 2000 to be
approved by the Board of Directors of the Company on September 18, 2000,
including all exhibits thereto; a draft of the Application of the Company
expected to be filed with the Commissioner shortly, including all exhibits
thereto; and the Actuarial Opinions. We have held discussions with members of
the senior management of the Company, AMHC and AmerUs Holdings regarding their
assessment of the strategic rationale for, and the potential benefits of, the
transactions contemplated by the Combination Agreement and the past and current
business operations, financial condition and capitalization, and the future
prospects of, their respective companies, as well as the effect of the Plan. In
connection therewith, you have instructed us to assume that no legal, tax or
regulatory changes that occur after the date hereof will have a material adverse
<PAGE> 213
Board of Directors
Indianapolis Life Insurance Company
September 18, 2000
Page 4
impact upon the business, results of operations, condition (financial or
otherwise) or future prospects of AmerUs Holdings or AmerUs Group or any of its
subsidiaries (including the Company) or the effect of the Plan. We have assumed
that you will receive regulatory approval in the manner contemplated in the
Plan, as well as the IRS private letter ruling or opinion of special tax counsel
required by Section 1.4 of the Plan, which ruling and draft opinion were not
available at this time. In addition, we have reviewed th e reported price and
trading activity of the AmerUs Holdings Common Stock, compared certain financial
information for the Company, AMHC, AmerUs Holdings and AmerUs Group and certain
stock market information for AmerUs Holdings with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent demutualization transactions, reviewed the
financial terms of certain recent business combinations in the life insurance
industry specifically and in other industries generally and performed such other
studies and analyses as we considered appropriate.
We note that, with respect to AmerUs Group and AMHC, our review has been
based largely on publicly available information with respect to AmerUs Holdings,
except as noted above. On December 20, 1999, AMHC and AmerUs Holdings announced
that their respective Boards of Directors had approved plans whereby AMHC would
demutualize and that, immediately thereafter, AMHC and AmerUs Holdings would
merge. In June 2000, the AMHC Plan and the AmerUs Merger Agreement received the
necessary member and shareholder approval. The Iowa Insurance Commissioner
approved the AMHC Plan on August 2, 2000. Upon the demutualization of AMHC and
its concurrent merger with AmerUs Holdings, the public stockholders of AmerUs
Holdings will receive 12,680,689 newly issued shares of AmerUs Group Stock in
exchange for their AmerUs Holdings Common Stock. The eligible members of AMHC
will receive 17,390,165 newly issued shares of AmerUs Group Stock, as well as
cash and policy credits in an amount equal to the sum of (i) the cash balances
of AMHC immediately prior to effectiveness of its conversion after deducting
expenses relating to its conversion and all other expenses of AMHC accrued as of
such date and liabilities and (ii) the fair value (taking into account
liabilities) as of December 17, 1999, of AMHC's ownership interest in certain
non-insurance assets of AMHC as determined and agreed by special committees of
the Boards of Directors of each of AMHC and AmerUs Holdings. We have assumed
with your consent that no undisclosed facts about AMHC, nor the implementation
of the AMHC Plan (including but not limited to the amount distributed to AMHC
members in respect of the foregoing cash and assets), would have an adverse
effect on the value of the Aggregate Consideration. We have also assumed with
your consent that the AmerUs Group Stock issued pursuant to the Combination
Agreement will be listed on a national securities exchange or traded on NASDAQ
and otherwise will be freely tradable by members. In 1997, the Company announced
it had planned to affiliate with AUL and, as part of the affiliation, that the
Company and AUL planned to form mutual holding companies and subsequently merge
these mutual holding companies. Over time, AUL invested an aggregate of $54
million in ILGC. In September 1999, with the consent of AUL, the Company's Board
of Directors began a process of pursuing a sponsored demutualization with a
party other than AUL. As of February 18, 2000, the Company terminated its
planned affiliation with AUL and entered into the Combination Agreement
(described above) with AMHC and AmerUs Holdings.
In preparing this opinion, we noted the following views expressed by the
Company's management prior to the Company's decision to enter into the
Combination Agreement in February, 2000 (in no particular order):
(i) that the Company had determined that a distribution to members and
conversion to stock form pursuant to a demutualization would be in the best
interests of the Company and its members and would facilitate the Initial
Investment;
(ii) that the Company needed additional capital promptly in order to
repurchase current minority stakes in ILGC owned by AUL and Legacy;
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Board of Directors
Indianapolis Life Insurance Company
September 18, 2000
Page 5
(iii) that the Company needed further capital to support the Company's
long-term growth objectives and to preserve its competitive position;
(iv) that AMHC viewed the Initial Investment as an integral part of
the transactions contemplated by the Combination Agreement and would not
have made the Initial Investment without the Company's agreement to enter
into and complete the other transactions contemplated by the Combination
Agreement; and
(v) that the Company believed it needed to be part of a larger
organization with greater financial resources to preserve and enhance its
strategic flexibility and competitive position.
We express no view or opinion on the Initial Investment, including as to
the adequacy, for the purposes described above, of the amount of capital raised
pursuant to the Combination Agreement. Our opinion expressed herein does not
address and, at your instruction, we assume the fairness from a financial point
of view to the Company and its members of the terms of the Initial Investment.
Further, in preparing this opinion, we noted the following views expressed
by the Company's management prior to the Company's decision to agree to amend
the Combination Agreement (in no particular order):
(i) that deteriorating results of operations of the Company after the
date of the Combination Agreement created a risk that AMHC would be
entitled to terminate the Combination Agreement and demand the return of
the Initial Investment;
(ii) that the Company lacked sufficient funds to enable it to repay
the Initial Investment in the event that the Combination Agreement was
terminated; and
(iii) that to find a new party to refinance the Initial Investment and
enter into the other transactions contemplated by the Combination Agreement
in substitution for AMHC on acceptable terms would be difficult, in light
of, among other things, the deterioration in the Company's results of
operations referred to above.
We have relied upon the accuracy and completeness of all of the financial
forecast and other information reviewed by us and with your consent have assumed
such accuracy and completeness for purposes of rendering this opinion. In that
regard, we have assumed with your consent that the forecasts and the Synergies
prepared by the managements of the Company and AmerUs Group have been reasonably
prepared on a basis reflecting the best currently available estimates and
respective judgments of the Company and AmerUs Group. We note that these
financial forecasts are subject to review, restatement and/or modification
relating to certain outstanding issues, including, among other things, the
Closed Block to be established under the Plan and other effects of the
conversion. We also have assumed with your consent that obtaining any necessary
governmental, regulatory or other consents or approvals for the consummation of
the transactions contemplated by the Combination Agreement will not have any
adverse effect on the Company or AmerUs Group or on the contemplated benefits of
the transactions contemplated by the Combination Agreement.
We note, for purposes of the opinion expressed herein, that the Company has
a right to terminate the Combination Agreement if the aggregate value of the
Aggregate Consideration to be paid thereunder does not equal or exceed $186
million (determined pursuant to the Combination Agreement). We have therefore
assumed that the value of the Aggregate Consideration paid to Eligible Members
will be $186 million or higher. We note that trading in the AmerUs Group Stock
for a period following the completion of a distribution of AmerUs Group Stock,
including the distribution to Eligible Members in accordance with the Plan, may
be characterized by a redistribution of the AmerUs Group Stock among the
Eligible Members and other investors. It is possible that during these periods
of redistribution the AmerUs Group Stock may trade at prices below the prices at
which it would trade on a fully-distributed basis. We are not, however,
expressing any opinion as to the actual value of the AmerUs Group Stock or any
Policy Credits when issued to the
<PAGE> 215
Board of Directors
Indianapolis Life Insurance Company
September 18, 2000
Page 6
Company's Eligible Members pursuant to the Plan or the prices at which shares of
AmerUs Group Stock may trade subsequent to the Effective Date.
Our opinion does not address the relative merits or fairness from a
financial point of view of the transactions contemplated by the Plan and
Combination Agreement as compared to any alternative business transaction
considered by, or that might be available to, the Company.
We are not accountants and have relied upon the Company and Ernst & Young
LLP for the accuracy and completeness of the financial statements. We are not
actuaries and our services did not include actuarial determinations or
evaluations by us or an attempt to evaluate actuarial assumptions. In addition,
we have not made an independent evaluation or appraisal of the assets or
liabilities (including the insurance reserves) of the Company, AMHC or any of
their respective subsidiaries and we have not for purposes hereof been furnished
with any such evaluation or appraisal, except for a draft of the Actuarial
Opinions. In addition, we have assumed with your consent that the Plan will be
treated as a tax-free reorganization and will not have any adverse tax-related
implications for the Company or its Eligible Members. We have assumed with your
consent that the implementation of the Plan will not have the effect of
increasing premiums or reducing policy benefits, values, guarantees or other
contractual obligations of the Company. We have been advised as to all legal and
tax matters with respect to the transactions by legal counsel and tax advisors
to the Company upon whom we have relied, including as to the legality of the
Plan, the Combination Agreement and the transactions contemplated thereby, their
compliance with law and the terms and conditions required to obtain the approval
of the Plan by the Commissioner.
The opinion expressed herein speaks only as of the date hereof, based on
the transactions presented and the facts and circumstances, including, but not
limited to, financial, economic, market and other conditions, as they exist and
can be evaluated existing as of the date hereof. Our opinion assumes that the
Plan is approved in its entirety by the Members and the Commissioner in the form
reviewed by us and that no material changes are made to the Plan by the Board of
Directors of the Company, the Commissioner, any court reviewing the Plan or the
Commissioner's approval thereof or otherwise, and that the transactions
contemplated by the Plan are consummated on the basis described therein.
Subsequent events and developments, including but not limited to a change in the
applicable law, facts or circumstances or a change in the intended tax treatment
of the transactions contemplated by the Plan, may affect the conclusions set
forth in this opinion and, in such event, this opinion should not be relied upon
in the future. We assume no obligation to update, revise, reaffirm or withdraw
our opinion as a result of any such subsequent events or developments or
otherwise.
Our advisory services and the opinion expressed herein are provided solely
for the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transactions contemplated by the Plan
and may not be relied upon by any other person. The opinion does not constitute
a recommendation as to the likelihood of consummation of the Plan, as to how any
Member of the Company should vote with respect to the Plan or as to the form of
the consideration that any Eligible Member should elect. Our opinion is not to
be quoted or referred to, in whole or in part, in any document or used for any
other purpose or delivered to any other person without the prior written consent
of Goldman, Sachs & Co., except that a copy of our opinion may be provided to
the Commissioner.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
exchange of the aggregate Membership Interests in the Company for the Aggregate
Consideration to be paid to the Eligible Members of the Company in accordance
with the Plan is fair from a financial point of view to the members of the
Company who are Eligible Members, taken as a group.
Very truly yours,
<PAGE> 216
PERSONAL AND CONFIDENTIAL
September 18, 2000
Board of Directors
Indianapolis Life Insurance Company
2960 North Meridian Street
Indianapolis, Indiana 46208
Ladies and Gentlemen:
You have asked us whether the Aggregate Consideration (as defined below) to
be provided to the Eligible Members of Indianapolis Life Insurance Company (the
"Company") in exchange for the aggregate Membership Interests in the Company in
accordance with the Company's Plan of Conversion to a Stock Insurance Company
dated September 18, 2000 (the "Plan") to be filed with the Indiana Insurance
Commissioner (the "Commissioner") is equal to or greater than the policyholders'
surplus of the Company. Capitalized terms not otherwise defined herein are used
as defined in the Plan.
The Plan provides for the conversion of the Company pursuant to Sections
27-15-1 through 27-15-16 of the Indiana Insurance Code and related regulations
(the "Indiana Insurance Law") and further provides, among other things, that
upon effectiveness of the Plan: (1) the Company will become a stock insurance
company; (2) all of the outstanding capital stock of the Company will be held by
a corporation organized and existing under the Indiana Business Corporation Law
and meeting the requirements of Indiana Insurance Law Section 27-15-16-1 (the
"Parent Company"); (3) all of the outstanding capital stock of the Parent
Company will be held, directly or indirectly, by AmerUs Group Co. ("AmerUs
Group"), an Iowa stock holding company, which is the successor to American
Mutual Holding Company ("AMHC") following its conversion to stock form; (4) all
Membership Interests will be extinguished; and (5) Eligible Members will be
entitled to receive shares of common stock of AmerUs Group ("AmerUs Group
Stock"), cash or Policy Credits in exchange for their Membership Interests in
accordance with allocation methodologies defined in the Plan.
The Company entered into a Combination and Investment Agreement, dated as
of February 18, 2000, among AMHC, AmerUs Life Holdings, Inc. ("AmerUs
Holdings"), The Indianapolis Life Group of Companies, Inc., and the Company, as
amended by the Amendment to Combination and Investment Agreement dated September
18, 2000 (as so amended, the "Combination Agreement"). Pursuant to the
Combination Agreement, the Company's Eligible Members will exchange their
Membership Interests in the Company for shares of AmerUs Group Stock, cash and
Policy Credits which will have an aggregate value equal to the value of 9.30
million shares of AmerUs Group Stock (the "Aggregate Consideration"); provided,
however, that in the event that the aggregate value of 9.30 million shares of
AmerUs Group Stock is less than$186 million, based on the average closing price
of such shares for the five Trading Days (as defined in the Combination
Agreement) ending ten Business Days (as defined in the Combination Agreement)
prior to the Combination Closing Date (as defined in the Combination Agreement),
the Company has the right to terminate the Combination Agreement unless AmerUs
Group increases the number of shares of AmerUs Group Stock on which the
Aggregate Consideration is based to a total number having an aggregate value,
based on the foregoing average, together with any additional cash or Policy
Credits from AmerUs Group, of at least $186 million.
This letter is being provided to the Board of Directors pursuant to Section
27-15-3-2(10) of the Indiana Insurance Law which requires that the Company's
Application filed with the Commissioner regarding the Plan include a letter to
the Board of Directors from a qualified, independent financial adviser as to
whether the Aggregate Consideration to be provided to Eligible Members in
exchange for the aggregate Membership Interests is equal to or greater than the
surplus of the Company. For purposes of this letter, we have been advised by you
and assume that "surplus" as used in the foregoing provision of the Indiana
Insurance Law refers to the policyholders' surplus ("Statutory Surplus") of the
Company as calculated in accordance with statutory accounting practices
prescribed by the Commissioner. Further, for purposes of this letter, we have
been advised by you that the Statutory Surplus of the Company as of June 30,
2000 (as reported in the Company's most recent quarterly statement) was
approximately $103.7 million (including the $25 million surplus notes
outstanding) and that the Company has no updated information with respect to the
Statutory
<PAGE> 217
Board of Directors
Indianapolis Life Insurance Company
September 18, 2000
Page 2
Surplus of the Company beyond June 30, 2000. You have instructed us to assume
that the value of the Aggregate Consideration to be provided to Eligible Members
is properly calculated based on the reported closing price of the stock of
AmerUs Holdings, the principal subsidiary of AMHC prior to their merger and
subsequent exchange of AmerUs Group Stock for AmerUs Holdings stock, on the New
York Stock Exchange as of the business day prior to the delivery to the Board of
Directors of the letter referred to in the foregoing provision of the Indiana
Insurance Law. On September 15, 2000, such reported closing price of AmerUs
Holdings stock was $25.50 per share, making the assumed value of 9.30 million
shares of AmerUs Group Stock equal to $237 million (the "Current Assumed Value
of the Aggregate Consideration"). We are not expressing any view or
representation in this letter as to (i) the actual value of the AmerUs Group
Stock or any other consideration now or when issued to the Company's Eligible
Members pursuant to the Plan, (ii) the prices at which shares of AmerUs Group
Stock may trade at any time and (iii) whether 9.30 million shares of AmerUs
Holdings stock could be bought or sold at $25.50 per share.
This letter speaks only as of the date hereof and is based on information
as on the dates specified above. Subsequent events and developments, including
but not limited to any change in the price at which AmerUs Group Stock may trade
on the New York Stock Exchange, any differences in the price at which AmerUs
Group Stock may trade once it is issued as compared to AmerUs Holdings' stock
and any change in the amount of the Statutory Surplus of the Company, may affect
the conclusions set forth in this letter and, in such event, this letter should
not be relied upon in the future. We assume no obligation to update, revise,
reaffirm or withdraw this letter as a result of any such subsequent events or
developments or otherwise.
This letter is provided solely for the information and assistance of the
Board of Directors of the Company in connection with its consideration of the
transactions contemplated by the Plan and may not be relied upon by any other
person. This letter is not to be quoted or referred to, in whole or in part, in
any document or used for any other purpose or delivered to any other person
without the prior written consent of Goldman, Sachs & Co., except that a copy of
this letter may be provided to the Commissioner.
Based solely upon and subject to the foregoing, as of the date hereof, the
Current Assumed Value of the Aggregate Consideration is greater than the
Statutory Surplus of the Company as of June 30, 2000.
Very truly yours,
<PAGE> 218
APPENDIX 5
MERRILL LYNCH OPINION
<PAGE> 219
September 18, 2000
Board of Directors
American Mutual Holding Company
699 Walnut Street
Des Moines, IA 50309-3948
Board of Directors
AmerUs Life Holdings, Inc.
699 Walnut Street
Des Moines, IA 50309-3948
Members of the Boards of Directors:
We understand that American Mutual Holding Company ("Mutual Holdings"), an
Iowa mutual holding company and the owner of approximately 58.0% of the
outstanding shares of AmerUs Life Holdings, Inc. ("AmerUs"), an Iowa
corporation, common stock (the "AmerUs Common Stock"), plans to effect a
demutualization (the "Demutualization") under the Iowa Insurance Law pursuant to
which, among other things, shares of AmerUs Common Stock would be exchanged for
an equal number of shares of common stock ("Acquiror Common Stock") of the
corporate successor to Mutual Holdings, AmerUs Group Co., (the "Acquiror"), the
Acquiror would acquire 100% ownership of AmerUs, and members of Mutual Holdings
would receive among other consideration, in the aggregate that number of shares
of the Acquiror as the number of shares of AmerUs Common Stock owned by Mutual
Holdings immediately prior to the Demutualization.
We also understand that Mutual Holdings, AmerUs, Indianapolis Life
Insurance Company ("ILICo"), an Indiana mutual insurance company, and
Indianapolis Life Group of Companies, Inc. ("ILG"), an Indiana corporation 55%
of whose common stock is owned by ILICo, have entered into a Combination and
Investment Agreement dated February 18, 2000 (the "Agreement"). The Agreement
contemplates, among other things, that, pursuant to a Plan of Conversion in
accordance with the Indiana Demutualization Law, ILICo will reorganize as a
stock company and a wholly owned subsidiary of the Acquiror shall acquire all of
the common stock of ILICo (the "Merger"), with members' interests in ILICo
converted in the aggregate into the right to receive 11.25 million shares of
Acquiror Common Stock (the "Stock Consideration"). The Agreement required that,
in contemplation of the Merger, Mutual Holdings or AmerUs invest $100 million
immediately after entering into such Agreement (such amount, together with the
Stock Consideration, being referred to herein as the "Consideration") in ILG in
exchange for 105.9627 shares of a new class of exchangeable non-voting common
stock of ILG (the "Investment"), which shares will become an asset of the
Acquiror at the time of the Demutualization. The Investment was completed by
AmerUs on February 18, 2000. A majority of the proceeds of the Investment were
used by ILG to redeem all outstanding shares of ILG common stock not owned by
ILICo (the "Redemption").
We also understand that Mutual Holdings, AmerUS, ILICo, and ILG propose to
enter into an amendment to the Agreement (the "Amendment"). The Amendment will
reduce the Stock Consideration from 11.25 million shares to 9.30 million shares.
As a result of the Merger, the Investment, and the Redemption (together,
the "Transaction"), the Acquiror will own, directly and indirectly, all of the
outstanding stock of the successor to ILICo and ILG (together with their
respective subsidiaries, the "Acquired Businesses"). The Board of Directors of
Mutual Holdings and the Board of Directors of AmerUs have each asked us whether,
in our opinion, the Consideration, as reduced by the Amendment, to be paid in
the aggregate in the Transaction (taking into account the times of payment) for
the Acquired Businesses is fair from a financial point of view to Mutual
Holdings, AmerUs, and the Acquiror.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to AmerUs and ILICo (in each case, on a consolidated
basis) that we deemed to be relevant;
<PAGE> 220
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of AmerUs and ILICo (in each case on a consolidated basis),
furnished to us by AmerUs and ILICo, respectively, as well as the amount
and timing of the cost savings expected to result from the Transaction (the
"Expected Synergies") furnished to us by AmerUs.
(3) Conducted discussions with members of senior management of AmerUs
and ILICo concerning the matters described in clauses 1 and 2 above, as
well as their respective businesses and prospects before and after giving
effect to the Transaction and the Expected Synergies;
(4) Reviewed the historical market prices and valuation multiples for
the AmerUs Common Stock and compared them with those of certain publicly
traded companies that we deemed to be relevant;
(5) Reviewed the results of operations of AmerUs and ILICo (in each
case on a consolidated basis) and compared them with those of certain
publicly traded companies that we deemed to be relevant;
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions that we deemed to be
relevant;
(7) Participated in certain discussions and negotiations among
representatives of AmerUs and Mutual Holdings on one hand, and of ILICo on
the other, and their financial and legal advisors;
(8) Reviewed the potential pro forma impact of the Transaction;
(9) Reviewed the Agreement and a draft dated September 8, 2000 of the
Amendment.
(10) Took into account such other matters as we deemed necessary,
including our assessment of general economic, market and monetary
conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the consolidated
assets or liabilities of Mutual Holdings, AmerUs, or ILICo or been furnished
with any such evaluation or appraisal. In addition, we have not assumed any
obligation to conduct any physical inspection of the consolidated properties or
facilities of Mutual Holdings, AmerUs, or ILICo. With respect to the financial
forecast information and the Expected Synergies furnished to or discussed with
us by AmerUs or ILICo, we have assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgment of AmerUs' or
ILICo's management as to the expected future financial performance of AmerUs or
ILICo, as the case may be, and the Expected Synergies. We have further assumed
that the Transaction will be accounted for as a purchase transaction under
generally accepted accounting principles and that it will qualify as a tax-free
reorganization for U.S. federal income tax purposes. We have also assumed that
the final form of the Amendment will be substantially similar to the last draft
reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that all necessary regulatory and
other consents and approvals (contractual or otherwise) for the Transaction will
be obtained and that the Merger will be consummated (without any material waiver
of any of the conditions set forth in the Agreement and the Amendment) and that
no restrictions, including any divestiture requirements or amendments or
modifications, will be imposed in the course of obtaining such regulatory or
other consents or approvals that would have a material adverse effect on the
contemplated benefits of the Transaction.
We are acting as financial advisor to AmerUs and Mutual Holdings in
connection with the Transaction and will receive a fee from AmerUs and Mutual
Holdings for our services, a significant portion of which is contingent upon the
consummation of the Merger or the receipt by AmerUs or Mutual Holdings of a
break-up fee. In addition, Mutual Holdings and AmerUs have agreed to indemnify
us for certain liabilities arising out of our engagement. In the ordinary course
of our business, we may actively trade the shares of AmerUs for our
<PAGE> 221
own account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
This opinion is solely for the use and benefit of the respective Boards of
Directors of AmerUs and Mutual Holdings in their evaluation of the Transaction
and shall not be used for any other purpose. Our opinion does not address the
fairness of the Demutualization or the merits of the underlying decision by
AmerUs and Mutual Holdings to engage in the Demutualization or the Transaction
and does not constitute a recommendation to any shareholder of AmerUs or any
member of Mutual Holding as to how such shareholder or member should vote with
respect to the Demutualization, the proposed Merger or any related matter. This
opinion shall not be reproduced, disseminated, quoted, summarized or referred to
at any time, in any manner or for any purpose, nor shall any public references
to Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") or any
of its affiliates be made by AmerUs, Mutual Holdings or any of their affiliates,
without the prior written consent of Merrill Lynch.
We are not expressing any opinion herein as to the prices at which the
AmerUs Common Stock or Acquiror Common Stock will trade following the
announcement of the Amendment or consummation of the Merger, as the case may be.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Consideration being paid in the aggregate in the
Transaction (taking into account the times of payment) for the Acquired
Businesses is fair from a financial point of view to Mutual Holdings, AmerUs,
and the Acquiror.
Very truly yours,
/s/ MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
--------------------------------------
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
<PAGE> 222
APPENDIX 6
MEMORANDUM OF UNDERSTANDING
<PAGE> 223
OUTLINE FOR POST AFFILIATION INTEGRATION, OPERATION AND LEADERSHIP
1. General principles:
- merger of businesses and organizations, not an acquisition
- post closing focus on strengths of each organization by blending together
the best critical competencies of each and applying a best practices
approach
- cost savings are important in order to get the benefits of increased
scale; also important is that the "pain" of cost savings and future
growth are shared by both organizations
- holding company model; with decentralized, semi-autonomous business units
- create "one company" and avoid an "us versus them" mentality
- emphasis on leadership and on articulating overall corporate strategies
and visions
2. Business operations/programs to be headquartered, focused or located in, or
managed from, the following locations:
a. Indianapolis:
- PPGA and other non-career distribution management & strategy
- niche/interest sensitive whole life products product development and
manufacturing
- term products
- private label business
- development of enterprise wide "customer care model", with IT support
b. Des Moines:
- corporate headquarters
- holding company operations and services
- consolidated financial/"Wall Street" relationships/rating agency
relationships
- investor relations
- public company compliance and reporting
- investments
- asset and liability management
- participating whole life products and UL products
- career, PPGA and ongoing alternative distribution
- human resources & administration of company wide benefit and welfare
plans (with "on-site" personnel, similar to present AmerUs structure)
- IT (with "on-site" personnel, similar to present AmerUs structure)
- legal & general counsel (with "on-site" personnel, similar to present
AmerUs structure)
c. Topeka:
- continuing annuity operations, distribution and product development
- IL Annuity operations, distribution and product development moved to
Topeka
<PAGE> 224
d. Woodbury:
- Banker's present business operations
- New York business
- ongoing UL operations, distribution and product development and
private label
3. Management structure and corporate leadership roles:
- must correspond with item 2 above; key management roles to be filled from
both organizations (details to be developed mutually by CEOs)
- cross reporting: some Indianapolis Life managers will report to AmerUs
managers; some AmerUs managers will report to Indianapolis Life managers
(details to be developed mutually by CEOs)
- Indianapolis Life CEO to be President and CEO of "Indianapolis Group" and
to report directly to AmerUs CEO
- strong, high level strategic leadership role for Indianapolis Life CEO in
whole organization, not just Indianapolis; specific duties to include:
- contribute to strategic leadership for combined organization
- management of distribution initiatives at Indianapolis Life (as
discussed by CEOs)
- head the variable operations for the combined enterprise, including
AmerUs' AVLIC relationship
- head the company wide efforts on the "customer care" model
- continuation of private label leadership
- lead the integration and cost reduction task force
- build the appropriate e-business structure for the combined enterprise
- management and key employee employment arrangements to assure success of
integration and long-term strategies (retention and incentive agreements)
4. Board seat arrangements:
- Indianapolis Life board members, including Indianapolis Life CEO, to join
AmerUs board, with overall composition in rough proportion to shares
distributed to Indianapolis Life policyholders (individuals to be
discussed and agreed upon by CEOs)
- continued presence of Indianapolis Life board members on Indianapolis
Life board, with overall composition in reverse proportion to AmerUs
board (individuals to be discussed and agreed upon by CEOs)
- Indianapolis CEO to join AmerUs board as Vice Chairman
5. Special Indianapolis commitments:
- continuation of Indianapolis Life name and brand
- continuation of Indianapolis presence, with employment at or near
historical levels (but subject to enterprise wide reductions contemplated
by the transaction)
- continuation of prominent historical role in community involvement and
sponsorships, under leadership of Indianapolis Life CEO
- continuation of corporate giving at or above current levels
- where there are redundancies, every effort will be made to handle any job
eliminations through retirement, attrition, buyouts and reassignment of
existing employees and to avoid involuntary
<PAGE> 225
terminations, and associates affected by any functional realignments will
be offered new positions and choices, if possible
6. Other arrangements and principles:
- expense savings commitments by both Indianapolis Life and AmerUs, under
plans to be mutually developed by teams appointed by CEOs; process to
begin upon signing so that plans are developed and approved before
closing
- plans to implement the items under 2 and 3, including post-affiliation
roles of the two management teams, to be mutually developed by teams
appointed by CEOs; process to begin upon signing so that plans are
developed and approved before closing
- post closing job reductions from AmerUs and Indianapolis Life
organizations to be shared roughly proportionately by those organizations
subject to business needs
- continuation of decentralization for HR, financial, actuarial, legal and
IT
The product lines, distribution systems and other operations of the combined
companies will need to be rationalized over time to meet the competitive demands
of the marketplace, to achieve the economies inherent in the Strategic
Reorganization/Combination and to create value for all shareholders.
<PAGE> 226
AMENDMENT TO THE MEMORANDUM OF UNDERSTANDING
The Amendment to Combination and Investment Agreement provides that the
following has been added to the Memorandum of Understanding as if fully set
forth therein:
"Indianapolis Life, directly or through IL Annuity, may proceed to develop
administration capabilities in Indianapolis, Indiana for the variable products
of Indianapolis Life and its Subsidiaries consistent with the plans contained in
the IL Annuity Feasibility Study: Variable Product Processing dated August 3,
2000 -- Final Version (but the parties acknowledge that such development will
not commence as early as described in such study)."
<PAGE> 227
APPENDIX 7
LETTER TO INDIANA COMMISSIONER
November 27, 2000
Hon. Sally McCarty
Commissioner, Indiana Department of Insurance
State of Indiana
311 W. Washington Street, Suite 300
Indianapolis, IN 46204-2787
Dear Commissioner McCarty:
Upon the conversion of Indianapolis Life Insurance Company ("Indianapolis
Life") from a mutual insurance company to a stock insurance company,
Indianapolis Life will become part of the AmerUs family of companies (the
"Combination"). We recognize that Indianapolis Life has a long tradition as a
valued corporate citizen and a significant presence in Indianapolis and the
State of Indiana, as we do in Des Moines and the State of Iowa. AmerUs Group Co.
("AmerUs") intends to ensure that this tradition will continue in both states.
This letter is written to provide the Commissioner with AmerUs' formal
commitments to maintaining a significant corporate and physical presence in
Indianapolis and Indiana following the Combination. These commitments are
consistent with those contained in the Memorandum of Understanding dated
February 17, 2000, as amended on September 18, 2000 (the "Memorandum"), between
the parties to the Combination and Investment Agreement dated February 18, 2000
as amended on September 18, 2000 (the "Agreement"). Copies of the Agreement and
the Memorandum have been filed with the Indiana Department of Insurance.
Assuming the completion of the Combination, AmerUs represents the following:
(1) Domicile -- Indianapolis Life will maintain its corporate
presence, home office and executive office in Indianapolis, Indiana. As
outlined in the Memorandum, the Combination contemplates a holding company
model with semi-autonomous business units.
(2) Employment -- Following the Combination, significant executive,
staff and operating functions will remain in Indianapolis, Indiana, as
outlined in the Memorandum. AmerUs will maintain employment in Indianapolis
substantially at pre-combination levels, subject to enterprise wide
employment reductions contemplated by the transaction and as outlined in
the Memorandum. Post closing reductions in positions will be shared roughly
proportionately by the AmerUs and Indianapolis Life organizations subject
to the principles contained in the Memorandum. The positions present in
Indianapolis after the Combination will include a cross section of
executives, professional, middle management and non-exempt positions.
Additionally, the operations in Indianapolis have, in the opinion of
AmerUs' management, some of the greatest growth potential in the AmerUs
family of companies that, if realized, would result in substantial growth
in employment in Indianapolis. One of the most promising of these
opportunities is the commitment to build a variable products administration
capability in Indianapolis for Indianapolis Life and its subsidiaries.
Also, AmerUs plans to have term life insurance products for the entire
enterprise developed and administered in Indianapolis as provided in the
Memorandum.
(3) Community Support -- Charitable giving by Indianapolis Life in
Indiana will be continued at or above current levels. Indianapolis Life and
its employees have been leaders in community activities in Indianapolis and
the State of Indiana. AmerUs is a strong advocate of this type of
involvement and it is planned that the current level of involvement by
Indianapolis Life and its employees will continue.
<PAGE> 228
Hon. Sally McCarty
Commissioner, Indiana Department of Insurance
State of Indiana
311 W. Washington Street, Suite 300
Indianapolis, IN 46204-2787
Page 2
AmerUs hereby also confirms that it will treat the Memorandum as if it were
addressed to the Commissioner in addition to Indianapolis Life. In addition, the
post-combination plan referred to in the Memorandum will be submitted to the
Commissioner as part of the statement AmerUs will file pursuant to the
requirements of IC 27-1-23-2(b).
These undertakings are based on the current projections of the future
business of AmerUs and its subsidiaries and Indianapolis Life and its
subsidiaries and are subject to the terms and conditions contained in the
Memorandum.
AmerUs believes that this letter demonstrates its commitment to the State
of Indiana following the Combination.
Sincerely yours,
/s/ Roger K. Brooks
Roger K. Brooks
Chairman, President and Chief Executive Officer
<PAGE> 229
APPENDIX
AMERUS GROUP CO.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF AMERUS GROUP
CO.
FOR THE SPECIAL MEETING TO BE HELD ON [ ], [ ].
[ ], [ ] and [ ], or any of them, each with power of substitution,
are hereby authorized to vote the shares of the undersigned at the Special
Meeting of shareholders of AmerUs Group Co., to be held on [ ], [ ], at
9:00 a.m., Des Moines time, at the AmerUs Conference Center, Hub Tower, 3rd
Floor, 699 Walnut Street, Des Moines, Iowa, and at any adjournment or
postponement thereof, upon the proposal to issue up to 10.3 million shares of
common stock in connection with the acquisition of Indianapolis Life Insurance
Company, voting as specified on the reverse side of this card with respect to
such proposal.
Signing and dating AmerUs' proxy card will have the effect of revoking any
proxy card you signed on an earlier date, and will constitute a revocation of
all previously granted authority to vote on the proposal included on such other
proxy card.
PROPOSAL: TO APPROVE THE ISSUANCE OF UP TO 10.3 MILLION SHARES OF COMMON
STOCK IN CONNECTION WITH THE ACQUISITION OF INDIANAPOLIS LIFE INSURANCE COMPANY.
PLEASE SIGN AND DATE THE REVERSE SIDE OF THIS PROXY CARD AND PROMPTLY RETURN
IT IN THE ENCLOSED ENVELOPE.
YOU MAY SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE BOX ON THE REVERSE
SIDE, BUT YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN ACCORDANCE WITH THE
BOARD OF DIRECTORS' RECOMMENDATION. THE PERSONS NAMED ABOVE AS PROXIES CANNOT
VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
(continued on reverse side)
<PAGE> 230
(Reverse Side)
[X] PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
DIRECTORS RECOMMEND A VOTE "FOR" THE PROPOSAL
PROPOSAL:
APPROVAL OF THE ISSUANCE OF UP TO 10.3 MILLION SHARES OF AMERUS COMMON STOCK IN
CONNECTION WITH THE ACQUISITION OF INDIANAPOLIS LIFE INSURANCE COMPANY.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
I plan to attend the meeting. [ ]
NOTE: Please sign exactly as
name appears hereon. Joint
owners should each sign. When
signing as attorney, executor,
administrator, trustee or
guardian, give full title as
such. If signing on behalf of a
corporation, sign the full
corporate name by an authorized
officer. The signer hereby
revokes all proxies heretofore
given by the signer to vote at
the Special Meeting of
shareholders of AmerUs Group
Co. and any adjournment or
postponement thereof.
Date: , 2000 Signature(s):
--------------- -------------------------------------------------
