<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1995
Registration No. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------
CITIZENS, INC.
(Exact name of registrant as specified in its charter)
COLORADO 6311 84-0755371
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
400 EAST ANDERSON LANE
AUSTIN, TEXAS 78752
(512) 837-7100
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
----------
HAROLD E. RILEY, CHAIRMAN OF THE BOARD
CITIZENS, INC.
400 EAST ANDERSON LANE
AUSTIN, TEXAS 78752
(512) 837-7100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------
COPIES TO:
REID A. GODBOLT, ESQ. PATRICK J. BROWNE, ESQ.
JONES & KELLER, P.C. MONTGOMERY, BARNETT, BROWN, READ,
1625 BROADWAY, SUITE 1600 HAMMOND & MINTZ, L.L.P.
DENVER, COLORADO 80202 3200 ENERGY CENTRE, 1100 POYDRAS STREET
(303) 573-1600 NEW ORLEANS, LOUISIANA 70163-3200
(504) 585-3200
----------
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the effective date of this
Registration Statement
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================================
Title of each class of Amount to Proposed maximum Proposed Amount of
securities to be registered be registered offering price maximum aggregate registration fee
per share offering price
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, 2,341,334(1) $8.50(2) $19,901,339(2) $6,863
No Par Value shares
=============================================================================================================================
</TABLE>
(1) Represents the maximum number of shares of the Registrant's Class A
Common Stock to be issued in connection with the Merger described
herein.
(2) Estimated pursuant to Rule 457(f)(1) and (2) solely for the purpose of
calculating the registration fee based on the market value of the
securities to be received by the Registrant as determined on April 27,
1995.
================================================================================
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the commission, acting pursuant to said Section 8(a),
may determine.
----------
This Registration Statement consists of 171 consecutively numbered pages.
The Exhibit Index is on consecutively numbered page 139.
<PAGE> 2
CITIZENS, INC.
Cross-Reference Sheet
For
Registration Statement on Form S-4 and Prospectus-Proxy Statement
<TABLE>
<CAPTION>
Form S-4
Item No. Item Caption Heading in Prospectus
- --------- ------------ ---------------------
<S> <C> <C>
1 Forepart of Registration Statement Outside Front Cover
and Outside Front Cover Page of
Prospectus
2 Inside Front and Outside Back Cover Inside Front Cover
Pages of Prospectus
3 Risk Factors, Ratio of Earnings to Summary; Risk Factors; The Merger
Fixed Charges and Other Information
4 Terms of the Transaction Summary; The Merger
5 Pro Forma Financial Information Unaudited Pro Forma Combined Financial Statements and Selected
Comparative and Pro Forma Financial Data
6 Material Contacts with the Company Summary; The Merger - Background
Being Acquired and Reasons For The Merger
7 Additional Information Required for Not applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
8 Interests of Named Experts and Not applicable
Counsel
9 Disclosure of Commission Position Not applicable
on Indemnification for Securities Act
Liabilities
10 Information with Respect to S-3 Incorporation of Certain Documents
Registrants by Reference; Risk Factors
11 Incorporation of Certain Information Incorporation of Certain Documents
by Reference by Reference
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C>
12 Information with Respect to S-2 or Information Concerning ALFC;
S-3 Registrant Incorporation of Certain Documents by Reference
13 Incorporation of Certain Information Incorporation of Certain Documents
by Reference by Reference
14 Information with Respect to Not applicable
Registrants Other Than S-2
or S-3 Registrants
15 Information with Respect to S-3 Not applicable
Companies
16 Information with Respect to S-2 or Summary; Information Concerning ALFC
S-3 Companies
17 Information with Respect to Not applicable
Companies Other than S-2 or
S-3 Companies
18 Information if Proxies, Consents Summary; Combined Annual and Special Meeting
or Authorizations are to be Solicited
19 Information if Proxies, Consents Not applicable
or Authorizations Are Not To Be
Solicited or in an Exchange Offer
</TABLE>
iii
<PAGE> 4
NOTICE OF COMBINED ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 27, 1995
________________________________________
To the Shareholders of American Liberty Financial Corporation:
Notice is hereby given that a Combined Annual and Special Meeting (the
"Meeting") of shareholders of American Liberty Financial Corporation ("ALFC")
will be held on Thursday, July 27, 1995 at 10:00 a.m. Central Time, at Baton
Rouge Country Club, Fairway Room, Second Floor, 8551 Jefferson Highway, Baton
Rouge, Louisiana to consider and act upon the following:
1. To vote upon approval and adoption of a Plan and Agreement of
Merger dated December 8, 1994 ("Merger Agreement") under which Citizens
Acquisition, Inc., a wholly-owned subsidiary of Citizens, Inc., will merge (the
"Merger") with and into ALFC, with ALFC being the survivor, and shareholders of
ALFC will receive shares of Citizens, Inc. Class A Common Stock for their ALFC
Common and Preferred shares as described in the accompanying Proxy
Statement-Prospectus.
2. To elect a full board of six Directors to serve until (i) the
Merger is consummated; or (ii) if the Merger is not consummated, until the next
annual meeting and until their successors are elected and qualified.
3. To transact such other business, if any, as may properly come
before the Meeting or any adjournment thereof.
Only shareholders of record of ALFC Common Stock as of the close of
business on June 8, 1995 will be entitled to notice of and to vote at the
Meeting. No holders of ALFC Preferred Stock have voting rights with respect to
the matters to be addressed at the Meeting.
Shareholders, including holders of ALFC preferred stock, may, under
certain circumstances, dissent from the Merger and obtain payment for shares,
as described in the accompanying Proxy Statement-Prospectus. A copy of Part
XIII of the Louisiana Business Corporation Law, which sets forth the rights of
dissenters, is attached to the Proxy Statement-Prospectus as Appendix B.
Shareholders are cordially invited to attend the Meeting. Whether or
not you intend to attend the Meeting, please fill in, date, sign, and return
promptly the enclosed proxy card in the enclosed postage-prepaid envelope so
that your shares may be voted at the Meeting if you are unable to attend in
person. The giving of a proxy will not affect your right to vote in person if
you attend the Meeting.
ALFC's Annual Report to shareholders is enclosed.
By Order of the Board of Directors
W.P. Duplessis, Secretary
Baton Rouge, Louisiana
June 23, 1995
iv
<PAGE> 5
AMERICAN LIBERTY FINANCIAL CORPORATION
PROXY STATEMENT FOR COMBINED ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 27, 1995
CITIZENS, INC.
PROSPECTUS
CLASS A COMMON STOCK, NO PAR VALUE
UP TO 2,341,334 SHARES
This Proxy Statement-Prospectus is furnished in connection with the
solicitation by the Board of Directors of American Liberty Financial
Corporation ("ALFC") of proxies from holders of shares of ALFC Common Stock,
for use at the Combined Annual and Special Meeting of ALFC Shareholders (the
"Meeting") to be held on July 27, 1995. This Prospectus pertains to the number
of shares of Class A Common Stock, no par value, of Citizens, Inc. ("Citizens")
to be issued in connection with a Plan and Agreement of Merger dated December
8, 1994 ("Merger Agreement") by and among Citizens, ALFC, Citizens Acquisition,
Inc. ("Acquisition") and American Liberty Life Insurance Company ("ALLIC").
Upon consummation of the Merger, each outstanding share of ALFC Common Stock,
will be converted into 1.10 shares of Citizens Class A Common Stock, and each
outstanding share of ALFC Preferred Stock, will be converted into 2.926 shares
of Citizens Class A Common Stock, all as described in this Proxy
Statement-Prospectus. No fractional shares of Citizens Class A Common Stock
will be issued in the Merger; rather, share fractions will evidence the right
to receive a cash value per fractional share of Citizens Class A Common stock
which will equal the average closing price of the Class A Common Stock as
reported on the American Stock Exchange for the five trading days prior to the
effective date of the Merger. At present, the directors of ALFC know of no
other matters to be presented at the Meeting, other than the election of
directors of ALFC. All information contained in the Proxy Statement-Prospectus
with respect to Citizens and Acquisition has been furnished by Citizens and all
information with respect to ALFC and ALLIC has been furnished by ALFC. The
approximate date of mailing of this Proxy Statement- Prospectus to shareholders
of ALFC is June 23, 1995.
________________________
Your proxy in the form enclosed is solicited by the Board of Directors of ALFC
for use at the Meeting. Only shareholders of record at the close of business
on June 8, 1995 are entitled to notice of and to vote at the Meeting. On June
8, 1995, the number of outstanding shares of ALFC Common Stock entitled to be
voted at the Meeting was 2,099,296, each of which is entitled to one vote; the
number of outstanding shares of ALFC's Preferred Stock was 10,485, which are
not entitled to vote. If the accompanying proxy form is signed and returned,
the shares represented thereby will be voted as instructed. In the event no
instructions are given, it will be voted for the Merger and for the election of
the nominees listed below and upon such other matters as may properly come
before the Meeting. If, after sending in your proxy, you decide to vote in
person or decide to revoke your proxy for any other reason, you may do so by
notifying the Secretary in writing prior to the voting of the proxy.
The expenses of soliciting proxies and the cost of preparing, assembling and
mailing material in connection with the solicitation of proxies will be borne
by ALFC. In addition to the use of the mails, certain directors, officers or
regular employees of ALFC or its subsidiaries, who receive no compensation for
their services other than their regular salaries or fees, if any, may solicit
proxies personally.
The Directors and management of ALFC know of no matters to be brought before
the Meeting other than those mentioned herein. If, however, any other matters
properly come before the Meeting, it is intended that the proxies will be voted
in accordance with the judgment of the person or persons voting such proxies.
This proxy statement and the material which accompany it are expected to be
mailed to ALFC shareholders on or about June 23, 1995. The ALFC 1994 Annual
Report to shareholders is enclosed.
________________________
The Citizens Class A Common Stock is listed on the American Stock Exchange
under the symbol "CIA." On ______________, 1995, the closing price of Citizens
Class A Common Stock was $ per share.
________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR
HAS THE COMMISSION OR ANY STATE REGULATORY AUTHORITY PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
________________________
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES SIGNIFICANT RISKS. SEE
"RISK FACTORS."
________________________
<PAGE> 6
No person is authorized to give any information or to make any representation
not contained in this Proxy Statement-Prospectus, and if given or made, such
information or representation should not be relied upon as having been
authorized. This Proxy Statement- Prospectus does not constitute an offer to
exchange or sell, or a solicitation of an offer to exchange or purchase, the
securities offered hereby, or the solicitation of a proxy, in any jurisdiction
to or from any person to whom it is unlawful to make such offer or solicitation
in such jurisdiction. Neither the delivery of this Proxy Statement-Prospectus
nor any distribution of the securities to which this Proxy Statement-Prospectus
relates shall, under any circumstances, create an implication that there has
been no change in the affairs of Citizens, Acquisition, ALFC or ALLIC.
This Proxy Statement-Prospectus does not cover any resales of shares of the
securities offered hereby to be received by shareholders of ALFC upon
consummation of the Merger Agreement. No person is authorized to use this
Proxy Statement-Prospectus in connection with such resales, although such
securities may be traded without use of this Proxy Statement-Prospectus by
those shareholders of ALFC not deemed to be "affiliates" of either ALFC or
Citizens.
________________________
The principal executive offices of both Citizens and Acquisition are located at
400 East Anderson Lane, Austin, Texas 78752, telephone (512) 837-7100. The
principal executive offices of ALFC are located at Suite 302, 4962 Florida
Boulevard, Baton Rouge, Louisiana 70896, telephone (504) 927-9630.
________________________
The date of this Proxy Statement-Prospectus is June 23, 1995.
I-II
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-V
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-VI
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-VII
COMPARATIVE PER SHARE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-XIV
SELECTED SUMMARY FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-XV
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
COMBINED ANNUAL AND SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PROPOSED MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
INFORMATION CONCERNING CITIZENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SOURCE OF CITIZENS SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
RIGHTS OF ALFC DISSENTING SHAREHOLDERS TO RECEIVE PAYMENT FOR SHARES . . . . . . . . . . . . . . . . . . . . . . . 25
INFORMATION CONCERNING ALFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ALFC and its Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ALFC MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . 31
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . 35
COMPARISON OF RIGHTS OF SECURITYHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Authorized Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Dividend Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
I-III
<PAGE> 8
<TABLE>
<S> <C>
Liability of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Liquidation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Assessment and Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
DEADLINE FOR CITIZENS SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
APPENDIX A -- PLAN AND AGREEMENT OF MERGER - AMERICAN LIBERTY FINANCIAL
CORPORATION, AMERICAN LIBERTY LIFE INSURANCE COMPANY,
CITIZENS, INC. AND CITIZENS ACQUISITION, INC., DATED DECEMBER
8, 1994
APPENDIX B -- PART XIII OF THE LOUISIANA BUSINESS CORPORATION LAW GOVERNING
RIGHTS OF DISSENTING ALFC SHAREHOLDERS
I-IV
<PAGE> 9
AVAILABLE INFORMATION
Both Citizens and ALFC are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Those reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
SEC at 13th Floor, 7 World Trade Center, New York, New York 10048, and Suite
1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such materials can be obtained at prescribed rates from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, such reports, proxy statements and other
information concerning Citizens may be inspected at the offices of the American
Stock Exchange, 86 Trinity Place, New York, New York 10006-1881.
Citizens has filed with the SEC a Registration Statement on Form S-4
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the shares of Citizens Class A Common
Stock to be issued in the Merger. This Proxy Statement-Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC. For further information with respect to Citizens and the Citizens Class A
Common Stock, reference is made to the Registration Statement, including the
exhibits thereto. Statements contained herein concerning the provisions of
certain documents are not necessarily complete, and in each instance, reference
is made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the SEC. Each such statement is qualified in
its entirety by such reference.
I-V
<PAGE> 10
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following document, which has been filed by ALFC with the SEC
pursuant to the Exchange Act (File No. 0-8873), is incorporated by reference
into this Proxy Statement-Prospectus and is deemed to be a part hereof: (a)
ALFC's Annual Report on Form 10-KSB for the year ended December 31, 1994 (the
"ALFC Form 10-KSB").
The following documents, which have been filed by Citizens with the
SEC pursuant to the Exchange Act (File No. 0-16509), are incorporated by
reference into this Proxy Statement-Prospectus and are deemed to be a part
hereof: (a) Citizens' Annual Report on Form 10-K for the year ended December
31, 1994 (the "Citizens Form 10-K"); and (b) the description of the Citizens'
Class A Common Stock contained in its Registration Statement on Form 8-A
declared effective by the SEC on April 14, 1994. All documents filed by
Citizens pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement-Prospectus and prior to the
Meeting shall be deemed to be incorporated by reference into this Proxy
Statement-Prospectus and to be part hereof from the date of the filing of such
documents.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein will be deemed to be modified or
superseded for purposes of this Proxy Statement-Prospectus to the extent that a
statement contained herein or in any subsequently filed document that also is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part of this Proxy Statement-Prospectus, except as so modified or
superseded.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS
(EXCLUDING EXHIBITS THERETO, UNLESS SUCH EXHIBITS ARE INCORPORATED BY REFERENCE
INTO SUCH DOCUMENTS) ARE AVAILABLE TO EACH PERSON TO WHOM THIS PROXY
STATEMENT-PROSPECTUS IS SENT (INCLUDING BENEFICIAL OWNERS OF ALFC COMMON STOCK
AND PREFERRED STOCK), UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH COPIES
SHOULD BE DIRECTED TO W.P. DUPLESSIS, SECRETARY, AMERICAN LIBERTY FINANCIAL
CORPORATION, 4962 FLORIDA BOULEVARD, SUITE 302, P.O. BOX 64626, BATON ROUGE,
LOUISIANA 70896. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY JULY 14, 1995.
_____________________________
I-VI
<PAGE> 11
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement-Prospectus. This Summary is not intended to be
complete and is qualified in its entirety by reference to the more detailed
information appearing in this Proxy Statement-Prospectus, including the
Appendices. Shareholders of ALFC are urged to read this Proxy
Statement-Prospectus in its entirety.
THE PARTIES TO THE MERGER
Citizens, Inc. ("Citizens") is a Colorado corporation which is an
insurance holding company. The principal executive office of Citizens is
located at 400 East Anderson Lane, Austin, Texas 78752, and the telephone
number at such office is (512) 837-7100.
Citizens Acquisition, Inc. ("Acquisition"), a Louisiana corporation,
is a wholly-owned subsidiary of Citizens which was formed solely to effectuate
the Merger. Acquisition has the same principal executive office as Citizens.
American Liberty Financial Corporation ("ALFC") is a Louisiana
corporation which is a financial holding company. The principal executive
office of ALFC is located at Suite 302, 4962 Florida Boulevard, Baton Rouge,
Louisiana 70896. The telephone number at such office is (504) 927-9630.
Neither ALFC nor any of its officers or directors are affiliated with Citizens,
nor are any officers or directors of Citizens affiliated with ALFC.
American Liberty Life Insurance Company ("ALLIC") is a Louisiana
domestic insurance company which is wholly-owned by ALFC. ALLIC has the same
principal executive office as ALFC. It is contemplated that ALLIC will act as
a separate indirect subsidiary of Citizens after the Merger.
<TABLE>
<S> <C>
AMERICAN LIBERTY FINANCIAL CORPORATION MEETING OF
SHAREHOLDERS
PERSONS ENTITLED TO VOTE; RECORD DATE Holders of record of shares of ALFC Common Stock, $.125 par
value, at the close of business on June 8, 1995 ("Record
Date"), will be entitled to notice of and to vote at the
Combined Annual and Special Meeting of Shareholders (the
"Meeting"). Holders of ALFC Preferred Stock do not have
voting rights on any matters to be considered at the
Meeting, but have the right to dissent from the proposed
Merger described below. See "Rights of ALFC Dissenting
Shareholders to Receive Payment For Shares" and "Combined
Annual and Special Meeting -- Voting Securities."
</TABLE>
I-VII
<PAGE> 12
<TABLE>
<S> <C>
DATE, TIME AND PLACE OF MEETING The Meeting will be held on July 27, 1995, at 10:00 a.m. Central Time,
at the Baton Rouge Country Club, Second Floor, Fairway Room, 8551
Jefferson Highway, Baton Rouge, Louisiana.
BUSINESS TO BE TRANSACTED At the Meeting, shareholders will be asked to consider and vote upon
approval of a Plan and Agreement of Merger ("Merger Agreement") under
which Citizens Acquisition, Inc. will merge with and into ALFC with
shareholders of ALFC receiving shares of Citizens Class A Common
Stock ("the Merger") and vote upon the election of six directors.
Pursuant to the Merger Agreement, ALFC common shareholders will
receive 1.10 shares of Citizens Class A Common Stock for each one
share of ALFC common stock owned, and ALFC preferred shareholders will
receive 2.926 shares of Citizens Class A Common Stock for each one
share of ALFC Preferred Stock owned.
PROXY REVOCABILITY Proxies are revocable at any time prior to voting at the Meeting. See
"Combined Annual and Special Meeting -- Revocability of Proxies."
REQUIRED VOTE Approval of the Merger Agreement and the transactions contemplated
thereby requires the affirmative vote of holders of a majority of
ALFC Common Shares present and voting at the Meeting. See "Combined
Annual and Special Meeting -- Voting Securities." No shareholder
vote of Citizens is required by the Merger Agreement or applicable
law. As of the Record Date there were 16,980,340 issued and
outstanding shares of Citizens Class A Common Stock.
</TABLE>
I-VIII
<PAGE> 13
<TABLE>
<S> <C>
RECOMMENDATION OF THE BOARD OF DIRECTORS The ALFC Board of Directors has unanimously approved the Merger
Agreement and recommends that the shareholders vote FOR approval of
the Merger. This recommendation is based on factors described under
"Proposed Merger -- Background and Reasons for the Merger," and that
based upon considerations set forth therein, the exchange ratio in the
Merger Agreement is fair, from a financial point of view to all of the
shareholders of ALFC.
OUTSTANDING SHARES OF ALFC As of the Record Date, there were outstanding 2,099,296 and up to
1,138 presently in scrip shares of ALFC Common Stock. As of the record
date, ALFC directors, executive officers and their affiliates held
812,967 shares of ALFC Common Stock (not including ALFC Preferred
Stock not converted into ALFC Common Stock as of the Record Date) or
approximately 38.7% of the outstanding ALFC shares of ALFC
Common Stock entitled to vote on the Merger. An affirmative vote of a
majority of the voting shares present at a duly called meeting of
ALFC shareholders is required to approve the Merger. Citizens has the
option of not completing the Merger if the holders of more than 2.5%
of outstanding ALFC shares of stock perfect dissenters' rights. See
"Combined Annual and Special Meeting -- Voting Securities: and "Rights
of Dissenting Shareholders."
THE MERGER AGREEMENT
SUMMARY OF THE TRANSACTION Citizens, Acquisition, ALFC and ALLIC have entered into a Plan and
Agreement of Merger dated December 8, 1994 ("Merger Agreement")
in which Citizens Acquisition will merge with and into ALFC and ALFC
shareholders will receive shares of Citizens Class A Common Stock (the
"Merger").
</TABLE>
I-IX
<PAGE> 14
<TABLE>
<S> <C>
CONSIDERATION FOR EACH SHARE OF ALFC Pursuant to the Merger Agreement, ALFC Common Stock shareholders
(including holders of scrip shares) will receive 1.10 shares of
Citizens Class A Common Stock for each one share of ALFC common stock
held and each ALFC Preferred Stock shareholder will receive 2.926
shares of Citizens Class A Common Stock for each one share of ALFC
Preferred Stock held. Fractional shares will not be issued in the
Merger; rather, such fractional shares shall evidence the right to
receive a cash value per fractional share of Citizens Class A Common
Stock equal to the average closing price of the Citizens Class A
Common Stock as reported on the American Stock Exchange for the five
trading days prior to the effective date of the Merger. Any holder of
ALFC stock who shall have properly perfected the dissenters' rights
under Louisiana law shall not have the right to receive Citizens Class
A Common Stock, but only cash. See "Proposed Merger--Receipt of
Citizens Shares" and "Rights of ALFC Dissenting Shareholders to
Receive Payment For Shares."
CLOSING DATE The Merger Agreement provides that the actions contemplated thereby
will be completed at closing ("Closing") on a closing date ("Closing
Date") which shall be as soon as possible after all regulatory
approvals and shareholder approvals are obtained in accordance with
law and shall become effective ("Effective Date") on or as soon as
possible after the Closing Date. It is fully anticipated that the
Closing will occur and the Merger will be effective on or shortly
after shareholder approval is obtained, but there can be no assurance
that the conditions to the Merger will be satisfied or that the
Merger will be consummated.
</TABLE>
I-X
<PAGE> 15
<TABLE>
<S> <C>
CONDUCT OF BUSINESS OF ALFC PRIOR TO ALFC and ALLIC have agreed that they will not enter into any
CLOSING transactions prior to the Effective Date of the Merger other than in
the ordinary course of business and will pay no stockholder dividends
nor increase the compensation of officers and will not enter
into any agreement or transaction which will adversely affect their
respective financial conditions. See "Proposed Merger--Conduct of
Business Pending the Merger; Other Covenants of the Parties."
DISSENTERS' RIGHTS Under the Louisiana Business Corporation Law, shareholders of ALFC
have the right to dissent from the Merger and demand payment of
the value of their shares in cash. If holders of more than 2.5% of the
outstanding shares of ALFC qualify as dissenters, Citizens may, at its
option, decline to proceed with the Merger. See "Rights of ALFC
Dissenting Shareholders to Receive Payment for Shares," "Proposed
Merger--Other Conditions to Consummation of the Merger," and Appendix
B which sets forth the relevant Louisiana statutes concerning rights
of dissenting shareholders.
CONDITIONS PRECEDENT TO THE MERGER In addition to approval by holders of ALFC Common Stock, the Merger is
subject to the satisfaction (or waiver by the party entitled to the
benefit thereof) of a number of conditions including (1) the
performance by each party of its respective obligations, (2) the
absence of any legal proceedings relating to the transactions
contemplated by the Merger Agreement, (3) the continued material
accuracy of representations made by each party, and (4) the delivery
of certain legal opinions. See "Proposed Merger--Other Conditions to
Consummation of the Merger."
</TABLE>
I-XI
<PAGE> 16
<TABLE>
<S> <C>
SUMMARY OF FEDERAL INCOME TAX CONSIDERATIONS The Merger is intended to be treated as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and that, accordingly, for federal income tax
purposes: (i) no material gain or loss will be recognized by ALFC or
Citizens as a result of the Merger; (ii) no gain or loss will
generally be recognized by holders of ALFC Common Stock and ALFC
Preferred Stock on the exchange of their shares of their ALFC stock
for Citizens Class A Common Stock pursuant to the Merger; and (iii)
the aggregate adjusted tax basis of the Citizens Class A Common Stock
received by an ALFC shareholder in exchange for Citizens Class A
Common Stock will be the same as the basis of the ALFC stock
surrendered in exchange therefor. If the Merger were not to so
qualify, the exchange of shares would be taxable. Consummation of the
Merger is conditioned upon receipt by ALFC of an opinion of counsel
substantially to such effect. See "Certain Federal Income Tax
Consequences."
ALFC SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING
THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER, AS WELL AS
ANY APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES, IN
LIGHT OF THEIR OWN PARTICULAR TAX SITUATIONS.
</TABLE>
I-XII
<PAGE> 17
<TABLE>
<S> <C>
TERMINATION OF THE MERGER AGREEMENT The Merger Agreement may be terminated by either party if the
Effective Date does not occur by August 31, 1995. See "Proposed
Merger--Other Conditions to Consummation of the Merger." The Merger
Agreement may be amended upon the approval of the Board of Directors
of each party provided that the number of shares of Citizens Class A
Common Stock to be issued cannot be changed without the approval of
the shareholders of ALFC. In addition, the Merger Agreement may be
terminated and amended at any time prior to the Effective Date by
unanimous consent of the parties; by any of the beneficiaries to
conditions precedent to the consummation of the Merger unless the
condition has been satisfied or waived; by any party if any suit,
action, or proceedings pending in a court or governmental agency
threatens to prohibit the transactions contemplated by the Merger; or
if any party has discovered any material error in the representations
of the other parties. See "Proposed Merger--Termination or Amendment
of the Merger Agreement."
ELECTION OF DIRECTORS An additional item to be considered at the Meeting is the election of
a Board of Directors consisting of six members to hold office until
(i) the Merger is consummated; or (ii) if the Merger is not
consummated, until the next annual meeting of shareholders and
until their successors shall be elected and shall qualify. See
"Election of Directors."
OTHER MATTERS The ALFC Board knows of no other matters that will come before the
Meeting. If any additional matters come before the Meeting, the
proxies will be voted at the discretion of the proxy holder.
</TABLE>
I-XIII
<PAGE> 18
COMPARATIVE PER SHARE DATA
The following table compares the historical and pro forma per share
data for Citizens and ALFC. The pro forma data reflects the Merger as if it
were accounted for as a purchase. The data contained in the table is based
upon the historical and pro forma financial statements appearing elsewhere
herein and should be read in conjunction with the financial statements and the
related notes (all data in thousands, except per share amounts).
<TABLE>
<CAPTION>
HISTORICAL
CITIZENS HISTORICAL
CLASS A ALFC EQUIVALENT SHARE
COMMON STOCK COMMON STOCK PRO FORMA ALFC COMMON
------------ ------------ --------- ----------------
<S> <C> <C> <C> <C>
Income per share
before extraordinary items
Year Ended December $0.25 $(0.20) $0.25 $0.28
31, 1994
Book value per share at
December 31, 1994 $1.99 $3.82 $2.75 $3.03
</TABLE>
Equivalent per share data was computed by multiplying the pro forma
per share amounts by the exchange rate. No cash dividends have been paid by
either Citizens or ALFC.
I-XIV
<PAGE> 19
SELECTED SUMMARY FINANCIAL INFORMATION
CITIZENS, INC.
INTRODUCTION TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet
reflects the purchase of ALFC by Citizens as if it occurred on December 31,
1994. The unaudited pro forma condensed consolidated income statement reflects
the purchase of ALFC as if it had occurred on January 1, 1994. These financial
statements should be read in conjunction with the accompanying notes and the
separate historical financial statements of Citizens and ALFC included
elsewhere herein. These pro forma financial statements include also the planned
acquisition of Insurance Investors & Holding Co. ("Insurance Investors" or
"II").
Management's estimate of the impact of applying purchase accounting,
as if the two acquisitions had occurred as of January 1, 1994, is presented
below. The unaudited pro forma financial information is not necessarily
indicative either of the results of operations that would have occurred had the
acquisition been consummated at the beginning of 1994 or of future results of
operations of the consolidated entities.
I-XV
<PAGE> 20
PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS)
PRO-FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
ASSETS CITIZENS INC. HISTORICAL HISTORICAL PURCHASE
------ AND ALFC AND INSURANCE ADJUSTMENTS AND PRO-FORMA
SUBSIDIARIES SUBSIDIARIES INVESTORS ELIMINATIONS CONSOLIDATED
------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Long term Investments $93,829 14,339 2,173 (1,328) (a) 109,013
Short term Investments 0 734 0 734
- --- - ---
Total Investments 93,829 15,073 2,173 (1,328) 109,747
Cash 4,259 712 165 5,136
Other receivables 1,593 668 0 2,261
Accrued investment
income 1,570 307 34 1,911
Deferred policy
acquisition costs 34,537 6,950 52 (7,002) (b) 34,537
Cost of Insurance
acquired 2,272 0 0 6,106 (b) 8,378
Excess of cost over net
assets acquired 3,345 0 0 11,360 (c) 14,705
Deferred taxes 1,521 1,831 0 (946) (e) 2,406
Other assets 6,872 772 3 7,647
--------- -------- -------- --------
Total Assets 149,798 26,313 2,427 8,190 186,728
</TABLE>
I-XVI
<PAGE> 21
PRO-FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND HISTORICAL
---------------- CITIZENS INC HISTORICAL HISTORICAL PURCHASE
STOCKHOLDERS EQUITY AND ALFC AND INSURANCE ADJUSTMENTS AND PRO-FORMA
-------------------- SUBSIDIARIES SUBSIDIARIES INVESTORS ELIMINATIONS CONSOLIDATED
------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Future policy benefit
reserves 101,755 14,183 720 692 (d) 117,350
Other policyholder
liabilities 8,310 1,745 366 10,421
Other liabilities 3,965 392 17 4,374
Notes payable 712 0 268 980
Deferred tax liability 0 1,870 0 (1,827) (f) 43
Minority interest 0 17 94 (111) (f) 0
------ ----- ----- ------- ------
Total liabilities 114,742 18,207 1,465 (1,246) 133,168
Class A common stock 21,457 262 819 17,423 (f) 39,961
Class B common stock 283 0 47 (47) (f) 283
Preferred stock 0 262 0 (262) (f) 0
Additional Paid-in
capital 0 6,019 576 (6,595) (f) 0
Unrealized loss on
investments (2,970) 0 (19) 19 (f) (2,970)
Retained earnings 18,467 1,563 (452) (1,111) (f) 18,467
------ ----- ----- ------- ------
37,237 8,106 971 9,427 55,741
Treasury stock (2,181) 0 (9) 9 (2,181)
------- - --- - -------
Total stockholders
equity 35,056 8,106 962 9,436 53,560
------ ----- --- ----- ------
Total liabilities and
stockholders equity 149,798 26,313 2,427 8,190 186,728
</TABLE>
I-XVII
<PAGE> 22
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
CITIZENS INC HISTORICAL HISTORICAL PURCHASE
AND ALFC AND INSURANCE ADJUSTMENTS AND PRO-FORMA
SUBSIDIARIES SUBSIDIARIES INVESTORS ELIMINATIONS CONSOLIDATED
------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Premiums $43,861 7,698 12 $51,571
Net investment income 5,296 1,026 26 6,348
Other 55 190 0 245
------- ----- -- -------
Total revenues 49,212 8,914 38 58,164
Benefits and Expenses
Policy benefits 31,301 4,970 25 36,296
Commissions 12,382 513 0 12,895
Capitalization of DAC (13,128) (1,737) 0 190 (b) (14,675)
Amortization of DAC 7,204 1,453 0 (726) (b) 7,931
Amortization of cost
of insurance acquired 421 0 0 305 (b) 726
Amortization of excess
of cost over net assets
acquired 186 0 0 568 (c) 754
Other expenses 5,079 4,260 39 9,378
------- ----- -- -------
Total benefits and
expenses 43,445 9,459 64 337 53,305
------ ----- -- --- ------
Income before taxes 5,767 (545) (26) (337) $4,859
Net income per share $0.25
(g)
</TABLE>
I-XVIII
<PAGE> 23
EXPLANATION OF PRO-FORMA ADJUSTMENTS:
(a) Adjustment necessary to record acquired fixed maturities at market
value.
(b) Reverse ALFC and II policy acquisition costs at December 31, 1994 and
establish cost of insurance acquired. Cost of insurance acquired represents the
estimated present value of future profits in the acquired business This amount
was calculated as the difference between ALFCs and II s historical future
policy benefit reserves and the estimated gross premium reserve at December 31,
1994. The gross premium reserve was estimated assuming a level interest yield
of 7%. Life mortality was based on appropriate multiples of the 1965-70 Select
and Ultimate and the Ultimate Intercompany Table and withdrawals based on Linton
B and BB tables as deemed appropriate based on individual life plan experience.
Accident and health morbidity was based on multiples of 1974 Cancer tables,
Stroke/Heart Attack Indemnity Table, 1985 NAIC Cancer Tables and published claim
costs and withdrawals based on Linton C and CC Tables as deemed appropriate
based on individual health plan experience. Cost of acquired is being amortized
in proportion to the profit over the lives of the respective policies.
(c) Excess of cost over net assets acquired was calculated as
follows: (in thousands)
<TABLE>
<CAPTION>
ALFC II
---- --
<S> <C> <C>
Acquisition of common
stock $17,575 929
Estimated fair value of (6,204)
-------
net assets acquired (940)
-----
Excess of cost
(purchase price) over
net assets acquired $11,371 (11)
======= ====
</TABLE>
The excess of cost over net assets acquired is being amortized over a
20-year period.
(d) Revaluation of policy benefit reserves to reflect Company
reserve assumption with regard to interest rates, lapse rates and surrenders.
(e) Establish deferred taxes for basis differences between book and
tax value of assets and liabilities at December 31, 1994.
(f) Eliminate ALFC and II capital, minority interest, and retained
earnings and record the cost of net assets acquired as increased capital of the
Company due to the issuance of additional Class A common shares.
I-XIX
<PAGE> 24
(g) Calculated using estimated common shares outstanding of
19,433,080.
I-XX
<PAGE> 25
RISK FACTORS
The following risk factors, in addition to those discussed elsewhere
in this Proxy Statement-Prospectus, should be considered carefully in
evaluating Citizens and its business.
SIGNIFICANT MARKET OVERHANG. Citizens has filed a registration
statement on Form S-3 with the Securities and Exchange Commission ("SEC")
relating to the public offer and sale by certain holders of Citizens Class A
Common Stock, including Harold E. Riley, Chairman of the Board of Citizens.
The registration statement relates to approximately 6,296,000 shares of Class A
Common Stock or approximately 39.2% of the Citizens Class A Common Stock
outstanding before the Merger. This registration statement has not been
declared effective by the SEC, although Citizens intends to request
effectiveness as soon as possible. It may be assumed that sales of significant
amounts of these shares in the public market could have a depressive effect on
the price of the Citizens Class A Common Stock. Further, the prospect of such
significant amounts of shares being offered into the public market place may
have a depressive effect on the price of the Citizens Class A Common Stock.
RECENT SALE OF SHARES AND EFFECT THEREOF. On October 27, 1994,
Citizens completed an offering of 916,375 shares of its Class A Common Stock
under an exemption from registration under the Securities Act of 1933. The
offering was made under Regulation S, which provides that shares which are
offered outside of the United States to non-United States persons pursuant to
certain specific guidelines may be resold in the United States by persons who
are not issuers, underwriters or dealers following the expiration of a 40-day
period after the close of the offering period. The offering price per share
was $7.00. The closing market price of the Class A common shares on the date
the offering commenced (May 2, 1994) was $7.75 per share (as reported on the
American Stock Exchange). Gross proceeds raised were $6,414,625 and net
proceeds were approximately $5,400,000. On December 21, 1994, Citizens
contributed $5,200,000 to its wholly-owned life insurance subsidiary. The
subsequent resale of the Citizens Class A shares sold in this offering into the
public market could adversely affect the price of the Citizens Class A Common
Stock and it may be assumed that overseas investors would have more of an
incentive to sell their Class A common shares because the price they paid for
such stock is $7.00 per share.
PROPOSED OFFERING OF 3,500,000 SHARES OF CITIZENS CLASS A COMMON STOCK
OUTSIDE THE UNITED STATES AND EFFECT THEREOF. In the late Spring of 1995,
Citizens intends to conduct an offering of up to 3,500,000 shares of Class A
Common Stock outside the United States pursuant to a safe harbor rule relating
to an exemption from registration under the Securities Act of 1933. The safe
harbor, Regulation S, provides that shares which are offered outside of the
United States to non-United States persons, pursuant to certain specific
guidelines may be resold in the United States by persons who are not issuers,
underwriters or dealers following the expiration of a 40-day period after the
close of the offering period. The offering price will be at a discount to the
then current market
1
<PAGE> 26
price of the Citizens Class A Common Stock as quoted on the American Stock
Exchange when the offering commences.
Management is unable to determine how successful the offering will be.
In the event all 3,500,000 shares are sold, the Company would realize gross
proceeds that management estimates would be in the range of $25 to $30 million,
based upon the current trading price of the Citizens Class A Common Stock.
Assuming the Merger is consummated, the issuance of the shares would have the
effect of increasing the aggregate number of Class A common shares outstanding
by approximately 18%.
Subsequent resale of these shares in the United States could have a
depressive effect upon the price of the Class A common shares, and it may be
assumed that overseas investors would have more of an incentive to sell their
Class A common shares because the price they paid for such stock will probably
be lower than the trading price of the Class A Common Stock.
DEPENDENCE ON CITIZENS' CHAIRMAN. Citizens relies heavily on the
active participation of its Chairman of the Board, Harold E. Riley. The loss
of his services would likely create a significant adverse effect on Citizens.
Citizens does not have an employment agreement with Mr. Riley, but does have
"key man" life insurance on Mr. Riley totaling $1.25 million of which Citizens
is the beneficiary. Citizens has no disability insurance regarding Mr. Riley.
CONTROL. The shares of outstanding Class B Common Stock of Citizens,
100% of which is owned indirectly (through the Harold E. Riley Trust) by Harold
E. Riley, Chairman of the Board of Citizens, have the right to elect a simple
majority of the Board of Directors of Citizens. This right may make it more
difficult and time consuming for a third party to acquire control of Citizens
or to change the Board of Directors of Citizens. Additionally, Mr. Riley is
the largest Class A shareholder. As a practical matter, Mr. Riley has veto
power over significant corporate transactions.
CONCENTRATION OF BUSINESS FROM PERSONS RESIDING IN THIRD WORLD
COUNTRIES. For the years ended December 31, 1994 and 1993, approximately 91.8%
and 92.5%, respectively, of Citizens' total insurance premium revenue was
derived from policies issued on the lives of Latin Americans. The policies
issued to such persons are ordinary, whole-life policies with an average face
amount of $60,000 and are marketed by independent marketing firms primarily to
heads of households which are in the top 3% to 5% income bracket of such
countries. Virtually all of the new business of Citizens' present life
insurance subsidiary comes from Latin America as well. There is a risk of loss
of a significant portion of sales to Latin Americans should adverse events
occur in the countries from which Citizens receives applications. To minimize
inherent risk, Citizens is not chartered as an insurance company in any foreign
country, maintains no assets or employees in foreign countries, accepts only
applications and premiums remitted directly to its main office in United States
currency drawn on U.S. banks, and includes various limitations to coverage
which are designed to minimize exposure to loss caused by social,
2
<PAGE> 27
economic and political conditions. Citizens is not aware of any adverse trends
in these countries which would have a material adverse impact on the Company's
business. Furthermore, management believes that political or economic
instability in these countries would likely have a favorable impact on its
business since such instability would generally strengthen the demand for U.S.
dollar-denominated policies.
INABILITY TO ELECT DIRECTORS. The Class A Common Stock of Citizens
being offered hereby represents a minority interest in Citizens. As cumulative
voting of shares is not permitted by the Articles of Incorporation of Citizens,
the shareholders of Citizens will not be in a position to elect any of
Citizens' directors or to otherwise control Citizens. Also, the Class B Common
Stock of Citizens elects a simple majority of the Citizens' Board. Therefore,
as a practical matter, control of Citizens lies outside the Class A
shareholders. See "Comparison of Rights of Security Holders."
NO DIVIDENDS. To date, Citizens has not paid cash dividends and its
current policy is to retain earnings for use in the operations and expansion of
its business. Hence, it is highly unlikely that cash dividends will be paid in
the near future. Also, the Class A Common Stock of Citizens has a right to
twice the cash dividends of the Class B shares. Because the Class B
shareholders control Citizens, there is little economic incentive for the Class
B shareholders to decide that cash dividends should be paid when they will
receive only one-half of the per share cash dividends of the Class A Common
shares, except that the holders of Class B Common shares are also the largest
holders of Class A Common shares of Citizens.
PERSISTENCY. Persistency is the extent to which policies sold remain
in force. Policy lapses over those actuarially anticipated could have an
adverse effect on the financial performance of Citizens. Policy sales costs
are deferred and recognized over the life of a policy. Excess policy lapses,
however, cause the immediate expensing or amortizing of deferred policy sales
costs. As long as Citizens maintains lapse and surrender rates within its
pricing assumptions for its insurance policies, Citizens believes that the
present lapse and surrender rate should not have a material adverse effect on
financial results. For the years ended December 31, 1994, 1993 and 1992, the
Citizens' lapse ratio on ordinary business was 5.1%, 6.7% and 6.5%,
respectively. In addition, most of Citizens' ordinary whole life policies are
sold to residents of Latin American countries. Most of the foreign
policyholders have elected, through independent third party trustees located
outside the United States, to have their cash dividends be used to accumulate
ownership of the Citizens Class A Common Stock in the open market. Management
believes that this arrangement serves to maintain persistency which is high by
industry standards.
COMPETITION. The life insurance business is highly competitive and
consists of a number of companies, many of which have greater financial
resources, longer business histories, and more diversified lines of insurance
coverage than Citizens. Such companies also generally have larger sales
forces. Citizens also faces competition from companies located within foreign
countries that conduct marketing in person and have direct mail
3
<PAGE> 28
sales campaigns. Citizens may be at a competitive disadvantage in competing
with these entities although management believes the products of Citizens
purchased by its policyholders are competitive in the marketplace. Competition
in the market in which Citizens competes is from three sources. First,
Citizens competes with companies who are formed and operated within a
particular county. These type of companies are subject to risks of currency
fluctuations and generally use mortality tables which are based on the
experience of the local population as a whole. As a result, their prospects of
providing an economic return to policyholders is more uncertain than a U.S.
dollar-based policy and their statistical cost of insurance is much higher than
Citizens because they use mortality tables that are based on significantly
shorter life spans than those that Citizens uses. The second source of
competition is from companies who are not formed within a given country but are
using local currencies. Again, the use of local-based currencies entails
greater risks of uncertainty, due to fluctuations of local currencies and
perceived instability and weakness of local currencies. Management has
observed that these first two types of companies tend to sell universal life
and annuities versus whole or ordinary life, which is the predominant type of
life insurance sold by Citizens. Citizens sells primarily whole life policies.
Finally, Citizens faces competition from companies who operate in the same mode
as Citizens. Management believes that Citizens' competitive advantages include
a history of performance, its sales force and its product, which has
consistently paid a policy cash dividend.
REGULATION. Insurance companies are subject to comprehensive
regulation in the jurisdictions in which they do business under statutes and
regulations administered by state insurance commissioners. Such regulation
relates to, among other things, prior approval of the acquisition of a
controlling interest in an insurance company; standards of solvency which must
be met and maintained; licensing of insurers and their agents; nature of and
limitations on investments; deposits of securities for the benefit of
policyholders; approval of policy forms and premium rates; triennial
examinations of insurance companies; annual and other reports required to be
filed on the financial condition of insurers or for other purposes; and
requirements regarding reserves for unearned premiums, losses and other
matters. Citizens is subject to this type of regulation in any state in which
it is licensed to do business. Such regulation could involve additional costs
and restrict operations.
Citizens is currently subject to regulation in Colorado under the
Colorado Insurance Holding Company Act. Intercorporate transfers of assets and
dividend payments from Citizens' life insurance subsidiaries are subject to
prior notice and approval if they are deemed "extraordinary" under these
statutes. Citizens is required under Colorado insurance laws to file detailed
annual reports with the Colorado Division of Insurance and all of the states in
which it is licensed. The business and accounts of life insurance subsidiaries
of Citizens are subject to examination by the Colorado Division of Insurance.
The most recent triennial examination of Citizens' life insurance subsidiary
was for the year ended December 31, 1991.
4
<PAGE> 29
Citizens is currently not subject to regulation in the various
countries in which its independent agents sell insurance policies, because it
provides persons insurance that is not available in the country in which such
persons reside and does not conduct business in such countries. However, there
can be no assurance that such lack of regulation will continue. Management is
not able to predict the effect of any such regulation of the business of
Citizens.
TRANSACTIONS WITH AFFILIATES. In the past, Citizens has completed a
number of substantial transactions with its affiliates. The largest such
transaction occurred on April 25, 1991 when the Board of Directors of Citizens,
with Harold Riley and Rick Riley abstaining, approved an Asset Transfer
Agreement ("Agreement") whereby Citizens acquired all of the assets and
liabilities of HERMAR Corporation ("HERMAR"), a corporation 100% owned by
Harold E. Riley and members of his family, in exchange for Citizens Class A and
Class B Common Stock. Under the terms of the Agreement, HERMAR transferred to
Citizens all of its assets, principally commercial real estate and Citizens
Class A and B Common Stock, in exchange for 665,162 shares of newly issued
Citizens Class A Common Stock plus the exchange of 7,047,474 Class A and
621,049 Class B common shares. The consideration was based on the market value
of the net assets transferred compared to the mean of the bid and ask price of
Citizens Class A Common Stock for the period from April 1, 1991 to April 19,
1991. The transaction was consummated in July 1991 with an effective date of
April 1, 1991. Management does not believe that the frequency or magnitude of
these transactions will occur in the future, although as a practical matter,
Citizens and its affiliates are not restricted from entering into additional
business relationships in the future. The transactions entered into with
affiliates have been, in the opinion of management, on terms as favorable to
Citizens as were obtainable from unaffiliated third parties. Citizens requires
that all officers and directors disclose conflicts of interest to the Board of
Directors. Additionally, all material contracts that involve affiliates are
approved by the Board of Directors, and in such approval, affiliates have
abstained from participation in the voting process.
UNINSURED CASH BALANCES. Citizens maintains average cash balances in
two primary depositories that are significantly in excess of Federal Deposit
Insurance Corporation coverage, Texas Commerce Bank, Austin, Texas and Frost
National Bank, Austin, Texas. If these depositories were to cease business,
Citizens would likely lose a substantial amount of its cash. At December 31,
1994, Citizens had approximately $1.69 million in Texas Commerce Bank and
approximately $1.27 million in Frost National Bank. However, management
monitors the solvency of these depositories and does not believe a material
risk of loss exists since both institutions are currently above the federally
mandated levels of capital and liquidity. Management utilizes short-term U.S.
Treasury securities as well as top-rated commercial paper issues as vehicles
for managing temporary excess cash balances, and expects to continue the
practice during 1995.
ECONOMIC STATE OF THE INSURANCE INDUSTRY. The United States life
insurance industry as a whole has, during the past several years, suffered
substantial losses on investments, which has reduced the financial stability of
several insurance companies.
5
<PAGE> 30
Management believes that the main causes of industry losses have been excessive
investment in high yield bonds and real estate. The life insurance subsidiary
of Citizens has minimal holdings in high yield bonds, and its real estate
holdings are primarily limited to relatively small, seasoned first mortgages on
homes. Although the mortgage loans do create credit risk, management believes
the risk exposure to such loss is relatively minor, since the average size of
each mortgage is $28,000. Management believes that these factors leave
Citizens with a small investment loss risk compared to that which the industry
as a whole is exposed. However, Citizens and every insurance company are
subject to the effects of fluctuating interest rates and investment spread
risks.
INTEREST RATE VOLATILITY: INVESTMENT SPREAD RISKS. Profitability in
the insurance industry is affected by fluctuations in interest rates. Of prime
importance in achieving profitability is an insurance company's ability to
invest premiums at a higher interest rate than the interest rate credited to
existing policies. Rapid decreases or increases in interest rates may affect
an insurance company's ability to maintain a positive spread between the yield
on invested assets and the assumed interest rate credited to policy reserves.
Rapid interest rate changes could cause increased lapses of policies in force,
although management believes the effect of such rate changes would be minimal
since Citizens does not issue interest sensitive or Universal Life insurance
policies and has only a small block of annuity business.
6
<PAGE> 31
COMBINED ANNUAL AND SPECIAL MEETING
Date, Time and Place of Meeting
A Combined Annual and Special Meeting of Shareholders (the "Meeting")
of American Liberty Financial Corporation ("ALFC") will be held on July 27,
1995 at 10:00 a.m., Central Time, at the Baton Rouge Country Club, Second
Floor, Fairway Room, 8551 Jefferson Highway, Baton Rouge, Louisiana.
BUSINESS TO BE TRANSACTED AT THE MEETING
This Proxy Statement-Prospectus, the mailing of which commenced on
June 23, 1995, is being furnished to shareholders of ALFC in connection with
the solicitation of proxies by the Board of Directors of ALFC for use at the
Meeting and at any adjournments thereof. At the Meeting, holders of ALFC
Common Stock will be asked to consider and vote upon approval of a Plan and
Agreement of Merger dated December 8, 1994 ("Merger Agreement") under which
Citizens Acquisition, Inc., a wholly-owned subsidiary of Citizens, Inc. will
merge with and into ALFC, with the shareholders of ALFC receiving shares of
Citizens, Inc. as consideration in the transaction (the "Merger"). Pursuant to
the Merger Agreement, ALFC shareholders will receive in the Merger one and
one-tenth (1.10) share of Citizens, Inc. Class A Common Stock for each share of
ALFC Common Stock held, and 2.926 shares of Citizens, Inc. Class A Common Stock
for each share of ALFC Preferred Stock held.
Nominees to act as directors of ALFC until the Merger is consummated,
or for the ensuing year if the Merger is not consummated, will also stand for
election at the Meeting.
As of the date of this Proxy Statement-Prospectus, the Board of
Directors of ALFC knows of no other business that will come before the Meeting.
Should any other matter requiring a vote of shareholders arise, the proxies
named in the enclosed form of proxy will vote the ALFC shares in accordance
with their discretion with respect to any such matter.
VOTING SECURITIES
Only shareholders of record of ALFC Common Stock, $.125 par value, at
the close of business on June 8, 1995, will be entitled to vote at the Meeting.
On that date, there were issued and outstanding 2,099,296 shares of ALFC Common
Stock. Each share of Common Stock is entitled to one vote per share. In
addition, as of June 8, 1995, there were issued and outstanding, 10,485 shares
of 8% non-cumulative, non voting Preferred Stock outstanding. The Preferred
shareholders have no voting rights on any matter before the Meeting, but have
the right to dissent from the Merger. See "Rights of ALFC Dissenting
Shareholders to Receive Payment for Shares."
7
<PAGE> 32
A majority of the number of shares of outstanding ALFC Common Stock
will constitute a quorum for the transaction of business at the Meeting. An
affirmative vote of a majority of the voting shares present at the Meeting is
required to approve the Merger.
EXECUTIVE COMPENSATION
Current Compensation
- --------------------
The following table sets forth compensation of the President of ALFC
and its subsidiaries individually whereby compensation exceeds $100,000. ALFC
has no restricted stock awards, stock appreciation rights or long-term
incentive plans for its executive officers.
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
<CAPTION>
====================================================================================================================
(a) (b) (c) (d) (e)
Other
Annual
Name and Principal Position Year Salary Bonus Compensation
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James Ira Dunham, 1994 $139,054 -0- $ 14,208
President and Chairman 1993 95,134 -0- 15,699
of the Board 1992 90,010 -0- 17,824
====================================================================================================================
</TABLE>
Included in (e) "Other Annual Compensation" is insurance payments
totaling $10,046 in 1992, $12,106 in 1993 and $11,764 in 1994; Board fees of
$2,400 a year in 1992, 1993 and 1994; and commissions of $5,378 in 1992, $1,193
in 1993 and $44 in 1994.
Compensation of Directors
- -------------------------
ALFC and its subsidiaries have no arrangements by which directors are
compensated for services as Directors, for committee participation or special
assignment, other than a directors' attendance fee of $400 per meeting adopted
November 1988.
ALFC VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of June 8, 1995, the shares of ALFC
Common Stock held by each person who is known to ALFC to be the beneficial
owner of more than 5% of the ALFC's voting securities. Mr. Dunham, a nominee,
is a control person of ALFC.
8
<PAGE> 33
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock James Ira Dunham Record & 564,561 26.9%
13882 Lovett Road Beneficial Shares
Baton Rouge, LA 70818
Common Stock Wilfred Paul Duplessis Record & 106,480 5.1 %
14261 Tiggy Duplessis Rd. Beneficial Shares
Gonzales, LA 70737
Common Stock J.D. Weldon Record & 106,478 5.1 %
62280 Belleview Beneficial Shares
Plaquemine, LA 70764
</TABLE>
The following table sets forth, as of June 8, 1995, the shares of ALFC
Common Stock beneficially owned by all Directors and nominees, naming them, and
directors, nominees and officers of ALFC as a group, without naming them.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Directors and Nominees Title of Class Beneficial Ownership of Class
- ---------------------- -------------- ------------------------------------------------------------
<S> <C> <C> <C> <C>
James Ira Dunham Common Record and
Beneficial Owner of 564,561 Shares 26.9%
Wilfred Paul Duplessis Common Record and
Beneficial Owner of 106,480 Shares 5.1
Charles Elliot Broussard Common Record and
Beneficial Owner of 33,674 Shares 1.6
Dr. Monroe Jackson Common Record and
Rathbone, Jr. Beneficial Owner of 34,073 Shares 1.6
Frank W. Harrison, Jr. Common Record and
Beneficial Owner of 399 Shares (a)
John Roy Melton Common Record and
Beneficial Owner of 73,780 Shares 3.5
-------- ----
Directors, Nominees and
Officers as a Group Common Record and
(six persons) Beneficial Owner of 812,967 Shares 38.7%
======= ====
</TABLE>
(a) Less than 1%.
REVOCABILITY OF PROXIES
Any ALFC shareholder has the power to revoke his proxy before its
exercise at the Meeting or any adjournment thereof by (1) giving written notice
of such revocation to the Secretary of ALFC, Wilfred P. Duplessis, P.O. Box
64626, Baton Rouge, Louisiana 70896, prior to the Meeting; (2) giving written
notice of such revocation to the Secretary at the
9
<PAGE> 34
Meeting; or (3) signing and delivering a proxy bearing a later date. The mere
presence at the Meeting of a shareholder who has executed and delivered a valid
proxy will not revoke such proxy. However, being present at the Meeting allows
a shareholder to vote in person and revoke any prior proxy.
PROXY SOLICITATION
The cost of soliciting proxies will be borne by ALFC. In addition to
solicitation by mail, officers and employees of ALFC may solicit proxies by
telephone and personally, although these persons will receive no compensation
for such solicitation other than their regular salaries. ALFC will reimburse
brokers, custodians, nominees and other fiduciaries for their charges and
expenses in forwarding materials to beneficial owners of ALFC shares, which
charges are not estimated to exceed $5,000 plus expenses. ALFC is obligated
under the Merger Agreement to bear certain expenses concerning the preparation,
including the printing of this Proxy Statement-Prospectus.
10
<PAGE> 35
PROPOSED MERGER
BACKGROUND AND REASONS FOR THE MERGER
ALFCs principal business is life insurance and its life insurance
subsidiary, ALLIC, needs adequate capital and surplus to conduct and expand its
business. In December 1992 ALLIC was notified by the Insurance Department of
the state of Georgia that a new requirement increased the minimum capital and
surplus to $1,500,000 each for all licensed companies. During the period
subsequent to December 1992, ALLIC explored various possibilities that would
have enabled it to meet this new minimum capital and surplus requirement. An
analysis of these various possibilities convinced management that none of the
available alternatives could be financially justified. As a result, ALLIC
voluntarily terminated all agent contracts in Georgia effective June 30, 1993,
and its license was suspended in Georgia on July 1, 1994. These capital
commitments are the first of what management believes many states will require
in the years to come. Thus, it is difficult for a small company such as ALLIC
to conduct its business without adequate capital. See also "ALFC Management's
Discussion and Analysis of Financial Condition and Results of Operations."
In the Fall of 1994 ALFC management approached management of Citizens
with respect to a possible business combination of the parties. Due to the
continuing requirements of ALLIC to have sufficient capital and surplus to
conduct its operations, ALFC considered the possibility of a capital injection
or business combination in 1994, although it had not conducted any significant
activities in this regard. After several discussions and meetings held over a
several week period, a definitive agreement was executed on December 8, 1994,
after it had been approved unanimously by the Board of Directors of both ALFC
and Citizens.
The valuation of the companies centered on a share exchange ratio.
Management of Citizens and ALFC reviewed carefully the assets and liabilities
of each company, and decided that determination of the exchange ratio should
begin with a book value basis of each company, adjusted to a substantial degree
to reflect values which are standard within the life insurance industry. The
management of Citizens and ALFC reviewed the capital and surplus of their
respective insurance subsidiaries, along with annual life insurance premium
revenue valued at multiple factor depending upon the profitability of the
product and paid up policy reserves. In addition, state licenses, agency
force, and nonadmitted capital and surplus assets of the life insurance
subsidiaries were reviewed. These values are summarized in the following
table.
11
<PAGE> 36
<TABLE>
<CAPTION>
CITIZENS ALFC
------------- -------------
<S> <C> <C>
Capital and surplus of subsidiaries, along with
a securities valuation reserve and investment reserves $9,368,000 $2,093,000
Life insurance in force as a multiple of annual premium
revenue 92,500,000 7,732,000
Accident and health insurance in force as a factor of annual
premium revenue 214,000 2,737,000
Paid up policy reserves and other reserves 1,753,000 270,000
State licenses 600,000 1,050,000
Agency force 12,500,000 700,000
Nonadmitted capital and surplus assets of subsidiaries and
other miscellaneous values 11,506,000 3,139,000
Additional capital raised through 1994 offering 4,500,000 0
of securities
(Less outstanding obligations) (787,000)(a) 0
------------ -----------
Total adjusted book value $132,154,000 $17,721,000
============ ===========
</TABLE>
- -----------
(a) Includes notes payable to banks.
Non-admitted capital and surplus assets of Citizens were comprised of
common stock market values in excess of permitted admissible values and the
excess of market value over book value of real estate holdings. For ALFC, such
amounts represented the value of subsidiaries of ALFC.
The adjusted book value per share of Citizens was calculated by
dividing the adjusted book value ($132,154,000) by the number of equivalent
shares outstanding (17,443,000) for a result of $7.58 per share. For ALFC, the
adjusted book values per share was determined by dividing the ALFC adjusted
book value of $17,721,000 by the number of equivalent common shares issued and
outstanding (approximately 2,127,000) for a result of $8.33 per share.
12
<PAGE> 37
The resulting values were reviewed carefully by each party. Also
discussed at length were how payment would be made to ALFC shareholders, and
the tax consequences of the Merger to ALFC shareholders.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of ALFC believes that the Merger should be
effectuated because the Board believes a fair exchange ratio will result to the
shareholders of ALFC. The Board believes the exchange ratio is fair to the
shareholders of ALFC because the valuation of ALFC and Citizens was performed
by both parties on a consistent basis. In other words, both sides agreed that
their respective companies would be valued using procedures which the
management of ALFC and Citizens determined to be reasonable. In addition, the
market price of Citizens Class A Common Stock was nearly eight times the price
of ALFC Common Stock, thus making the trade fair from a market price viewpoint.
Accordingly, the Board of Directors believes the exchange ratio and, hence the
price to be received for the ALFC shares in the Merger, is fair.
ALFC believes that Citizens goal to build a profitable, expanding
life insurance holding company is consistent with the goals of ALFC. The Board
of Directors and management of ALFC, after careful study and evaluation of the
economic, financial, legal and market factors, believes that the Merger will
provide Citizens with increased opportunity for profitable expansion of its
business, which in turn should benefit ALFC shareholders who become
shareholders of Citizens.
The terms of the Merger Agreement were the result of arm s length
negotiations between representatives of ALFC and Citizens. Among the positive
factors considered by the Board of Directors of ALFC in deciding to approve and
recommend the Merger were:
1. The terms and conditions of the Merger Agreement, which management
of ALFC believes is a fair price for the shares of ALFC;
2. The financial condition, business assets and liabilities and
management of Citizens;
3. The financial and business prospects of Citizens as a result of
being a larger company;
4. An active market exists in the Citizens Class A Common Stock,
something that is substantially lacking for the ALFC Common Stock;
5. Economies of scale will be achieved by the two companies,
particularly given that fewer regulatory filings will be required of the
resulting single entity;
6. ALFC's directors' familiarity with and review of ALFC's and
Citizens' business, operations, financial condition, earnings and prospects;
13
<PAGE> 38
7. ALFC's directors' belief that the exchange ratio is fair to ALFC
shareholders, particularly given the capital needs of ALLIC;
8. The expectation that the Merger will generally be a tax-free
transaction to ALFC and to the ALFC shareholders (see "Certain Federal Income
Tax Considerations");
9. The growth and liquidity potential to holders of Citizens Class A
Common Stock compared to the historical growth and liquidity of the ALFC Common
Stock and ALFC Preferred Stock;
10. The demographics of ALFC's shareholder base and their expressed
concerns regarding estate settlement, and, in that connection, desire for
liquidity;
11. The ALFC Board's review of the business, operations, earnings and
financial condition of Citizens on a historical, prospective and pro forma
basis, and the enhanced growth opportunities for growth that the Merger makes
possible;
12. The current and prospective economic environment and competitive
constraints facing small insurance companies, including ALFC;
13. The ALFC Board's evaluation of the risks to consummation of the
Merger, including the risk associated with obtaining all necessary regulatory
approvals;
14. The increased liquidity that the Merger would provide to current
ALFC shareholders; and
15. The ALFC Board's review of the possible alternatives to the
Merger, the range of possible values to the ALFC shareholders of such
alternatives and the timing and likelihood of actually receiving, and risks and
rewards associated with seeking to obtain, those values.
The ALFC Board did not assign any specific or relative weight to these
factors in its consideration. All of the above factors contributed in
determining the consideration received.
The Board of Directors of ALFC considers the Merger particularly
advantageous to ALFC shareholders in that shareholders will receive a security
which, in the opinion of the ALFC Board, has the potential to achieve a greater
growth and market value and which now has significantly greater market
liquidity than the ALFC Common Stock. The exchange of ALFC shares solely for
Citizens shares is also intended to be a tax-free exchange, thereby giving ALFC
shareholders the equity participation in Citizens without initially incurring
taxes. See "Certain Federal Income Tax Consequences."
A conceivable detriment to the shareholders of ALFC of the Merger is
the fact that the percentages for extraordinary growth in company size may be
less for Citizens than
14
<PAGE> 39
for ALFC, because it may be considered easier to expand the size of a small
company versus a company several times its size. However, based upon Citizens
recent growth record, ALFC management believes Citizens, under present
circumstances, has better growth prospects than ALFC. Management is unable to
articulate any other possible detriments of the Merger to ALFC shareholders.
Citizens has indicated that in connection with future operations of ALLIC,
Citizens intends to maintain capital and surplus of ALLIC above the required
minimums under Louisiana law.
The Board of Directors of ALFC made this determination without the
assistance of a financial adviser, or a so-called "fairness opinion." The
Board believes that its members spent a sufficient amount of time assessing the
respective conditions of ALFC and Citizens and the terms of the Merger
Agreement, and believes that the Board is in a better position to determine the
fairness of the Merger than is an outside party.
BOARD RECOMMENDATION
THE ALFC BOARD OF DIRECTORS HAS CONCLUDED THAT THE MERGER IS IN THE
BEST INTERESTS OF ALFC, ITS SHAREHOLDERS AND ITS INSURANCE POLICYHOLDERS AND
RECOMMENDS UNANIMOUSLY THAT ALFC SHAREHOLDERS APPROVE THE MERGER AGREEMENT AT
THE MEETING.
REGULATORY REQUIREMENTS
A condition to consummation of the Merger is the approval of the
Louisiana Commissioner of Insurance, which is pending. The parties expect such
approval to be forthcoming and do not believe the Merger is subject to any
other insurance regulatory approval.
The provisions of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") are applicable to the Merger. Under the HSR
Act and the rules and regulations adopted thereunder, the Merger cannot be
consummated until notifications have been given and certain information has
been furnished to the Federal Trade Commission and the Department of Justice
and specified waiting-period requirements have been satisfied. Citizens and
ALFC have filed notification and report forms under the HSR Act, along with
requests for early termination of the waiting period, which have been granted.
At any time before or after the consummation of the Merger, the
Department of Justice, the Federal Trade Commission or any state could take
such action under applicable antitrust laws as it deems necessary or desirable
in the public interest, including seeking to enjoin the Merger or seeking
divestiture of substantial assets by Citizens or ALFC. In addition, private
parties may also seek to take legal action under the antitrust laws under
certain circumstances. There can be no assurance that a challenge to the
Merger will not be made or, if such a challenge is made, that Citizens and ALFC
will prevail.
15
<PAGE> 40
Neither Citizens nor ALFC is aware of any other governmental or
regulatory approvals required for consummation of the Merger, other than
approval of the acquisition of control of ALLIC by the Louisiana Commissioner
of Insurance and compliance with applicable securities laws.
TERMS OF THE MERGER AGREEMENT
The discussion below contains a summary of the Merger Agreement
attached hereto as Appendix A, which is incorporated by reference herein.
Shareholders desiring to obtain a copy of the Merger Agreement may obtain it by
contacting W. P. Duplessis, Suite 302, 4962 Florida Boulevard, Baton Rouge,
Louisiana 70806, phone number (504) 927-9630. The Merger Agreement is also on
file with the Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and is available during normal business hours for
inspection at such offices.
The Merger Agreement provides that the Citizens Class A Common Stock
will be delivered to be distributed at a closing ("Closing") on a closing date
("Closing Date") which shall be as soon as possible after all regulatory
approvals and shareholder approvals are obtained in accordance with the law.
In order for the Merger to be consummated, the Merger Agreement must be
approved by the Louisiana Commissioner of Insurance and by holders of ALFC
Common Stock. The Merger will become effective ("Effective Date") on or as
soon after the Closing Date as possible. It is presently anticipated that the
Effective Date will occur on or before August 31, 1995, but there can be no
assurance that the conditions to the Merger will be satisfied or that the
Merger will be consummated on that date or any other date. The parties agreed
to work diligently to consummate the proposed transaction.
RECEIPT OF CITIZENS SHARES
If the Merger is approved at the Meeting, ALFC shareholders who do not
perfect dissenters rights will be notified prior to the Closing Date of the
approvals and of the anticipated Closing Date. Shareholders will also be
furnished with a "Letter of Transmittal" to an exchange agent ("Exchange
Agent") that will be identified in the Letter of Transmittal. DO NOT SUBMIT
YOUR ALFC SHARES AT THIS TIME. IF THE MERGER IS CONSUMMATED YOU WILL BE SENT A
LETTER OF TRANSMITTAL AND YOU MAY SUBMIT YOUR ALFC SHARES WITH THE LETTER. As
soon as administratively feasible after the Effective Time and after receiving
a properly completed Letter of Transmittal and the associated certificates from
ALFC shareholders involved, the Exchange Agent will distribute the Citizens
Class A Common Stock to the ALFC shareholders. Presently, Citizens plans to
appoint its current stock transfer agent, American Stock Transfer and Trust
Company, New York, New York, as Exchange Agent and may appoint one or more
forwarding agents to accept delivery of the ALFC shares for forwarding to the
Exchange Agent. The instructions accompanying the Letter of Transmittal will
provide details with respect to the surrender of certificates for ALFC shares
and the procedure for obtaining certificates for Citizens Class A Common Stock,
including instructions for obtaining
16
<PAGE> 41
certificates for Citizens Class A Common Stock for lost or destroyed
certificates of ALFC shares.
The Exchange Agent will not be entitled to vote or exercise any rights
of ownership with respect to ALFC shares held by it from time to time prior to
the issuance of Citizens Class A Common Stock to former holders of ALFC shares,
except that it will receive any such distributions paid or distributed with
respect to the ALFC shares for the account of the persons entitled to those
ALFC shares. It is not contemplated that any such distributions will be made
in respect of the Citizens Class A Common Stock.
After the Effective Date, there will be no transfers on the stock
transfer books of ALFC of ALFC shares which were issued and outstanding
immediately prior to the Effective Date. If after the Effective Date
certificates representing ALFC shares are properly presented to ALFC, they will
be canceled and exchanged for certificates representing Citizens Class A Common
Stock in the ratio set forth above.
Authorization of the Exchange Agent may be terminated by Citizens at
any time after six months following the Effective Date. Upon termination of
such authorization, any shares of ALFC and funds held by the Exchange Agent
will be transferred to Citizens or its designee, who shall thereafter perform
the obligations of the Exchange Agent. If outstanding certificates for ALFC
shares are not surrendered or the payment for them not claimed prior to such
date on which such payment would otherwise escheat or become the property of
any governmental party, the unclaimed items shall, to the extent permitted by
abandoned property and other applicable law, become the property of Citizens
(and to the extent not in its possession shall be paid over to it) free and
clear of all claims or interest of any persons previously entitled to such
items. Notwithstanding the foregoing, neither the Exchange Agent nor any party
to the Merger Agreement will be liable to any holder of ALFC shares for any
amount paid to any governmental authority having jurisdiction of such unclaimed
item pursuant to the abandoned property or other applicable law of such
jurisdiction.
FRACTIONAL SHARES
No fractional shares of Citizens stock shall be issued as a result of
the Merger Agreement; rather, such shares shall evidence the right to receive a
cash value per fractional share of Citizens Class A common stock equal to the
average closing price of the Class A common stock of Citizens as reported on
the American Stock Exchange for the five trading days prior to the Effective
Date. In the event the exchange of shares results in any shareholder being
entitled to a fraction less than a whole share of Citizens stock, such
shareholder shall be given a cash payment of fractions thereof at the rate per
share from Citizens for one share of Citizens Class A common stock as
calculated in the preceding sentence.
17
<PAGE> 42
ACCOUNTING
It is anticipated that the Merger will be accounted for as a purchase
in accordance with Generally Accepted Accounting Principles. For accounting
purposes, the effective date of the transaction is proposed to be January 1,
1995.
OTHER CONDITIONS TO CONSUMMATION OF THE MERGER
In addition to approval of the Merger by the holders of the ALFC
Common Stock at the Meeting, the obligations of Citizens and ALFC to consummate
the Merger are subject to the satisfaction (or waiver by the party entitled to
benefit thereof) of a number of conditions, including:
1. The performance by each party of its respective obligations;
2. Approval of the Commissioner of Insurance of Louisiana in
accordance with the laws of Louisiana;
3. The absence of any proceedings instituted or threatened to
restrain or prohibit the transactions contemplated by the
Merger Agreement;
4. The continued accuracy in all material respects of the
representations and warranties made by each party in the
Merger Agreement;
5. The delivery of certain legal opinions and closing
certificates, including an opinion from counsel to ALFC and
Citizens to the effect that if the transactions contemplated
in the Merger Agreement are consummated in accordance with the
terms of the Merger Agreement, they will constitute a tax-free
reorganization within the meaning of the Internal Revenue Code
of 1986;
6. Citizens may, at its option, decline to proceed with the
Merger if dissenters rights are perfected by the holders of
more than 2.5% of the outstanding shares of stock of ALFC
(this percentage includes the common stock and the preferred
stock); or
7. Any party to the Merger Agreement may decline to proceed with
the Merger if the Effective Date does not occur by August 31,
1995.
Either party may waive any conditions to its obligations to complete
the Merger, except those which are required by law (such as shareholder and
regulatory approval).
18
<PAGE> 43
TERMINATION OR AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be amended upon approval of the Board of
Directors of each party provided that the number of shares of Citizens Class A
Common Stock issuable cannot be amended without approval of the shareholders of
ALFC.
The Merger Agreement may be terminated and abandoned at any time
(whether before or after the approval and adoption by ALFC shareholders) prior
to the Effective Date by unanimous consent of Citizens, ALFC and ALLIC; by any
of the parties who are beneficiaries to conditions precedent to the
consummation of the Merger unless the matter has been satisfied or waived; by
any party if any suit, action, or other proceeding is pending or threatened
before any court or governmental agency in which it is sought to restrain,
prohibit or otherwise affect the consummation of the transactions contemplated
by the Merger Agreement; by any party if there is discovered any material
error, misstatement or omission in the representations and warranties of any
other party; by Citizens if dissenters rights are perfected in accordance with
Louisiana law for more than 2.5% of the outstanding shares of ALFC; or by any
party if the Agreement Effective Date does not occur by August 31, 1995.
Any of the terms or conditions of the Merger Agreement may be waived
at any time by the party which is entitled to the benefit thereof by action
taken by its Board of Directors.
EXPENSES AND LIABILITY FOR TERMINATION
Each of the parties to the Merger Agreement will pay its own fees and
expenses incurred in connection with the transaction contemplated by the Merger
Agreement, including costs incurred in connection with the termination of the
Merger Agreement.
CONDUCT OF BUSINESS PENDING THE MERGER; OTHER COVENANTS OF THE PARTIES
ALFC and ALLIC have agreed that they will not enter into any
transactions prior to the Effective Date other than in the ordinary course of
business and will pay no stockholder dividends nor increase the compensation of
officers and will not enter into any transaction which would adversely affect
their respective financial conditions. Each party has agreed to provide the
other with information as to any significant corporate developments during the
term of the Merger Agreement and to promptly notify the other parties if it
discovers that any of its representations, warranties or covenants contained in
the Merger Agreement or any document delivered in connection therewith was not
true and correct in all material respects or became untrue or incorrect in any
material respect. All of the parties to the Agreement have agreed to take all
such actions as may be reasonably necessary and appropriate in order to
consummate the transactions contemplated by the Merger Agreement.
19
<PAGE> 44
The Board of Directors of ALFC, subject to its fiduciary obligations
to shareholders, has agreed to use its best efforts to obtain the requisite
approval of ALFC shareholders for the Merger Agreement and the transactions
contemplated thereby.
STOCK TRANSFER RESTRICTIONS APPLICABLE TO "AFFILIATES" OF ALFC
The Merger Agreement provides that any ALFC shareholder who is an
"affiliate" of ALFC as defined in the rules adopted under the Securities Act of
1933 will enter into an agreement to not dispose of any Citizens shares
received by him in violation of certain transfer restrictions under SEC Rules
144 and 145. The Merger Agreement also provides that Citizens will satisfy the
public information requirements of SEC Rules 144 and 145.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Prior to the proposed Merger, there was no affiliation between
Citizens (including its directors, officers and affiliates) and ALFC and its
directors, officers and affiliates.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations relevant to the exchange of shares of ALFC Common and Preferred
Stock for Citizens Common Class A Stock ("Citizens Class A Common Stock")
pursuant to the Merger, that are generally applicable to holders of ALFC Common
and Preferred Stock. This discussion is based on currently existing provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed Treasury Regulations thereunder and current administrative rulings and
court decisions, all of which are subject to change. Any such change, which
may or may not be retroactive, could alter the tax consequences to Citizens,
ALFC or ALFC's shareholders as described herein. There can be no assurance
that such changes will not occur.
ALFC shareholders should be aware that this discussion does not deal
with all federal income tax considerations that may be relevant to particular
ALFC shareholders in light of their particular circumstances, such as
shareholders who are dealers in securities, who are financial institutions, who
are subject to the alternative minimum tax provisions of the Code, who are
foreign persons, who do not hold their ALFC Common and Preferred Stock as
capital assets, or who acquired their shares in connection with stock option or
stock purchase plans or in other compensatory transactions. In addition, the
following discussion does not address the tax consequences of the Merger under
foreign, state or local tax laws, the tax consequences of transactions
effectuated prior or subsequent to or concurrently with, the Merger (whether or
not any such transactions are undertaken in connection with the Merger),
including without limitation any transaction in which shares of ALFC Common and
Preferred Stock are acquired or shares of Citizens Class A Common Stock are
disposed of. Accordingly, ALFC SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX
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CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.
The Merger is intended to constitute a "reorganization" within the
meaning of Section 368(a) of the Code (a "Reorganization"). Provided that the
Merger does so qualify as a Reorganization, then, subject to the limitations
and qualifications referred to herein, the Merger will generally result in the
following federal income tax consequences:
(a) No gain or loss will be recognized by holders of ALFC Common
and Preferred Stock solely upon their receipt in the Merger of Citizens Class A
Common Stock in exchange therefor (except to the extent of cash received in
lieu of a fractional share of Citizens Class A Common Stock).
(b) The aggregate tax basis of the Citizens Class A Common Stock
received by ALFC shareholders in the Merger (including any fractional share of
Citizens Class A Common Stock not actually received) will be the same as the
aggregate tax basis of the ALFC Common and Preferred Stock surrendered in
exchange therefor.
(c) The holding period of the Citizens Class A Common Stock
received by each ALFC shareholder in the Merger will include the period for
which the ALFC Common and Preferred Stock surrendered in exchange therefor was
considered to be held, provided that the ALFC Common and Preferred Stock so
surrendered is held as a capital asset at the time of the Merger.
(d) Cash payments received by holders of ALFC Common and Preferred
Stock in lieu of a fractional share will be treated as if such fractional share
of Citizens Class A Common Stock had been issued in the Merger and then
redeemed by Citizens. An ALFC shareholder receiving such cash will recognize
gain or loss, upon such payment, measured by the difference (if any) between
the amount of cash received and the basis in such fractional share.
(e) Cash received by the ALFC shareholders who properly exercise
their dissenters' rights will be treated as having been received in redemption
of the shares so cashed out, and may result in taxable gain or loss, measured
by the difference (if any) between the amount of cash received and such
shareholder's basis in the ALFC Common and Preferred Stock. Provided the
shares were held as a capital asset at the time of the redemption, such gain or
loss will constitute capital gain or loss, and such gain or loss will be long
term capital gain or loss if the holding period for such shares was greater
than one year. It is possible that for some shareholders, the distribution of
cash may be treated as a dividend taxable as ordinary income.
(f) Neither Citizens, Citizens Acquisition, Inc. nor ALFC will
recognize material amounts of gain solely as a result of the Merger. After the
Merger, utilization of ALFC net operating losses or built-in losses, if any,
will be subject to certain limitations contained in Section 382 of the Code.
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ALFC shareholders should also be aware that the IRS may examine
transactions taking place before, contemporaneously with, or after a
reorganization to determine whether reorganization treatment is appropriate, or
in some cases to determine whether shareholders will be taxed on other economic
benefits that are included as part of the overall transaction. Thus, loan
transactions between parties, compensation arrangements, noncompete agreements,
consulting arrangements and other transactions could be reviewed by the IRS and
determined to constitute taxable income to specific parties to the Merger.
Gain could also have to be recognized to the extent that an ALFC shareholder
was treated as receiving (directly or indirectly) consideration other than
Citizens Class A Common Stock in exchange for the shareholder's Common and
Preferred Stock of ALFC. Furthermore, if the IRS were to establish as to some
ALFC shareholders that part of the Citizens Class A Common Stock received in
the Merger is severable from the Merger, resulting in a proportionally
increased equity interest being received in the merger by other ALFC
shareholders, the ALFC shareholders whose equity interests were deemed to be
constructively increased by the Merger may be treated as having received a
taxable stock dividend. Thus, ALFC shareholders should consult with their tax
advisors as to the tax consequences to them of the Merger.
Under Section 3406 of the Code, ALFC shareholders may be subject to
"backup withholding" at the rate of 31% on "reportable payments", if any, to be
received by them if they fail to furnish their correct taxpayer identification
numbers to Citizens or for certain other reasons. Citizens will report to
these persons and to the IRS for each calendar year the amount of any
reportable payments during that year and the amount of tax withheld, if any,
with respect to those reportable payments.
The parties are not requesting and will not request a ruling from the
Internal Revenue Service (the "IRS") in connection with the Merger. Citizens
and ALFC, however, will receive an opinion from their counsel to the effect
that the Merger will constitute a Reorganization (the "Tax Opinion"). ALFC
shareholders should be aware that the Tax Opinion does not bind the IRS or the
courts. The IRS is not precluded from successfully asserting a contrary
position. The Tax Opinion will not address the consequences of the Merger on
the ALFC shareholders under applicable foreign, state or local income tax laws.
The Tax Opinion is subject to certain assumptions and qualifications, including
but not limited to the truth and accuracy of certain representations made by
Citizens, ALFC and certain shareholders of ALFC, including representations in
certain certificates to be delivered to counsel by the respective managements
of Citizens and ALFC and by certain shareholders of ALFC. Of particular
importance are certain representations relating to the Code's "continuity of
interest" requirement. One of the requirements for tax-free reorganization
treatment is that shareholders of the acquired corporation acquire a
substantial and continuing interest in the acquiring corporation, i.e., have
"continuity of interest."
To satisfy the continuity of interest requirement, ALFC shareholders
must not, pursuant to a plan or intent existing at or prior to the Merger,
dispose of or transfer so much of either (i) their ALFC Common or Preferred
Stock in anticipation of the Merger or
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(ii) the Citizens Class A Common Stock to be received in the Merger
(collectively, "Planned Dispositions"), such that ALFC shareholders, as a
group, would no longer have a significant equity interest in the ALFC business
being conducted after the Merger. ALFC shareholders will generally be regarded
as having a significant equity interest as long as the number of shares of
Citizens Class A Common Stock received in the Merger less the number of shares
subject to Planned Dispositions (if any) represents, in the aggregate, a
substantial portion of the entire consideration received by the ALFC
shareholders in the Merger. The Tax Opinion will be based on the assumption
that the ALFC shareholders have no plan or intention at the time of the Merger
to engage in Planned Dispositions that would reduce their aggregate ownership
of Citizens Class A Common Stock to a number of shares having in the aggregate
a value at the time of the Merger of less than 50% of the total value of the
ALFC Common and Preferred Stock outstanding immediately prior to the Merger.
For purposes of such determination, shares of ALFC Common and Preferred Stock
that are exchanged for cash or other property, or surrendered by dissenters
will be treated as outstanding shares of ALFC Common and Preferred Stock
immediately prior to the Merger. No assurance can be made that the "continuity
of interest" requirement will be satisfied, and if such requirement is not
satisfied, the Merger would not be treated as a Reorganization.
Although literal compliance with Code Section 368 is a prerequisite to
nonrecognition of gain or loss, such compliance does not guarantee the desired
result. Regulation Section 1.368-1 describes the purpose of the reorganization
provisions as being to exempt from the general rule of taxation, specifically
described exchanges incident to such readjustments of corporate structures made
in one of the particular ways specified in the Code, as are required by
business exigencies and which effect only a readjustment of continuing interest
in property under modified corporate forms.
A plan of reorganization having no business or corporate purpose will
not constitute a qualified reorganization plan. The reasons for the
reorganization set forth in "Proposed Merger--Background of and Reasons for the
Merger" contained in this Proxy Statement-Prospectus provide several corporate
business purposes. Based upon the disclosure contained in this Proxy
Statement- Prospectus and on other considerations, ALFC and Citizens management
believe that valid business purposes exist for the transaction.
Considered in conjunction with the business purpose test is the
"continuity of business enterprise" requirement. Regulation Section
1.368-1(d)(2) provides the general rule that continuity of business enterprise
requires the acquiring corporation to either (i) continue the acquired
corporation's historic business or (ii) use a significant portion of acquired
corporation's historic business assets in a business. The application of this
general rule to certain transactions, such as mergers of holding companies,
will depend on all facts and circumstances. The policy underlying the general
rule, which is to ensure that reorganizations are limited to adjustments of
continuing interests in property under modified corporate form, provides the
guidance necessary to make these facts and circumstances determinations.
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The historic business of a holding company generally comprises the
business operations of its subsidiary. Revenue Ruling 85-197, 1985-2 C.B. 120,
states that the continuity of business enterprise requirement is satisfied when
a holding company is merged into its wholly owned operating subsidiary, because
the historic business of the holding company is the business of its operating
subsidiary. Revenue Ruling 81-247, 1981-2 C.B. 87, holds that where a
significant portion of an acquired corporation's historical business assets,
received by the acquiring corporation, remain with the acquiring corporation,
or corporations directly controlled by the acquiring corporation, the
continuity of business enterprise rules of Regulation Section 1.368-1(d) will
be satisfied. These rulings indicate that the historic business of ALFC is the
business operated by its subsidiary ALLIC. Although subject to challenge by
the IRS, the continuity of business enterprise requirement should be satisfied
because after the merger, the historic business of ALFC will be continued by
ALLIC as a second tier subsidiary of Citizens.
Pursuant to Section 1.368-3(b) of the Regulations, the shareholders of
ALFC must file with their income tax returns for the year in which the
transaction is consummated, a statement which provides details pertinent to the
nonrecognition of gain or loss on the exchange, including the cost or other
basis of stock transferred in the exchange, the amount of stock received and
liabilities, if any, assumed in the exchange.
A successful IRS challenge to the reorganization status of the Merger
(as a result of a failure of the "continuity of interest" requirement or
otherwise) would result in ALFC shareholders recognizing taxable gain or loss
with respect to each share of Common and Preferred Stock of ALFC surrendered
equal to the difference between the shareholder's basis in such share and the
fair market value, as of the effective time of the merger, of the Citizens
Class A Common Stock received in exchange therefor. In such event, a
shareholder's aggregate basis in the Citizens Class A Common Stock so received
would equal its fair market value, and the shareholder's holding period for
such stock would begin the day after the Merger.
INFORMATION CONCERNING CITIZENS
Citizens, Inc. ("Citizens") is a Colorado corporation which is an
insurance holding company. The principal executive office of Citizens is
located at 400 East Anderson Lane, Austin, Texas 78752, and the telephone
number at such office is (512) 837-7100. Specific information on Citizens is
contained in its Annual Report on Form 10-K for the Year Ended December 31,
1994, which is incorporated herein by reference.
SOURCE OF CITIZENS SHARES
The Citizens Class A Common Stock which will be issuable in the Merger
will be newly issued from authorized but unissued shares. Citizens has
50,000,000 Class A Common shares authorized, of which 16,980,340 shares were
outstanding as of April 27, 1995. Citizens is obligated to reserve sufficient
shares of its Class A Common Stock to enable it to perform its obligations
under the Merger Agreement. The Citizens shares,
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when delivered pursuant to the Merger Agreement, will be duly authorized and
validly issued, fully paid and non-assessable.
RIGHTS OF ALFC DISSENTING SHAREHOLDERS
TO RECEIVE PAYMENT FOR SHARES
The following is a summary of dissenters' rights available to
shareholders of ALFC, which summary is not intended to be a complete statement
of applicable Louisiana law and is qualified in its entirety by reference to
Part XIII of the Louisiana Business Corporation Law, set forth in its entirety
as Appendix B.
CITIZENS HAS CONDITIONED THE MERGER ON, SUBJECT TO ITS RIGHT TO WAIVE,
AND HAS RESERVED THE RIGHT TO ABANDON THE MERGER AGREEMENT IN THE EVENT THAT
HOLDERS OF GREATER THAN 2.5% OF THE OUTSTANDING SHARES OF COMMON OR PREFERRED
STOCK OF ALFC DISSENT FROM THE MERGER AND SEEK PAYMENT FOR THEIR SHARES IN
ACCORDANCE WITH THE LOUISIANA BUSINESS CORPORATION LAW.
NOTE: UNDER Section 131 OF PART XIII OF THE LOUISIANA BUSINESS
CORPORATION LAW, IF THE MERGER AGREEMENT IS APPROVED BY AT LEAST 80% OF THE
TOTAL VOTING POWER OF ALFC, A SHAREHOLDER WHO VOTED AGAINST THE CORPORATE
ACTION SHALL NOT HAVE A RIGHT TO DISSENT.
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS. A shareholder of ALFC
who wishes to assert dissenters' rights must file with ALFC, prior to or at the
Meeting of shareholders to vote upon the Merger, a written objection to the
Merger Agreement, and must vote his or her shares against the Merger. If the
Merger is approved by less than 80% of the total voting power of ALFC, ALFC
shall promptly thereafter give written notice thereof, by registered mail, to
each shareholder who filed a written objection to, and voted his or her shares
against the Merger, at such shareholder's last address on ALFC's records. Each
such shareholder may, within 20 days after the mailing of such notice, but not
thereafter, file with ALFC a demand in writing for the fair cash value of his
or her shares as of the day before such vote was taken. The shareholder must
state in writing the value demanded, and give a post office address to which
the reply of ALFC may be sent. At the same time the dissatisfied shareholder
must deposit in escrow in a chartered bank or trust company located in East
Baton Rouge Parish (the parish of the registered office of ALFC), the
certificate representing his or her shares, duly endorsed and transferred to
ALFC upon the sole condition that said certificates shall be delivered to ALFC
upon payment of the value of the shares determined in accordance with the
provisions of this Section 131 of Part XIII of the Louisiana Business
Corporation Law. The shareholder must also deliver to ALFC, the written
acknowledgment of such bank or trust company that it so holds his or her
certificates of stock.
UNLESS THE OBJECTION, DEMAND AND ACKNOWLEDGMENT MENTIONED IN THE
PARAGRAPH ABOVE IS MADE AND DELIVERED BY THE SHAREHOLDER WITHIN THE NECESSARY
20
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DAY PERIOD, HE OR SHE SHALL CONCLUSIVELY BE PRESUMED TO HAVE ACQUIESCED TO THE
MERGER.
If ALFC does not agree to the value stated and demanded by the
shareholder, or does not agree that a payment is due, it shall, within 20 days
after receipt of the shareholder's demand and acknowledgment, notify in writing
the shareholder, at the designated post office address, of ALFC's disagreement,
and shall state in such notice the value it will agree to pay if a payment
should be held to be due; otherwise ALFC will be liable for, and shall pay to
the dissatisfied shareholder, the value demanded by him or her for the shares.
JUDICIAL APPRAISAL OF SHARES. If ALFC and the shareholder cannot
agree upon the fair cash value or whether any payment is due, the dissatisfied
shareholder must, within 60 days after receipt of notice in writing of ALFC's
disagreement, file suit against ALFC, in the district court of East Baton Rouge
Parish (the parish in which ALFC has its registered office). The shareholder
must request the court to fix and decree the fair cash value of the
dissatisfied shareholder's shares as of the day before the Merger occurred.
The court shall determine whether any payment is due, and if so, award such
cash value and render judgment accordingly.
Any shareholder entitled to file such suit may, within 60 days but not
thereafter, intervene as a plaintiff in such suit filed by another shareholder,
and recover therein judgment against ALFC for the fair cash value of his or her
shares. No order or decree shall be made by the court staying the Merger, and
the Merger may be carried to completion notwithstanding any such suit. FAILURE
OF THE SHAREHOLDER TO BRING SUIT, OR TO INTERVENE IN SUCH A SUIT WITHIN 60 DAYS
AFTER RECEIPT OF NOTICE OF DISAGREEMENT BY ALFC SHALL CONCLUSIVELY BIND THE
SHAREHOLDER (1) BY ALFC'S STATEMENT THAT NO PAYMENT IS DUE, OR (2) IF ALFC DOES
NOT CONTEND THAT NO PAYMENT IS DUE, TO ACCEPT THE VALUE OF HIS OR HER SHARES AS
FIXED BY ALFC IN ITS NOTICE OF DISAGREEMENT.
A shareholder will have only five years from the below applicable date
in which to bring an action to recover the value of the shareholder's stock:
(1) the date the fair value of the shares has been agreed upon by the
shareholder and ALFC; (2) the date ALFC becomes liable for the value demanded
by the shareholder due to ALFC's failure to give notice of disagreement as to
value; or (3) the date the shareholder become bound by ALFC's valuation of the
stock due to the shareholder's failure to bring suit within 60 days after
receipt of notice of ALFC's disagreement as to value.
In the event that a dissatisfied shareholder rejects ALFC's offer to
pay the amount in cash deemed by ALFC to be the fair cash value for the shares,
ALFC shall deposit, in the registry of the court the amount of money it had
offered the dissatisfied shareholder. This amount shall remain in the court's
registry until a final determination on the cause is made. If the amount
finally awarded such a dissatisfied shareholder, exclusive of interest and
costs, is more than the amount offered and deposited by ALFC, the costs of the
court
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proceedings shall be borne by ALFC. HOWEVER IF THE AMOUNT FINALLY AWARDED SUCH
A DISSATISFIED SHAREHOLDER, EXCLUSIVE OF INTEREST AND COSTS IS LESS THAN THE
AMOUNT OFFERED AND DEPOSITED BY ALFC, THEN THE COSTS OF THE PROCEEDING SHALL BE
BORNE BY SUCH A SHAREHOLDER. Under Section 131(H) of Part XIII of the
Louisiana Business Corporation Law, a shareholder, upon filing a demand for the
value of his or her shares, shall cease to have any of the rights of a
shareholder except as described above in that section. Such a demand may be
withdrawn by the shareholder at any time before ALFC gives notice of
disagreement. However, after such notice of disagreement is given, withdrawal
of notice of the election will require the written consent of ALFC. If a
notice of election is withdrawn or the proposed Merger is abandoned or
rescinded, or a court determines that the shareholder is not entitled to
receive payment for his or her shares, or the shareholder otherwise loses his
or her dissenter's rights, then that dissenter will not have the right to
receive payments for his or her shares, and the share certificates will be
returned or new certificates will be issued upon request. Additionally, the
dissatisfied shareholder will then be reinstated to all rights as a shareholder
as of the filing of the demand for value. If any such rights shall have
expired or any dividends or distributions, other than cash, have been
completed, the dissatisfied shareholder may receive at the election of ALFC,
the fair cash value as determined by the board of directors of ALFC as of the
time of such expiration or completion, but without prejudice otherwise to any
ALFC proceeding that may have been taken in the interim.
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INFORMATION CONCERNING ALFC
ALFC AND ITS SUBSIDIARIES
American Liberty Financial Corporation ("ALFC") was incorporated in
Louisiana on March 31, 1977 for the purpose of organizing and financing a
proposed life insurance company. ALFC incorporated American Liberty Life
Insurance Company ("ALLIC"), a Louisiana based life insurance company, on
January 26, 1978.
ALFC incorporated American Liberty Exploration Corporation, American
Liberty Exploration Corporation 1981-1 and American Liberty Exploration
Corporation, 1982-1 on October 23, 1980, July 6, 1981 and January 7, 1982
respectively, under the laws of the state of Louisiana. These corporations
were established for the purpose of forming partnerships in commendam, in which
the corporations are the general partners, with the intent to invest in
leasing, exploration, development, production and operation of various oil and
gas properties. At the present time there are two drilling partnerships that
have a total of 26 producing wells of which 20 are presently producing oil
and/or gas revenues for the partnerships.
American Liberty Securities Corporation was incorporated on July 1,
1981 under the laws of the state of Louisiana for the purpose of recruiting and
training a sales staff to market specific qualifying securities. This
corporation has been relatively inactive since 1983 and is wholly-owned by
ALFC.
First American Investment Corporation was formed in November 1984 for
the purpose of organizing and financing proposed funeral home companies
(Funeral Homes of Louisiana, Inc. and Funeral Homes of America, Inc.) and a
proposed Louisiana life insurance company (First Investment Life Insurance
Company). Funeral Homes of Louisiana, Inc. was formed in 1989, and Funeral
Homes of America, Inc was formed in 1993. First American Investment
Corporation and Funeral Homes of Louisiana, Inc. were in the development stage
until 1993. First American Investment Corporation currently has a prospectus
pending approval for a public stock offering (see Notes I, J and N to the
audited consolidated financial statements of ALFC). All of the above
subsidiaries, except for First American Investment Corporation and its
wholly-owned subsidiaries, are wholly-owned by ALFC.
The principal business of ALFC is insurance, which is conducted
through ALLIC, which offers life insurance, annuities and accident and health
specified disease, hospital indemnity and accidental death policies through
approximately 59 Managing General Agents, 180 General Agents and 100 licensed
sales representatives. Life insurance sales revolve principally around the
burial insurance and pre-need markets. ALFC employed 32 persons on a full-time
basis at year end and employs part-time individuals on an as-need basis
depending on the volume of work during the year. Neither ALFC nor its
subsidiaries has any employment contracts, retirement plans, stock incentive
plans or any other type of compensation plan, other than the normal salary
arrangements with employees. ALLIC is licensed to sell insurance in 20 states.
In December 1992, ALLIC
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was notified by the Insurance Department of the state of Georgia that a new
requirement increased the minimum capital and surplus to $1,500,000 each for
all licensed companies. During the period subsequent to December 1992, ALLIC
explored various possibilities that would have enabled ALLIC to meet this new
minimum capital and surplus requirement. An analysis of these various
possibilities convinced management that none of the available alternatives
could be financially justified. As a result, ALLIC voluntarily terminated all
agent contracts in the state of Georgia effective June 30, 1993. Sales efforts
were redirected to different areas with an effort to not only maintain sales
volume but also to improve the persistency on the business being sold. ALLIC
agreed to a voluntary suspension of its certificate of authority in the state
of Georgia in 1994. ALLIC will still be able to service and collect premiums
on business that is active in the state of Georgia and is only prohibited from
soliciting new insurance in that state.
ALLIC invests and reinvests certain of its reserves and other funds,
and a part of its income is derived from these sources. The investments of
ALLIC are limited as to type and amount by the applicable state insurance laws
and regulations, which are designed to ensure prudent investment policies.
Administration of the investment activity of ALLIC is overseen by its Board of
Directors which has established a policy requiring all bonds purchased be of
investment grade based on ratings published by Standard & Poor's Corporation.
Insurance companies are subject to comprehensive regulation in the
jurisdictions in which they do business under statutes and regulations
administered by state insurance commissioners. Such regulations relate to,
among other things, prior approval of the acquisition of a controlling interest
in an insurance company; standards of solvency which must be met and
maintained; licensing of insurers and their agents; nature of and limitations
on investments; deposits of securities for the benefit of policyholders;
approval of policy forms and premium rates; triennial examinations of the
affairs of insurance companies; annual and other reports required to be filed
regarding the financial condition of insurers or for other purposes; and
requirements regarding reserves for policyholders' future benefits, losses and
other matters. ALLIC is subject to this type of regulation in each state in
which it is licensed to do business. Such regulation could involve additional
costs and restrict operations.
Neither ALFC nor its subsidiaries has any material patents,
trademarks, licenses, franchises, or concessions, other than licenses to
operate in various states as an insurance company. The business of ALFC and
its subsidiaries is not seasonal nor is it dependent on a single customer or a
few customers.
Working capital in the traditional sense is not material to a life
insurance company,i.e., it is generally not needed by ALFC or its subsidiaries
to carry significant amounts of inventory or to provide ALFC with a continuous
allotment of goods. However, the aggregate amount which a life insurance
company expends in writing a new policy (in addition to providing for reserves)
is usually greater than the first year's premium since in the year in which a
policy is written it is necessary to provide for such items as agents' first
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year commissions, medical and investigation expenses, costs of issuing the
policy, extraordinary bookkeeping and accounting costs and other special first
year expenses.
The life insurance industry is highly competitive. There are more
than 2,000 legal reserve life insurance companies in the United States. These
insurance companies differentiate themselves through marketing techniques,
product features, price and customer service. ALLIC believes that its
policies, benefits thereunder and premium rates are generally competitive with
those of other insurers.
ALLIC's data processing requirements are currently provided by a
service bureau located in Oklahoma City, Oklahoma. ALLIC utilizes data
processing in almost every area of its operations. ALLIC's data processing
requirements are supplemented with personal computers used in all operating
departments. ALLIC's data processing system enables it to identify, on a daily
basis, the status of its policies in force and to provide other information on
a periodic basis.
ALFC leases approximately 9,345 square feet of office space at 4962
Florida Boulevard, Baton Rouge, Louisiana from an unaffiliated entity for
approximately $5,010 per month. This lease expired March 31, 1994, and rent is
currently being paid on a month to month basis. Funeral Homes of Louisiana,
Inc. completed construction of a 6,324 square foot funeral home in Baker,
Louisiana in September 1992 at a total cost of $472,911. An additional $75,740
was expended on furniture and equipment and $55,015 on automobiles. Because
construction costs were significantly higher than that estimated, a mortgage
loan was placed with an affiliate for $125,000. The remaining balance of the
mortgage loan was $106,532 at December 31, 1994. The mortgage loan is fully
amortizable at 9% interest over ten years and provides for equal monthly
installments of $1,583. This funeral home is currently being operated by
Funeral Homes of Louisiana, Inc. and is known as the Baker Funeral Home.
Funeral Homes of America, Inc. had planned to start construction of a second
funeral home, similar to the Baker Funeral Home, sometime during 1994.
However, construction has been delayed due to problems encountered in the
negotiations for real estate selected as the site for the new funeral home.
This matter is still pending, but it is hoped that construction will begin
sometime in 1995. Management believes that site selection is extremely
important for the project as it will affect the future profitability of the
operation.
In the normal course of its business operation ALFC is involved in
litigation from time to time with claimants, beneficiaries and others. In the
opinion of management, the ultimate liability, if any, would not have a
material adverse financial effect upon ALFC and its subsidiaries.
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ALFC MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion below should be read in conjunction with the ALFC
Consolidated Financial Statements which have been prepared in accordance with
generally accepted accounting principles.
FEDERAL INCOME TAXES
Deferred tax assets ($1,831,268) are those items that are expected to
reduce income tax liabilities in the future. For ALFC, those items are
primarily the excess of the liability for future policy benefits over reserves
determined for tax purposes ($1,247,000), net operating loss carryovers
($303,000 after valuation allowance), alternative minimum tax credit
carryforwards ($238,000), and other miscellaneous items. Prior thereto, such
carryforwards could only be recognized if their future realization was assured.
If a portion of the deferred tax asset may expire before being used to offset
taxable income, a valuation account is established. Net operating losses of
non-life companies total approximately $892,000 after reduction for valuation
allowance, and if not used would expire in the years 2002 through 2009. In
view of the extended carryover period available, management believes it is more
likely than not that these losses, after reduction for the valuation allowance,
will be utilized against future taxable income. Future taxable income is
estimated to include non-life profits being realized from the recently
organized funeral home subsidiaries, expected revisions of inter-company cost
charges, and increased levels of life insurance taxable income. To the extent
that such estimates are not realized or circumstances otherwise indicate a
further increase in the valuation account, future net income would be reduced.
For ALFC, deferred tax liabilities are mostly caused by the balance sheet asset
for deferred acquisition costs ($1,870,000), treated as an asset for financial
accounting purposes but currently deducted for tax purposes. Deferred taxes
are provided at the federal tax rate of 34%, although the tax is actually paid
at lower rates because of significant special life insurance deductions
available to ALFC. Because of this and effects of the alternative minimum tax,
in a given year actual income tax payments by ALFC may exceed the income tax
expense shown by the income statement. The preceding discussion applies to
ALFC as it is presently organized. Deferred tax assets and liabilities are not
adjusted for effects of the proposed merger with Citizens, Inc. or proposed
restructuring of ALFC's subsidiaries.
RESULTS OF OPERATIONS
ALFC realized a net loss of $415,107 in 1994 as compared to a net loss
of $176,053 in 1993. Included in the losses are net investment gains of $2,677
in 1994 and $12,889 in 1993. The following discussion focuses on the
components of the operating results.
31
<PAGE> 56
Total ALFC revenues were $8,913,924 in 1994 and $9,061,760 in 1993.
This $147,836 decrease is attributable primarily to a decrease in ALFC's life
insurance revenues.
Insurance revenues were $7,698,317 in 1994 and $7,930,753 in 1993.
Insurance revenues decreased $232,436 from 1993 to 1994. This decrease is
comprised of a $313,252 decrease in life insurance revenues and a $80,816
increase in accident and health revenues. Commencing 1994, ALFC redirected its
marketing efforts away from the brokerage business in an attempt to improve its
persistency results and fully expected a decline in insurance sales through the
first six months of 1994. By the third quarter of 1994 it became apparent that
ALLIC was not getting the kind of market penetration it had expected in life
insurance sales as new insurance sales lagged severely behind the previous
year. Subsequently, a complete review of ALLIC's life insurance products and
those of its competition was undertaken. As a result of this review, ALLIC has
changed some of its product line and is developing a new product that has been
targeted for ALLIC's specific market segment. The resulting new products are
scheduled for introduction during the second quarter of 1995. Even if
successful, life insurance revenues are expected to continue to decline through
the first six months of 1995 and then start to increase during the last six
months of 1995. It takes both time and money to develop marketing concepts and
to build a marketing organization. It is not something that happens overnight.
The lapse rate of ALLIC improved from 28.9 % in 1993 to 13.1% in 1994.
Management believes that this improvement is reflective of management's efforts
to de-emphasize sales in the brokerage area. Further improvement in the
current lapse rate, below the current level, is not expected because of the
market segment ALLIC operates in.
Net investment income totaled $1,026,343 in 1994 compared to $868,962
in 1993. This is a $157,381 increase over 1993. Average investment return on
restricted cash and invested assets during 1994 was 7.08% compared to 6.86% in
1993. This modest increase in investment return is reflective of improving
investment yields that were available in the market place. The majority of the
increase in investment income is attributable to an increase in the amount of
invested assets and not because of the modest increase in investment yield.
Investment income produced by ALLIC exceeded the interest required on its
insurance portfolio by $361,058 in 1994 and $297,543 in 1993. The primary
investments consist of certificates of deposit and bonds. The bond investments
include 98.57% investment grade securities and 1.43% securities below
investment grade. None of the certificates of deposits exceed the FDIC
guaranteed amount. The below investment grade securities are a result of two
bonds being downgraded by Standard & Poor's in 1994 from A and A+ to BB. One
of the bonds is already on the upgrade list by Standard & Poor's. Management
does not expect a problem with the collectability of the maturity value of
either bond at this time.
Net realized gains on investments totaled $2,677 in 1994 and $12,889
in 1993. These net investment gains are a result of bond investments that were
called prior to their stated maturity date.
32
<PAGE> 57
Other income consists principally of sales from the funeral home
operation. The net sales income in 1994 was $184,910 compared to $223,807 in
1993. The balance of other income consists of $1,677 of miscellaneous income
in 1994 and $25,349 in 1993. The cause of the $38,897 reduction in net
funeral homes sales was seven fewer funerals and a reduction of $246 in the
average funeral sale. The funeral home business is subject to a certain
volatility beyond the control of management. On the average, over a number of
years, management expects the funeral home business to produce positive
operating results which was not the case in 1994.
Total benefits, claims and settlement expense were $4,886,508 in 1994
and $4,996,354 in 1993. In total, this $109,846 decrease was the result of a
lower increase in the change in life liabilities for future policy benefits.
Death benefits totaled $1,094,776 in 1994 compared to $1,168,548 in
1993. We believe the $73,772 decrease in death benefits can be attributed to a
reduction in the anti-selection experienced in the brokerage business. An
analysis of the life insurance business indicates that in 1994 the life
insurance subsidiary experienced an 84.43% of expected mortality compared to
104.83% in 1993. Management does not expect much further improvement in the
mortality percentage of life insurance policies because of the type of products
being sold. Accident and health benefits were $1,805,499 in 1994 and
$1,678,926 in 1993. Accident and health benefits increased $126,573 in 1994
and $364,255 in 1993. As a percent of collected premium, accident and health
benefits were 47.4% in 1994 and 45.0% in 1993. This incurred benefit
percentage is higher than management would like. ALLIC increased accident and
health premiums on three of its policy forms in 1994 and has scheduled another
rate increase on a policy form during the first quarter of 1995. Management
expects that accident and health claim ratios will improve in 1995.
The increase in reserve for life future policy benefits was $1,137,331
in 1994 compared to $1,459,882 in 1993. Reserve increase for accident and
health future policy benefits was $524,693 in 1994 and $361,973 in 1993. The
$322,551 decrease in the amount of life reserve increase from 1993 to 1994 was
caused by a significant decrease in life insurance sales combined with normal
life insurance terminations; while the $162,720 increase in accident and health
reserve was the result of new sales and the normal ageing of the accident and
health portfolio.
Policy guaranteed additional benefits were $33,790 in 1994 and $45,716
in 1993. This $11,926 decrease was caused by policies reaching various option
dates where the policyholder can select either to surrender or convert the
policy to paid-up insurance. These benefits will continue to decline in the
future as the company no longer sells this particular policy form. Cash
surrender values paid totaled $209,229 in 1994 and $210,101 in 1993 with a
resulting decrease of only $872. Interest paid to policyholders was $81,190 in
1994 and $71,208 in 1993. The principal cause of the $9,982 increase was
interest credited to annuity contract holders. The amount of interest credited
is based on not only the amount of annuity, dividend and guaranteed additional
cash benefits on hand, but also
33
<PAGE> 58
on the interest rate credited on these funds that is declared annually by the
Board of Directors.
Policyholders' share of earnings on participating policies totaled
$88,675 in 1994 and $99,546 in 1993. Policyholder dividends have been
declining since 1989. This trend is caused by the fact that prior to 1993 ALLIC
had not issued participating insurance policies for a number of years. New
participating policies were developed and introduced in 1993, and this trend
could reverse itself in the future.
Total underwriting, acquisition, insurance and operating expenses were
$4,489,493 in 1994 and $4,337,206 in 1993. This reflects an increase of
$152,287 in 1994 and $108,428 in 1993. In 1994 amortization of deferred policy
acquisition costs increased $6,418, general expenses and commissions increased
$160,992, taxes, licenses and fees increased $6,100 and advances in excess of
commissions earned decreased $21,223.
Benefit and expenses totaled $9,464,158 in 1994, $9,433,054 in 1993.
This represents a $31,104 increase in 1994 and $914,264 in 1993.
In summary, management believes that the operating loss in 1994 can
primarily be attributed to continued high accident and health claims and money
spent in the market area without an improvement in the sales of new life
insurance policies. Inasmuch as rate increases have been implemented and will
be implemented in the accident and health segment when justified in the future,
better operating performance in this area is expected in 1995. If current
anticipated increased life sales come to fruition in 1995, better performance
should be seen in the life insurance line.
LIQUIDITY AND CAPITAL RESOURCES
ALFC anticipates that ongoing operations of its subsidiaries will
provide sufficient funds for the foreseeable future. ALFC's principal business
is life insurance, which generally provides cash flow in years subsequent to
the year in which policies are written. In the first year of a policy,
significant costs are incurred. A major portion of these costs are capitalized
for financial reporting purposes because the primary products being sold by
ALLIC have a higher first year agent commissions, underwriting and policy issue
costs. These capitalized costs are then amortized over the life of the
policies.
ALFC's invested assets increased by $1,906,427 in 1994 and $417,350 in
1993. The reason for the small increase in 1993 was caused by the repayment of
a $1,433,000 loan that was originated in December 1992 and repaid in January
1993. In 1993, ALFC was required to make an election, pursuant to SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities", regarding
the valuation of its investments in bonds. ALFC elected to value its bond
portfolio as Held-To-Maturity and, as a result, the statement value of bond
investments in ALFC's financial statement is based on amortized cost.
Statement value of these securities was $1,305,742 more than market value at
December 31, 1994, and market value exceeded amortized cost by $367,004 at
December
34
<PAGE> 59
31, 1993. An analysis of cash flows indicates that the majority of these
increases were the result of net cash provided by operating activities and
reinvestment of maturing assets. ALFC does plan on constructing a new funeral
home sometime in 1995. ALFC has $529,818 of funds on hand dedicated for
construction costs. If total costs exceeds this amount, ALFC intends to secure
a mortgage loan to provide such additional funds as may be required.
It should be noted that because of accounting standard, SFAS 109, and
the effects of the alternative minimum tax, in a given year actual income tax
payments by ALFC may exceed the income tax expense shown by the income
statement.
In order to provide financial protection for policyholders, the
majority of the life insurance subsidiary assets are required by statute to be
invested in investment grade securities. Bonds are reported in the financial
statement at their amortized cost, as opposed to market values, provided they
meet certain tests conducted by the Valuation Committee of the National
Association of Insurance Commissioners and are intended to be held to maturity.
At the end of December 1994, $14,134,698 of ALFC's bond portfolio was rated as
investment grade and $204,719 was rated as below investment grade. The below
investment grade securities are two bonds rated BB that were downgraded by
Standard & Poor's during 1994.
ALFC has no plans to sell fixed maturity investments in 1995.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
ALFC has had no disagreements with its certified public accountants
regarding accounting and financial matters required to be disclosed herein.
35
<PAGE> 60
COMPARISON OF RIGHTS OF SECURITYHOLDERS
Upon consummation of the Merger, the holders of issued and outstanding
ALFC common and preferred shares will receive Citizens Class A Common Stock.
The rights of the holders of Citizens shares are governed by Citizens Articles
of Incorporation, its bylaws and Colorado law, while the rights of holders of
ALFC shares are governed by ALFC s Articles of Incorporation, its bylaws and
Louisiana law. In most respects, the rights of holders of Citizens Class A
shares and holders of ALFC common shares are similar. The following is a brief
comparison of the rights of the holders of ALFC Common Stock and Preferred
Stock with those of Citizens Class A Common Stock.
AUTHORIZED SHARES
The aggregate number of shares which Citizens is authorized to issue
is 50,000,000 shares of Class A Common Stock with no par value and 1,000,000
shares of Class B Common Stock , with no par value; of which 16,980,340 shares
of such Class A Common Stock and 621,049 shares of Class B Common Stock are
issued and outstanding, fully paid and non-assessable. These numbers do not
include treasury shares.
The aggregate number of shares which ALFC is authorized to issue is
2,129,600 shares of Common Stock with par value of $.125 per share and 200,000
shares of non-cumulative, non-voting, callable, convertible 8% Preferred Stock,
par value $24.875 per share, of which 2,099,296 shares of such ALFC Common
Stock and 10,545 shares of ALFC Preferred Stock are issued and outstanding,
fully paid and non-assessable. These numbers do not include treasury shares,
if any. ALFC's Articles of Incorporation do not permit the issuance of any
additional classes of preferred stock.
DIVIDEND RIGHTS
The cash dividends paid upon each share of Citizens Class A Common
Stock is twice the cash dividends paid on each share of Citizens Class B Common
Stock. Because ALFC has only one class of Common Stock, no such difference
exists in the dividend rights of its Common Stock.
VOTING RIGHTS
Those who hold ALFC shares on the date the Merger becomes effective
will be entitled as a group to hold approximately 2,340,000 shares of Citizens
Class A Common Stock or approximately 12.1% of Citizens Class A shares that
Citizens anticipates will then be outstanding.
The voting rights of Citizens Class A Common Stock and Class B Common
Stock are equal in all respects except that the holders of Class B Common Stock
have the exclusive right to elect a simple majority of the members of Citizens
Board of Directors,
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<PAGE> 61
and the holders of the Class A Common Stock have the exclusive right to elect
the remaining directors.
The holders of ALFC Common Stock are entitled to one vote for each
share of stock held. Holders of ALFC Preferred Stock have no voting rights in
the affairs of ALFC, except that the holders of Preferred Stock have the right
to dissent from the merger. Neither the holders of ALFC Common Stock or
Citizens Common Stock have cumulative voting rights in the election of
directors.
The Articles of Incorporation of Citizens provide that when, with
respect to any action to be taken by Citizens shareholders the Colorado
Corporation Code (now superseded by the Colorado Business Corporation Act)
requires the affirmative vote of the holders of two-thirds of the outstanding
shares entitled to vote thereon, or of any class or series, such action may be
taken by the affirmative vote of the holders of a majority of the outstanding
shares entitled to vote on such action. The power to amend the Articles of
Incorporation, approve mergers and approve extraordinary asset transfers are
all subject to this requirement.
ALFCs Articles of Incorporation provide that, with respect to any
action to be taken by ALFC shareholders including, but not limited to
shareholder approval of amendments, mergers, consolidations, or asset
transfers, such action may be taken by the affirmative vote of a majority of
the voting shareholders present or represented at a meeting duly called and
held on due notice, at which a quorum is present or represented.
ALFC's bylaws provide that, subject to repeal or change by action of
ALFC's shareholders, the power to alter, amend, or repeal ALFC's bylaws or to
adopt new bylaws is vested in the Board of Directors. Citizens' Articles of
Incorporation provide that Citizens' Board of Directors has the power to enact,
alter, amend and repeal Citizens' bylaws not inconsistent with the laws of
Colorado or Citizens' Articles of Incorporation, as the Board of Directors
deems best for the management of Citizens; however, Colorado statutes give
shareholders the right to amend and repeal bylaws even if not so provided for
in the bylaws themselves.
Special meetings of ALFC shareholders may be called by ALFC's
President, its Board of Directors, or the holders of one fifth (1/5) or more of
all the ALFC shares entitled to vote. Special meetings of Citizens'
shareholders may be called by the Chairman of its Board, the Board of
Directors, or the holders of 10% or more of all the Citizens shares entitled to
vote. A majority of the shares of the outstanding capital stock entitled to
vote constitutes a quorum of shareholders under the bylaws of ALFC. The bylaws
of Citizens provide that one-third (1/3) of the votes entitled to be cast on a
matter by a voting group shall constitute a quorum of that voting group. The
bylaws of Citizens provide that shareholders can take action without a meeting
provided that all the shareholders of the corporation entitled to vote have
consented to the action in writing. ALFC's Articles of Incorporation provide
that written consents signed by a majority of the voting shares outstanding
shall be sufficient to authorize an action without a meeting.
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<PAGE> 62
PREEMPTIVE RIGHTS
Authorized ALFC and Citizens shares may be issued at any time, and
from time to time, in such amounts and for such consideration as may be fixed
by the Board of Directors of ALFC and Citizens, respectively. No holder of
Citizens or ALFC shares has any preemptive or preferential right to purchase or
to subscribe for any shares of capital stock or other securities which may be
issued by Citizens or ALFC.
LIABILITY OF DIRECTORS
As authorized by Colorado law, Citizens Articles of Incorporation
contain a provision to the effect that no director of Citizens shall be
personally liable to Citizens or any of its shareholders for damages for any
breach of duty as a director except to the extent limited by law. The Articles
of Incorporation of ALFC contain no such provision.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution, or winding up of
Citizens, whether voluntary or involuntary, the holders of Citizens common
shares are entitled to share, on a share-for-share basis, any of the assets or
funds of Citizens which are distributable to its shareholders upon such
liquidation, dissolution, or winding up.
In the event of any liquidation, dissolution, or winding up of ALFC,
whether voluntary or involuntary, the holders of ALFC preferred shares will
have a preferential right to the distributable net assets of ALFC to the extent
of $24.875 per share, which amounts to about $262,000 in the aggregate, plus
all declared and unpaid dividends to the date of liquidation. Thereafter, ALFC
common shareholders will be entitled to share, on a share-for-share basis, any
of the remaining amounts or funds of ALFC which are distributable to its
shareholders upon such liquidating, dissolution or winding up.
ASSESSMENT AND REDEMPTION
Citizens shares to be issued upon consummation of the Merger will be
fully paid and non-assessable. ALFC shares, for which full consideration has
been paid, are deemed to the fully paid and non-assessable.
ALFC preferred shares are callable at $25.00 per share by ALFC at any
time. Additionally, such preferred shares are convertible into ALFC Common
Stock, at any time, at the option of the holder. The original conversion ratio
was two shares of ALFC Common Stock for each one share of preferred. As a
result of subsequent common stock dividends, the conversion ratio has changed
to 2.66 shares of common stock for each one share of preferred stock owned.
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<PAGE> 63
TRANSFER AGENT
The transfer agent for ALFC shares is Hancock Bank of Louisiana, Baton
Rouge, Louisiana. The transfer agent for Citizens shares is American Stock
Transfer and Trust Company, New York, New York.
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<PAGE> 64
EXPERTS
The consolidated financial statements included in this Proxy
Statement-Prospectus of American Liberty Financial Corporation and subsidiaries
as of December 31, 1994 and 1993 and for each of the years in the two-year
period ended December 31, 1994, have been audited by Amend, Smith & Co., P.C.,
independent certified public accountants, as stated in their report appearing
herein and have been so included in reliance upon such report given upon the
authority of that firm as experts in accounting and auditing.
The consolidated financial statements of Citizens, Inc. and
subsidiaries as of December 31, 1994 and 1993, and for each of the years in the
three year period ended December 31, 1994, incorporated by reference in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, as incorporated by reference, and upon the authority of such firm
as experts in accounting and auditing.
LEGAL MATTERS
The legal status of the Citizens Class A Common Stock to be issued
pursuant to the Merger will be passed upon by Jones & Keller, P.C., 1625
Broadway, Suite 1600, Denver, Colorado 80202. An opinion as to the tax
consequences of the Merger to ALFC and its shareholders will be rendered by
Jones & Keller, P.C.
ELECTION OF DIRECTORS
Six directors are to be elected to serve until (i) the Merger is
consummated; or (ii) if the Merger is not consummated, until the 1996 Annual
Meeting of Shareholders and until their respective successors are elected and
qualified. It is intended that the stock in respect of which proxies are given
pursuant to this solicitation will be voted for the election of the persons
listed below, unless a shareholder specifies in the proxy that authority to
vote for the election of directors is withheld. In the event any of the
nominees should become unavailable for election, which is not now expected, the
proxy will be voted for any substitute nominee or nominees designated by the
management. The names of the nominees for whose election the proxies will be
voted, and certain information regarding each are as follows:
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<PAGE> 65
<TABLE>
<CAPTION>
Number of
common shares
Principal Corporation owned as of
Name Age Occupation Office held April 27, 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James Ira Dunham 53 President and Chairman President and Chairman 564,561
of the Board of ALFC of the Board of ALFC
Wilfred Paul Duplessis 84 Rancher and Farmer Secretary 106,480
Charles Elliot Broussard 70 Rancher and Farmer 33,674
Dr. Monroe Jackson
Rathbone, Jr. 68 Physician Medical Director 34,073
Frank W. Harrison, Jr. 66 Geologist and Investor 399
John Roy Melton 63 Geologist and Investor 73,780
</TABLE>
Each nominee has been a director since March 31, 1977 (except Mr.
Harrison and Mr. Melton, who were elected on May 20, 1988), and has been
elected to serve until the 1995 Annual Meeting of Shareholders and until each
nominee's respective successor is elected and qualified.
Mr. Dunham of Baton Rouge, Louisiana, has been President and
Chairman of the Board of Directors of ALFC since its inception on March 31,
1977. Mr. Dunham has been President and Chairman of the Board of Directors of
ALLIC since its inception on January 26, 1978, and all other subsidiaries since
their respective inceptions. Mr. Dunham is a salaried executive officer of
ALFC and of its subsidiary ALLIC. From 1965 to 1966 he was a life insurance
agent for National Foundation Life Insurance Company, Oklahoma City, Oklahoma.
From 1966 to 1969 he was promoted in succession to Zone, District, State and
Regional Manager where he served until he became Assistant to the President in
1969 and served in this capacity for National Foundation Life until 1973. From
1973 to 1977, Mr. Dunham was Director of Corporate Development for Investors
Trust, Inc. and its life insurance subsidiary in Indianapolis, Indiana. Since
1979 he has been involved in various aspects of oil and gas exploration,
production and financing. Mr. Dunham is President and Chairman of the Board of
First American Investment Corporation.
Mr. Duplessis of Gonzales, Louisiana, is a rancher and farmer. He is
a partner in a real estate development and director of the New River Soil
Conversation District and Community Land Development Company, Inc. Mr.
Duplessis is also a former member of the Ascension Parish School Board,
Louisiana School Board Legislative Committee and Past President of the
Louisiana Cattlemen's Association. He was also elected a Vice President of the
Area V Soil and Water Conservation of Louisiana. He has held oil and gas
mineral interests as a landowner for over 40 years. He is also a director of
First American Investment Corporation.
Mr. Broussard of Kaplan, Louisiana, is a rice farmer and rancher.
Mr. Broussard is a Past President of the National Rice Growers Association.
He is also on the Board of
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<PAGE> 66
Directors of Universal Fabricators, Inc. In addition, he is Past President of
the Beef Industry Council. He has held and managed oil and gas mineral
interests for a number of years, and was an oil and gas mineral lease broker.
In 1986 Mr. Broussard was selected Acadian Man of the Year by the International
Relationship Association of Acadiana. He is also a Director of First American
Investment Corporation and President of Inexpo. In 1985 he was ABWA Man of the
Year and Past President of Gulf Intercoastal Canal Association and Vice
President of the Midwinter Fair Association, LA Livestock Sanitary Board
Commission and director for Acadian District Livestock Show. He is also a
member of the Wetlands Task Force.
Dr. Rathbone has practiced surgery in Baton Rouge, Louisiana, since
1958. He is Medical Director of Our Lady of the Lake Regional Medical Center
and Chairman of the Board of the Cancer Radiation and Research Foundation, Inc.
He is a director of Gulf States Utilities Company and also a director of First
American Investment Corporation.
Mr. Harrison of Lafayette, Louisiana, is an independent oil operator
and consulting geologist. Mr. Harrison serves as a board member of Premier
Bank of Baton Rouge. He is a Past President of the American Association of
Petroleum Geologists, the Lafayette Geological Society, and the Gulf Coast
Association of Geological Societies. Additionally, he serves on the Board of
Directors of the Independent Petroleum Association of America, is Past
President of the American Geologist Institute, and is a member of the Houston
Geological Society, New Orleans Geological Society, and the Baton Rouge
Geologist Society. He is also a director of First American Investment
Corporation and Gulf States Utilities Company and Premier Bank Corp.
Mr. Melton of Dallas, Texas, has been a Geologist since 1956. His
primary business is oil and gas exploration and production. He is a partner of
Dynamic Oil & Gas, an active member of the American Association of Petroleum
Geologists since 1958, and a member of the Dallas Geological Society. He is
also a director of First American Investment Corporation.
ALFC does not have an audit, nominating, or compensation committee or
any similar committee of the Board of Directors. The 1994 Annual Directors'
meeting was held on May 12, 1994; five other meetings of the directors were
held in 1994. The average attendance at all meetings of the Board was 88.9%.
All directors individual attendance at 1994 Board meetings was at least 75%,
except for Dr. Rathbone, who attended two-thirds of the Board meetings.
OTHER MATTERS
The ALFC Board does not intend to bring any matters before the Meeting
other than those specifically set forth in the notice of meeting accompanying
this Proxy Statement-Prospectus and does not know of any matters to be brought
before the Meeting by others. If any other matters properly come before the
Meeting, it is the intention of the persons
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<PAGE> 67
named in the accompanying proxy to vote such proxy in accordance with the
judgment of the ALFC Board.
In the event that the Merger is not approved by the ALFC shareholders,
any ALFC shareholder who wishes to present a proposal for consideration at the
1996 annual meeting, which is anticipated to be held on Friday, May 12, 1996,
of ALFC shareholders must submit such proposal in accordance with the rules
promulgated by the SEC. In order for a proposal to be included in ALFC proxy
materials relating to the 1996 annual meeting, the shareholder must have
submitted such proposal in writing to ALFC not later than December 31, 1995.
Such proposals should be addressed to: Office of the Secretary, Mr. Wilfred P.
Duplessis, American Liberty Financial Corporation, P.O. Box 64626, Baton Rouge,
Louisiana 70896.
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<PAGE> 68
DEADLINE FOR CITIZENS SHAREHOLDER PROPOSALS
Any Citizens shareholder who wishes to present a proposal for action
at the 1996 Annual Meeting of the Citizens shareholders must submit his or her
proposal in writing by Certified Mail -- Return Receipt Requested, to Citizens,
Inc., 400 East Anderson Lane, Austin, Texas 78752.
44
<PAGE> 69
Audited Consolidated Financial Statements
AMERICAN LIBERTY FINANCIAL CORPORATION
AND SUBSIDIARIES
December 31, 1994
Audited Consolidated Financial Statements
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations. . . . . . . . . . . . . . . . . 4
Consolidated Statements of Changes in Stockholders' Equity . . . . . . 5
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 8
<PAGE> 70
AMEND, SMITH & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Bill D. Amend 1100 Oklahoma Tower
Joseph E. Brueggen 210 Park Avenue
Kenneth L. Carney Oklahoma City, OK 73102-5602
Carl E. Denning BUS: (405) 272-1040
Joseph W. Hornick FAX: (405) 235-6180
Kevin D. Howard 1-800-570-1040
Van R. Minelli
H. Kirby Smith
Nora M. Vinyard
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Liberty Financial Corporation
Baton Rouge, Louisiana
We have audited the accompanying consolidated balance sheets of American
Liberty Financial Corporation and Subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Liberty Financial Corporation and Subsidiaries as of December 31, 1994
and 1993, and the consolidated results of their operations and their
consolidated cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ Amend, Smith & Co., P.C.
-----------------------------
AMEND, SMITH & CO., P.C.
Oklahoma City, Oklahoma
February 27, 1995
-1-
<PAGE> 71
CONSOLIDATED BALANCE SHEETS
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Investments
Fixed maturity bonds, held-to-maturity (fair value of
$12,881,320 in 1994 and $11,905,843 in 1993) $14,172,110 $11,533,518
Mortgage-backed securities (fair value of $152,355
in 1994 and $207,609 in 1993) 167,307 212,930
Policy loans 193,000 139,189
Short-term investments 764,022 1,504,375
----------- -----------
Total Investments 15,296,439 13,390,012
----------- -----------
Restricted Cash
Funds in escrow per public offering of stock 529,818 512,731
----------- -----------
Cash 152,132 131,201
----------- -----------
Investments--Related Parties--Oil and Gas Partnerships 1,039 641
----------- -----------
Accrued Investment Income 307,164 260,657
----------- -----------
Accounts and Notes Receivable
Agents' notes receivable -- 5,219
Agents' accounts receivable, net of allowance for
uncollectible accounts of $184,721 in 1994 and $185,025
in 1993 406,157 567,604
Income tax receivable 2,777 --
Receivable from oil and gas partnerships 8,906 14,900
Other receivables, net of allowance of $2,665 in 1994 59,278 46,693
----------- -----------
Total Accounts And Notes Receivable 477,118 634,416
----------- -----------
Recoverable on Reinsurance 9,093 5,493
----------- -----------
Deferred Policy Acquisition Costs 6,950,147 7,236,055
----------- -----------
Property and Equipment
Building 477,130 477,130
Fixtures and equipment 581,925 589,483
Less: Accumulated depreciation (474,495) (407,952)
----------- -----------
584,560 658,661
----------- -----------
Deferred Offering Costs 69,087 68,047
----------- -----------
Deferred Tax Asset 1,831,268 1,821,795
----------- -----------
Other Assets 107,902 89,068
----------- -----------
TOTAL ASSETS $26,315,767 $24,808,777
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE> 72
CONSOLIDATED BALANCE SHEETS -- Continued
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
------------------------------------
1994 1993
----------- ----------
<S> <C> <C>
LIABILITIES
Policy Liabilities and Accruals
Future policy benefits: Life $10,893,707 $ 9,403,394
Accident and health 3,290,216 2,765,523
Policy claims payable: Life 128,297 157,205
Accident and health 813,000 752,685
----------- ----------
Total Policy Liabilities and Accruals 15,125,220 13,078,807
----------- ----------
Other Policyholders' Funds
Policy guaranteed additonal benefits and accrued interest 372,360 404,328
Dividends and accrued interest 434,443 412,671
Amounts submitted with unprocessed applications 5,412 21,351
----------- ----------
Total Other Policyholders' Funds 812,215 838,350
----------- ----------
Other Liabilities
Accounts payable, trade 95,199 49,828
Payable for costs of public offering of stock of subsidiary 1,516 2,600
Amounts held for Agents 89,113 78,644
Accrued taxes, other than income taxes 99,339 122,216
Other withholdings payable 37,399 35,777
Income taxes payable -- 8,094
Deferred income taxes 1,870,328 2,019,807
Unearned interest income on policy loans 7,114 5,183
Note from stockholder 30,620 --
----------- ----------
Total Other Liabilities 2,230,628 2,322,149
----------- ----------
Total Liabilities 18,168,063 16,239,306
----------- ----------
Deferred Credit -- Sales Proceeds Collected from Public Offering of Stock of Subsidiary,
net of subscriptions receivable 15,351 11,050
----------- ----------
Minority Interest in Consolidated Subsidiary 14,954 23,488
----------- ----------
Related Party Transactions and Contingent Liabilities -- 2,428
----------- ----------
STOCKHOLDERS' EQUITY
Capital shares:
Preferred stock, 8% non-cumulative, convertible and callable, par value $24.875,
200,000 shares authorized, issued and outstanding, 10,525 shares in 1994 and
10,885 shares in 1993 261,809 270,764
Common stock, par value $.125, 2,129,600 shares authorized, issued and outstanding,
2,099,187 shares in 1994 and 2,098,229 shares in 1993 262,398 262,278
Other stockholders' equity:
Additional paid-in capital 6,018,187 6,009,351
Syndication costs on oil and gas partnership (80) (80)
Retained earnings (exceeds accumulated deficit as determined in accordance with
statutory accounting requirements by $4,356,536 in 1994 and $4,675,437 in 1993) 1,575,085 1,990,192
----------- ----------
Total Stockholders' Equity 8,117,399 8,532,505
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,315,767 $24,808,777
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 73
CONSOLIDATED STATEMENTS OF OPERATIONS
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1994 1993
---------- ----------
<S> <C> <C>
REVENUES
Premiums:
Life $3,888,940 $4,202,192
Accident and health 3,809,377 3,728,561
---------- ----------
Total Premiums 7,698,317 7,930,753
Net investment income 1,026,343 868,962
Realized gains on investments 2,677 12,889
Other income 186,587 249,156
---------- ----------
Total Revenues 8,913,924 9,061,760
---------- ----------
BENEFITS AND EXPENSES
Benefits, Claims, and Settlement Expenses
Death benefits 1,094,776 1,168,548
Accident and health benefits 1,805,499 1,678,926
Policy guaranteed additional benefits and interest 33,790 45,716
Cash surrender values paid 209,229 210,101
Interest paid to policyholders 81,190 71,208
Change in liabilities for future policy benefits:
Life 1,137,331 1,459,882
Accident and health 524,693 361,973
---------- ----------
Total Benefits, Claims, and Settlement
Expenses 4,886,508 4,996,354
---------- ----------
Policyholders' Share of Earnings on Participating
Policies 88,675 99,546
---------- ----------
Underwriting, Acquisition, Insurance, and Operating
Expenses
Amortization of deferred policy acquisition costs 1,452,826 1,446,408
Other:
General, administrative, and commission expenses 2,652,500 2,491,508
Taxes, licenses and fees 384,167 378,067
Advances in excess of commissions earned -- 21,223
---------- ----------
Total Underwriting, Acquisition, Insurance,
and Operating Expenses 4,489,493 4,337,206
---------- ----------
Other (Income) Expenses -- Equity in (Gains)
Losses of Partnerships (518) (52)
---------- ----------
Total Benefits and Expenses 9,464,158 9,433,054
Loss Before Provision For Income Taxes and
Minority Interest in Net Loss of
Consolidated Subsidiary (550,234) (371,294)
---------- ----------
PROVISION FOR (BENEFIT FROM) INCOME TAXES
Current 32,359 60,758
Deferred (158,952) (254,238)
---------- ----------
Total Provision For (Benefit From)
Income Taxes (126,593) (193,480)
---------- ---------
MINORITY INTEREST IN NET LOSS OF CONSOLIDATED
SUBSIDIARY (8,534) (1,761)
---------- ---------
NET LOSS $ (415,107) $ (176,053)
========== ==========
NET LOSS PER COMMON PRIMARY SHARE $ (.20) $ (.08)
========== ==========
NET LOSS PER FULLY DILUTED SHARE $ (.20) $ (.08)
========== ==========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE> 74
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-In Syndication Retained
Stock Stock Capital Costs Earnings
--------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 $270,764 $262,277 $5,542,332 $(80) $2,166,245
Scrip stock redeemed -- 1 -- -- --
Increase in equity resulting from issuance of stock
by consolidated subsidiary -- -- 467,019 -- --
Net loss -- -- -- -- (176,053)
-------- -------- ---------- ---- ----------
BALANCE AT DECEMBER 31, 1993 270,764 262,278 6,009,351 (80) 1,990,192
Conversion of preferred shares to common shares (8,955) 120 8,836 -- --
Net loss -- -- -- -- (415,107)
-------- -------- ---------- ---- ----------
BALANCE AT DECEMBER 31, 1994 $261,809 $262,398 $6,018,187 $(80) $1,575,085
======== ======== ========== ==== ==========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE> 75
CONSOLIDATED STATEMENTS OF CASH FLOWS
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1994 1993
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (415,107) $ (176,053)
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Net amortization of premiums and discounts on fixed maturity bonds 15,510 8,006
Realized gains on investments (2,677) (12,889)
Loss on sale of property and equipment 1,549 468
Equity in (gains) losses of partnerships (518) (52)
Provision for losses on Agents' and other accounts receivable 3,463 18,551
Amortization of deferred policy acquisition costs 1,452,826 1,446,408
Depreciation and amortization of property and equipment 77,539 86,858
Amortization or organization costs 2,836 2,836
Change in deferred tax asset (9,473) (253,416)
Change in deferred income tax liability (149,479) (822)
Minority interest in net income (loss) of consolidated subsidiary (8,534) (1,761)
Changes in operating assets and liabilities:
Decrease (increase) in policy loans (53,811) (26,571)
Decrease (increase) in accrued investment income (46,507) (43,699)
Decrease (increase) in Agents' accounts receivable 166,970 320,149
Decrease (increase) in income taxes receivable (2,777) 9,909
Decrease (increase) in receivable from oil and gas partnerships 5,994 (5,109)
Decrease (increase) in other receivables (15,250) (35,371)
Decrease (increase) in recoverable on reinsurance (3,600) 1,373
Decrease (increase) in deferred policy acquisition costs (1,166,918) (1,736,700)
Decrease (increase) in other assets before amortization of
organization costs (21,670) (38,921)
Increase (decrease) in policy liabilities and accruals 2,046,413 2,170,445
Increase (decrease) in policy guaranteed additional benefits and
accrued interest (31,968) 39,039
Increase (decrease) in dividends and accrued interest 21,772 (17,581)
Increase (decrease) in amounts submitted with unprocessed applications (15,939) 8,040
Increase (decrease) in accounts payable, trade 45,371 (27,812)
Increase (decrease) in amounts held for Agents 10,469 (6,379)
Increase (decrease) in accrued taxes other than income taxes (22,877) 71,839
Increase (decrease) in other withholdings payable 1,622 14,851
Increase (decrease) in income taxes payable (8,094) (7,815)
Increase (decrease) in related party transactions (2,428) 2,428
Increase (decrease) in unearned interest income on policy loans 1,931 1,016
----------- -----------
Net Cash Provided By Operating Activities 1,876,638 1,811,265
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and calls before maturity of fixed maturity bonds 170,134 1,362,966
Purchases of fixed maturity bonds (2,775,934) (5,736,322)
Purchases of certificates of deposit (67,564) (41,642)
Redemption of certificates of deposit 698,784 4,164,552
Decrease (increase) in other short-term investments 109,133 (135,451)
Distributions from oil and gas partnership 120 107
Proceeds from sales of property and equipment 1,200 2,775
Purchases of property and equipment (6,190) (28,728)
----------- -----------
Net Cash Used In Investing Activities (1,870,317) (411,743)
----------- -----------
</TABLE>
-6-
<PAGE> 76
CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1994 1993
-------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Sales proceeds collected from public offering of stock of subsidiary $ 3,200 $ 59,050
Deferred offering costs incurred (1,039) (29,068)
Increase (decrease) in payable for costs of public offering of stock
of subsidiary (1,084) 2,321
Repayment of borrowings -- (1,432,929)
Proceeds from borrowing 30,620 --
-------- -----------
Net Cash Provided By Financing Activities 31,697 (1,400,626)
-------- -----------
Increase (Decrease) In Cash And Restricted Cash 38,018 (1,104)
CASH AND RESTRICTED CASH AT BEGINNING OF YEAR 643,932 645,036
-------- -----------
CASH AND RESTRICTED CASH AT END OF YEAR $681,950 $ 643,932
======== ===========
See notes to consolidated financial statements.
</TABLE>
-7-
<PAGE> 77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of certain significant accounting policies followed
in the preparation of these financial statements.
Principles of Consolidation: The consolidated financial statements include the
accounts of American Liberty Financial Corporation (the Company) and its
wholly-owned subsidiaries, which are: American Liberty Life Insurance Company;
American Liberty Exploration Corporation; American Liberty Exploration
Corporation, 1981-1; American Liberty Exploration Corporation, 1982-1, and
American Liberty Securities Corporation; and majority-owned subsidiary, First
American Investment Corporation, which includes Funeral Homes of Louisiana,
Inc. and Funeral Homes of America, Inc. (both wholly-owned subsidiaries of
First American Investment Corporation). All material intercompany accounts and
transactions have been eliminated.
Investments: Debt securities that management has the intent and ability to hold
to maturity are classified as held-to-maturity and are carried at cost,
adjusted for amortization of premiums and accrual of discounts, using methods
approximating the interest method. Cost of securities sold or redeemed prior to
maturity date is recognized using the specific identification method.
Short-term investments composed of money market accounts, mutual fund accounts,
and certificates of deposit are carried at cost, which approximates market.
Mortgage-Backed Securities: Mortgage-backed securities represent participating
interests in pools of long-term first mortgage loans originated and serviced by
issuers of the securities. Mortgage-backed securities are carried at unpaid
principal balances, adjusted for unamortized premiums and unearned discounts.
Premiums and discounts are amortized using methods approximating the interest
method over the remaining period to contractual maturity, adjusted for
anticipated prepayments. Management intends, and has the ability, to hold such
securities to maturity. Should any be sold, cost of securities sold is
determined using the specific identification method.
Cash Equivalents: For the purposes of cash flows, the Company considers cash
and cash equivalents to be composed of non-interest bearing cash accounts and
restricted cash, and cash in escrow (interest bearing) related to the
subsidiary public offering of stock.
Basis of Oil and Gas Accounting: American Liberty Financial Corporation and its
subsidiaries have elected to use the "successful efforts" method of costing for
their oil and gas operations through investments in oil and gas partnerships.
Under successful efforts costing, except for acquisition costs of properties, a
direct relationship between costs incurred and specific reserves discovered is
required before costs are identified with assets.
An acquired property is regarded as an asset until either a determination is
made that it does not contain oil and gas reserves or the property is
surrendered. Capitalized costs relating to producing properties are amortized
as the reserves underlying those properties are produced.
Allowance for Uncollectible Accounts: Receivable accounts are periodically
reviewed by management for collectibility. An allowance account has been
established for the estimated uncollectible balance at the end of each year.
Deferred Policy Acquisition Costs: American Liberty Life Insurance Company
currently issues only individual ordinary life and individual accident and
health policies. Certain costs of acquiring insurance policies are deferred at
the time
-8-
<PAGE> 78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
Deferred Policy Acquisition Costs--Continued
the Company incurs the cost. The deferred costs are then amortized against
income over the benefit period up to a maximum of 20 years. Amortization is
based on the same assumptions used for future policy benefits as described
below.
Depreciation and Amortization: Depreciation and amortization are computed by
the double-declining and straight-line methods at rates estimated to recover
the cost of the related assets over their expected useful lives. The range of
such lives is from 3 to 31.5 years.
Deferred Offering Cost: Specific incremental costs directly attributable to a
public offering of common stock of First American Investment Corporation
currently in process (See Notes J and N.) have been deferred and will be
charged against the gross proceeds of the offering, or charged to expense if
the offering is terminated.
Organization Costs: Organization costs incurred in 1990 for Funeral Homes of
Louisiana, Inc. are being amortized on a straight-line basis over a 60 month
period.
Intangible Assets: Intangible assets acquired by First American Investment
Corporation are being amortized on a straight-line basis over a 60 month
period.
Future Policy Benefits: Reserves for future policy benefits for all of the
Company's traditional plans of life insurance have been computed principally by
the net level premium method with assumptions as to investment yields,
mortality, and withdrawals based upon Company and industry experience, adjusted
to provide for possible unfavorable deviation from the mortality table and
investment yield assumptions.
Reserves for accident and health benefits have been computed with assumptions
that consider investment yields, morbidity, and withdrawals based upon Company
and industry experience, adjusted to provide for possible unfavorable deviation
from the morbidity table and investment yield assumption.
The benefit reserves for annuities are stated at full fund accumulation
balance with allowance for surrender charges.
Policy Claims Payable: The liability for policy claims payable is composed of
claims reported but not paid and claims incurred but not reported.
American Liberty Life Insurance Company has developed a procedure for
calculating incurred but unreported health benefit claim costs based on
averaging prior year claims using dates that claims are incurred, reported to
the insurance company, and subsequently paid by the insurance company. In
addition, the insurance company, in 1993, initiated procedures to specifically
identify and reserve for "jumbo claims" based on claimant's medical history and
similar experience.
Deferred Income Taxes: The Company computes and records income taxes payable
based upon current taxable income. Deferred tax liabilities and assets are
provided for termporary differences between book and tax asset and liability
basis in accordance with SFAS 109 at current income tax rates. The actual tax
liability or credit will depend on subsequent operations of the Company and its
subsidiaries and the rates in effect at the time such differences in basis are
taxed. Items relating to the deferred income tax liabilities arise from
temporary differences related to capitalization of deferred acquisition costs.
-9-
<PAGE> 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
Deferred Income Taxes -- Continued
The deferred tax asset is the result of items relating principally to temporary
differences between accounting and tax reserve methods for the insurance
subsidiary and to net operating loss carryovers and minimum tax credit
carryovers. A valuation account has been established for a portion of the
deferred tax asset which may expire before being used to offset taxable income.
Issuance of Stock by Subsidiary: Changes in American Liberty Financial
Corporation's proportionate share of equity in first American Investment
Corporation, which resulted from the additional equity raised by the subsidiary
through issuance of its stock (See Note N.), are accounted for as an equity
transaction in consolidation.
Recognition of Revenue: Insurance premium revenues are recognized as income
when earned. Premiums are reflected net of reinsurance ceded. (See Note G.)
Earnings Per Share: Primary earnings per share are computed on the weighted
average number of shares of common stock and equivalents (convertible preferred
stock) assumed outstanding during the year of computation.
Fully diluted earnings per share are computed based on the weighted average
number of shares of common stock and equivalents assumed outstanding during the
year as if the convertible preferred stock had been converted at the beginning
of the period.
Reclassification: Certain prior year amounts have been reclassified to conform
with current year presentation.
NOTE B -- NATURE OF BUSINESS
The Company was incorporated under the Louisiana Business Corporation Act for
the purpose of organizing and financing a proposed Louisiana life insurance
company. American Liberty Life Insurance Company began insurance marketing
operations in March, 1979.
American Liberty Exploration Corporation, American Liberty Exploration
Corporation, 1981-1, and American Liberty Exploration Corporation, 1982-1 were
incorporated on October 23, 1980, July 6, 1981, and January 7, 1982,
respectively, under the laws of the State of Louisiana. These corporations were
established for the purpose of forming partnerships in commendam (similar to
limited partnerships in other states) in which the corporations are general
partners, and with the intent to invest in leasing, exploration, development,
production, and operation of various oil and gas properties.
American Liberty Securities Corporation was incorporated on July 1, 1981 under
the laws of the State of Louisiana. American Liberty Securities Corporation was
established for the purpose of recruiting and training a sales staff to market
specific qualifying securities.
First American Investment Corporation was formed in November, 1984 for the
purpose of organizing and financing proposed funeral home companies (Funeral
Homes of Louisiana, Inc. and Funeral Homes of America, Inc.), and a proposed
-10-
<PAGE> 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE B -- NATURE OF BUSINESS -- Continued
Louisiana life insurance company (First Investment Life Insurance Company).
Funeral Homes of Louisiana, Inc. was formed in 1989 and Funeral Homes of
America was formed in 1993. See Notes J and N for a discussion of First
American Investment Corporation's stock offering.
NOTE C--NET INVESTMENT INCOME, FIXED MATURITY BONDS,
MORTGAGE-BACKED SECURITIES, AND SHORT-TERM INVESTMENTS
Interest income from fixed maturity bonds, short-term investments, and policy
loans are as follows:
<TABLE>
<CAPTION>
1994 1993
---------- --------
<S> <C> <C>
Fixed maturity bonds, held-to-maturity $ 951,392 $716,061
Mortgage-backed securities 11,937 18,325
Short-term investments and policy loans 90,522 169,421
---------- --------
Total Interest 1,053,851 903,807
Less: Investment expenses (27,508) (34,845)
---------- --------
Net Investment Income $1,026,343 $868,962
========== ========
</TABLE>
Fixed maturity bonds held-to-maturity are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- -------- ---------- -----------
<S> <C> <C> <C> <C>
1994
U.S. Treasury Securities and obligations of
U.S. Government and agencies $ 2,041,057 $ 1,685 $ 39,052 $ 2,003,690
Corporate Securities 6,789,555 6,830 518,755 6,277,630
Debt Securities issued by states and political subdivisions:
U.S. 289,679 -- 28,679 261,000
Other countries 403,201 -- 41,201 362,000
Other Debt Securities (Public Utilities):
U.S. 4,337,480 1,072 630,552 3,708,000
Other countries 311,138 -- 42,138 269,000
----------- -------- ---------- -----------
Total Fixed Maturity Bonds at 12/31/94 $14,172,110 $ 9,587 $1,300,377 $12,881,320
=========== ======== ========== ===========
1993
U.S. Treasury Securities and obligations of U.S.
Government and agencies $ 1,128,795 $115,858 $ -- $ 1,244,653
Corporate Securities 6,045,007 322,039 20,856 6,346,190
Debt Securities issued by states and political subdivisions:
U.S. 104,301 5,699 -- 110,000
Other countries 107,663 -- 6,663 101,000
Other Debt Securities (Public Utilities):
U.S. 3,939,943 46,366 93,309 3,893,000
Other countries 207,809 3,191 -- 211,000
----------- -------- ---------- -----------
Total Fixed
Maturity Bonds at 12/31/93 $11,533,518 $493,153 $ 120,828 $11,905,843
=========== ======== ========== ===========
</TABLE>
-11-
<PAGE> 81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE C -- NET INVESTMENT INCOME, FIXED MATURITY BONDS,
MORTGAGE-BACKED SECURITIES, AND SHORT-TERM INVESTMENTS -- Continued
Mortgage-backed securities consist of the following:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- --------
1994
GNMA $167,307 $ - $14,952 $152,355
======== ========== ======= ========
1993
GNMA $212,930 $ - $ 5,321 $207,609
======== ========== ======= ========
The amortized cost and estimated market value of debt securities at December
31, 1994, by contractual maturity, are as follows:
Amortized Fair
Cost Value
----------- -----------
Due on one year or less $ 226,815 $ 228,500
Due after one year through five years 1,082,094 1,062,880
Due after five years through ten years 5,528,793 5,201,550
Due after ten years 7,334,408 6,388,390
----------- -----------
14,172,110 12,881,320
Mortgage-backed securities 167,307 152,355
----------- -----------
$14,339,417 $13,033,675
=========== ===========
Short-term investments and restricted cash included $876,026 and $845,025
invested in Merrill Lynch U.S.A. Government Reserves at December 31, 1994 and
1993, respectively.
NOTE D -- INVESTMENTS IN OIL AND GAS PARTNERSHIPS
The Company accounts for its interest in oil and gas partnerships through its
subsidiaries which are the general partners on the equity method of accounting.
Investment balances in the partnership at December 31, 1994 and 1993 were
$1,039 and $641, respectively.
NOTE E -- DEFERRED POLICY ACQUISITION COSTS
Details of deferred policy acquisition costs are as follows:
1994 1993
---------- ----------
Beginning balance $7,236,055 $6,945,763
Deferrable costs incurred, commissions
on first year and renewal business 1,098,193 1,522,485
Other 68,725 214,215
---------- ----------
8,402,973 8,682,463
Charged against income 1,452,826 1,446,408
---------- ----------
Ending Balance $6,950,147 $7,236,055
========== ==========
Net (decrease) increase in balance $ (285,908) $ 290,292
========== ==========
First year gross premiums $1,016,056 $1,631,227
========== ==========
Renewal year gross premiums $6,714,438 $6,348,472
========== ==========
-12-
<PAGE> 82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE F -- INDIVIDUAL PARTICIPATING LIFE POLICIES
Individual participating life insurance policies are 17 percent of the amounts
for insurance in force and seven percent of premium income for life insurance
related plans. Insurance earnings and dividends on individual participating
life policies are determined by actuarial assumptions included in asset share
studies prepared at the time the policies are developed. The policies become
eligible for dividends when the policies have been paid to the end of the
second year. The amount of dividends to be paid to policyholders is determined
annually as a percentage of the basic gross annual premium of the policies and
is declared by the Board of Directors based on mortality and persistency
experience on the participating policies during the year. Dividends are not
guaranteed on individual participating life policies.
NOTE G -- REINSURANCE
Liability for future policy benefits is reported before the effects of
reinsurance. Reinsurance receivables (including amounts related to insurance
liabilities) are reported as assets. Estimated reinsurance receivables are
recognized in a manner consistent with the liabilities related to the
underlying reinsurance contracts. Such amounts have been presented in
accordance with Statement of Financial Accounting Standards No. 113, Accounting
and Reporting for Reinsurance of Short Duration and Long Duration Contracts.
The Company is liable if the reinsuring companies are unable to meet their
obligations under the reinsurance agreements.
<TABLE>
<CAPTION>
Percentage
Ceded To Assumed Of Amount
December 31, Gross Other From Other Net Assumed
1994 Amount Companies Companies Amount To Net
- -------------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Life insurance
in force (in
thousands) $ 40,735 $ 884 $ - $ 39,851 $ -
Premiums, life insurance $3,643,028 $(2,489) $ - $3,645,517 $ -
</TABLE>
American Liberty Life Insurance Company retains life insurance risk up to a
maximum of $32,000. If the policy coverage exceeds $32,000, the Company
reinsures the portion of the policy amount over $30,000. The portion over
$30,000 is reinsured at various reinsurance premium rates with other insurance
companies. Total reinsured ordinary life amounts were $884,000 at December 31,
1994 and $1,400,000 at December 31, 1993. Generally, in the event of impairment
of a reinsurer, the Company must reassume the insurance risk. Reinsurance costs
or ordinary life insurance are expensed with appropriate credits to reserves on
the risk reinsured.
American Liberty Life Insurance Company also reinsures all accidental death
policies through a coinsurance arrangement whereby 90 percent of the benefit
risk is assumed by the reinsurer. The reinsurance agreement may be terminated
by either party sending to the other written notice of not less than 60 days.
Reinsurnce costs on the accidental death policies are expensed with appropriate
credits to reserves on the risk reinsured.
NOTE H -- INCOME TAXES
The Company's insurance subsidiary files its income tax returns as a life
insurance company. Under provisions of the Tax Reform Act of 1984, life
insurance companies are subject to federal income tax on life insurance company
-13-
<PAGE> 83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE H -- INCOME TAXES -- Continued
taxable income, which is life insurance gross income minus life insurance
deductions. Life insurance company gross income consists of amounts generally
include in gross income; and life insurance company deductions are the sum of
(i) general deductions and (ii), if applicable, the small life insurance
company deduction.
The Company adopted SFAS 109, which mandates the liability method for computing
deferred income taxes.
A deferred asset has been established for temporary differences that will
result in deductible amounts and for carryforwards. Management feels it is
possible that a portion of these deferred tax assets may not be used to offset
taxable income within the time allowed. Therefore, a valuation allowance has
been established.
The approximate tax effects of each type of temporary difference and
carryforward that gives rise to a significant portion of deferred tax
liabilities and deferred tax assets are as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Capitalization of deferred acquisition cost $1,870,328 $2,019,807
---------- ----------
Deferred Tax Liability $1,870,328 $2,019,807
========== ==========
Difference in reserve basis $1,247,452 $1,206,709
Bad debt reserve 56,348 62,910
Other 3,604 6,035
Net operating loss carryovers 456,501 384,974
Alternative minimum tax credit carryovers 237,948 217,280
---------- ----------
Deferred Tax Asset 2,001,853 1,877,908
Valuation allowance (170,585) (56,113)
---------- ----------
Net Deferred Tax Asset $1,831,268 $1,821,795
========== ==========
</TABLE>
Provisions for income taxes in the Consolidated Statements of Operations are
different than the federal statutory rates of 34 percent applied to income
before taxes. The reasons for this are as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Federal income tax statutory rate
on taxable income $ (187,078) $ (126,240)
Rate brackets (11,750) (9,694)
Change in life insurance
temporary differences 12,798 1,088
Small business deduction (75,258) (110,727)
Valuation allowance 114,472 56,113
Other 20,223 (4,020)
---------- ----------
Federal Income Tax Expense (126,593) (193,480)
State income taxes -- --
---------- ----------
Provision For Income Taxes
Per Financial Statements $ (126,593) $ (193,480)
========== ==========
</TABLE>
Deferred income taxes are provided on amounts that represent temporary
differences between financial and tax reporting. Sources of temporary
differences and the related provision for deferred income taxes in the
Consolidated Statements of Operations are as follows:
-14-
<PAGE> 84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE H -- INCOME TAXES -- Continued
1994 1993
---------- ----------
Taxes effects of temporary differences:
Life insurance subsidiary $(192,952) $(252,118)
Advances in excess of commissions
earned - -
Net operating losses from non-life
subsidiaries 34,000 (2,120)
--------- ---------
Provision For (Benefit From)
Deferred Income Taxes $(158,952) $(254,238)
========= =========
There is approximately $29,000 in policyholders' surplus for the life insurance
company related to pre-1984 tax law that would become taxable if dividend
distributions exceeded shareholders' surplus. Under SFAS 109, a deferred
liability is not provided for this item. If policyholder surplus became
taxable, income taxes of approximately $9,860 would result.
American Liberty Financial Corporation and its subsidiaries have available, at
December 31, 1994, unused non-life insurnace company operating loss
carryforwards of approximately $1,342,000, which may be applied against future
consolidated federal taxable income. The operating loss carryforwards will
expire from 2002 to 2009. The 1994 current tax expense reflects no use of net
operating loss carryforwards or alternative minimum tax operating loss
carryforwards.
American Liberty Financial Corporation has available, at December 31, 1994,
unused operating loss carryforwards of $1,876,000, which may be applied against
future State of Louisiana taxable income. These carryforwards expire in various
years from 1999 to 2009. American Liberty Securities Corporation has operating
loss carryforwards of $23,480, which may be applied against future State of
Louisiana taxable income. These carryforwards will expire form 1999 to 2009.
NOTE I -- RELATED PARTY TRANSACTIONS
American Liberty Financial Corporation, in the normal course of business, is
involved in transactions with its subsidiaries. Such transactions are
summarized as follows:
1994 1993
--------- ---------
Rental income to Company from
American Liberty Life Insurance
Company $ 50,265 $ 46,685
========= =========
Expenses paid by subsidiaries and
allocated to the Company $ 37,592 $ 38,156
========= =========
Expenses and costs paid by the
Company and allocated to
subsidiaries $ 47,165 $ 52,524
========= =========
With respect to the above transactions and those related to income taxes,
accounts receivable balances from the subsidiaries at December 31, 1994 and
1993 are as follows:
1994 1993
--------- ---------
Accounts receivable, net $ 61,681 $ 229,521
========= =========
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<PAGE> 85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE I -- RELATED PARTY TRANSACTIONS -- Continued
Although payments of the intercompany accounts receivable any payable are
usually expected to be by funds and activities during the normal course of
business, certain payments were made subsequent to year end other than in the
normal course of business. (See Note Q.)
At December 31, 1994 and 1993, the oil and gas exploration subsidiaries of
American Liberty Financial Corporation had accounts receivable for expenses
incurred by oil and gas partnerships in which the subsidiaries are the general
partners. The receivable also includes an amount from the subsidiary, First
American Investment Corporation, which acquired the rights to intangible assets
and assumed a payable.
The amounts receivable by American Liberty Exploration Corporation are from the
following:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
American Liberty Exploration
Partnerships $ 8,906 $14,900
First American Investment
Corporation 10,299 10,299
------- -------
Total $19,205 $25,199
======= =======
</TABLE>
In addition, receivables of approximately $460,000 related to First American
Investment Corporation are subject to the contingency described in Note J.
The subsidiary of First American Investment Corporation, Funeral Homes of
Louisiana, Inc., incurred certain operating costs prior to production of income
which were paid by the affiliate company, American Liberty Life Insurance
Company. This amount of $28,777 is an accounts payable/receivable between the
affiliates.
In conjunction with construction of the funeral home for Funeral Homes of
Louisiana, Inc., a ten year, 9% mortgage in the amount of $125,000 was funded
by American Liberty Life Insurance Company. The balance at December 31, 1994 is
$106,532.
In 1994, a subsidiary, First American Investment Corporation, paid an officer
salaries for 1990 through 1994 previously approved by the Board of Directors.
Of $42,923 paid, the officer had loaned $30,620 back, with interest of 8.5%.
The balance is due December 29, 1995.
NOTE J -- CONTINGENT LIABILITIES
American Liberty Exploration Corporation and American Liberty Exploration
Corporation, 1981-1, as General Partners of American Liberty Exploration
Partners, 1980, and American Liberty Exploration Partners, 1981-1 (See
Note D.), may have liability with respect to partnership operations in
accordance with the respective partnership articles and Louisiana Law.
State insurance laws restrict the ability of insurance companies to pay
dividends or make loans to affiliates. The Company's insurance subsidiary is
restricted as to the amount it can dividend to the parent company without
giving prior notice, or, in some cases, receiving prior approval from the
Insurance Commissioner of Louisiana. In addition, First American Investment
Corporation is similarly restricted by prospectus requirements. These
constraints do not
-16-
<PAGE> 86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE J -- CONTINGENT LIABILITIES -- Continued
affect subsidiary liquidity; however, they can limit the ability of the parent
to use cash generated by the subsidiaries to fund dividends and obligations of
the parent. These restrictions are not expected to affect the ability of the
Company to meet its obligations.
As described in Note N, First American Investment Corporation (FAIC) has raised
capital through an offering of common stock. In 1993, a dispute arose as to
which Louisiana agency had jurisdiction over the offering. While this was being
resolved, and to the present, FAIC was unable to obtain approval to sell
shares. It was ultimately determined, in 1994, that the Insurance Commissioner
of Louisiana had jurisdiction over the offering. Prior prospectuses indicated
that the offering was to terminate on December 31, 1994, but the Company has
applied to the Insurance Commissioner for an extended offering period.
The Insurance Commissioner has indicated that if certain conditions are met, he
will review a current prospectus for the purpose of determining whether he will
allow the offering to resume. The plan discussed with the Insurance
Commissioner requires FAIC to purchase a life insurance company and fund it for
an agreed capital amount, presently thought to be $300,000. For part of the
funding, FAIC would contribute the stock of its funeral home subsidiaries to
the capital of the insurance subsidiary. FAIC is reviewing life insurance
companies available for purchase, but a purchase has not yet been made.
Final outcome of the acquisition of a suitable life insurance subsidiary,
obtaining other funding for the life insurance subsidiary and offering, and
approval in general of the request to extend the offering is unknown at this
time. Should the offering not be continued, certain assets related to the
offering will be expensed (approximately $105,000) and payment of liabilities
may require capital contributions of the majority stockholder, American Liberty
Financial Corporation.
These financial statements have been presented on the basis that First American
Investment Corporation is a going concern, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
On June 30, 1993, the subsidiary, American Liberty Life Insurance Company,
voluntarily agreed to cease writing new business in the State of Georgia
pending compliance with recent law changes requiring all insurance companies to
increase capital to $1,500,000. Since capital requirements were not met by June
30, 1994, the company's Georgia license was suspended until the capital is
increased to $1,500,000. The company can continue to collect premiums and
service renewal business and the suspension is not expected to have a material
effect on operations. Premiums collected in Georgia comprises approximately 14%
of gross premiums in 1993.
NOTE K -- CAPITAL SHARES
The 8% non-cumulative, non-voting preferred stock (par value $24.875) can be
converted to common stock at any time. The conversion ratio, prior to May 19,
1989, was two shares of common stock for each share of preferred, as determined
and approved by the Louisiana Commissioner of Insurance. As a result of common
stock dividends, the conversion ratio has changed to 2.66 shares of common
stock for each share of preferred converted after May 17, 1991.
If not converted, preferred stock may be called at $25 per share by the Company
at any time. In the event of liquidation, the holders of the preferred stock
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<PAGE> 87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE K -- CAPITAL SHARES -- Continued
will have a preferential right to the net assets of the Company to the extent
of $28.875 per share plus all declared and unpaid dividends to the date of
liquidation. Accordingly, common stockholders will be entitled to all remaining
assets of the company. Shares of common stock were issued based on conversion
ratios in effect at time of issue as follows:
Year Preferred Common
---- --------- ------
1994 360 958
1993 - -
NOTE L -- STATUTORY STOCKHOLDERS' EQUITY AND STATUTORY NET GAIN
Statutory stockholders' equity and statutory net gain from operations for each
year for American Liberty Life Insurance Company are as follows:
Statutory
Statutory Net Gain
Stockholders' (Loss) From
Equity Operations
------------ ------------
December 31, 1994 $2,374,920 $ (92,197)
December 31, 1993 2,136,904 (138,973)
NOTE M -- REALIZED GAINS ON INVESTMENTS
During 1994 and 1993, certain fixed maturity bonds held by the Company for
investment were called for redemption prior to their scheduled maturity dates,
which resulted in net realized gains.
1994 1993
--------- -----------
Proceeds on the redemptions of
fixed maturity bonds $ 170,134 $ 1,362,966
Amortized cost of bonds redeemed (167,457) (1,350,077)
--------- -----------
Net Realized Gains $ 2,677 $ 12,889
========= ===========
There is no investment income or realized gains allocable to policyholders and
separate accounts included in the amounts reported in these financial
statements.
NOTE N -- PUBLIC OFFERING OF STOCK OF
FIRST AMERICAN INVESTMENT CORPORATION
The offering of shares of First American Investment Corporation (FAIC) (a
wholly-owned subsidiary of the Company) to the public (only to bona fide
residents of Louisiana) on a best efforts basis consists of 20,000,000 shares
of common stock at a price of $1.00 per share or maximum gross proceeds of
$20,000,000. Uncertainties concerning the status of the offering are discussed
in Note J. The cumulative sales proceeds of $1,215,750 and $1,212,550 had been
collected at December 31, 1994 and 1993, respectively. In addition,
subscriptions receivable were $400 and $2,600 at December 31, 1994 and 1993,
respectively. If all shares in FAIC that are offered are sold, the shares owned
by the Company will equal approximately 51% of the voting power of all
outstanding shares of FAIC.
-18-
<PAGE> 88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE N -- PUBLIC OFFERING OF STOCK OF
FIRST AMERICAN INVESTMENT CORPORATION -- Continued
Through December 31, 1994, 1,198,900 shares of common stock of FAIC
have been issued (-0- in 1994 and 606,388 shares in 1993). In 1993, $545,060
was released from escrow to organize Funeral Homes of America, Inc. In
accordance with the 1989 issue of 562,150 shares, $500,000 was released from
escrow to organize Funeral Homes of Louisiana, Inc.
The funeral home owned by Funeral Homes of Louisiana, Inc. was completed in
1992. Total cost of the building and equipment was $606,534. The mortgage
described in Note I was required to complete the construction. Upon the
issuance of the above shares of stock, American Liberty Financial Corporation's
ownership percentage of the outstanding stock of FAIC was reduced from 100% to
94.5%.
The asset entitled Deferred Offering Costs represents commissions, costs, and
expenses directly attributable to the marketing of these securities which will
not exceed 20% or $.20 per public share. At December 31, 1994 and 1993, the
payable for costs of public offering of stock of subsidiary included $1,516 and
$2,600, respectively, payable to a Company Officer. As a result of the shares
of stock issued in 1993, the balance in the Deferred Offering Costs Account has
been reduced by $121,278. These costs have been charged against the offering
proceeds from the stock which was issued.
The expense entitled Advances in Excess of Commissions Earned represents a
provision for non-recoverability of certain advances to Agents. Any recovery of
such advances will be recorded as income.
NOTE O -- STATEMENTS OF CASH FLOWS
For cash flow reporting purposes, interest paid was $-0- in 1994 and $7,480 in
1993. The Company made income tax payments of $43,000 and $58,935 in 1994 and
1993, respectively.
NOTE P -- LEASES
There is a 50 year non-cancellable lease between the City of Baker, Louisiana
and the subsidiary, First American Investment Corporation. Initial cost of the
lease is $1,000 per acre annually and subject to adjustment at the end of each
five year period based on changes in the Consumer Price Index.
The Company has the option to renew the lease for two successive 24 year
periods. At the end of the lease period, the lessee retains the rights to all
leasehold improvements. The lease expense for 1994 and 1993 was $3,411. Future
minimum lease payments, based on current contract terms, are as follows:
1995 $ 3,411
1996 3,411
1997 3,411
1998 3,411
1999 3,411
Thereafter 139,851
--------
$156,906
--------
--------
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<PAGE> 89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE Q -- SUBSEQUENT EVENTS
To meet regulatory capital requirements, the Company repaid accounts payable to
the life insurance subsidiary (ALLIC) with cash of $315,000 and plans to repay
the balance by tendering its stock in First American Investment Corporation
(FAIC). The cash was provided from the wholly-owned exploration corporations.
The stock realignment of FAIC to ALLIC requires approval of the Louisiana Life
Insurance Commissioner. ALLIC will become the majority shareholder of FAIC
(94.5%). This transaction would increase capital and surplus of ALLIC to the
extent determined under statutory insurance accounting practices.
The Company, as of December 31, 1994, has proposed to merge with Citizens, Inc.
As part of the merger agreement, all of the outstanding shares of common stock
of ALFC will be converted to newly issued shares of common stock of Citizens,
Inc. at a rate of one share of the Company for 1.1 shares of Citizens, Inc.,
and each share of the Company preferred stock will be converted to 2.926 shares
of common stock of Citizens, Inc. The merger has yet to be approved by the
shareholders and state insurance officials. As a result of this merger, which
would be accounted for as a purchase, the Company would become a wholly-owned
subsidiary of Citizens, Inc.
-20-
<PAGE> 90
APPENDIX A
PLAN AND AGREEMENT OF MERGER
AMERICAN LIBERTY FINANCIAL CORPORATION
AMERICAN LIBERTY LIFE INSURANCE COMPANY
CITIZENS, INC.
AND
CITIZENS ACQUISITION, INC.
This Plan and Agreement of Merger ("Agreement") is by and among
American Liberty Financial Corporation ("ALFC"), American Liberty Life
Insurance Company ("ALLIC"), Citizens, Inc. ("Citizens") and Citizens
Acquisition, Inc. ("Acquisition").
WITNESSETH
WHEREAS, Citizens is a corporation duly organized under the laws of
the State of Colorado; and
WHEREAS, Citizens wholly owns Acquisition, a corporation duly
organized under the laws of Louisiana; and
WHEREAS, ALLIC and ALFC are corporations duly organized under the laws
of the State of Louisiana with ALLIC being a wholly-owned subsidiary of ALFC;
and
WHEREAS, the parties hereto wish to enter into this Agreement.
NOW, THEREFORE, it is agreed among the parties as follows.
ARTICLE I
The Merger
1.1 Subject to approval of this Agreement by the Insurance
Commissioner of the State of Louisiana and subject to the conditions set forth
herein on the "Effective Date" (as herein defined). Acquisition will merge
with and into ALFC (the "Merger"). ALFC shall be the corporation surviving the
Merger (the "Surviving Corporation"). The transactions contemplated by this
Agreement shall be completed at a closing ("Closing") on a closing date
("Closing Date") which shall be as soon as possible after all regulatory
approvals and shareholder approvals are obtained in accordance with law as set
forth in this Agreement.
On the Closing Date, all of the documents to be furnished to
ALFC and Citizens, including the documents to be furnished pursuant to Article
VII of this Agreement, shall be delivered to Jones & Keller, P.C., counsel to
Citizens ("Jones & Keller") to be held in escrow until the Effective Date or
the date of termination of this Agreement, whichever first occurs and
thereafter shall be promptly distributed to the parties as their interests may
appear.
-1-
<PAGE> 91
1.2 The effect of the Merger shall be:
(i) The Merger shall become effective at the time ALFC
and Acquisition file a Certificate of Merger with the
Secretary of State of the State of Louisiana. The
Merger shall have the effect set forth in the
Louisiana Business Corporation Law. The Surviving
Corporation may, at any time after the Effective
Date, take any action (including executing and
delivering any document) in the name and on behalf of
either ALFC or Acquisition in order to carry out and
effectuate the transactions contemplated by this
Agreement.
(ii) The Articles of Incorporation of ALFC shall be the
Articles of Incorporation of the Surviving
Corporation.
(iii) The Bylaws of ALFC shall be the Bylaws of the
Surviving Corporation.
(iv) The directors and officers of Acquisition shall
become the directors and officers of the Surviving
Corporation at and as of the Effective Date.
(v) At and as of the Effective Date, (a) each issued and
outstanding share of ALFC Common Stock, $.125 par
value (other than any shares for which dissenter's
rights are perfected in accordance with Louisiana
law), shall be converted into the right to receive an
amount equal to one and one-tenth (1.10) shares of
Class A common stock of Citizens and each share of
issued and outstanding shares of ALFC Preferred
Stock, $24.875 par value (other than any shares for
which dissenter's rights are perfected under
Louisiana law), shall receive 2.926 shares of Class A
common stock of Citizens; (b) each share of capital
stock of ALFC shall be converted into the right to
receive payment from Citizens with respect thereto in
accordance with the provisions of the Louisiana
Business Corporation Law; provided, however, that all
consideration to be received shall be subject to
equitable adjustment in the event of any stock split,
stock dividend, reverse stock split, or other change
in the number of ALFC shares outstanding. No shares
of ALFC shall be deemed to be outstanding or to have
any rights other than those set forth above in this
Section 1.2 after the Effective Date.
-2-
<PAGE> 92
(vi) Conversion of Capital Stock of Acquisition. At and
as of the Effective Date, each share of Common Stock,
$.01 par value per share, of Acquisition shall be
converted into one share of Common Stock, $.125 par
value per share, of the Surviving Corporation.
1.3 If this Agreement is duly adopted by the holders of the
requisite number of shares, in accordance with the applicable laws and subject
to the other provisions hereof, such documents as may be required by law to
accomplish the Agreement shall be filed as required by law to effectuate same,
and it shall become effective. The time of filing the last document required
by law shall be the Effective Date for the Agreement. At the Effective Date,
ALFC and Acquisition will file with the Secretary of State of Louisiana, a
certificate of merger in the form attached hereto as Exhibit A. For accounting
purposes, the Agreement shall be effective as of 12:01 a.m., on January 1,
1995.
ARTICLE II
Issuance of Shares
2.1 At the Effective Date, the shares of no par value Class A
common stock of Citizens to be issued as provided in Section 1.2 shall be
distributed to shareholders of ALFC (other than those shares as to which
dissenters' rights have been perfected in accordance with Louisiana law).
2.2 The stock transfer books of ALFC shall be closed on the
Effective Date, and thereafter no transfers of the stock of ALFC shall be made.
Citizens shall appoint an exchange agent ("Exchange Agent"), which is expected
to be Citizens' then stock transfer agent ("Stock Transfer Agent"), to accept
surrender of the certificates representing the shares of ALFC, and to deliver
for such surrendered certificates, shares of Class A common stock of Citizens.
The authorization of the Exchange Agent may be terminated by Citizens after six
months following the Effective Date. Upon termination of such authorization,
any shares of ALFC and funds held by the Exchange Agent for payment to ALFC
shareholders pursuant to this Agreement shall be transferred to Citizens or its
designated agent who shall thereafter perform the obligations of the Exchange
Agent. If outstanding certificates for shares of ALFC are not surrendered or
the payment for them not claimed prior to such date on which such payments
would otherwise escheat to or become the property of any governmental unit or
agency, the unclaimed items shall, to the extent permitted by abandoned
property and other applicable law, become the property of Citizens (and to the
extent not in its possession shall be paid over to it), free and clear of all
claims or interest of any persons previously entitled to such items.
Notwithstanding the foregoing, neither the
-3-
<PAGE> 93
Exchange Agent nor any party to this Agreement shall be liable to any holder of
ALFC shares for any amount paid to any governmental unit or agency having
jurisdiction of such unclaimed item pursuant to the abandoned property or other
applicable law of such jurisdiction.
2.3 No fractional shares of Citizens stock shall be issued as a
result of the Agreement; rather, such shares shall evidence the right to
receive a cash value per fractional share of Citizens Class A common stock
which shall be the average closing price of the Class A common stock of
Citizens as reported on the American Stock Exchange for the five trading days
prior to the Effective Date. In the event the exchange of shares results in
any shareholder being entitled to a fraction less than a whole share of
Citizens stock, such shareholder shall be given a cash payment of fractions
thereof at the rate per share from Citizens for one share of Citizens Class A
common stock as calculated in the previous sentence.
2.4 At the Effective Date, each holder of a certificate or
certificates representing shares of ALFC, upon presentation and surrender of
such certificate or certificates to the Exchange Agent, shall be entitled to
receive the consideration set forth herein, except that holders of those shares
as to which dissenters' rights shall have been asserted and perfected pursuant
to Louisiana law shall not be converted into shares of Citizens Class A common
stock, but shall represent only such dissenters' rights. Upon such
presentation, surrender, and exchange as provided in this Section 2.4,
certificates representing shares of ALFC previously held shall be canceled.
Until so presented and surrendered, each certificate or certificates which
represented issued and outstanding shares of ALFC at the Effective Date shall
be deemed for all purposes to evidence the right to receive the consideration
set forth in Section 1.2 of this Agreement. If the certificates representing
shares of ALFC have been lost, stolen, mutilated or destroyed, the Exchange
Agent shall require the submission of an indemnity agreement and may require
the submission of a bond in lieu of such certificate.
ARTICLE III
Representations, Warranties and Covenants of Citizens
No representations or warranties are made by any director, officer,
employee or shareholder of Citizens as individuals, except as and to the extent
stated in this Agreement or in a separate written statement (the "Citizens
Disclosure Statement").
Citizens hereby represents, warrants and covenants to ALFC and ALLIC,
except as stated in the Citizens Disclosure Statement, as follows:
-4-
<PAGE> 94
3.1 Citizens is a corporation duly organized, validly existing and
in good standing under the laws of the State of Colorado, and has the corporate
power and authority to own or lease its properties and to carry on its business
as it is now being conducted. The Articles of Incorporation and Bylaws of
Citizens, copies of which have been delivered to ALFC and ALLIC, are complete
and accurate, and the minute books of Citizens contain a record, which is
complete and accurate in all material respects, of all meetings, and all
corporate actions of the shareholders and Board of Directors of Citizens.
3.2 The aggregate number of shares which Citizens is authorized to
issue is 50,000,000 shares of Class A common stock with no par value and
1,000,000 shares of Class B common stock with no par value; of which 16,941,523
shares of such Class A common stock and 621,049 shares of Class B common stock
are issued and outstanding, fully paid and nonassessable. There are 122,490
shares of Class A common stock held as treasury stock of Citizens. Citizens
has no outstanding options, warrants, or other rights to purchase, or subscribe
to, or securities convertible into or exchangeable for any shares of capital
stock, except an option for 100,000 shares of Class A common stock. The two
(2) classes of stock of Citizens are equal in all respects, except (a) the
Class B common stock elects a simple majority of the Board of Directors of
Citizens, and the Class A common stock elects the remaining directors; and (b)
each Class A share receives twice the cash dividends paid on a per share basis
to the Class B common stock.
The subsidiaries of Citizens are each an association, corporation, or
other entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or association; each has the
power and authority to lease its properties and to carry on its business as now
being conducted and is qualified to do business; and each holds or shall hold
all licenses, franchises, permits or other governmental authorizations required
to enable it to conduct its business or own its properties in every
jurisdiction in which it currently conducts business or owns property and where
the failure to do so would have a material adverse effect on the business of
the subsidiary. All outstanding shares of capital stock of each subsidiary are
duly and validly authorized and issued, fully paid and nonassessable. Citizens
directly or indirectly owns all of the issued and outstanding capital stock of
such subsidiaries, except for Continental Investors Life Insurance Company of
which it owns 90 percent of the outstanding capital stock. Acquisition was
formed solely to effectuate this Agreement and has minimal assets and no
liabilities.
3.3 Citizens and Acquisition have complete and unrestricted power
to enter into and, upon the appropriate approvals as required by law, to
consummate the transactions contemplated by this Agreement. None of Citizens
and its subsidiaries has
-5-
<PAGE> 95
any liability or obligation to pay any fee or commission to any broker, agent
or finder with respect to the transactions contemplated hereby.
3.4 Neither the making of nor the compliance with the terms and
provisions of this Agreement and consummation of the transactions contemplated
herein by Citizens will conflict with or result in a breach or violation of the
Articles of Incorporation or Bylaws of Citizens or the Articles of
Incorporation or Bylaws of Acquisition.
3.5 The execution, delivery and performance of this Agreement has
been duly authorized and approved by Citizens' Board of Directors and the Board
of Directors and sole shareholder of Acquisition.
3.6 Citizens has delivered to ALFC and ALLIC consolidated
financial statements of Citizens and its subsidiaries, dated September 30,
1994, and the annual convention statement of Citizens Insurance Company of
America ("CICA") for the year ended December 31, 1993. All such statements,
herein sometimes called "Citizens Financial Statements," are complete and
correct in all material respects and, together with the notes to these
financial statements, present fairly the financial position and results of
operations of Citizens and CICA for the periods included. The September 30,
1994 statements have been prepared in accordance with generally accepted
accounting principles and the December 31, 1993 statement has been prepared in
accordance with statutory accounting principles.
3.7 Since the dates of the Citizens Financial Statements there
have not been any material adverse changes in the business or condition,
financial or otherwise, of Citizens or CICA. Citizens and CICA do not have any
material liabilities or obligations, secured or unsecured (whether accrued,
absolute, contingent or otherwise) except as disclosed in the Citizens
Financial Statement.
3.8 Citizens has delivered to ALFC and ALLIC a list and
description of all pending legal proceedings involving Citizens or CICA, none
of which will materially adversely affect them, and, except for these
proceedings, there are no legal proceedings or regulatory proceedings involving
material claims pending, or to the knowledge of the officers of Citizens and
CICA, threatened against Citizens or CICA or affecting any of their assets, or
properties and neither Citizens nor CICA is in any material breach or violation
of or default under any contract or instrument to which Citizens or CICA is a
party, and no event has occurred which with the lapse of time or action by a
third party could result in a material breach or violation of or default by
Citizens or CICA under any contract or other instrument to which Citizens or
CICA is a party or by which they or any of their properties may be bound or
affected, or under their respective Articles of
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Incorporation or Bylaws, nor is there any court or regulatory order pending,
applicable to Citizens or CICA.
3.9 Neither Citizens nor CICA shall enter into or consummate any
transactions prior to the Effective Date other than in the ordinary course of
business, except for the consummation of a Plan and Agreement of Exchange with
Insurance Investors & Holding, Inc. and Central Investors Life Insurance Co.
and will pay no dividend, or increase the compensation of officers and will
enter into no agreement or transaction which would adversely affect its
financial condition.
3.10 The assets of CICA had admissible values at least equal to the
amounts attributed to them on its December 31, 1993 and September 30, 1994
convention statements.
3.11 Neither CICA nor Citizens is a party to any contract
performable in the future except insurance policies, customary agent contracts,
normal reinsurance agreements, the consummation of a Plan and Agreement of
Exchange with Insurance Investors & Holding, Inc. and Central Investors Life
Insurance Co. and those which will not adversely affect it.
3.12 All policy and claim reserves of CICA have been properly
provided for and are adequate to comply with all regulatory requirements
regarding same.
3.13 The representations and warranties of Citizens shall be true
and correct as of the date hereof and as of the Effective Date.
3.14 Citizens has delivered, or will deliver within two weeks of
the date of this Agreement, to ALFC and ALLIC true and correct copies of
Citizens' Annual Report to Shareholders for the years ended December 31, 1993
and 1992 and each of its other reports to shareholders and filings with the
Securities and Exchange Commission ("SEC") for the years ended December 31,
1991, 1992 and for 1993. Citizens will also deliver to ALFC and ALLIC on or
before the Closing Date any reports relating to the financial and business
condition of Citizens which are filed with the SEC after the date of this
Agreement and any other reports sent generally to its shareholders after the
date of this Agreement.
Citizens has duly filed all reports required to be filed by it
under the Securities Act of 1933, as amended, and the Securities Exchange Act
of 1934, as amended, (the "Federal Securities Laws"). No such reports, or any
reports sent to the shareholders of Citizens generally as of their respective
dates, contained any untrue statement of material fact or omitted to state any
material fact required to be stated
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therein or necessary to make the statements in such report, in light of the
circumstances under which they were made, not misleading.
3.15 Citizens has delivered to ALFC and ALLIC a copy of each of the
consolidated federal income tax returns of Citizens and its subsidiaries for
the year ended December 31, 1993 and for any additional open years. The
provisions for taxes paid by Citizens and CICA are believed by Citizens and
CICA to be sufficient for payment of all accrued and unpaid federal, state,
county and local taxes of Citizens and CICA (including any penalties or
interest payable) whether or not disputed for the periods then ended and for
all prior fiscal periods. All returns and reports or other information
required or requested by federal, state, county, and local tax authorities have
been filed or supplied in a timely fashion, and all such information is true
and correct in all material respects. Provision has been made for the payment
of all taxes due to date by Citizens and CICA, including taxes for the current
year ended December 31, 1994.
3.16 Citizens has no employee benefit plan, except for a
noncontributory qualified Profit Sharing Plan.
3.17 No representation or warranty by Citizens or CICA in this
Agreement, the Citizens Disclosure Statement or any certificate delivered
pursuant hereto contains any untrue statement of a material fact or omits to
state any material fact necessary to make such representation or warranty not
misleading.
3.18 Citizens agrees that all rights to indemnification now
existing in favor of the employees, agents, directors or officers of ALFC and
ALLIC and its subsidiaries, as provided in the Articles of Incorporation or
Bylaws or otherwise in effect on the date hereof shall survive the transactions
contemplated hereby in accordance with their terms and Citizens expressly
assumes such indemnification obligations of ALFC and ALLIC.
ARTICLE IV
Representations, Warranties and Covenants of ALFC and ALLIC
No representations or warranties are made by any director, officer,
employee or shareholder of ALFC or ALLIC as individuals, except as and to the
extent stated in this Agreement or in a separate written statement (the "ALFC
and ALLIC Disclosure Statement").
ALFC and ALLIC hereby represent, warrant and covenant to Citizens,
except as stated in the ALFC Disclosure Statement, as follows:
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4.1 ALFC and ALLIC are each a corporation duly organized, validly
existing and in good standing under the laws of the State of Louisiana, and
have the corporate power and authority to own or lease their properties and to
carry on their business as they are now being conducted. The Articles of
Incorporation and Bylaws of ALFC and ALLIC, copies of which have been delivered
to Citizens, are complete and accurate, and the minute books of ALFC and ALLIC
contain a record, which is complete and accurate in all material respects, of
all meetings, and all corporate actions of the shareholders and Board of
Directors of ALFC and ALLIC.
4.2 The aggregate number of shares which ALFC is authorized to
issue is 2,129,600 shares of common stock with a par value of $.125 per share
of which 2,099,134 shares are issued and outstanding, fully paid and
nonassessable and 200,000 shares of nonvoting preferred stock with a par value
of $24.875 per share, of which 10,545 shares are issued and outstanding, fully
paid and nonassessable. The preferred stock is convertible into common stock
at the rate of 2.66 shares of ALFC common stock for each one (1) share of
preferred stock. Additionally, the preferred shares are callable at any time
by ALFC at $25.00 per share. ALFC has no outstanding options, warrants or
other rights to purchase or subscribe to, or securities convertible into or
exchangeable for any shares of capital stock except for scrip representing
fractional shares of common stock convertible into 1,140 shares of common stock
which are not included in the above-referenced shares outstanding. There are
no shares of common stock held as treasury stock of ALFC.
The subsidiaries of ALFC are each an association, corporation, or
other entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or association; each has the
power and authority to lease its properties and to carry on its business as now
being conducted and is qualified to do business; and each holds or shall hold
all licenses, franchises, permits or other governmental authorizations required
to enable it to conduct its business or own its properties in every
jurisdiction in which it currently conducts business or owns property and where
the failure to do so would have a material adverse effect on the business of
the subsidiary. All outstanding shares of capital stock of each subsidiary are
duly and validly authorized and issued, fully paid and nonassessable. ALFC
directly or indirectly owns all of the issued and outstanding capital stock of
such subsidiaries, including ALLIC, except for First American Investment
Corporation, in which ALFC owns 94.48 percent of the issued and outstanding
capital stock.
4.3 ALFC and ALLIC each have complete and unrestricted power to
enter into and, upon the appropriate approvals as required by law, to
consummate the transactions contemplated by this Agreement. None of ALFC and
its subsidiaries has
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any liability or obligation to pay any fee or commission to any broker, agent
or finder with respect to the transactions contemplated hereby.
4.4 Neither the making of nor the compliance with the terms and
provisions of this Agreement and consummation of the transactions contemplated
herein by ALFC and ALLIC will conflict with or result in a breach or violation
of the Articles of Incorporation or Bylaws of ALFC and ALLIC.
4.5 The execution of this Agreement has been duly authorized and
approved by ALFC's and ALLIC's Board of Directors.
4.6 ALFC has delivered to Citizens financial statements of ALFC,
dated September 30, 1994, and it will deliver to Citizens the annual convention
statement of ALLIC as of December 31, 1993, as filed with the Louisiana
Department of Insurance. All such statements, herein sometimes called "ALFC
Financial Statements," are complete and correct in all material respects and,
together with the notes to these financial statements, present fairly the
financial position and results of operations of ALFC for the periods indicated.
The September 30, 1994 statements of ALFC have been prepared in accordance with
generally accepted accounting principles and the December 31, 1993 annual
convention statement of ALLIC has been prepared in accordance with statutory
accounting practices permitted or prescribed by the Louisiana Department of
Insurance.
4.7 Since the dates of the ALFC Financial Statements there have
not been any material adverse changes in the business or condition, financial
or otherwise, of ALFC. ALFC and ALLIC do not have any material liabilities or
obligations, secured or unsecured (whether accrued, absolute, contingent or
otherwise).
4.8 ALFC has delivered to Citizens a list and description of all
pending legal proceedings involving ALFC and ALLIC, none of which will
materially adversely affect them, and, except for these proceedings, there are
no legal proceedings or regulatory proceedings involving material claims
pending, or to the knowledge of the officers of ALFC or ALLIC, threatened
against ALFC or ALLIC or affecting any of their assets, or properties and
neither ALFC or ALLIC is in any material breach or violation of or default
under any contract or instrument to which ALFC or ALLIC is a party, and no
event has occurred which with the lapse of time or action by a third party
could result in a material breach or violation of or default by ALFC or ALLIC
under any contract or other instrument to which ALFC or ALLIC is a party or by
which they or any of their respective properties may be bound or affected, or
under their respective Articles of Incorporation or Bylaws, nor is there any
court or regulatory order pending, applicable to ALFC or ALLIC.
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4.9 Neither ALFC nor ALLIC shall enter into or consummate any
transactions prior to the Effective Date other than in the ordinary course of
business and will pay no dividend, or increase the compensation of officers and
will not enter into any agreement or transaction which would adversely affect
their financial condition in a material manner.
4.10 The assets of ALLIC had admissible values at least equal to
those attributed to them on its December 31, 1993 and September 30, 1994
convention statements.
4.11 Neither ALFC nor ALLIC nor any subsidiary of ALFC or ALLIC is
a party to any contract performable in the future except insurance policies,
customary agent contracts, normal reinsurance agreements and those which will
not adversely affect them.
4.12 All policy and claim reserves of ALLIC have been properly
provided for and are adequate to comply with all regulatory requirements
regarding same.
4.13 The representations and warranties of ALFC and ALLIC shall be
true and correct as of the date hereof and as of the Effective Date.
4.14 ALFC has delivered, or will deliver within two weeks of the
date of this Agreement, to Citizens true and correct copies of ALFC's Annual
Report to Shareholders for the years ended December 31, 1992 and 1993 and each
of its other reports to shareholders and filings with the Securities and
Exchange Commission ("SEC") for the years ended December 31, 1991, 1992 and for
1993. ALFC will also deliver to Citizens on or before the Closing Date any
reports relating to the financial and business condition of ALFC which are
filed with the SEC after the date of this Agreement and any other reports sent
generally to its shareholders after the date of this Agreement.
ALFC has duly filed all reports required to be filed by it under
the Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended, (the "Federal Securities Laws"). No such reports, or any
reports sent to the shareholders of ALFC generally, contained any untrue
statement of material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements in such report, in light of
the circumstances under which they were made, not misleading.
4.15 ALFC and ALLIC has delivered to Citizens a copy of each of the
federal income tax returns of ALFC and ALLIC for the years ended December 31,
1991, 1992 and 1993 and for any additional open years. The provisions for
taxes paid by ALFC
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and ALLIC are believed by ALFC and ALLIC to be sufficient for payment of all
accrued and unpaid federal, state, county and local taxes of ALFC and ALLIC
(including any penalties or interest payable) whether or not disputed for the
periods then ended and for all prior fiscal periods. All returns and reports
or other information required or requested by federal, state, county, and local
tax authorities have been filed or supplied in a timely fashion, and all such
information is true and correct in all material respects. Provision has been
made for the payment of all taxes due to date by ALFC and ALLIC, including
taxes for the current year ended December 31, 1994.
4.16 Neither ALFC nor ALLIC have any employee benefit plans except
for group health and group life benefits payable to full time employees of ALFC
and ALLIC. As is common in the industry, ALFC and ALLIC treat their sales
force members as independent contractors and therefore, such persons are not
eligible for any employee benefit plans.
4.17 No representation or warranty by ALFC or ALLIC in this
Agreement, the ALFC and ALLIC Disclosure Statement or any certificate delivered
pursuant hereto contains any untrue statement of a material fact or omits to
state any material fact necessary to make such representation or warranty not
misleading.
ARTICLE V
Obligations of the Parties Pending the Effective Date
5.1 This Agreement shall be duly submitted to the shareholders of
ALFC for the purpose of considering and acting upon this Agreement in the
manner required by law at a meeting of shareholders on a date selected by ALFC,
such date to be the earliest practicable date after the proxy statement may
first be sent to ALFC shareholders without objection by applicable governmental
authorities, provided that ALFC will have at least 45 days to solicit proxies.
Citizens will furnish to ALFC the information relating to Citizens required by
the Federal Securities Laws to be included in the proxy statement. Citizens
represents and warrants that at the time of the ALFC shareholders' meeting, the
proxy statement, insofar as it relates to Citizens and contains information
furnished by Citizens specifically for use in such proxy statement, (a) will
comply in all material respects with the provisions of the Federal Securities
Laws; and (b) will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Board of Directors of ALFC, subject to its fiduciary
obligations to shareholders, shall use its best efforts to obtain the requisite
approval of ALFC shareholders of this Agreement and the transactions
contemplated herein. ALFC and Citizens shall take all reasonable and necessary
steps and actions to comply with and to secure ALFC shareholder approval of
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this Agreement and the transactions contemplated herein as may be required by
the statutes, rules and regulations of such states.
5.2 At all times prior to the Effective Date, during regular
business hours each party will permit the other to examine its books and
records and the books and records of its subsidiaries and will furnish copies
thereof on request. It is recognized that, during the performance of this
Agreement, each party may provide the other parties with information which is
confidential or proprietary information. During the term of this Agreement,
and for four years following the termination of this Agreement, the recipient
of such information shall protect such information from disclosure to persons,
other than members of its own or affiliated organizations and its professional
advisers, in the same manner as it protects its own confidential or proprietary
information from unauthorized disclosure, and not use such information to the
competitive detriment of the disclosing party. In addition, if this Agreement
is terminated for any reason, each party shall promptly return or cause to be
returned all documents or other written records of such confidential or
proprietary information, together with all copies of such writings and, in
addition, shall either furnish or cause to be furnished, or shall destroy, or
shall maintain with such standard of care as is exercised with respect to its
own confidential or proprietary information, all copies of all documents or
other written records developed or prepared by such party on the basis of such
confidential or proprietary information. No information shall be considered
confidential or proprietary if it is (a) information already in the possession
of the party to whom disclosure is made; (b) information acquired by the party
to whom the disclosure is made from other sources; or (c) information in the
public domain or generally available to interested persons or which at a later
date passes into the public domain or becomes available to the party to whom
disclosure is made without any wrongdoing by the party to whom the disclosure
is made.
5.3 ALFC, ALLIC and Citizens shall promptly provide each other
with information as to any significant developments in the performance of this
Agreement, and shall promptly notify the other if it discovers that any of its
representations, warranties and covenants contained in this Agreement or in any
document delivered in connection with this Agreement was not true and correct
in all material respects or became untrue or incorrect in any material respect.
5.4 All parties to this Agreement shall take all such action as
may be reasonably necessary and appropriate and shall use their best efforts in
order to consummate the transactions contemplated hereby as promptly as
practicable.
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ARTICLE VI
Procedure for Exchange
6.1 The parties shall file with the Insurance Commissioner of
Louisiana within 30 days from this date, all of the documents required by the
Louisiana law.
ARTICLE VII
Conditions Precedent to the Consummation of the Merger
The following are conditions precedent to the consummation of the
Agreement on or before the Effective Date:
7.1 Citizens, Acquisition, ALFC and ALLIC shall have performed and
complied with all of their respective obligations hereunder which are to be
complied with or performed on or before the Effective Date and ALFC and
Citizens shall provide one another at the Closing with a certificate to the
effect that such party has performed each of the acts and undertakings required
to be performed by it on or before the Closing Date pursuant to the terms of
this Agreement.
7.2 This Agreement and the transactions contemplated herein shall
have been duly and validly authorized, approved and adopted, at meetings of the
shareholders of ALFC and ALLIC duly and properly called for such purpose in
accordance with the applicable laws.
7.3 This Agreement is in all things subject to the provisions of
the applicable insurance laws and the regulations promulgated thereunder, and
shall not become effective until approval is obtained from the Commissioner of
Insurance of the State of Louisiana in accordance with the provisions of the
laws of said state. Citizens and ALFC, as soon as practical after the
execution and delivery of this Agreement, agree to file and to use their best
efforts to obtain such approval of the transactions contemplated by this
Agreement. Neither Citizens, ALFC nor ALLIC shall be obligated to file a suit
or to appeal from any Commissioner's adverse ruling, nor shall Citizens or ALFC
or ALLIC be obligated to make any material changes in any lawful, good faith
management policy in order to gain such approval. In the event approval is
denied, this Agreement shall terminate.
7.4 No action, suit or proceeding shall have been instituted or
shall have been threatened before any court or other governmental body or by
any public authority to restrain, enjoin or prohibit the transactions
contemplated herein, or which might subject any of the parties hereto or their
directors or officers to any material liability, fine,
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forfeiture or penalty on the grounds that the transactions contemplated hereby,
the parties hereto or their directors or officers, have violated any applicable
law or regulation, or have otherwise acted improperly in connection with the
transactions contemplated hereby, and the parties hereto have been advised by
counsel that, in the opinion of such counsel, such action, suit or proceeding
raises substantial questions of law or fact which could reasonably be decided
adversely to any party hereto or its directors or officers.
7.5 All actions, proceedings, instruments and documents required
to carry out this Agreement and the transactions contemplated hereby and the
form and substance of all legal proceedings and related matters shall have been
approved by counsel for Citizens, ALFC and ALLIC.
7.6 The representations and warranties by Citizens, ALFC and ALLIC
in this Agreement shall be true as though such representations and warranties
had been made or given on and as of the Effective Date, except to the extent
that such representations and warranties may be untrue on and as of the
Effective Date because of (1) changes caused by transactions suggested or
approved in writing by Citizens; or (2) events or changes (which shall not, in
the aggregate, have materially and adversely affected the business, assets, or
financial condition of ALFC, ALLIC or Citizens) during or arising after the
date of this Agreement.
7.7 ALFC will have sought and obtained from Montgomery, Barnett,
Brown, Read, Hammond & Mintz an opinion in form and substance satisfactory to
ALFC to the effect that: if the transactions contemplated hereby are
consummated in accordance with the terms of this Agreement, they will
constitute a reorganization within the meaning of the Internal Revenue Code of
1986, as amended (the "Code"); ALFC and Citizens will each be a party to the
reorganization; no gain or loss will be recognized pursuant to the Code by ALFC
as a consequence of the transactions contemplated hereby, Citizens will succeed
to and take into account the items of ALFC described in the Code; when a ALFC
shareholder receives solely Citizens Class A common stock in accordance with
the transactions contemplated hereby, such ALFC shareholder will not recognize
gain or loss; the basis for the Citizens Class A common stock to be received by
ALFC shareholders will be the same as the basis for the shares of ALFC stock
they surrender in connection with the transactions contemplated hereby; the
holding period for any ALFC shareholder of the Citizens Class A common stock
received in the transactions contemplated hereby will include the period during
which the shares of the ALFC stock surrendered were held provided that the ALFC
stock was a capital asset in the hands of such ALFC shareholder on the
Effective Date; and the payment of cash to any ALFC shareholder in lieu of a
fractional share of Citizens Class A common stock will be treated as received
as a distribution and redemption of the fractional share interest, subject to
the limitations of Section 302 of the Code. The opinion shall also
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address such other subjects as ALFC may reasonably request. Said opinion shall
be subject to such representations and warranties as Montgomery, Barnett,
Brown, Read Hammond & Mintz may require of all parties to the transaction and
said opinion shall be subject to such conditions as reasonably determined by
Montgomery, Barnett, Brown, Read Hammond & Mintz.
7.8 ALFC AND ALLIC SHALL HAVE FURNISHED CITIZENS WITH:
(1) a certified copy of a resolution or resolutions duly
adopted by the Board of Directors of ALFC approving
this Agreement and the transactions contemplated by
it and directing the submission thereof to a vote of
the shareholders of ALFC and ALLIC.
(2) a certified copy of a resolution or resolutions duly
adopted by a majority of all of the classes of
outstanding shares of ALFC capital stock approving
this Agreement and the transactions contemplated by
it;
(3) an opinion of Montgomery, Barnett, Brown, Read,
Hammond and Mintz dated as of the Closing Date as set
forth in "Exhibit B" attached hereto;
(4) an agreement from each "affiliate" of ALFC as defined
in the rules adopted under the Securities Act of
1933, as amended, to the effect that (a) the
affiliate is familiar with SEC Rules 144 and 145; (b)
none of the shares of Citizens Class A common stock
will be transferred by or through the affiliate in
violation of the Federal Securities Laws; (c) the
affiliate will not sell or in any way reduce his risk
relative to any Citizens Class A common stock
received pursuant to this Agreement until such time
as financial results covering at least 30 days of
post-closing date combined operations shall have been
published by Citizens on SEC Form 10-Q or otherwise;
and (d) the affiliate acknowledges that Citizens is
under no obligation to register the sale, transfer,
or the disposition of Citizens Class A common stock
by the affiliate or to take any action necessary in
order to make an exemption from registration
available to the affiliate, but understands that
Citizens will satisfy the public information
requirements of Rules 144 and 145 during the
three-year period following the Closing Date.
7.9 Citizens shall furnish ALFC and ALLIC with:
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(1) a certified copy of a resolution or resolutions duly
adopted by the Board of Directors of Citizens and the
Board of Directors and sole shareholder of
Acquisition, approving this Agreement and the
transactions contemplated by it; and
(2) an opinion dated the Effective Date of Jones &
Keller, P.C., counsel for Citizens, as set forth in
"Exhibit C" attached hereto.
ARTICLE VIII
Termination and Abandonment
8.1 Anything contained in this Agreement to the contrary
notwithstanding, the Agreement may be terminated and abandoned at any time
(whether before or after the approval and adoption thereof by the shareholders
of ALFC) prior to the Effective Date:
(a) By mutual consent of Citizens and ALFC and ALLIC;
(b) By Citizens, ALFC or ALLIC, if any condition set
forth in Article VII relating to the other party has
not been met or has not been waived;
(c) By Citizens, ALFC or ALLIC, if any suit, action or
other proceeding shall be pending or threatened by
the federal or a state government before any court or
governmental agency, in which it is sought to
restrain, prohibit or otherwise affect the
consummation of the transactions contemplated hereby;
(d) By any party, if there is discovered any material
error, misstatement or omission in the
representations and warranties of another party; or
(e) By Citizens, if dissenters' rights are perfected in
accordance with Louisiana law for more than 2.5% of
the outstanding shares of ALFC; or
(f) By any party if the Effective Date is not within 150
days from the date hereof.
(g) By any party, if it determined by counsel of either
party that the transaction will not constitute a
reorganization within the meaning
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of Section 368(a) of the Internal Revenue Code of
1986, as amended.
8.2 Any of the terms or conditions of this Agreement may be waived
at any time by the party which is entitled to the benefit thereof, by action
taken by its Board of Directors provided; however, that such action shall be
taken only if, in the judgment of the Board of Directors taking the action,
such waiver will not have a materially adverse effect on the benefits intended
under this Agreement to the party waiving such term or condition.
ARTICLE IX
Termination of Representation and
Warranties and Certain Agreements
9.1 The respective representations and warranties of the parties
hereto, shall expire with, and be terminated and extinguished by consummation
of the Agreement; provided, however, that the covenants and agreements of the
parties hereto shall survive in accordance with their terms.
ARTICLE X
Miscellaneous
10.1 This Agreement embodies the entire agreement between the
parties, and there have been and are no agreements, representations or
warranties among the parties other than those set forth herein or those
provided for herein.
10.2 To facilitate the execution of this Agreement, any number of
counterparts hereof may be executed, and each such counterpart shall be deemed
to be an original instrument, but all such counterparts together shall
constitute but one instrument.
10.3 Each of the parties hereto will pay its own fees and expenses
incurred in connection with the transactions contemplated by this Agreement.
Citizens, ALFC and ALLIC each represent to the others that it has not employed
any investment bankers, brokers, finders, or intermediaries in connection with
the transaction contemplated hereby who might be entitled to any fee or other
payment from ALFC, ALLIC or Citizens or any subsidiary of any of them upon
consummation of the transactions contemplated by this Agreement.
10.4 All parties to this Agreement agree that if it becomes
necessary or desirable to execute further instruments or to make such other
assurances as are deemed
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necessary, the party requested to do so will use its best efforts to provide
such executed instruments or do all things necessary or proper to carry out the
purpose of this Agreement.
10.5 This Agreement may be amended upon approval of the Board of
Directors of each party provided that the shares issuable hereunder shall not
be amended without approval of the requisite shareholders of ALFC.
10.6 Any notices, requests, or other communications required or
permitted hereunder shall be delivered personally or sent by overnight courier
service, fees prepaid, addressed as follows:
<TABLE>
<S> <C>
To Citizens, Inc.: and to ALFC or ALLIC:
Citizens, Inc. American Liberty Financial Corporation
Post Office Box 149151 American Liberty Life Insurance Company
Austin, Texas 78714-9151 Post Office Box 64626
ATTN: Harold E. Riley Baton Rouge, Louisiana 70906
Chairman ATTN: James I. Dunham
Chairman and President
Phone: (512) 837-7100
Fax: (512) 836-9334 Phone: (504) 927-9630
Fax: (504) 925-2715
with copies to: with copies to:
Jones & Keller, P.C. Montgomery, Barnett, Brown, Read
1625 Broadway, Suite 1600 Hammond and Mintz
Denver, Colorado 80202 3200 Energy Centre
ATTN: Reid A. Godbolt, Esq. 1100 Poydras Street
New Orleans, Louisiana 70163-3200
Phone: (303) 573-1600 ATTN: Patrick J. Browne
Fax: (303) 573-0608
Phone: (504) 585-3200
Fax: (504) 585-7688
</TABLE>
or such other addresses as shall be furnished in writing by
any party, and any such notice or communication shall be deemed to have been
given as of the date received.
10.7 No press release or public statement will be issued relating
to the transactions contemplated by this Agreement without prior approval of
Citizens and
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ALFC. However, either Citizens or ALFC may issue at any time any press release
or other public statement it believes on the advice of its counsel it is
obligated to issue to avoid liability under the law relating to disclosures,
but the party issuing such press release or public statement shall make a
reasonable effort to give the other party prior notice of and opportunity to
participate in such release or statement.
10.8 The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context otherwise requires. The word "including" shall
mean including without limitation.
10.9 The Exhibits and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
10.10 This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Louisiana without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Louisiana or any other jurisdiction) that would cause the application of the
laws or any jurisdiction other than the State of Louisiana.
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IN WITNESS WHEREOF, the parties have set their hands and seals this
8th day of December, 1994.
CITIZENS, INC.
By: /s/ HAROLD E. RILEY
-------------------
Harold E. Riley
Chairman
CITIZENS ACQUISITION, INC.
By: /s/ HAROLD E. RILEY
-------------------
Harold E. Riley
Chairman
AMERICAN LIBERTY
FINANCIAL CORPORATION
By: /s/ JAMES I. DUNHAM
-------------------
James I. Dunham
President
AMERICAN LIBERTY LIFE
INSURANCE COMPANY
By: /s/ JAMES I. DUNHAM
-------------------
James I. Dunham
President
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EXHIBIT A
Certificate of Merger
American Liberty Financial Corporation
American Liberty Life Insurance Co.
Citizens, Inc.
and
Citizens Acquisition, Inc.
Pursuant to the provisions of the Louisiana Business Corporation Law,
the undersigned corporations adopt the following Certificate of Merger:
First: In accordance with Section 12:112 of the Louisiana
Business Corporation Law, a plan and agreement of merger has been approved,
adopted, certified, executed and acknowledged by the undersigned corporations:
(1) American Liberty Financial Corporation, a corporation
duly organized under the laws of the State of Louisiana;
(2) American Liberty Life Insurance Company, a wholly-owned
subsidiary of American Liberty Financial Corporation, duly
organized corporation under the laws of the State of
Louisiana;
(3) Citizens, Inc. a corporation duly organized under the
laws of the State of Colorado; and
(4) Citizens Acquisition, Inc., a wholly-owned subsidiary
of Citizens, Inc., duly incorporation under the laws of the
State of Louisiana.
Second: As a result of this agreement of merger, Citizens
Acquisition, Inc. will merge with and into American Liberty Financial
Corporation effective as of the time of filing of this Certificate of Merger
with the Louisiana Secretary of State. American Liberty Financial Corporation
will be the corporation surviving the merger.
Third: The Articles of Incorporation of American Liberty
Financial Corporation shall be the Articles of Incorporation for the surviving
corporation.
Fourth: The executed agreement of merger is on file at American
Liberty Financial Corporation's offices at ____________________________.
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Fifth: A copy of the Plan and Agreement of Merger will be
furnished by American Liberty Financial Corporation, on request and without
cost, to any shareholder of any corporation that is a party to the merger.
Dated this _______ day of ____________________, 1994.
CITIZENS, INC.
By: ______________________
Harold E. Riley
Chairman
CITIZENS ACQUISITION, INC.
By: ______________________
Harold E. Riley
Chairman
AMERICAN LIBERTY
FINANCIAL CORPORATION
By: ______________________
James I. Dunham
President
AMERICAN LIBERTY LIFE
INSURANCE COMPANY
By: ______________________
James I. Dunham
President
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EXHIBIT B
Opinion of Counsel for ALFC and ALLIC
At the Closing, ALFC and ALLIC shall deliver to Citizens, an opinion,
in form and substance satisfactory to Citizens and its counsel, dated the
Closing Date, of Montgomery, Barnett, Brown, Read, Hammond and Mintz, P.C.,
counsel to ALFC and ALLIC, to the effect that:
(i) The execution, delivery, and performance of the Agreement by
ALFC and ALLIC shall not result in a breach of, or constitute
a default (or an event which, with or without notice or lapse
of time or both, would constitute a default) under any
contract, commitment, agreement, indenture, mortgage, pledge
agreement, note, bond, license, or other instrument or
obligation to which ALFC or ALLIC is a party or by which ALFC
or ALLIC is bound or the charter or bylaws of ALFC or ALLIC or
other governing instruments of ALFC or ALLIC:
(ii) The Agreement has been duly authorized, executed and delivered
by ALFC or ALLIC and is a legal, valid and binding obligation
of ALFC enforceable against ALFC or ALLIC in accordance with
its terms (subject to the applicability of equitable
principles or the effect of bankruptcy or creditors' rights
laws on the enforceability of the Agreement);
(iii) ALFC and ALLIC is each a Louisiana corporation duly organized,
validly existing and in good standing under the laws of the
State of Louisiana;
(iv) ALFC and ALLIC have full corporate power and authority to
enter into Agreement and to carry out the transactions
contemplate by the Agreement;
(v) To such counsel's knowledge, after due inquiry, there are no
civil or criminal actions, suits, arbitration's,
administrative or other proceedings or governmental
investigations pending or threatened against ALFC or ALLIC
which will constitute a breach of the representations,
warranties or covenants under the Agreement or will prevent
ALFC or ALLIC from consummating the transactions contemplated
by the Agreement:
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(vi) The authorized and outstanding capital stock of ALFC is as
stated in Section 4.2 of the Agreement, and such shares have
been duly authorized, are fully paid and nonassessable and
were not issued in violation of the preemptive rights of any
party;
(vii) To such counsel's knowledge, after due inquiry, except as set
forth in the Agreement, there are no outstanding
subscriptions, options, warrants, rights, convertible
securities, calls, commitments, privileges or other
arrangements, preemptive or contractual, calling for or
requiring the acquisition of, or the issuance, transfer, sale,
or other disposition of any shares of the capital stock of
ALFC or ALLIC, or calling for or requiring the issuance of any
securities or rights convertible into or exchangeable for
shares of capital stock of ALFC or ALLIC; and
(viii) The execution, delivery, and performance of the Agreement, and
the performance by ALFC and ALLIC of its obligations
thereunder, is not in contravention any law, ordinance, rule,
or regulation, or contravene any order, writ, judgment,
injunction, decree, determination, or award of any court or
other authority having jurisdiction, will not cause the
suspension or revocation of any authorization, consent,
approval, or license, presently in effect, which affects or
binds, ALFC or any of its subsidiaries or any of its or their
material properties.
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EXHIBIT C
Opinion of Counsel for Citizens
At the Closing, Citizens shall deliver to ALFC and ALLIC, an opinion,
in form and substance satisfactory to ALFC and its counsel, dated the Closing
Date, of Jones & Keller, P.C., counsel to Citizens, to the effect that:
(i) The execution, delivery, and performance of the Agreement by
Citizens shall not result in a breach of, or constitute a
default (or an event which, with or without notice or lapse of
time or both, would constitute a default) under any contract,
commitment, agreement, indenture, mortgage, pledge agreement,
note, bond, license, or other instrument or obligation to
which Citizens is a party or by which Citizens is bound or the
charter or bylaws of Citizens or other governing instruments
or Citizens;
(ii) The Agreement has been duly authorized, executed and delivered
by Citizens and is a legal, valid and binding obligation of
Citizens enforceable against Citizens in accordance with its
terms (subject to the applicability of equitable principles or
the effect of bankruptcy or creditors' rights laws on the
enforceability of the Agreement);
(iii) Citizens is a Colorado corporation duly organized, validly
existing and in good standing under the laws of the State of
Colorado;
(iv) Citizens has full corporate power and authority to enter into
the Agreement and to carry out the transactions contemplated
by the Agreement;
(v) To such counsel's knowledge, after due inquiry, there are no
civil or criminal actions, suits, arbitrations, administrative
or other proceedings or governmental investigations pending or
threatened against Citizens which will constitute a breach of
the representations, warranties or covenants under the
Agreement or will prevent Citizens from consummating the
transactions contemplated by the Agreement;
(vi) The authorized and outstanding capital stock of Citizens is as
stated in Section 3.2 of the Agreement, and each of the shares
of Class A common stock to be issued pursuant to the agreement
has been duly authorized and when issued pursuant to the terms
of the Agreement shall be validly issued and fully paid and
non-assessable and issued in violation of the preemptive
rights of any party;
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(vii) The such counsel's knowledge, after due inquiry, except as set
forth in the Agreement or Citizens' Disclosure Statement,
there are no outstanding subscriptions, options, warrants,
rights, convertible securities, calls, commitments, privileges
or other arrangements, preventive or contractual, calling for
or requiring the acquisition of, or the issuance, transfer,
sale, or other disposition of any shares of the capital stock
of Citizens, or calling for or requiring the issuance of any
securities or rights convertible into or exchangeable for
shares of capital stock of Citizens; and
(viii) The execution, delivery, and performance of the Agreement, and
the performance by Citizens of its obligations thereunder, is
not in contravention any law, ordinance, rule, or regulation,
or contravene any order, writ, judgment, injunction, decree,
determination, or award of any court or other authority having
jurisdiction, will not cause the suspension or revocation of
any authorization, consent, approval, or license presently in
effect, which affects or binds Citizens or any of its
subsidiaries or any of its or their material properties.
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CITIZENS DISCLOSURE STATEMENT
Pursuant to the provisions of Article III of the Plan and Agreement of
Exchange by and among American Liberty Financial Corporation, American Liberty
Life Insurance Company and Citizens, Inc., Citizens, Inc. hereby makes the
following disclosures respecting the similarly numbered sections in the Plan
and Agreement of Exchange:
3.7 Citizens has the liabilities disclosed in the Citizens
Financial Statements and those incurred thereafter in the
ordinary course of business.
3.8 Civil Action No. C-3687-93E, Dary Luz Sierra de Romera, et.
al., v. Rafael Alvarez Carbonel, Hector A. Tamara and
Citizens Insurance Company of America. The plaintiff sued for
alleged failure to pay policy death benefits and breach of
contract in the amount of $300,000.00 plus attorney's fees of
$10,000.00.
3.11 Management Service Agreement between Citizens, Inc. and
Citizens Insurance Company of America, effective 7/1/92.
Management Service Agreement between Citizens, Inc. and
Computing Technology, Inc., effective 10/1/91.
Information Systems Management and Service Contract between
Citizens, Inc. and Computing Technology, Inc., effective
10/1/91.
Computer Maintenance Agreement between Computing Technology,
Inc. and Wang Laboratories, effective 7/1/91 and amending
8/26/91.
3.16 Citizens is a party to a noncontributory qualified profit
sharing plan operated under a separate trust.
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ALFC AND ALLIC DISCLOSURE STATEMENT
Pursuant to the provisions of Article IV of the Plan and Agreement of
Exchange by and among American Liberty Financial Corporation ("ALFC"), American
Liberty Life Insurance Company ("ALLIC") and Citizens, Inc. ("Citizens"). ALFC
hereby makes the following disclosures respecting the similarly numbered
sections in the Plan and Agreement of Exchange:
4.7 ALFC and ALLIC have liabilities disclosed in their financial
statements and those incurred thereafter in the ordinary course of business.
4.8 Civil Action No. P1867-D, Chancery Court of Forrest County,
Mississippi, Estate of Merrill Lee Barnes vs. American Liberty Life Insurance
Company. The claim, by children of the deceased who are not named
beneficiaries of a life insurance policy seeks $3,000 in actual damages and
$100,000 in punitive damages.
4.11 Agreement of License for Electronic Data Processing and
Related Consultation and Service between Virtual Item Processing Systems, Inc.
and American Liberty Financial Corporation, effective January 1, 1993.
Lease agreement on ALFC and ALLIC offices with Hancock Bank,
Baton Rouge, Louisiana, Month to Month.
4.17 First American Investment Corporation Communications:
Letter to Louisiana Attorney General dated May 23, 1994.
Louisiana Attorney General Opinion No. 94-251 dated June 27,
1994.
Letter to Louisiana Commissioner of Securities dated July 7,
1994.
Letter to Louisiana Deputy Commissioner of Insurance dated
July 8, 1994.
Letter to Louisiana Attorney General dated July 13, 1994.
Louisiana Attorney General Opinion No. 94-251(A) dated August
9, 1994.
Letter to Louisiana Commissioner of Securities dated August
26, 1994.
Letter to Louisiana Commissioner of Insurance dated August 29,
1994.
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APPENDIX B
LOUISIANA BUSINESS CORPORATION LAW
PART XIII. DISSENTING SHAREHOLDERS' RIGHTS, FAIR PRICE PROTECTION, AND CONTROL
SHARE ACQUISITION
12:130 DEFINITIONS.--(1) "Safeguard period" shall mean the
twenty-four month period immediately following any merger, consolidation or any
other change in majority voting ownership of a corporation covered by this
Chapter.
(2) "Safeguarded entity" shall mean any pension plan, retirement
system, or any other fund that inures to the benefit of the employees of a
corporation covered under this Chapter.
(3) "interested person" shall mean any member, participant,
regular or disability retiree, beneficiary, or creditor of any safeguarded
entity.
(4) "Intentional misconduct" shall mean the intentional conduct of
any person which occurs during the safeguard period and which has the effect of
deleting, depleting or otherwise diminishing the assets being held in trust by
any safeguarded entity in a manner that is adverse to any interested person as
defined by R.S. 12: 130(3).
12:130.1 STANDARD OF CARE; REVIEW.--A. Any conduct which
violates the provisions of this Part which occurs during the safeguard period
shall give rise to the presumption that such conduct is intentional misconduct.
B. Any transaction that is executed during the safeguard period
which involves the assets of a safeguarded entity shall be subject to judicial
review under the standard of strict scrutiny.
12:130.2 INTENTIONAL MISCONDUCT; INJUNCTIVE RELIEF; CIVIL
PENALTY.--A. Any person who is found by a court to be liable for intentional
misconduct under this Part shall be subject to the penalties of this Section,
regardless of whether the person is or is not involved in the administration of
the safeguarded entity. Person as referred to in this Section includes any
individual, partnership, unincorporated association of individuals, joint stock
company, or corporation.
B. Any interested person may petition a court for injunctive
relief on the basis of another person's intentional misconduct, provided that
he can show the intentional misconduct will cause irreparable harm to the
interested person or to the safeguarded entity.
C. Any person whose intentional misconduct causes the insolvency
of a safeguarded entity shall oblige the person by whose misconduct caused the
insolvency to restore the safeguarded entity to a condition of solvency. If
such intentional misconduct causes damage to any interested person, the person
whose conduct caused the damage shall be obliged to repair it, as ordered by
any court, including the payment of prejudgment interest and reasonable
attorney's fees.
D. Jurisdiction for the enforcement of this Section shall be in
accordance with the provisions contained in Article 42 of the Louisiana Code of
Civil Procedure.
12:131 RIGHTS OF SHAREHOLDER DISSENTING FROM CERTAIN
CORPORATE ACTIONS.--A. Except as provided in subsection B of this Section, if a
corporation has, by vote of its shareholders, authorized a sale, lease or
exchange of all of its assets, or has, by vote of its shareholders, become a
party to a merger or consolidation, then, unless such authorization or action
shall have been given or approved by at least eighty per cent of the total
voting power, a shareholder who voted against such corporate action shall have
the right to dissent. If a corporation has become a party to a merger pursuant
to R.S. 12:112(H), the shareholders of any subsidiaries party to the merger
shall have the right to dissent without regard to the proportion of the voting
power which approved the merger and despite the fact that the merger was not
approved by vote of the shareholders of any of the corporations involved.
B. The right to dissent provided by this Section shall not exist
in the case of:
(1) A sale pursuant to an order of a court having jurisdiction in
the premises.
(2) A sale for cash on terms requiring distribution of all or
substantially all of the net proceeds to the shareholders in accordance with
their respective interests within one year after the date of the sale.
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(3) Shareholders holding shares of any class of stock which, at
the record date fixed to determine shareholders entitled to receive notice of
and to vote at the meeting of shareholders at which a merger or consolidation
was acted on, were listed on a national securities exchange, or were designated
as a national market system security on an inter-dealer quotation system by the
National Association of Securities Dealers, unless the articles of the
corporation issuing such stock provide otherwise or the shares of such
shareholders were not converted by the merger or consolidation solely into
shares of the surviving or new corporation.
C. Except as provided in the last sentence of this subsection,
any shareholder electing to exercise such right of dissent shall file with the
corporation, prior to or at the meeting of shareholders at which such proposed
corporate action is submitted to a vote, a written objection to such proposed
corporate action, and shall vote his shares against such action. If such
proposed corporate action be taken by the required vote, but by less than
eighty per cent of the total voting power, and the merger, consolidation or
sale, lease or exchange of assets authorized thereby be effected, the
corporation shall promptly thereafter give written notice thereof, by
registered mail, to each shareholder who filed such written objection to, and
voted his shares against, such action, at such shareholder's last address on
the corporation's records. Each such shareholder may, within twenty days after
the mailing of such notice to him, but not thereafter, file with the
corporation a demand in writing for the fair cash value of his shares as of the
day before such vote was taken; provided that he state in such demand the value
demanded, and a post office address to which the reply of the corporation may
be sent, and at the same time deposit in escrow in a chartered bank or trust
company located in the parish of the registered office of the corporation, the
certificates representing his shares, duly endorsed and transferred to the
corporation upon the sole condition that said certificates shall be delivered
to the corporation upon payment of the value of the shares determined in
accordance with the provisions of this Section. With his demand the shareholder
shall deliver to the corporation, the written acknowledgment of such bank or
trust company that it so holds his certificates of stock. Unless the objection,
demand and acknowledgment aforesaid be made and delivered by the shareholder
within the period above limited, he shall conclusively be presumed to have
acquiesced in the corporate action proposed or taken. In the case of a merger
pursuant to R.S. 12:112(H), the dissenting shareholder need not file an
objection with the corporation nor vote against the merger, but need only file
with the corporation, within twenty days after a copy of the merger certificate
was mailed to him, a demand in writing for the cash value of his shares as of
the day before the certificate was filed with the Secretary of State, state in
such demand the value demanded and a post office address to which the
corporation's reply may be sent, deposit the certificates representing his
shares in escrow as hereinabove provided, and deliver to the corporation with
his demand the acknowledgment of the escrow bank or trust company as
hereinabove prescribed.
D. If the corporation does not agree to the value so stated and
demanded, or does not agree that a payment is due, it shall, within twenty days
after receipt of such demand and acknowledgment, notify in writing the
shareholder, at the designated post office address, of its disagreement, and
shall state in such notice the value it will agree to pay if any payment should
be held to be due; otherwise it shall be liable for, and shall pay to the
dissatisfied shareholder, the value demanded by him for his shares.
E. In the case of disagreement as to such fair cash value, or as
to whether any payment is due, after compliance by the parties with the
provisions of subsections C and D of this Section, the dissatisfied
shareholder, within sixty days after receipt of notice in writing of the
corporation's disagreement, but not thereafter, may file suit against the
corporation, or the merged or consolidated corporation, as the case may be, in
the district court of the parish in which the corporation or the merged or
consolidated corporation, as the case may be, has its registered office,
praying the court to fix and decree the fair cash value of the dissatisfied
shareholder's shares as of the day before such corporate action complained of
was taken, and the court shall, on such evidence as may be adduced in relation
thereto, determine summarily whether any payment is due, and, if so, such cash
value, and render judgment accordingly. Any shareholder entitled to file such
suit may, within such sixty-day period but not thereafter, intervene as a
plaintiff in such suit filed by another shareholder, and recover therein
judgment against the corporation for the fair cash value of his shares. No
order or decree shall be made by the court staying the proposed corporate
action, and any such corporate action may be
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carried to completion notwithstanding any such suit. Failure of the shareholder
to bring suit, or to intervene in such a suit, within sixty days after receipt
of notice of disagreement by the corporation shall conclusively bind the
shareholder (1) by the corporation's statement that no payment is due, or (2) if
the corporation does not contend that no payment is due, to accept the value of
his shares as fixed by the corporation in its notice of disagreement.
F. When the fair value of the shares has been agreed upon between
the shareholder and the corporation, or when the corporation has become liable
for the value demanded by the shareholder because of failure to give notice of
disagreement and of the value it will pay, or when the shareholder has become
bound to accept the value the corporation agrees is due because of his failure
to bring suit within sixty days after receipt of notice of the corporation's
disagreement, the action of the shareholder to recover such value must be
brought within five years from the date the value was agreed upon, or the
liability of the corporation became fixed.
G. If the corporation or the merged or consolidated corporation,
as the case may be, shall, in its notice of disagreement, have offered to pay
to the dissatisfied shareholder on demand an amount in cash deemed by it to be
the fair cash value of his shares, and if, on the institution of a suit by the
dissatisfied shareholder claiming an amount in excess of the amount so offered,
the corporation, or the merged or consolidated corporation, as the case may be,
shall deposit in the registry of the court, there to remain until the final
determination of the cause, the amount so offered, then, if the amount finally
awarded such shareholder, exclusive of interest and costs, be more than the
amount offered and deposited as aforesaid, the costs of the proceeding shall be
taxed against the corporation, or the merged or consolidated corporation, as
the case may be; otherwise the costs of the proceeding shall be taxed against
such shareholder.
H. Upon filing a demand for the value of his shares, the
shareholder shall cease to have any of the rights of a shareholder except the
rights accorded by this Section. Such a demand may be withdrawn by the
shareholder at any time before the corporation gives notice of disagreement, as
provided in subsection D of this Section. After such notice of disagreement is
given, withdrawal of a notice of election shall require the written consent of
the corporation. If a notice of election is withdrawn, or the proposed
corporate action is abandoned or rescinded, or a court shall determine that the
shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares, his share certificates shall be
returned to him (and, on his request, new certificates shall be issued to him
in exchange for the old ones endorsed to the corporation), and he shall be
reinstated to all his rights as a shareholder as of the filing of his demand
for value, including any intervening preemptive rights, and the right to
payment of any intervening dividend or other distribution, or, if any such
rights have expired or any such dividend or distribution other than in cash has
been completed, in lieu thereof, at the election of the corporation, the fair
value thereof in cash as determined by the board as of the time of such
expiration or completion, but without prejudice otherwise to any corporate
proceedings that may have been taken in the interim.
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12:132 DEFINITIONS. -- The following terms as used in R.S.
12:133 and R.S. 12:134 shall have the following meanings
(1) "Affiliate," including the term "affiliated person," means a
person that directly or indirectly through one or more intermediaries controls
or is controlled by or is under common control with a specified person.
(2) "Associate," when used to indicate a relationship with any
person, means the following:
(a) Any corporation or organization other than the corporation or
a subsidiary of the corporation, of which such person is an officer, director,
or partner or is, directly or indirectly, the beneficial owner of ten percent
or more of any class of equity securities.
(b) Any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee
or in a similar fiduciary capacity.
(c) Any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person or who is a director or officer
of the corporation or any of its affiliates.
(3) "Beneficial owner," when used with respect to any voting
stock, means any of the following:
(a) A person who individually or with any of its affiliates or
associates beneficially owns voting stock, directly or indirectly.
(b) A person who individually or with any of its affiliates or
associates has either of the following rights:
(i) To acquire voting stock, whether such right is exercisable
immediately or only after the passage of time, pursuant to any agreement,
arrangement, or understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise.
(ii) To vote voting stock pursuant to any agreement, arrangement,
or understanding.
(c) A person who has any agreement, arrangement, or understanding
for the purpose of acquiring, holding, voting, or disposing of voting stock
with any other person who beneficially owns or whose affiliates beneficially
own, directly or indirectly, such shares of voting stock.
(4) "Business combination" means any of the following:
(a) Unless the merger, consolidation, or share exchange does not
alter the contract rights of the stock as expressly set forth in the articles
or change or convert in whole or in part the outstanding shares of the
corporation, any merger, consolidation, or share exchange of the corporation
or any subsidiary with:
(i) Any interested shareholder, or
(ii) Any other corporation, whether or not itself an interested
shareholder, which is, or after the merger, consolidation, or share exchange
would be, an affiliate of an interested stockholder that was an interested
shareholder prior to the transaction.
(b) Any sale, lease, transfer, or other disposition, other than in
the ordinary course of business, in one transaction or a series of transactions
in any twelve-month period to any interested shareholder or any affiliate of
any interested shareholder, other than the corporation of any of its
subsidiaries, of any assets of the corporation or any subsidiary having,
measured at the time the transaction or transactions are approved by the board
of directors of the corporation, an aggregate book value as of the end of the
corporation's most recently ended fiscal quarter of ten percent or more of the
total market value of the
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outstanding stock of the corporation or of its net worth as of the end of its
most recently ended fiscal quarter.
(c) The issuance or transfer by the corporation or any subsidiary,
in one transaction or a series of transactions, of any equity securities of the
corporation or any subsidiary which has an aggregate market value of five
percent or more of the total market value of the outstanding stock of the
corporation, to any interested shareholder or any affiliate of any interested
shareholder, other than the corporation or any of its subsidiaries, except
pursuant to the exercise of warrants or rights to purchase securities offered
pro rata to all holders of the corporation's voting stock or any other method
affording substantially proportionate treatment of the holders of voting stock.
(d) The adoption of any plan or proposal for the liquidation or
dissolution of the corporation in which anything other than cash will be
received by an interested shareholder or any affiliate of any interested
shareholder.
(e) Any reclassification of securities including any reverse stock
split or recapitalization of the corporation or any merger, consolidation, or
share exchange of the corporation with any of its subsidiaries which has the
effect, directly or indirectly, in one transaction or a series of transactions,
of increasing by five percent or more of the total number of outstanding shares
the proportionate amount of the outstanding shares of any class of equity
securities of the corporation or any subsidiary which is directly or indirectly
owned by any interested shareholder or any affiliate of any interested
shareholder.
(5) "Common stock" means any stock other than preferred or
preference stock.
(6) "Control," including the terms "controlling," "controlled by,"
and "under common control with" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a person, whether through the ownership of voting securities, by contract, or
otherwise. The beneficial ownership of ten percent or more of the votes
entitled to be cast by a corporation's voting stock creates a presumption of
control.
(7) "Corporation" means any corporation which has been granted a
certificate of incorporation by the state of Louisiana.
(8) "Equity security" means any of the following:
(a) Any stock or similar security, certificate of interest, or
participation in any profit sharing agreement, voting trust certificate, or
certificate of deposit for an equity security.
(b) Any security convertible, with or without consideration, into
an equity security, or any warrant or other security carrying any right to
subscribe to or purchase an equity security.
(c) Any put, call, straddle, or other option or privilege of
buying an equity security from or selling an equity security to another without
being bound to do so.
(9)(a) "Interested shareholder" means any person other than the
corporation or any subsidiary or any of the corporation's employee plans or
related trusts that is either of the following:
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(i) The beneficial owner, directly or indirectly, of ten percent
or more of the voting power of the outstanding voting stock of the corporation.
(ii) An affiliate of the corporation who at any time within the
two-year period immediately prior to the date in question was the beneficial
owner, directly or indirectly, of ten percent or more of the voting power of
the then outstanding voting stock of the corporation.
(b) For the purpose of determining whether a perseon is an
interested shareholder, the number of shares of voting stock deemed to be
outstanding shall include shares deemed owned by the person through application
of Subsection (3) of this Section, but may not include any other shares of
voting stock which may be issuable pursuant to any agreement, arrangement, or
understanding, or upon exercise of conversion rights, warrants or options, or
otherwise.
(10) "Market value" means the following:
(a) In the case of stock, the highest closing sale price during
the thirty-day period immediately preceding the date in question of a share of
such stock on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which such stock is listed, or if such
stock is not listed on any such exchange, the highest closing bid quotation
with respect to a share of such stock during the thirty-day period preceding
the date in question on the National Association of Securities Dealers, Inc.,
Automated Quotations Systems or any system then in use, or if no such
quotations are available, the fair market value on the date in question of a
share of such stock as determined by the board of directors of the corporation
in good faith.
(b) In the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by the
board of directors of the corporation in good faith.
(11) "Subsidiary" means any corporation of which voting stock
having a majority of the votes entitled to be cast is owned, directly or
indirectly, by the corporation.
(12) "Voting stock" means shares of capital stock of a corporation
entitled to vote generally in the election of directors.
12:133 VOTE REQUIRED IN BUSINESS COMBINATIONS.--In addition to any
vote otherwise required by law or the charter of the corporation, a business
combination shall be recommended by the board of directors and approved by the
affirmative vote of at least each of the following:
(1) Eighty percent of the votes entitled to be cast by outstanding
shares of voting stock of the corporation voting together as a single voting
group.
(2) Two-thirds of the votes entitled to be cast by holders of
voting stock other than voting stock held by the interested shareholder who is
or whose affiliate is a party to the business combination or an affiliate or
associate of the interested shareholder, voting together as a single voting
group.
12:134 WHEN VOTING REQUIREMENTS NOT APPLICABLE. A. For purposes of
Subsection (B) of this Section, the following terms shall have the meanings
ascribed to them:
(1) "Announcement date" means the first general public
announcement of the proposal or intention to make a proposal of the business
combination or its first communication generally to shareholders of the
corporation, whichever is earlier.
(2) "Determination date" means the date on which an interested
shareholder first became an interested shareholder.
(3) "Valuation date" means the following:
(a) For a business combination voted upon by shareholders, the
latter of the date prior to the date of the shareholders vote or the day
twenty days prior to the consummation of the business combination.
(b) For a business combination not voted upon by shareholders, the
date of the consummation of the business combination.
B. The vote required by R.S. 12:133 of this Chapter does not apply to
a business combination as defined in R.S. 12:132(4)(a) if each of the
following conditions is met:
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(1) The aggregate amount of the cash and the market value as the
valuation date of consideration other than cash to be received per share by
holders of common stock in such business combination is at least equal to the
highest of the following:
(a) The highest per share price, including any brokerage
commission, transfer taxes, and soliciting dealers' fees, paid by the
interested shareholders for any shares of common stock of the same class or
series acquired by it:
(i) Within the two-year period immediately prior to the
announcement date of the proposal of the business combination; or
(ii) In the transaction in which it became an interested
stockholder, whichever is higher; or
(b) The market value per share of common stock of the same class
or series on the announcement date or on the determination date, whichever is
higher; or
(c) The price per share equal to the market value per share of
common stock of the same class or series determined pursuant to Subparagraph
(b) of this Paragraph, multiplied by the fraction of:
(i) The highest per share price, including any brokerage
commissions, transfer taxes, and soliciting dealers' fees, paid by the
interested shareholder for any shares of common stock of the same class or
series acquired by it within the two-year period immediately prior to the
announcement date, over
(ii) The market value per share of common stock of the same class
or series on the first day in such two-year period on which the interested
shareholder acquired any shares of common stock.
(2) The aggregate amount of the cash and the market value as of
the valuation date of consideration other than cash to be received per share by
holders of shares of any class or series of outstanding stock other than common
stock is at least equal to the highest of the following, whether or not the
interested shareholder has previously acquired any shares of a particular class
or series of stock:
(a) The highest per share price, including any brokerage
commissions, transfer taxes, and soliciting dealers' fees, paid by the
interested shareholder for any shares of such class of stock acquired by it:
(i) Within the two-year period immediately prior to the
announcement date of the proposal of the business combination; or
(ii) In the transaction in which it became an interested
stockholder, whichever is higher; or
(b) The highest preferential amount per share to which the holders
of shares of such class of stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the corporation; or
(c) The market value per share of such class of stock on the
announcement date or on the determination date, whichever is higher; or
(d) The price per share equal to the market value per share of
such class of stock determined pursuant to Subparagraph (c) of this Paragraph,
multiplied by the fraction of:
(i) The highest per share price, including any brokerage
commissions, transfer taxes, and soliciting dealers' fees, paid by the
interested shareholder for any shares of any class of voting stock acquired by
it within the two-year period immediately prior to the announcement date, over
(ii) The market value per share of the same class of voting stock
on the first day in such two-year period on which the interested shareholder
acquired any shares of the same class of voting stock.
(3) The consideration to be received by holders of any class or
series of outstanding stock is to be in cash or in the same form as the
interested shareholder has previously paid for shares of the same class or
series of stock. If the interested shareholder has paid for shares of any class
of stock with varying forms of consideration, the form of consideration for
such class of stock shall be either cash or the form used to acquire the
largest number of shares of such class or series of stock previously acquired
by it.
(4)(a) After the interested stockholder has become an interested
shareholder and prior to the consummation of such business combination:
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(i) There shall have been no failure to declare and pay at the
regular date therefor any full periodic dividends, cumulative or not, on any
outstanding preferred stock of the corporation;
(ii) There shall have been:
(aa) No reduction in the annual rate of dividends paid on any
class or series of stock of the corporation that is not preferred stock except
as necessary to reflect any subdivision of the stock; and
(bb) An increase in such annual rate of dividends as necessary to
reflect any reclassification, including any reverse stock split,
recapitalization, reorganization, or any similar transaction which has the
effect of reducing the number of outstanding shares of the stock; and
(iii) The interested shareholder did not become the beneficial owner
of any additional shares of stock of the corporation except as part of the
transaction which resulted in such interested shareholder's becoming an
interested shareholder or by virtue of proportionate stock splits or stock
dividends.
(b) The provisions of (i) and (ii) of Subparagraph (a) shall not
apply if no interested shareholder or an affiliate or associate of the
interested shareholder voted as a director of the corporation in a manner
inconsistent with (i) and (ii), and the interested shareholder, within ten
days after any act or failure to act inconsistent with such Sub-subparagraphs,
notifies the board of directors of the corporation in writing that the
interested shareholder disapproves thereof and requests in good faith that the
board of directors rectify such act or failure to act.
(5) After the interested stockholder has become an interested
shareholder, the interested stockholder may not have received the benefit,
directly or indirectly, except proportionately as a shareholder, of any loans,
advances, guarantees, pledges, or other financial assistance, or any tax
credits, or other tax advantages provided by the corporation or any of its
subsidiaries, whether in anticipation of or in connection with such business
combination or otherwise.
C.(1) Whether or not such business combinations are authorized or
consummated in whole or in part after January 1, 1985, or after the interested
shareholder became an interested stockholder, the requirements of R.S. 12:133
shall not apply to business combinations that specifically, generally, or
generally by types, as to specifically identified or unidentified existing or
future interested shareholders or their affiliates, have been approved or
exempted therefrom by resolution of the board of directors of the corporation:
(a) Prior to January 1, 1985, or such earlier date as may be
irrevocably established by resolution of the board of directors; or
(b) If involving transactions with a particular interested
shareholder or its existing or future affiliates, at any time prior to the
time that the interested shareholder first became an interested shareholder.
(2) Unless by its terms a resolution adopted under this Subsection
is made irrevocable, it may be altered or repealed by the board of directors,
but this shall not affect any business combinations that have been consummated
or are the subject of an existing agreement entered into prior to the
alteration or repeal.
D.(1) Unless the articles or bylaws of the corporation specifically
provide otherwise, the requirements of R.S. 12:133 shall not apply to business
combinations of a corporation that on January 1, 1985, had an existing
interested shareholder, whether a business combination is with the existing
shareholder or with any other person that becomes an interested shareholder
after January 1, 1985, or their present or future affiliates unless at any
time after January 1, 1985, the board of directors of the corporation elects by
resolution to be subject, in whole or in part, specifically, generally, or
generally by types as to specifically identified or unidentified interested
shareholders to the requirements of R.S. 12:133.
(2) The articles or bylaws of the corporation may provide that if
the board of directors adopts a resolution under Subsection (D)(1) of this
Section, the resolution shall be subject to approval of the shareholders in
the manner and by the vote specified in the articles or the bylaws.
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(3) An election under this Subsection may be added to but may not
be altered or repealed except by an amendment to the articles adopted by a vote
of shareholders meeting the requirements of Subsection (E)(1)(b) of this
Section.
(4) If a corporation elects under this Subsection to be included
within the provisions of R.S. 12:132, R.S. 12:133, and R.S. 12:134 generally,
without qualification or limitation, it shall file with the secretary of state
articles supplementary including a copy of the resolution making the election
and a statement describing the manner in which the resolution was adopted. The
articles supplementary shall be executed in the manner required by R.S. 12:32 of
the Chapter. The articles supplementary constitute articles of amendment under
R.S. 12:31 of this Chapter.
E.(1) Unless the articles of the corporation provide otherwise, the
requirements of R.S. 12:133 shall not apply to any business combination of any
of the following:
(a) A corporation having fewer than one hundred beneficial owners
of its stock.
(b) A corporation whose original articles of incorporation have a
provision, or whose shareholders adopt an amendment to its articles after
January 1, 1985, by a vote of at least eighty percent of the votes entitled to
be cast by outstanding shares of voting stock of the corporation, voting
together as a single voting group and two-thirds of the votes entitled to be
cast by persons who are not interested shareholders of the corporation, voting
together as a single voting group, expressly electing not to be governed by
R.S. 12:132, R.S. 12:133 and R.S. 12:134.
(c) An investment company registered under the Investment Company
Act of 1940.
(2) For purposes of Subparagraph (1) of this Subsection, all
shareholders of a corporation that have executed an agreement to which the
corporation is an executing party governing the purchase and sale of stock of
the corporation or a voting trust agreement governing stock of the corporation
shall be considered a single beneficial owner of the stock covered by the
agreement.
F. A business combination of a corporation that has a provision in
its articles permitted by R.S. 12:112 or R.S. 12:121(B), which allows for
reduction of the vote required for the transactions described therein is
subject to the voting requirements of R.S. 12:133 unless one of the
requirements or exemptions of Subsection (B), (C), (D), or (E) of this Section
have been met.
12:135 DEFINITIONS.--As used in R.S. 12:135 through 140.2:
(1) "Control shares" means shares that, except for the provisions
of R.S. 12:135 through 140.2, would have voting power with respect to shares of
an issuing public corporation that, when added to all other shares of the
issuing public corporation owned by a person or in respect to which that person
may exercise or direct the exercise of voting power, would entitle that person,
immediately after acquisition of the shares, directly or indirectly, alone or
as a part of a group, to exercise or direct the exercise of the voting power of
the issuing public corporation in the election of directors within any of the
following ranges of voting power:
(a) One-fifth or more but less than one-third of all voting power.
(b) One-third or more but less than a majority of all voting power.
(c) A majority or more of all voting power.
(2)(a) "Control share acquisition" means the acquisition, directly or
indirectly, by any person of ownership of, or the power to direct the exercise
of voting power with respect to, issued and outstanding control shares.
(b) For purposes of this Paragraph, shares acquired within ninety
days or shares acquired pursuant to a plan to make a control share acquisition
are considered to have been acquired in the same acquisition.
(c) For purposes of this Paragraph, a person who acquires shares
in the ordinary course of business for the benefit of others in good faith and
not for the purpose of circumventing the provisions of R.S. 12:135 through
140.2 has voting power only of shares in respect of which that person would be
able to exercise or direct the exercise of votes without further instruction
from others.
(d) The acquisition of any shares of an issuing public corporation
does not constitute a control share acquisition if the acquisition is
consummated in any of the following circumstances:
(i) Before May 4, 1987.
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(ii) Pursuant to a contract existing before May 4, 1987 or pursuant
to a tender offer or exchange offer made in writing before May 4, 1987 for any
securities of an issuing public corporation whether the time for acceptance is
extended on or after May 4, 1987, whether the offeror waives any conditions of
the offer on or after May 4, 1987, and whether the transaction is closed on or
after May 4, 1987.
(iii) Pursuant to the laws of successions, descent, and distribution.
(iv) Pursuant to the satisfaction of a pledge or other security
interest created in good faith and not for the purpose of circumventing the
provisions of R.S. 12:135 through 140.2.
(v) Pursuant to a merger, consolidation, or share exchange
effected in compliance with Part XI of this Chapter if the issuing public
corporation, or a wholly-owned subsidiary thereof, is a party to the agreement
of merger or consolidation or the plan of exchange.
(vi) By an employee benefit plan or related trust of the issuing
public corporation.
(e) The acquisition of shares of an issuing public corporation in
good faith and not for the purpose of circumventing the provisions of R.S.
12:135 through 140.2 by or from:
(i) Any person whose voting rights had previously been authorized
by shareholders in compliance with the provisions of R.S. 12:135 through 140.2;
or
(ii) Any person whose previous acquisition of shares of an issuing
public corporation would have constituted a control share acquisition but for
Subparagraph (d) of this Paragraph does not constitute a control share
acquisition, unless the acquisition entitles any person, directly or
indirectly, alone or as a part of a group, to exercise or direct the exercise
of voting power of the corporation in the election of directors in excess of
the range of the voting power otherwise authorized.
(3) "interested shares" means the shares of an issuing public
corporation in respect of which any of the following persons may exercise or
direct the exercise of the voting power of the corporation in the election of
directors:
(a) An acquiring person or member of a group with respect to a
control share acquisition.
(b) Any officer of the issuing public corporation.
(c) Any employee of the issuing public corporation who is also a
director of the corporation.
(4) "Issuing public corporation" means a corporation that has:
(a) One hundred or more shareholders;
(b) Its principal place of business, its principal office, or
substantial assets, whether owned directly or through one or more wholly-owned
subsidiaries, within Louisiana; and
(c) One or more of the following:
(i) More than ten percent of its shareholders reside in Louisiana.
(ii) More than ten percent of its shares owned by Louisiana
residents.
(iii) Ten thousand shareholders reside in Louisiana.
(5) The residence of a shareholder is presumed to be the address
appearing in the records of the corporation. Shares held by banks, except when
held as trustee, guardian, or tutor, by brokers, or by nominees shall be
disregarded for purposes of calculating the percentages or numbers described in
Paragraph (4).
(6) For purposes of Paragraph (4):
(a) "Substantial assets" means assets having a value of at least
five million dollars;
(b) "Value" means:
(i) in the case of assets other than cash or securities, the value
of the property as determined in good faith by the board of directors of the
corporation; and
(ii) In the case of securities, the highest closing sale price
during the thirty day period immediately preceding the date in question of a
security on the composite tape for New York Stock Exchange listed securities
or, if the securities are not quoted on the composite tape or not listed on the
New York Stock Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934, as amended, on which the
securities are listed or, if the securities are not listed on any such
exchange, on the National Association of Securities Dealers, Inc., Automated
Quotations National Market System or, if the securities are not quoted on the
National Association of Securities Dealers, Inc., Automated Quotations National
Market System, the highest closing bid quotation during the thirty day period
preceding the date in question of a security on the National Association of
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Securities Dealers, Inc., Automated Quotations System or any system then in use
or, if no such quotation is available, the fair market value on the date in
question of a security determined in good faith by the board of directors of
the corporation; and
(c) "Within Louisiana" means:
(i) In a case of corporeal property, the presence of such
corporeal property within Louisiana;
(ii) In the case of incorporeal property represented by a written
instrument, the presence of such written instrument within Louisiana; and
(iii) In the case of incorporeal property not represented by a
written instrument, the presence of the commercial domicile of the corporation
within Louisiana.
12:136 LAW APPLICABLE TO CONTROL SHARE VOTING RIGHTS.--Unless the
corporation's articles of incorporation or bylaws, as in effect before a
control share acquisition has occurred, provide that the provisions of R.S.
12:135 through 140.2 do not apply to control share acquisitions of shares of
the corporation, control shares of an issuing public corporation acquired in a
control share acquisition have only such voting rights as are conferred by R.S.
12:140.
12:137 NOTICE OF CONTROL SHARE ACQUISITION.--A. Any person who
proposes to make or has made a control share acquisition may at the person's
election deliver an acquiring person statement to the issuing public
corporation at the issuing public corporation's registered office.
B. However, if any of the shares to be acquired are being held in
a trust account or any other type of account or fund on behalf of a safeguarded
entity as defined in R.S. 12:130(2), the acquiring person statement shall be
mandatory and shall be provided to the chairman of the board of trustees of the
safeguarded entity or the administrator, or the corporate employee who is
responsible for managing the entity. The trustee, administrator, or manager
shall upon receipt of such statement distribute copies to all interested
persons as defined in R.S. 12:130(3).
C. The acquiring person statement shall set forth all of the
following:
(1) The identity of the acquiring person and each other member of
any group of which the person is a part for purposes of determining control
shares.
(2) A statement that the acquiring person statement is given
pursuant to this Section.
(3) The number of shares of the issuing public corporation owned,
directly or indirectly, by the acquiring person and each other member of the
group.
(4) The range of voting power under which the control share
acquisition falls or would, if consummated, fall.
(5) If the control share acquisition has not taken place:
(a) A description in reasonable detail of the terms of the
proposed control share acquisition; and
(b) Representations of the acquiring person. together with a
statement in reasonable detail of the facts upon which they are based, that the
proposed control share acquisition, if consummated, will not be contrary to
law, and that the acquiring person has the financial capacity to make the
proposed control share acquisition.
12:138 SHAREHOLDER MEETING TO DETERMINE CONTROL SHARE VOTING
RIGHTS.--A. (1) If the acquiring person so requests at the time of delivery of
an acquiring person statement and gives an undertaking to pay the corporation's
expenses of a special meeting, within ten days thereafter, the directors of the
issuing public corporation shall call a special meeting of shareholders of the
issuing public corporation for the purpose of considering the voting rights to
be accorded the shares acquired or to be acquired in the control share
acquisition.
(2) The directors of the issuing public corporation shall not be
required to call such special meeting of shareholders with respect to a
proposed control share acquisition unless such acquisition will be lawful and
the acquiring person has obtained, and shall have
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furnished to the corporation, copies of commitments for financing of any cash
portion of the consideration to be paid with respect to the acquisition or
otherwise has demonstrated that the acquiring person has the financial capacity
to make the acquisition.
B. Unless the acquiring person agrees in writing to another date,
the special meeting of shareholders shall be held within fifty days after
receipt by the issuing public corporation of the request or, if the issuing
public corporation is subject to Section 14(a) of the Securities Exchange Act
of 1934, as amended, the date on which definitive proxy materials (within the
meaning of such act and the regulations thereunder) related to the special
meeting on behalf of the acquiring person and the board of directors of the
issuing public corporation have been filed with the Securities and Exchange
Commission, which shall be done as promptly as practicable following receipt of
the request.
C. If no request is made, the voting rights to be accorded the
shares acquired in the control share acquisition shall be presented to the next
special or annual meeting of shareholders.
D. If the acquiring person so requests in writing at the time of
delivery of the acquiring person statement, the special meeting shall not be
held sooner than thirty days after receipt by the issuing public corporation of
the acquiring person statement.
12:139 NOTICE OF SHAREHOLDER MEETING. -- A. If a special
meeting is requested, notice of the special meeting of shareholders shall be
given as promptly as reasonably practicable by the issuing public corporation
to all shareholders of record as of the record date set for the meeting,
whether or not entitled to vote at the meeting.
B. Notice of the special or annual shareholder meeting at which
the voting rights are to be considered shall include or be accompanied by both
of the following:
(1) A copy of the acquiring person statement delivered to the
issuing public corporation pursuant to R.S. 12:137.
(2) A statement by the board of directors of the corporation,
authorized by its directors, of its position or recommendation, or that it is
taking no position or making no rec-
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commendation, with respect to the proposed control share acquisition.
12:140 RESOLUTION GRANTING CONTROL SHARE VOTING RIGHTS.-- A. Control
shares acquired in a control share acquisition have the same voting rights as
were accorded the shares before the control share acquisition only to the
extent granted by resolution approved by the shareholders of the issuing public
corporation.
B. To be approved under this Section, the resolution shall be
approved by:
(1) Each voting group entitled to vote separately on the proposal
by a majority of all the votes entitled to be cast by that voting group, with
the holders of the outstanding shares of a class being entitled to vote as a
separate voting group if the proposed control share acquisition would, if fully
carried out, result in any of the changes described in R.S. 12:31(C); and
(2) Each voting group entitled to vote separately on the proposal
by a majority of all the votes entitled to be cast by that group, excluding all
interested shares.
12:140.1 REDEMPTION OF CONTROL SHARES,-- A. If authorized in a
corporation's articles of incorporation or bylaws before a control share
acquisition has occurred, control shares acquired in a control share
acquisition with respect to which no acquiring person statement has been filed
with the issuing public corporation may, at any time during the period ending
sixty days after the last acquisition of control shares by the acquiring
person, be subject to redemption by the corporation at the fair value thereof
pursuant to the procedures adopted by the corporation.
B. Control shares acquired in a control share acquisition are not
subject to redemption after an acquiring person statement has been filed unless
the shares are not accorded full voting rights by the shareholders as provided
in R.S. 12:140.
12:140.2 RIGHTS OF DISSENTING SHAREHOLDERS.--A. Unless otherwise
provided in a corporation's articles of incorporation or bylaws before a
control share acquisition has occurred, in the event control shares acquired in
a control share acquisition are accorded full voting rights and the acquiring
person has acquired control shares with a majority or more of all voting power,
all shareholders of the issuing public corporation have dissenters' rights as
provided in this Section.
B. As soon as practicable after such events have occurred, the
board of directors shall cause a notice to be sent to all shareholders of the
corporation advising them of the facts and that they have dissenters' rights to
receive the fair cash value of their shares.
C. As used in this Section, "fair cash value" means a value not
less than the highest price paid per share by the acquiring person in the
control share acquisition.
D. As used in this Section, "dissenters' rights" means the right
to require the issuing public corporation to purchase shares at fair cash
value.
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 109 of Title Seven of the Colorado Revised Statutes enables a
Colorado corporation to indemnify its officers, directors, employees and agents
against liabilities, damages, costs and expenses for which they are liable if:
(i) in their Official Capacities (as defined by this statute) if they acted in
good faith and had no reasonable basis to believe their conduct was not in the
best interest of the Registrant; (ii) in all other cases, that their conduct
was at least not opposed to the Registrant's best interests; and (iii) in the
case of any criminal proceeding, they had no reasonable cause to believe their
conduct was unlawful.
The Registrant's Articles of Incorporation limits the liability of
directors to the full extent provided by Colorado law.
The Registrant's Bylaws provide indemnification to officers,
directors, employees and agents to the fullest extent provided by Colorado law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibits
- -------------- -----------------------
<S> <C>
2.2 Plan and Agreement of Merger - American Liberty Financial Corporation, American Liberty Life
Insurance Company, Citizens, Inc. and Citizens Acquisition, Inc., dated December 8, 1994(c)
3.1 Articles of Incorporation, as amended(a)
3.2 Bylaws(c)
5.1 Opinion and consent of Jones & Keller, P.C. as to the legality of Citizens, Inc. Common
Stock(c)
8.1 Opinion re: tax matters (to be filed by amendment)
10.5 Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement between Citizens Insurance
Company of America and The Centennial Life Insurance Company dated March 1, 1982(b)
10.6 Summary of Coinsurance Agreement between Citizens Insurance Company of America and Alabama
Reassurance Company dated December 31, 1985(b)
</TABLE>
II-I
<PAGE> 133
<TABLE>
<S> <C>
10.7 International Marketing Agreement - Citizens Insurance Company of America and Negocios Savoy,
S.A.(b)
11 Statement re: Computation of per share earnings(d)
22 Subsidiaries of the Registrant(d)
23.1 Consent of Jones & Keller, P.C.(c)
23.2 Consent of KPMG Peat Marwick LLP(c)
23.3 Consent of Amend, Smith & Co., P.C., Independent Auditors(c)
25 Power of Attorney(c) (see signature pages)
- ----------
</TABLE>
(a) Filed with the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 and incorporated by reference.
(b) Filed with the Registrant's Amendment No. 1 to Registration
Statement on Form S-4, Registration No. 33- 4753, filed with
the Commission on or about June 19, 1992.
(c) Filed herewith.
(d) Filed with the Registrant's Annual Report on Form 10-K For the
Year Ended December 31, 1994, and incorporated herein by
reference.
(B) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
See "Financial Statements."
ITEM 22. UNDERTAKINGS
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended (the "1933 Act"), each
filing of The Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934, as amended), that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The Registrant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by
the other Items of the applicable form.
II-II
<PAGE> 134
The Registrant hereby undertakes that every prospectus (I) that is
filed pursuant to the paragraph immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the 1933 Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
part of an amendment to the registration statement and will not be used until
such amendment is effective; and that, for purposes of determining any
liability under the 1933 Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the Effective Time of the registration statement through
the date of responding to the request.
The Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired, that was not the subject of and included in the
registration statement when it became effective.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(I) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the Effective Time of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
II-III
<PAGE> 135
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
Provided, however, that paragraphs (1)(I) and (1)(ii), above, do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post- effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-IV
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Austin,
State of Texas, on May 2, 1995.
CITIZENS, INC.
By: /s/ Harold E. Riley
-------------------------
Harold E. Riley, Chairman
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers or
directors of the Registrant, by virtue of their signatures to this Registration
Statement appearing below, hereby constitute and appoint Harold E. Riley and
Mark A. Oliver, attorneys-in-fact in their names, place, and stead to execute
any and all amendments to this Registration Statement in the capacities set
forth opposite their names and hereby ratify all that said attorneys-in-fact
may do by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Harold E. Riley Chairman of the Board and May 2, 1995
- ----------------------- Director
Harold E. Riley
/s/ Randall Riley Vice Chairman, Chief Executive May 2, 1995
- ----------------------- Officer and Director
Randall Riley
Vice Chairman, Chief Actuary May 2, 1995
- ----------------------- and Assistant Secretary
T. Roby Dollar
/s/ Rick D. Riley President, Chief Administrative May 2, 1995
- ----------------------- Officer and Director
Rick D. Riley
/s/ Mark A. Oliver Executive Vice President, May 2, 1995
- ----------------------- Chief Financial Officer,
Mark A. Oliver Secretary and Treasurer
/s/ John A. Templeton Vice President and Controller May 2, 1995
- ------------------------
John A. Templeton
</TABLE>
II-V
<PAGE> 137
<TABLE>
<S> <C> <C>
/s/ Flay F. Baugh Director May 2, 1995
- --------------------------
Flay F. Baugh
/s/ Joe R. Renau, M.D. Director May 2, 1995
- --------------------------
Joe R. Reneau, M.D.
/s/ Steven F. Shelton Director May 2, 1995
- --------------------------
Steven F. Shelton
Director May 2, 1995
- --------------------------
Ralph M. Smith. Th.D.
/s/ Timothy T. Timmerman Director May 2, 1995
- --------------------------
Timothy T. Timmerman
</TABLE>
II-VI
<PAGE> 138
PROXY PROXY
AMERICAN LIBERTY FINANCIAL CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder of American Liberty Financial Corporation
("ALFC") acknowledges receipt of the Notice of Special Meeting of Shareholders,
to be held on July 27, 1995, at the Baton Rouge Country Club, Fairway Room,
Second Floor, 8551 Jefferson Highway, Baton Rouge, Louisiana, at 10:00 a.m.,
Central Time, and hereby appoints James I. Dunham, W.P. Duplessis and Charles
E. Broussard, each of them with the power of substitution, as attorneys and
proxies to vote all the shares of the undersigned at said Combined Annual and
Special Meeting and at all adjournments thereof, hereby ratifying and
confirming all that said attorneys and proxies may do or cause to be done by
virtue hereof. The above-named attorneys and proxies are instructed to vote
all of the undersigned's shares as follows:
THE DIRECTORS RECOMMEND A VOTE FOR THE ITEMS INDICATED BELOW:
1. A proposal to approve and adopt the Plan and Agreement of Merger dated
December 8, 1994 under which Citizens Acquisition, Inc., a
wholly-owned subsidiary of Citizens, Inc., will merge with and into
ALFC, with ALFC being the survivor, and shareholders of ALFC will
receive shares of Citizens, Inc. Class A Common Stock for their ALFC
Common and Preferred shares as described in the accompanying Proxy
Statement-Prospectus.
FOR _____ AGAINST _____ ABSTAIN _____
2. Election of six directors.
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to
below (except as marked vote for all nominees
to the contrary below) listed below
Nominees: James Ira Dunham, Wilfred Paul Duplessis, Charles Elliot
Broussard, Dr. Monroe Jackson Rathbone, Jr., Frank W. Harrison, Jr.,
and John Roy Melton
INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the space provided
_______________________________________________________________________
3. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
THIS PROXY, WHEN PROPERTY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1 AND FOR THE NOMINEES IN PROPOSAL 2.
Dated this ______ day of ________________, 1995.
_______________________________
Signature
_______________________________
Signature
Please sign your name exactly as it
appears on your stock certificate. If
shares are held jointly, each holder
should sign. Executors, trustees, and
other fiduciaries should so indicate
when signing.
Please sign, date and return this proxy
immediately.
<PAGE> 139
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- --------------
<S> <C> <C>
2.2 Plan and Agreement of Merger - American
Liberty Financial Corporation, American
Liberty Life Insurance Company, Citizens, Inc.
and Citizens Acquisition, Inc., dated as of
the 8th Day of December, 1994 Appendix A
3.2 Bylaws Filed herewith
5.1 Opinion and consent of Jones & Keller, P.C.
as to the legality of Citizens, Inc. Common Stock Filed herewith
8.1 Opinion re: tax matters (To Be Filed By Amendment)
11 Statement re: Computation of per share earnings (See Financial Statements)
22 Subsidiaries of the Registrant (See Registrant's Form 10-k for year ended
December 31, 1994)
23.1 Consent of Jones & Keller, P.C. (See Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP Filed herewith
23.3 Consent of Amend, Smith & Co., P.C. Filed herewith
25 Power of Attorney (See Signature Page)
</TABLE>
<PAGE> 1
EXHIBIT 3.2
CITIZENS, INC.
RESTATED BYLAWS
November 8, 1994
<PAGE> 2
INDEX TO RESTATED BYLAWS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I OFFiCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01 Registered Office and Place of Business . . . . . . . . . . . . . . . 1
Section 1.02 Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II MEETINGS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.01 Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.02 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.03 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.04 Voting Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.05 Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.06 Quorum of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.07 Manner of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.08 Voting of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.09 Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.10 Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.11 Corporation's Acceptance of Votes . . . . . . . . . . . . . . . . . . 5
Section 2.12 Meetings by Telecommunication . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.01 Management of the Corporation . . . . . . . . . . . . . . . . . . . . 6
Section 3.02 Number and Qualifications . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.03 Change in Number . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.04 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.05 Filling of Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.06 Method of Election . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.07 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.08 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.09 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.10 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.11 Quorum and Manner of Acting . . . . . . . . . . . . . . . . . . . . . 8
Section 3.12 Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . 8
Sextion 3.13 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.14 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE III
(continued) Page
----
<S> <C> <C>
Section 3.15 Advisory Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.16 Interested Directors, Officers and
Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Disclosure; Approval . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Non-exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.17 Telephonic Meetings . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.18 Standard of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV EXECUTIVE COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.01 Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.02 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.03 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.04 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE V OTHER COMMITTEES OF THE BOARD . . . . . . . . . . . . . . . . . . . . 12
Section 5.01 Other Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.01 Manner of Giving Notices . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.02 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VII POWERS AND DUTIES OF OFFICERS . . . . . . . . . . . . . . . . . . . . 12
Section 7.01 Elected Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 7.02 Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.03 Appointive Officers . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.04 Two or More Offices . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.05 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.06 Term of Office; Removal; Filling of
Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.07 Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.08 Vice Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.09 President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.10 Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE III
(continued) Page
----
<S> <C> <C>
Section 7.11 Assistant Vice Presidents . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.12 Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.13 Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.14 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.15 Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.16 Additional Powers and Duties . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VIII STOCK AND TRANSFER OF STOCK . . . . . . . . . . . . . . . . . . . . . 16
Section 8.01 Certificates Representing Shares . . . . . . . . . . . . . . . . . . . 16
Section 8.02 Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.03 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.04 Registered Shareholders . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8.05 Pre-emptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE IX MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9.01 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9.02 Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9.03 Signing of Negotiable Instruments . . . . . . . . . . . . . . . . . . 18
Section 9.04 Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9.05 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9.06 Right to Indemnification . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.07 Effect of Termination of Action . . . . . . . . . . . . . . . . . . . 20
Section 9.08 Groups Authorized to Make
Indemnification Determination . . . . . . . . . . . . . . . . . . . 21
Section 9.09 Court-ordered Indemnification . . . . . . . . . . . . . . . . . . . . 21
Section 9.10 Advance of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.11 Witness Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.12 Report to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.13 Surety Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE X AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 10.01 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
-iii-
<PAGE> 5
RESTATED
BYLAWS OF
CITIZENS, INC.
ARTICLE I. OFFICES
Section 1.01. Registered Office and Place of Business. The registered
office of the Corporation shall be located in Denver, Colorado. The registered
office of the Corporation required by the Colorado Business Corporation Act to
be maintained in Colorado may be, but need not be, identical with the principal
or home office, and the address of the registered office or principal or home
office may be changed from time to time by the board of directors.
Section 1.02. Other Offices. The Corporation may have, in addition to
its registered Office, offices and places of business at such places, both
within and without the State of Colorado, as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II. MEETINGS OF SHAREHOLDERS
Section 2.01. Place of Meeting. All meetings of shareholders for any
purpose may be held at such times and at such place within or without the State
of Colorado as shall be stated in the notice of the meeting or a duly executed
waiver of notice thereof, except as may otherwise be provided by law.
Section 2.02. Annual Meetings. An annual meeting of the shareholders
shall be held on the first Tuesday in June in each year, if not a legal
holiday; if it is a legal holiday, then it will be held on the next secular day
following, at which time a Board of Directors will be elected and such other
business as may properly be brought before the meeting will be transacted.
Section 2.03. Special Meetings. Special meetings of the shareholders
for any purpose or purposes, unless otherwise prescribed by statute, by the
Articles of Incorporation, or by these Bylaws, may be called by the Chairman of
the Board, a majority of the Board of Directors, or if the Corporation receives
one or more written demands for the meeting, stating the purpose or purposes
for which it is to be held, signed and dated by the holders of shares
representing at least ten percent of all votes entitled to be cast on any issue
proposed to be considered at the meeting. Business
<PAGE> 6
transacted at all special meetings shall be confined to the subjects stated in
the notice of the meeting.
Section 2.04. Voting Lists. The Secretary shall make, at the earlier of
ten days before each meeting of shareholders or two business days after notice
of the meeting has been given, a complete list of the shareholders entitled to
be given notice of such meeting or any adjournment thereof. The list shall be
arranged by voting groups and within each voting group by class or series of
shares, shall be in alphabetical order within each class or series, and shall
show the address of and the number of shares of each class or series held by
each shareholder. For the period beginning the earlier of ten days prior to the
meeting or two business days after notice of the meeting is given and
continuing through the meeting and any adjournment thereof, this list shall be
kept on file at the principal office of the Corporation, or at a place (which
shall be identified in the notice) in the city where the meeting will be held.
Such list shall be available for inspection on written demand by any
shareholder (including for the purpose of this Section 2 any holder of voting
trust certificates) or his agent or attorney during regular business hours and
during the period available for inspection. The original stock transfer books
shall be prima facie evidence as to the shareholders entitled to examine such
list or to vote at any meeting of shareholders.
Section 2.05. Notice of Meetings. Written or printed notice, stating
the place, day, and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not
less than ten nor more than sixty days before the date of the meeting, either
personally or by mail, by or at the direction of the Chairman of the Board or
person calling the meeting, to each shareholder of record entitled to vote at
the meeting, except that (i) if the number of authorized shares is to be
increased, at least thirty days' notice shall be given, or (ii) any other
longer notice period is required by the Colorado Business Corporation Act.
Notice shall be given personally or by mail, private carrier, telegraph,
teletype, electronically transmitted facsimile or other form of wire or
wireless communication by or at the direction of the Chairman of the Board, the
Secretary, or the officer or persons calling the meeting, to each shareholder
of record entitled to vote at such meeting. If mailed and if in a
comprehensible form, such notice shall be deemed to be given and effective when
deposited in the United States mail, addressed to the shareholder at such
address as appears in the Corporation's current record of shareholders, with
postage prepaid. If notice is given other than by mail, and provided that such
notice is in a comprehensible form, the notice is given and effective on the
date received by the shareholder.
Section 2.06. Quorum of Shareholders. One-third of the votes entitled
to be cast on a matter by a voting group shall constitute a quorum of that
voting group for action on the matter. If less than one-third of such votes are
represented at a meeting,
2
<PAGE> 7
a majority of the votes so represented may adjourn the meeting from time to
time without further notice, for a period not to exceed 120 days for any one
adjournment. If a quorum is present at such adjourned meeting, any business may
be transacted which might have been transacted at the meeting as originally
noticed. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, unless the meeting is adjourned and a
new record date is set for the adjourned meeting.
Section 2.07. Manner of Action. If a quorum exists, action on a matter
other than the election of directors by a voting group is approved if the votes
cast within the voting group favoring the action exceed the votes cast within
the voting group opposing the action, unless the vote of a greater number or
voting by classes is required by law or the Articles of Incorporation.
Section 2.08. Voting of Shares. Each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of the shareholders, except to the extent that the voting rights of the
shares of any class or classes are limited or denied by the Articles of
Incorporation or any other certificate creating any class or series of stock.
At any meeting of the shareholders, every shareholder having the right to vote
shall be entitled to vote in person, or by proxy appointed by an instrument in
writing subscribed by such shareholder or by his duly authorized
attorney-in-fact and bearing a date not more than eleven months prior to said
meeting, unless said instrument provides for a longer period. A shareholder may
also appoint a proxy by transmitting or authorizing the transmission of a
telegram, teletype or other electronic transmission providing a written
statement of the appointment to the proxy, a proxy solicitor, proxy support
service organization, or other person duly authorized by the proxy to receive
appointments as agent for the proxy, or to the Corporation. The transmitted
appointment shall set forth or be transmitted with written evidence from which
it can be determined that the shareholder transmitted or authorized the
transmission of the appointment. Any complete copy, including an electronically
transmitted facsimile, of an appointment of a proxy may be substituted for or
used in lieu of the original appointment for any purpose for which the original
appointment could be used. Revocation of a proxy does not affect the right of
the Corporation to accept the proxy's authority unless (i) the Corporation had
notice that the appointment was coupled with an interest and notice that such
interest had been extinguished is received by the Secretary or other officer or
agent authorized to tabulate votes before the proxy exercises his authority
under the appointment, or (ii) other notice of the revocation of the
appointment is received by the Secretary or other officer or agent authorized
to tabulate votes before the proxy exercises his authority under the
appointment. Other notice of revocation may, in the discretion of the
Corporation, be deemed to include the appearance at a
3
<PAGE> 8
shareholders' meeting of the shareholder who granted the proxy and his voting
in person on any matter subject to a vote at such meeting. The death or
incapacity of the shareholder appointing a proxy does not affect the right of
the Corporation to accept the proxy's authority unless notice of the death or
incapacity is received by the Secretary or other officer or agent authorized to
tabulate votes before the proxy exercises his authority under the appointment.
The Corporation shall not be required to recognize an appointment made
irrevocable if it has received a writing revoking the appointment signed by the
shareholder (including a shareholder who is a successor to the shareholder who
granted the proxy) either personally or by his attorney-in-fact,
notwithstanding that the revocation may be a breach of an obligation of the
shareholder to another person not to revoke the appointment. Such proxy shall
be filed with the Secretary of the Corporation prior to or at the time of the
meeting. Except as otherwise provided in the Articles of Incorporation or in
applicable law, shareholders shall not have a right to cumulative voting.
Section 2.09. Record Date. The Board of Directors may fix in advance a
record date for the purpose of determining shareholders entitled to notice of
or to vote at a meeting of the shareholders, the record date to be not less
than ten nor more than sixty days prior to such meeting. In the absence of any
action by the Board of Directors, the date upon which the notice of the meeting
is mailed shall be the record date.
Section 2.10. Action Without Meeting. Any action required by statute to
be taken at a meeting of the shareholders may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all
the shareholders entitled to vote with respect to the subject matter thereof,
and such consent shall have the same force and effect as a unanimous vote of
the shareholders. Any such signed consent, or a signed copy thereof, shall be
placed in the minute book of the Corporation.
Section 2.11. Corporation's Acceptance of Votes. If the name signed on
a vote, consent, waiver, proxy appointment, or proxy appointment revocation
corresponds to the name of a shareholder, the Corporation, if acting in good
faith, is entitled to accept the vote, consent, waiver, proxy appointment or
proxy appointment revocation and give it effect as the act of the shareholder.
If the name signed on a vote, consent, waiver, proxy appointment or proxy
appointment revocation does not correspond to the name of a shareholder, the
Corporation, if acting in good faith, is nevertheless entitled to accept the
vote, consent, waiver, proxy appointment or proxy appointment revocation and to
give it effect as the act of the shareholder if:
(i) the shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity;
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(ii) the name signed purports to be that of an administrator,
executor, guardian or conservator representing the shareholder and, if the
Corporation requests, evidence of fiduciary status acceptable to the
Corporation has been presented with respect to the vote, consent, waiver, proxy
appointment or proxy appointment revocation;
(iii) the name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the Corporation requests, evidence of
this status acceptable to the Corporation has been presented with respect to
the vote, consent, waiver, proxy appointment or proxy appointment revocation;
(iv) the name signed purports to be that of a pledgee, beneficial
owner or attorney-in-fact of the shareholder and, if the Corporation requests,
evidence acceptable to the Corporation of the signatory's authority to sign for
the shareholder has been presented with respect to the vote, consent, waiver,
proxy appointment or proxy appointment revocation;
(v) two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-tenants or fiduciaries, and the person signing appears to be acting on
behalf of all the co-tenants or fiduciaries; or
(vi) the acceptance of the vote, consent, waiver, proxy appointment or
proxy appointment revocation is otherwise proper under rules established by the
Corporation that are not inconsistent with this Section 2.11.
The Corporation is entitled to reject a vote, consent, waiver, proxy
appointment or proxy appointment revocation if the Secretary or other officer
or agent authorized to tabulate votes, acting in good faith, has reasonable
basis for doubt about the validity of the signature on it or about the
signatory's authority to sign for the shareholder.
Neither the Corporation nor its officers nor any agent who accepts or
rejects a vote, consent waiver, proxy appointment or proxy appointment
revocation in good faith and in accordance with the standards of this Section
is liable in damages for the consequences of the acceptance or rejection.
Section 2.12. Meetings by Telecommunication. Any or all of the
shareholders may participate in an annual or special shareholders' meeting by,
or the meeting may be conducted through the use of, any means of communication
by which all persons participating in the meeting may hear each other during
the meeting. A shareholder
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participating in a meeting by this means is deemed to be present in person at
the meeting.
ARTICLE III. DIRECTORS
Section 3.01. Management of the Corporation. The business and affairs
of the Corporation shall be managed by its Board of Directors, who may exercise
all such powers of the Corporation and do all such lawful acts and things as
are not by statute, by the Articles of Incorporation, or by these Bylaws
directed or required to be exercised or done by the shareholders.
Section 3.02. Number and Qualification. The Board of Directors shall
consist of not less than five nor more than twenty-seven directors, none of
whom need be shareholders or residents of the State of Colorado. The directors
shall be elected at the annual meeting of the shareholders, except as
hereinafter provided, and each director elected shall hold office until his
successor shall be elected and shall qualify.
Section 3.03. Change in Number. The minimum and maximum number of
Directors may be increased or decreased from time to time by amendment to these
Bylaws, provided that at no time shall the number of directors be less than
five nor more than twenty-seven. No decrease shall have the effect of
shortening the term of any incumbent director. Any directorship to be filled by
reason of an increase in the number of directors shall be filled by election at
an annual meeting or at a special meeting of shareholders called for that
purpose.
Section 3.04. Removal. Any director may be removed either for or
without cause in the manner set forth in the Colorado Business Corporation Act.
Section 3.05. Filling of Vacancies. Any director may resign at any time
by giving written notice to the Corporation. Such resignation shall take effect
at the time the notice is received by the Corporation unless the notice
specifies a later effective date. Unless otherwise specified in the notice of
resignation, the Corporation's acceptance of such resignation shall not be
necessary to make it effective. Any vacancy on the board of directors may be
filled by the affirmative vote of a majority of the shareholders or the board
of directors. If the directors remaining in office constitute fewer than a
quorum of the board of directors, the directors may fill the vacancy by the
affirmative vote of a majority of all the directors remaining in office. If
elected by the directors, the director shall hold office until the next annual
shareholders' meeting at which directors are elected. If elected by the
shareholders, the director shall hold office for the unexpired term of his
predecessor in office;
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except that, if the director's predecessor was elected by the directors to fill
a vacancy, the director elected by the shareholders shall hold office for the
unexpired term of the last predecessor elected by the shareholders.
Section 3.06. Method of Election. Cumulative voting shall not be
permitted. As is provided in the Articles of Incorporation, as amended, the
voting rights of Class A common stock and Class B common stock shall be equal
in all respects, with the exception that the holders of the Class B common
stock shall have the exclusive right to elect a simple majority of the members
of the Board of Directors and the holders of the Class A common stock shall
have the exclusive right to elect the remaining directors. Accordingly, at each
election of directors by shareholders the holders of the Class B common stock
shall first elect a simple majority of the number to be elected and the holders
of the Class A common stock shall elect the remaining directors.
Section 3.07. Place Of Meetings. The directors of the Corporation may
hold their meetings, both regular and special, either within or without the
State of Colorado.
Section 3.08. Annual Meetings. The first meeting of each newly elected
Board shall be held without further notice immediately following the annual
meeting of shareholders and at the same place, unless by unanimous consent of
the directors then elected and serving such time or place shall be changed.
Section 3.09. Regular Meetings. Regular meetings of the Board of
Directors may be held at such times and places as may be fixed from time to
time by the Board of Directors. Except as otherwise provided by statute, the
Articles of Incorporation or these Bylaws, any and all business may be
transacted at any regular meeting.
Section 3.10. Special Meetings. Special meetings of the board of
directors may be called by the Chairman of the Board on one day's notice to
each director, either personally or by mail, or by telegram; special meetings
shall be called by the Chairman of the Board in like manner, and like notice,
on the written request of a majority of the directors. Except as may be
otherwise expressly provided by statute, the Articles of Incorporation or these
Bylaws, neither the business to be transacted at, nor the purpose of, any
special meeting need be specified in the notice or waiver of notice.
Section 3.11. Quorum and Manner Of Acting. At all meetings of the Board
of Directors, the presence of a majority of the directors shall be necessary
and sufficient to constitute a quorum for the transaction of business, and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the
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Board of Directors, except as may be otherwise specifically provided by
statute, the Articles of Incorporation or these Bylaws. If a quorum shall not
be present at any meeting of directors, the directors present thereat may
adjourn the meeting from time to time without notice other than announcement at
the meeting, until a quorum shall be present. At any such adjourned meeting
reconvened, any business may be transacted which might have been transacted at
the meeting as originally convened.
Section 3.12. Action Without Meeting. Any action required or permitted
to be taken at a meeting of the Board of Directors or any executive committee
may be taken without a meeting if a consent in writing, setting forth the
action so taken, is signed by all the members of the Board of Directors or the
executive committee, as the case may be. The signing of minutes setting forth
the action taken constitutes consent in writing. Such consent shall have the
same force and effect as a unanimous vote at a meeting, and may be stated as
such in any document or instrument filed with the Secretary of State.
Section 3.13. Compensation. The Board of Directors shall have authority
to determine from time to time the amount of compensation, if any, which shall
be paid to its members for their services as directors and as members of
standing or special committees of the Board. The Board shall also have power in
its discretion to provide for and to pay to directors rendering services to the
Corporation not ordinarily rendered by directors as such, special compensation
appropriate to the value of such services as determined by the Board from time
to time. Nothing herein contained shall be construed to preclude any directors
from serving the Corporation in any other capacity and receiving compensation
therefor.
Section 3.14. Procedure. The Board of Directors shall keep regular
minutes of its proceedings. The minutes shall be placed in the minute book of
the Corporation.
Section 3.15. Advisory Board. The Chairman of the Board may establish
and appoint a member or members to an Advisory Board to act in an advisory
capacity to the Board of Directors.
Section 3.16. Interested Directors, Officers and Shareholders.
(1) As used in this section, "conflicting interest transaction" means
any of the following:
(a) A loan or other assistance by the Corporation to a
director of the Corporation or to an entity in which a director of the
Corporation is a director or officer or has a financial interest;
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(b) A guaranty by the Corporation of an obligation of a
director of the Corporation or of an obligation of an entity in which
a director of a Corporation is a director or officer or has a
financial interest; or
(c) A contract or transaction between the Corporation and a
director of the Corporation or between the Corporation and an entity
in which a director of the Corporation is a director or officer or has
a financial interest.
(2) No conflicting interest transaction shall be void or voidable or
be enjoined, set aside, or give rise to an award of damages or other sanctions
in a proceeding by a shareholder or by or in the right of the Corporation,
solely because the conflicting interest transaction involves a director of the
Corporation or an entity in which a director of the Corporation is a director
or officer or has a financial interest or solely because the director is
present at or participates in the meeting of the Corporation's Board of
Directors or of the committee of the Board of Directors which authorizes,
approves, or ratifies the conflicting interest transaction or solely because
the director's vote is counted for such purpose if:
(a) The material facts as to the director's relationship or
interest and as to the conflicting interest transaction are disclosed
or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes, approves, or
ratifies the conflicting interest transaction by the affirmative vote
of a majority of the disinterested directors, even though the
disinterested directors are less than a quorum; or
(b) The material facts as to the director's relationship or
interest and as to the conflicting interest transaction are disclosed
or are known to the shareholders entitled to vote thereon, and the
conflicting interest transaction is specifically authorized, approved,
or ratified in good faith by a vote of the shareholders; or
(c) The conflicting interest transaction is fair to the
Corporation as of the time it is authorized, approved, or ratified by
the Board of Directors, a committee thereof, or the shareholders.
(3) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes, approves, or ratifies the conflicting interest transaction.
(4) The Board of Directors or a committee thereof shall not authorize
a loan, by the Corporation to a director of the Corporation or to an entity in
which a
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director of the Corporation is a director or officer or has a financial
interest, or a guaranty, by the Corporation of an obligation of a director of
the Corporation or of an obligation of an entity in which a director of the
Corporation is a director or officer or has a financial interest, pursuant to
paragraph (a) of subsection (2) of this section until at least ten days after
written notice of the proposed authorization of the loan or guaranty has been
given to the shareholders who would be entitled to vote thereon if the issue of
the loan or guaranty were submitted to a vote of the shareholders.
Section 3.17 Telephonic Meetings. The board of directors may permit any
director (or any member of a committee designated by the board of directors) to
participate in a regular or special meeting of the board of directors or a
committee thereof through the use of any means of communication by which all
directors participating in the meeting can hear each other during the meeting.
A director participating in a meeting in this manner is deemed to be present at
the meeting.
Section 3.18 Standard of Care. A director shall perform his duties as
a director, including without limitation his duties as a member of any
committee of the board of directors, in good faith, in a manner he reasonably
believes to be in the best interests of the Corporation, and with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances. In performing his duties, a director shall be entitled to rely
on information, opinions, reports or statements, including financial statements
and other financial data, in each case prepared or presented by the persons
herein designated. However, he shall not be considered to be acting in good
faith if he has knowledge concerning the matter in question that would cause
such reliance to be unwarranted. A director shall not be liable to the
Corporation or its shareholders for any action he takes or omits to take as a
director if, in connection with such action or omission, he performs his duties
in compliance with this Section 3.18.
The designated persons on whom a director is entitled to rely are (i)
one or more officers or employees of the Corporation whom the director
reasonably believes to be reliable and competent in the matters presented, (ii)
legal counsel, public accountant, or other person as to matters which the
director reasonably believes to be within such person's professional or expert
competence, or (iii) a committee of the board of directors on which the
director does not serve if the director believes the committee merits
confidence.
ARTICLE IV. EXECUTIVE COMMITTEE
Section 4.01. Designation. The Board of Directors may, by resolution
adopted by a majority of the whole Board, designate an executive committee, to
consist of at
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least three but not more than five directors of the Corporation, one of whom
shall be the Chairman of the Board of Directors of the Corporation.
Section 4.02. Authority. The executive committee shall have and may
exercise all the authority of the Board of Directors in the management of the
business and affairs of the Corporation, except where action of a majority of
all members of the Board of Directors is required by the Colorado Business
Corporation Act or by the Articles of Incorporation, or these Bylaws, and shall
have power to authorize the seal of the Corporation to be affixed to all papers
which may require it.
Section 4.03. Procedure. The executive committee shall keep regular
minutes of its proceedings and report the same to the Board of Directors when
required. The minutes of the proceedings of the executive committee shall be
placed in the minute book of the Corporation.
Section 4.04. Removal. Any member of the executive committee may be
removed by the Board of Directors by the affirmative vote of a majority of the
whole Board, whenever in its judgment the best interests of the Corporation
will be served thereby.
ARTICLE V. OTHER COMMITTEES OF THE BOARD
Section 5.01. Other Committees. The Board of Directors may, by
resolution adopted by affirmative vote of a majority of the whole Board,
designate two or more directors (with such alternates, if any, as may be deemed
desirable) to constitute another committee or committees for any purpose;
provided that any such other committee or committees shall have and may
exercise only the power of recommending action to the Board of Directors or the
executive committee and of carrying out and implementing any instructions or
any policies, plans, and programs theretofore approved, authorized, and adopted
by the Board of Directors or the executive committee.
ARTICLE VI. NOTICES
Section 6.01. Manner of Giving Notices. Whenever, under the provisions
of the statutes or the Articles of Incorporation, or these Bylaws, notice is
required to be given to any committee member, director, or shareholder, and no
provisions are made regarding how such notice shall be given, it shall not be
construed to mean personal notice, but any such notice may be given in writing,
by mail, postage prepaid, addressed to such director or shareholder at such
address as appears on the books of
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the Corporation or by telegraph, teletype, electronically transmitted facsimile
or other form of wire or wireless communication. Any notice required or
permitted to be given by mail shall be deemed to be given at the time when the
same shall be thus deposited in the United States mail as aforesaid.
Section 6.02. Waiver of Notice. Whenever any notice is required to be
given to any committee member, shareholder, or director of the Corporation
under the provisions of the statutes, the Articles of Incorporation, or these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled
to such notice (whether before or after the time stated in such notice) shall
be deemed equivalent to the giving of such notice. Attendance of a director at
a meeting shall constitute a waiver of notice of such meeting.
ARTICLE VII. POWERS AND DUTIES OF OFFICERS
Section 7.01. Elected Officers. The officers of the Corporation
shall be elected by the directors and shall be a Chairman of the Board, one or
more Vice Chairmen (each of whom shall be a director), a President, one or more
Vice Presidents as may be determined from time to time by the Board (and, in
the case of each such Vice President, with such descriptive title, if any, as
the Chairman of the Board of Directors shall deem appropriate), a Secretary and
a Treasurer. No elected officer of the Corporation need be a shareholder or
resident of the State of Colorado.
Section 7.02. Election. The Board of Directors, at its first meeting
after each annual meeting of shareholders, shall elect the said officers, with
the Chairman of the Board and each Vice Chairman (if any) selected from among
its members. Unless otherwise specified by the Board at the time of election or
appointment, or in an employment contract approved by the Board, each officer's
term shall expire at the first meeting of directors after the next annual
meeting of shareholders.
Section 7.03. Appointive Officers. The Board of Directors may also
appoint one or more Assistant Vice Presidents, one or more Assistant
Secretaries, Assistant Treasurers, and such other officers and assistant
officers (none of whom need to be a member of the Board, a shareholder, or a
resident of the State of Colorado) as it shall from time to time deem
necessary, who shall exercise such powers and perform such duties as shall be
set forth in these Bylaws or determined from time to time by the Board of
Directors or the executive committee.
Section 7.04. Two or More Offices. The same person may hold any two or
more offices, except that the President and Secretary shall not be the same
person.
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Section 7.05. Compensation. The Board of Directors or the executive
committee shall fix the compensation of all officers of the Corporation from
time to time. The Board of Directors or the executive committee may from time
to time delegate to the Chairman of the Board the authority to fix the
compensation of any or all the other officers of the Corporation.
Section 7.06. Term of Office; Removal; Filling of Vacancies. Each
elected officer of the Corporation shall hold office until his successor is
elected and qualifies in his stead or until his earlier death, resignation, or
removal from office. Each appointive officer shall hold office at the pleasure
of the Board of Directors without the necessity of periodic reappointment. Any
officer or agent elected or appointed by the Board of Directors may be removed
at any time by the Board of Directors whenever in its judgment the best
interests of the Corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. If
the office of any officer becomes vacant for any reason, the vacancy may be
filled by the Board of Directors or the executive committee.
Section 7.07. Chairman of the Board. The Chairman of the Board shall
be the ranking officer of the Corporation. As such, he shall have the power to
call special meetings of the shareholders and directors for any purpose or
purposes, and he shall preside when present, if he so elects, at all meetings
of the shareholders and the Board of Directors. The Chairman of the Board shall
have general supervision of the affairs of the Corporation and general control
of all its business. He shall have authority to sign stock certificates. He
shall see that the books, reports, statements and certificates required by
statutes or laws applicable to the Corporation are properly kept, made and
filed according to law. The Chairman of the Board may exercise his general
supervision and control of the business and affairs of the Corporation through
a Vice Chairman and may delegate all or any of his powers or duties to a Vice
Chairman, if and to the extent deemed by the Chairman of the Board to be
desirable or appropriate. In the absence or disability of the Chairman of the
Board, his duties shall be performed and his powers may be exercised by a Vice
Chairman, unless otherwise determined by the Chairman of the Board, the
executive committee or the Board of Directors.
Section 7.08. Vice Chairman of the Board. Each Vice Chairman of the
Board shall have such powers and perform such duties as the Board of Directors
may from time to time prescribe or as the Chairman of the Board may from time
to time delegate. A Vice Chairman of the Board, in the absence or disability of
the Chairman of the Board, shall perform the duties and exercise the powers of
the Chairman of the Board.
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Section 7.09. President. The President shall be the chief
administrative officer of the Corporation. He shall preside at meetings of the
Board of Directors and shareholders in the absence of, or at the request of,
the Chairman of the Board and/or Vice Chairman, and upon such request he shall
have power to call special meetings of the Board of Directors and shareholders
for any purpose or purposes. Subject to the supervision, approval and review of
his actions by the Chairman of the Board or Vice Chairman, or the executive
committee or the Board of Directors, he shall have authority to: cause the
employment or appointment of and the discharge of employees and agents of the
Corporation under his supervision, other than officers, and fix their
compensation; suspend for cause pending final action by the authority which
shall have elected or appointed him an officer subordinate to the President;
make and sign bonds, deeds, contracts, and agreements in the name of and on
behalf of the Corporation and to affix the corporate seal thereto; and to sign
stock certificates. The President shall put into operation the business
policies of the Corporation as determined by the Chairman of the Board, or the
Vice Chairman, or the executive committee or the Board of Directors and as
communicated to him by such officers and bodies. In carrying out such business
policies, the President shall, subject to the supervision of the Chairman of
the Board, the Vice Chairman, the executive committee and the Board of
Directors, have general management and control of the day-to-day internal
operations of the Corporation. The President shall be subject only to the
authority of the Chairman of the Board, the Vice Chairman, the executive
committee and the Board of Directors in carrying out his duties. In the absence
or disability of the President, his duties shall be performed and his powers
may be exercised by a Vice Chairman, unless otherwise determined by these
Bylaws, the Chairman of the Board, the Vice Chairman, the executive committee
or the Board of Directors.
Section 7.10. Vice Presidents. Each Vice President shall have such
powers and perform such duties and services as shall from time to time be
prescribed or delegated to him by the Chairman, Vice Chairman, President, the
executive committee the Board of Directors.
Section 7.11. Assistant Vice Presidents. Each Assistant Vice President
shall generally assist a Vice President and shall have such powers and perform
such duties and services as shall from time to time be prescribed or delegated
to him by a Vice President, the President, the Vice Chairman, Chairman, the
executive committee, or the Board of Directors.
Section 7.12. Treasurer. The Treasurer shall be the chief accounting
and financial officer of the Corporation and shall have responsibility for all
matters pertaining to the accounts and finances of the Corporation. He shall
audit or cause to be audited all payrolls and vouchers of the Corporation and
shall direct the manner of
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certifying the same; shall receive, audit or cause to be audited and
consolidate all operating and financial statements of the books of account of
the Corporation, their arrangement and classification; shall review the
accounting and auditing practices of the Corporation and shall have charge of
all matters relating to taxation. The Treasurer shall have the care and custody
of all monies, funds, and securities of the Corporation; shall deposit or cause
to be deposited all such funds in and with such depositories as the Board of
Directors or the executive committee shall from time to time direct or as shall
be selected in accordance with procedure established by the Board or executive
committee; shall devise all terms of credit granted by the Corporation; shall
be responsible for the collection of all its accounts and shall cause to be
kept full and accurate accounts of all receipts and disbursements of the
Corporation; and shall have the power to endorse, for deposit, collection, or
otherwise, all checks, drafts, notes, bills of exchange, or other commercial
papers payable to the Corporation, and to give proper receipts or discharges
for all payments to the Corporation. The Treasurer shall generally perform all
the duties usually appertaining to the office of Treasurer of a corporation.
In his absence or disability, his duties shall be performed and his powers may
be exercised by an Assistant Treasurer, unless otherwise determined by the
Treasurer, the Chairman of the Board, the Vice Chairman, the President, the
executive committee, or the Board of Directors.
Section 7.13. Assistant Treasurers. Each Assistant Treasurer shall
generally assist the Treasurer and shall have such powers and perform such
duties and services as shall from time to time be prescribed or delegated to
him by the Treasurer, Chairman, the Vice Chairman, the President, the executive
committee, or the Board of Directors.
Section 7.14. Secretary. The Secretary shall give or cause to be given
notice of all meetings of the shareholders and the Board of Directors, and
shall attend such meetings and keep and attest to true records of all
proceedings at all meetings of the shareholders, the executive committee, and
the Board. He shall have charge of the corporate seal, with authority to attest
to any and all instruments or writings to which the same may be affixed. He
shall keep and account for all minute books, documents, papers, and records of
the Corporation, except those for which some other officer or agent is properly
accountable. He shall have authority to sign stock certificates and shall
generally perform all the duties usually appertaining to the office of
Secretary of a corporation. In the absence or disability of the Secretary, his
duties shall be performed by an Assistant Secretary, unless otherwise
determined by the Secretary, the Chairman of the Board, the Vice Chairman, the
President, the executive committee, or the Board of Directors.
Section 7.15. Assistant Secretaries. Each Assistant Secretary shall
generally assist the Secretary and shall have such powers and perform such
duties and services
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as shall from time to time be prescribed or delegated to him by the Secretary,
Chairman, Vice Chairman, the President, the executive committee, or the Board
of Directors.
Section 7.16. Additional Powers and Duties. In addition to the
foregoing especially enumerated duties, services, and powers, the several
elected and appointive officers of the Corporation shall perform such other
duties and services and exercise such further powers as may be provided by
statute, the Articles of Incorporation, or these Bylaws, or as may from time to
time be determined by the Board of Directors or the executive committee or as
assigned to them by any superior officer.
ARTICLE VIII. STOCK AND TRANSFER OF STOCK
Section 8.01. Certificates Representing Shares. Certificates in such
form as may be determined by the Board of Directors and as shall conform to the
requirements of the statutes, the Articles of Incorporation and these Bylaws
shall be delivered representing all shares to which shareholders are entitled.
Such certificates shall be consecutively numbered and shall be entered in the
books of the Corporation as they are issued. Each certificate shall state on
the face thereof that the Corporation is organized under the laws of Colorado,
the holder's name, the number and class of shares which such certificate
represents, and the par value of such shares or a statement that such shares
are without par value. Each certificate shall be signed by the Chairman of the
Board or Vice Chairman or the President and the Secretary or an Assistant
Secretary, and may be sealed with the seal of the Corporation or a facsimile
thereof. If any certificate is countersigned by a transfer agent or registered
by a registrar, either of which is other than the Corporation or an employee of
the Corporation, the signature of any such officer may be a facsimile.
Section 8.02. Lost Certificates. The Chairman of the Board of
Directors, the Vice Chairman, the executive committee, the President, the
Secretary or such other officer or officers of the Corporation as the Board of
Directors may from time to time designate, in its or his discretion, may direct
a new certificate or certificates representing shares to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged
to have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate or certificates to be lost, stolen,
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors, the executive committee, the Chairman, the Vice
Chairman, the President, the Secretary or any such other officer, in its or his
discretion and as a condition precedent to the issuance thereof, may require
the owner of such lost, stolen or destroyed certificate(s), or his legal
representative, to advertise the same in such manner as it or he shall require
and/or give the Corporation a bond in
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such form, in such sum, and with such surety or sureties as it or he may direct
as indemnity against any claim that may be made against the Corporation with
respect to the certificate or certificates to have been lost, stolen or
destroyed.
Section 8.03. Transfer of Shares. Shares of stock shall be
transferable only on the books of the Corporation by the holder thereof in
person or by his duly authorized attorney. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate or certificates
representing shares, duly endorsed or accompanied by proper evidence of
succession, assignment, or authority to transfer, with all required stock
transfer tax stamps affixed thereto and canceled or accompanied by sufficient
funds to pay such taxes, it shall be the duty of the Corporation or the
transfer agent of the Corporation to issue a new certificate or certificates to
the person entitled thereto, cancel the old certificate or certificates, and
record the transaction upon its books.
Section 8.04. Registered Shareholders. The Corporation shall be
entitled to treat the holder of record of any share or shares of stocks as the
holder in fact thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
Section 8.05. Pre-emptive RightS. No shareholder or other person shall
have any pre-emptive rights with regard to securities issued by the Company,
except as otherwise provided in the Articles of Incorporation or in applicable
law.
ARTICLE IX. MISCELLANEOUS PROVISIONS
Section 9.01. Dividends. The Board of Directors may, at any regular or
special meeting, declare dividends upon the outstanding shares of the
Corporation, if any, subject to the provisions of the Articles of
Incorporation. Dividends may be paid in cash, in property, or in shares of the
Corporation, subject to the provisions of the statutes and the Articles of
Incorporation. The Board of Directors may fix in advance a record date for the
purpose of determining shareholders entitled to receive payment of any
dividend, such record date to be not more than fifty days prior to the payment
date of such dividend. In the absence of any action by the Board of Directors,
the date upon which the Board of Directors adopts the resolution declaring such
dividend shall be the record date. The cash dividends paid upon each share of
Class B common stock shall be only one-half of the cash dividends paid on each
share of Class A common stock.
Section 9.02. Reserves. There may be created from time to time by
resolution of the Board of Directors, out of the earned surplus of the
Corporation, such reserve
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or reserves as the directors in their discretion think proper from time to
time, to provide for contingencies, or to equalize dividends, or to repair or
maintain any property of the Corporation, or for such other purpose as the
directors shall think beneficial to the Corporation, and the directors may
modify or abolish any such reserve in the manner in which it was created.
Section 9.03. Signing of Negotiable Instruments. All checks or demands
for money and notes of the Corporation shall be signed by such officer or
officers or such other person or persons as the Board of Directors may from
time to time designate.
Section 9.04. Seal. The Corporation seal shall have inscribed thereon
the name of the Corporation. Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced.
Section 9.05. Indemnification. For purposes of Article IX, a "Proper
Person" means any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, and whether formal or
informal, by reason of the fact that he is or was a director, officer,
employee, fiduciary or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee,
fiduciary or agent of any foreign or domestic profit or nonprofit corporation
or of any partnership, joint venture, trust, profit or nonprofit unincorporated
association, limited liability company, or other enterprise or employee benefit
plan. The Corporation shall indemnify any Proper Person against reasonably
incurred expenses (including attorney's fees), judgments, penalties, fines
(including any excise tax assessed with respect to an employee benefit plan)
and amounts paid in settlement reasonably incurred by him in connection with
such action, suit or proceeding if it is determined by the groups set forth in
Section 9.08 of this Article that he conducted himself in good faith and that
he reasonably believed (i) in the case of conduct in his official capacity with
the Corporation, that his conduct was in the Corporation's best interests, or
(ii) in all other cases (except criminal cases), that his conduct was at least
not opposed to the Corporation's best interests, or (iii) in the case of any
criminal proceeding, that he had no reasonable cause to believe his conduct was
unlawful. A Proper Person will be deemed to be acting in his official capacity
while acting as a director, officer, employee or agent on behalf of this
Corporation and not while acting on the Corporation's behalf for some other
entity.
No indemnification shall be made under this Article IX to a Proper
Person with respect to any claim, issue or matter in connection with a
proceeding by or in the right of the Corporation in which the Proper Person was
adjudged liable to the Corporation or in connection with any proceeding
charging that the Proper Person derived an
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improper personal benefit, whether or not involving action in an official
capacity, in which he was adjudged liable on the basis that he derived an
improper personal benefit. Further, indemnification under this Section in
connection with a proceeding brought by or in the right of the Corporation
shall be limited to reasonable expenses, including attorneys' fees, incurred in
connection with the proceeding.
Section 9.06. Right to Indemnification. The Corporation shall indemnify
any Proper Person who was wholly successful, on the merits or otherwise, in
defense of any action, suit, or proceeding as to which he was entitled to
indemnification under Section 9.05 of this Article IX against expenses
(including attorney's fees) reasonably incurred by him in connection with the
proceeding without the necessity of any action by the Corporation other than
the determination in good faith that the defense has been wholly successful.
Section 9.07. Effect of Termination Of Action. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or
upon a plea of nolo contendere or its equivalent shall not of itself create a
presumption that the person seeking indemnification did not meet the standards
of conduct described in Section 9.05 of this Article IX. Entry of a judgment by
consent as part of a settlement shall not be deemed an adjudication of
liability, as described in Section 9.06 of this Article IX.
Section 9.08 Groups Authorized to Make Indemnification Determination.
Except where there is a right to indemnification as set forth in Sections 9.05
or 9.06 of this Article or where indemnification is ordered by a court in
Section 9.09, any indemnification shall be made by the Corporation only as
authorized in the specific case upon a determination by a proper group that
indemnification of the Proper Person is permissible under the circumstances
because he has met the applicable standards of conduct set forth in Section
9.05 of this Article. This determination shall be made by the board of
directors by a majority vote of those present at a meeting at which a quorum is
present, which quorum shall consist of directors not parties to the proceeding
("Quorum"). If a Quorum cannot be obtained, the determination shall be made by
a majority vote of a committee of the board of directors designated by the
board of directors, which committee shall consist of two or more directors not
parties to the proceeding, except that directors who are parties to the
proceeding may participate in the designation of directors for the committee.
If a Quorum of the board of directors cannot be obtained and the committee
cannot be established, or even if a Quorum is obtained or the committee is
designated and a majority of the directors constituting such Quorum or
committee so directs, the determination shall be made by (i) independent legal
counsel selected by a vote of the board of directors or the committee in the
manner specified in this Section 9.08 or, if a Quorum of the full board of
directors cannot be obtained and a committee cannot be established, by
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independent legal counsel selected by a majority vote of the full board
(including directors who are partes to the action) or (ii) a vote of the
shareholders.
Section 9.09 Court-ordered Indemnification. Any Proper Person may apply
for indemnification to the court conducting the proceeding or to another court
of competent jurisdiction for mandatory indemnification under Section 9.06 of
this Article, including indemnification for reasonable expenses incurred to
obtain court-ordered indemnification. If the court determines that such Proper
Person is fairly and reasonably entitled to indemnification in view of all the
relevant circumstances, whether or not he met the standards of conduct set
forth in Section 9.05 of this Article or was adjudged liable in the proceeding,
the court may order such indemnification as the court deems proper except that
if the Proper Person has been adjudged liable, indemnification shall be limited
to reasonable expenses incurred in connection with the proceeding and
reasonable expenses incurred to obtain court-ordered indemnification.
Section 9.10 Advance of Expenses. Reasonable expenses (including
attorneys' fees) incurred in defending an action, suit or proceeding as
described in Section 9.05 may be paid by the Corporation to any Proper Person
in advance of the final disposition of such action, suit or proceeding upon
receipt of (i) a written affirmation of such proper Person's good faith belief
that he has met the standards of conduct prescribed by Section 9.05 of this
Article IX, (ii) a written undertaking, executed personally or on the Proper
Person's behalf, to repay such advances if it is ultimately determined that he
did not meet the prescribed standards of conduct (the undertaking shall be an
unlimited general obligation of the Proper Person but need not be secured and
may be accepted without reference to financial ability to make repayment), and
(iii) a determination is made by the proper group (as described in Section 9.08
of this Article IX) that the facts as then known to the group would not
preclude indemnification. Determination and authorization of payments shall be
made in the same manner specified in Section 9.08 of this Article IX.
Section 9.11 Witness Expenses. The sections of this Article IX do not
limit the Corporation's authority to pay or reimburse expenses incurred by a
director in connection with an appearance as a witness in a proceeding at a
time when he has not been made a named defendant or respondent in the
proceeding.
Section 9.12 Report to Shareholders. Any indemnification of or advance
of expenses to a director in accordance with this Article IX, if arising out of
a proceeding by or on behalf of the Corporation, shall be reported in writing
to the shareholders with or before the notice of the next shareholders'
meeting. If the next shareholder action is taken without a meeting at the
instigation of the board of directors, such
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notice shall be given to the shareholders at or before the time the first
shareholder signs a writing consenting to such action.
Section 9.13 Surety Bonds. Such officers and employees of the
Corporation (if any) as the Chairman, Vice Chairman, President, the Board of
Directors, or the executive committee may direct from time to time shall be
bonded for the faithful performance of their duties and for the restoration to
the Corporation, in case of their death, resignation, retirement,
disqualification or removal from office, of all books, papers, vouchers, money
and other property of whatever kind in their possession or under their control
belonging to the Corporation, in such amounts and by such surety companies as
the Chairman, Vice Chairman, President, the Board of Directors, or the
executive committee may determine. The premiums on such bonds shall be paid by
the Corporation, and the bonds so furnished shall be in the custody of the
Secretary.
ARTICLE X. AMENDMENTS
Section 10.01. Amendments. These Bylaws may be altered, amended or
repealed or new bylaws may be adopted at any meeting of the Board of Directors
at which a quorum is present by the affirmative vote of a majority of the
directors present at such meeting.
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Exhibit 5.1
JONES & KELLER
[Letterhead]
May 2, 1995
Citizens, Inc.
400 East Anderson Lane
Austin, Texas 78714-9151
Gentlemen:
We have acted as special counsel for Citizens, Inc. in connection with
a Registration Statement on Form S-4, to be filed by the Company under the
Securities Act of 1933 with the Securities and Exchange Commission. The
Registration Statement relates to the proposed issuance of up to 2,341,334
shares of Common Stock, no par value, to be issued in connection with the Plan
and Agreement of Merger dated as of the 8th day of December, 1994 by and
between American Liberty Financial Corporation, American Liberty Life Insurance
Company, Citizens, Inc. (the "Company"), and Citizens Acquisition, Inc. The
Registration Statement and exhibits thereto to be filed with the Securities and
Exchange Commission under such Act are referred to herein as the "Registration
Statement".
This letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business
Law (1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this letter should be read in
conjunction therewith.
We have examined the Articles of Incorporation of the Company as filed
with the Colorado Secretary of State, the Bylaws of the Company, and the
minutes of the meetings and records of proceedings of the Board of Directors of
the Company, the applicable laws of the State of Colorado and a copy of the
Registration Statement.
Based upon the foregoing, and having regard for such legal
considerations as we deemed relevant, we are of the opinion that when issued
pursuant to the Registration Statement, the above-referenced 2,341,334 shares
of Common Stock of the Company shall have been legally issued, fully paid and
non-assessable.
We hereby consent to the use of this opinion as part of the
Registration Statement and to the reference to our name under the heading
"Legal Matters" in the Prospectus/Proxy Statement constituting a part of the
Registration Statement.
Very truly yours,
/s/ Jones & Keller, P.C.
Jones & Keller, P.C.
<PAGE> 1
[KPMG LOGO]
EXHIBIT 23.2
The Board of Directors
Citizens, Inc.:
We consent to the use of our reports incorporated herein by reference and to
the reference to our Firm under the heading "Experts" in the Form S-4.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Dallas, Texas
April 28, 1995
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Registration Statement of Citizens, Inc.
on Form S-4 of our report dated February 27, 1995 on our audits of the
Consolidated Financial Statements of American Liberty Financial Corporation and
Subsidiaries as of December 31, 1994 and 1993, and for each of the years in
the two-year period ended December 31, 1994, appearing in the Proxy-Statement
Prospectus, which is part of this Registration Statement, and to the reference
to us under the heading of "Experts" in such Proxy-Statement Prospectus.
/s/ AMEND, SMITH & CO., P.C.
AMEND, SMITH & CO., P.C.
Oklahoma City, Oklahoma
May 1, 1995
