<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1995
Registration No. 33-59039
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM S-4
AMENDMENT NO. 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. / /
<PAGE> 2
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.
----------
<PAGE> 3
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; Proposed Merger
Fixed Charges and Other Information
4 Terms of the Transaction Summary; Proposed Merger; Information
Concerning ALFC; Comparison of Rights
of Securityholders
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 and
Being Acquired 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 Counsel Not applicable
9 Disclosure of Commission Position on Not applicable
Indemnification for Securities Act Liabilities
10 Information with Respect to S-3 Incorporation of Certain Documents by
Registrants Reference; Risk Factors
11 Incorporation of Certain Information Incorporation of Certain Documents
by Reference by Reference
12 Information with Respect to S-2 or S-3 Not applicable
Registrant
13 Incorporation of Certain Information Not applicable
by Reference
14 Information with Respect to Summary; Comparative Per Share Data;
Registrants Other Than Selected Summary Financial Information; Combined Annual
Than S-2 or S-3 Registrants and Special Meeting; Proposed Merger;
Information Concerning ALFC; ALFC
Management's Discussion of Financial Condition
and Results of Operations; Financial Statements
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
15 Information with Respect to S-3 Not applicable
Companies
16 Information with Respect to S-2 or Not applicable
S-3 Companies
17 Information with Respect to Summary; Comparative Per Share Data; Selected Summary
Companies Other than S-2 Financial Information; Combined Annual and
or S-3 Companies Special Meeting; Proposed Merger;
Information Concerning ALFC; ALFC
Management's Discussion of Financial Condition
and Results of Operations; Financial Statements.
18 Information if Proxies, Consents or Summary; Combined Annual and Special Meeting;
Authorizations are to be Solicited Election of Directors and Information
Concerning Executive Officers
19 Information if Proxies, Consents Not applicable
or Authorizations Are Not To Be
Solicited or in an Exchange Offer
</TABLE>
iii
<PAGE> 5
NOTICE OF COMBINED ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 14, 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, September 14, 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 July 27, 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.
iv
<PAGE> 6
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
August 15, 1995
v
<PAGE> 7
AMERICAN LIBERTY FINANCIAL CORPORATION PROXY STATEMENT FOR
COMBINED ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS TO
BE HELD SEPTEMBER 14, 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 September 14, 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"). The ALFC
Board of Directors has unanimously recommended that the Shareholders approve the
Merger Agreement. However, if the holders of more than 2.5% of the ALFC Common
and preferred shares choose to exercise dissenters' rights under Louisiana law,
then Citizens may, at its option, decline to proceed with the Merger. The
approval of the Louisiana Commissioner of Insurance, which was required for the
Merger to be consummated, was received on July 13, 1995. 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. However, the holders
of the Class A Common Stock cannot control Citizens, because the Citizens Class
B Common Stock has the right to elect a majority of the members of the Board of
Directors. Harold E. Riley, who indirectly owns all of the Class B Common Stock,
and who is the largest holder of Class A Common Stock, will remain effectively
in control of Citizens following the Merger. 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
<PAGE> 8
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 August 15,
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
July 27, 1995 are entitled to notice of and to vote at the Meeting. On July 27,
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 August 15, 1995. The ALFC 1994 Annual
Report to shareholders is enclosed.
I-II
<PAGE> 9
------------------------
The Citizens Class A Common Stock is listed on the American Stock Exchange under
the symbol "CIA." On July 27, 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."
------------------------
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. In the
event of a material change in the terms of the Merger Agreement or in the
affairs of Citizens, Acquisition, ALFC or ALLIC, then it will be the
responsibility of Citizens to file any required post-effective amendments and
provide for the resolicitation of proxies, as may be necessary.
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.
------------------------
I-III
<PAGE> 10
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 August 15, 1995.
------------------------
I-IV
<PAGE> 11
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
AVAILABLE INFORMATION ................................................ I-VII
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ...................... I-VIII
SUMMARY .............................................................. I-IX
COMPARATIVE PER SHARE DATA ........................................... I-XVI
SELECTED SUMMARY FINANCIAL INFORMATION CITIZENS, INC ................. I-XVII
RISK FACTORS ......................................................... 1
COMBINED ANNUAL AND SPECIAL MEETING .................................. 10
PROPOSED MERGER ...................................................... 14
ALFC MANAGEMENT'S DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ......................... 26
FEDERAL INCOME TAXES ........................................ 26
RESULTS OF OPERATIONS ....................................... 27
LIQUIDITY AND CAPITAL RESOURCES ............................. 31
UPDATE FOR THREE MONTHS ENDED MARCH 31, 1995 ................ 32
CERTAIN FEDERAL INCOME TAX CONSEQUENCES .............................. 36
INFORMATION CONCERNING CITIZENS ...................................... 42
SOURCE OF CITIZENS SHARES ............................................ 42
RIGHTS OF ALFC DISSENTING SHAREHOLDERS
TO RECEIVE PAYMENT FOR SHARES ............................... 42
INFORMATION CONCERNING ALFC .......................................... 47
ALFC AND ITS SUBSIDIARIES ................................... 47
MARKET FOR ALFC COMMON STOCK AND
RELATED SHAREHOLDER MATTERS ................................. 51
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE .......... 51
</TABLE>
I-V
<PAGE> 12
<TABLE>
<S> <C>
COMPARISON OF RIGHTS OF SECURITYHOLDERS ........................................ 52
AUTHORIZED SHARES ..................................................... 52
DIVIDEND RIGHTS ....................................................... 52
VOTING RIGHTS ......................................................... 53
PREEMPTIVE RIGHTS ..................................................... 54
LIABILITY OF DIRECTORS ................................................ 55
LIQUIDATION RIGHTS .................................................... 55
ASSESSMENT AND REDEMPTION ............................................. 55
TRANSFER AGENT ........................................................ 56
EXPERTS ........................................................................ 57
LEGAL MATTERS .................................................................. 57
ELECTION OF DIRECTORS AND INFORMATION CONCERNING EXECUTIVE OFFICERS ............ 57
OTHER MATTERS .................................................................. 61
DEADLINE FOR CITIZENS SHAREHOLDER PROPOSALS .................................... 62
FINANCIAL STATEMENTS ........................................................... 63
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES ............... 63
FINANCIAL STATEMENTS FOR YEAR ENDED DECEMBER 31, 1994 ........ 63
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 1995 ................................................ 63
</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;
AGREEMENT TO AMEND PLAN AND AGREEMENT OF MERGER, DATED MAY 1, 1995
APPENDIX B -- PART XIII OF THE LOUISIANA BUSINESS CORPORATION LAW GOVERNING
RIGHTS OF DISSENTING ALFC SHAREHOLDERS
I-VI
<PAGE> 13
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-VII
<PAGE> 14
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
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, as
amended, (the "Citizens Form 10-K"); (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; and (c) Citizens' Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1995, as amended, (the
"Citizens Form 10-Q"). 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. The foregoing sentence does not apply to American Liberty Financial
Corporation or any of its affiliates with respect to documents not incorporated
herein or not deemed to be incorporated herein. 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 SEPTEMBER 1, 1995.
-----------------------------
I-VIII
<PAGE> 15
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.
I-IX
<PAGE> 16
Following is a comparison between Citizens and ALFC of certain selected
financial data:
<TABLE>
<CAPTION>
December 31, 1994
--------------------------------------------------------------
Citizens ALFC
Citizens Percent ALFC Percent Combined
Amount of Total Amount of Total Total
---------- -------- ------ -------- ----------
(all amounts in 000's except per share amounts)
<S> <C> <C> <C> <C> <C>
Total Assets $ 149,798 85% $26,316 15% $ 176,114
Insurance in Force 2,144,709 98% 40,735 2% 2,185,444
Stockholders' Equity 35,055 81% 8,117 19% 43,172
Retained Earnings 18,467 92% 1,575 8% 20,042
Net Income (Loss) 4,175 111% (415) (11%) 3,760
Book Value
Per Share (a) $ 1.99 $ 3.82
<CAPTION>
March 31, 1995
---------------------------------------------------------------
Citizens ALFC
Citizens Percent ALFC Percent Combined
Amount of Total Amount of Total Total
---------- -------- ------ -------- ----------
(all amounts in 000's except per share amounts)
<S> <C> <C> <C> <C> <C>
Total Assets $ 152,477 85% $26,474 15% $ 178,951
Insurance in Force 2,167,462 98% 39,758 2% 2,207,220
Stockholders' Equity 36,623 81% 8,398 19% 45,021
Retained Earnings 18,740 91% 1,856 9% 20,596
Net Income (Loss) 273 49% 281 51% 554
Book Value
Per Share (a) $ 2.08 $ 3.95
</TABLE>
- -----------
(a) Book value per share is based on numbers of shares set forth in
Stockholders' Equity on the respective balance sheets -- for the
Citizens calculations, the numbers of Class A and Class B Common shares
were added, and the total number was divided into Total Stockholders'
Equity; for the ALFC calculations, conversion of Preferred shares was
assumed at 2.66 Common shares per Preferred share; the resulting number
was added to the number of Common shares, and the total was divided
into Total Stockholders' Equity.
For an explanation of the manner in which Citizens and ALFC determined
the share exchange ratios for accomplishing the Merger, see "Proposed Merger --
Background and Reasons for Merger."
The following table analyzes the market value of Citizens Class A
Common Stock (1.10 shares) to be given in the Merger for each share of ALFC
Common Stock, on a pro forma basis as if the Merger had taken place on December
8, 1994 (the day before the Merger was announced) or on June 26, 1995. Based on
the respective market values of the Citizens and ALFC stock on those dates, the
ALFC shareholders would have received a premium over the market value of their
stock as stated below. However, trading in the ALFC stock was only sporadic
throughout 1994, and in the fourth quarter, there was no high asked price, but
only a $2.00 low asked price, in the sporadic market in which the stock trades.
See "Information Concerning ALFC -- Market for ALFC Common Stock and Related
Shareholder Matters." In 1995, the market for ALFC Common Stock has been
inactive. The only available indicator of present market
I-X
<PAGE> 17
value reported to ALFC by over-the-counter traders has been a high bid of $5.00
per share, used in the table below, with no corresponding offered price. The
table does not include ALFC Preferred Stock, because the conversion ratios for
the Preferred Stock are based upon the amount of ALFC Common Stock into which
the Preferred Stock is convertible. Hence, the comparisons below apply equally
to the Preferred Stock -- as if each Preferred share was converted into 2.66
ALFC Common shares before the Merger.
<TABLE>
<CAPTION>
Citizens Market Value ALFC Market
Class A at 1.10 Common Stock Premium
Common Stock Exchange Ratio Market Per ALFC
Market Price To Be Given Price Common Share
------------ -------------- ------------ ------------
(a) (b) (c) (d)
<S> <C> <C> <C> <C>
Dec. 8, 1994 $ 8.25 $ 9.075 $ 2.00 $ 7.075
- ------------
June 26, 1995 $ 9.125 $10.0375 $ 5.00 $5.0375
- -------------
</TABLE>
- -----------------------------
(a) The closing price per Citizens Class A Common share on the date
indicated as quoted on the American Stock Exchange.
(b) On a pro forma basis, this is the market value on the date indicated as
if 1.10 shares of Citizens Class A Common Stock was given in exchange
for each share of ALFC Common Stock; i.e. this is 1.10 times the price
in the first column.
(c) On December 8, 1994, as reported by the only broker-dealer who has
indicated stock prices, $2.00 was the asked price per share of ALFC
Common Stock in the over-the-counter market. Recently the market for
ALFC common stock has been inactive, and according to the foregoing
broker-dealer as of June 26, 1995, the ALFC stock was quoted at a bid
price of $5.00 per share (used here), with no price offered.
(d) This is the pro forma premium per share of ALFC Common Stock, on a
market value basis, which ALFC shareholders would have received had the
Closing Date for the Merger occurred on the date indicated.
I-XI
<PAGE> 18
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 July 27, 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."
DATE, TIME AND PLACE OF MEETING The Meeting will be held on
September 14, 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.
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
I-XII
<PAGE> 19
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").
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.
CONDUCT OF BUSINESS OF ALFC
PRIOR TO CLOSING 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
I-XIII
<PAGE> 20
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."
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.
TERMINATION OF THE MERGER AGREEMENT The Merger Agreement may be
terminated by either party if
the Effective Date does not
occur by October __, 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
I-XIV
<PAGE> 21
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.
I-XV
<PAGE> 22
COMPARITIVE 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 31, 1994 $0.25 $(0.20) $0.25 $0.28
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-XVI
<PAGE> 23
SELECTED SUMMARY FINANCIAL INFORMATION CITIZENS, INC.
INTRODUCTION TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet,
as of March 31, 1995, reflects the purchase of ALFC by Citizens as if it
occurred on March 31, 1995. The unaudited pro forma condensed consolidated
income statements, for the year ended December 31, 1994 and the three months
ended March 31, 1995, reflect 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 described above, 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 1995 or of future
results of operations of the consolidated entities.
Some assumptions used to prepare the following pro forma financial
statements differed as between the historical and pro forma assumptions. Earned
interest for the historical was 6.5 to 7.0%, whereas the pro forma assumption
was 7.0%. For the historical, acquisition expense per life policy underwritten
was $80-$100, and pre-need was $30, and accident and health ("A&H") was $5. The
respective pro forma expense assumptions were $92-$96 and $30-$40, and for A&H,
$66.40. Maintenance expense, for the historical was assumed to be $0 for both
life and A&H, while for pro forma purposes, the life assumptions were $40
(premium paying) and $20 (paid up), and A&H was $40. Commission assumptions for
historical A&H were actual commission scale less 20% of premium generally, but
not less than 0. Pro forma A&H commission assumptions were based on actual
commission scale. Servicing commissions for historical on both life and A&H
were 0%, while for pro forma the assumption as 2%. All other assumptions were
the same between historical and pro forma.
Pro forma Management's Discussions and Analyses of Financial
Condition and Results of Operations immediately follow the respective pro
forma financial statements.
I-XVII
<PAGE> 24
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>
Revenues:
Premiums $ 43,861 7,698 53 $51,612
Net investment income 5,296 1,026 108 6,430
Other 55 189 0 244
------ ----- --- ------
Total revenues 49,212 8,913 161 58,286
Benefits and Expenses
Policy benefits 31,301 4,975 93 36,369
Commissions 12,382 513 0 12,895
Capitalization of DAC (13,128) (1,166) 0 586 (a) (13,708)
Amortization of DAC 7,204 1,453 4 (1,385)(a) 7,276
Amortization of cost
of insurance acquired 421 0 0 611 (b) 1,032
Amortization of other
intangibles 207 (c) 207
Amortization of excess
of cost over net assets
acquired 186 0 0 438 (d) 624
Other expenses 5,079 3,688 192 8,959
------ ----- --- ------ ------
Total benefits and
expenses 43,445 9,463 289 457 53,654
------ ----- --- ------- ------
Income before taxes 5,767 (550) (128) (457) $4,632
Net income per share $ 0.24(e)
</TABLE>
I-XVIII
<PAGE> 25
EXPLANATION OF PRO-FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1994:
(a) Amortization and capitalization of deferred policy acquisition
costs are reflected in the accompanying pro-forma statement of operations as
follows:
<TABLE>
<CAPTION>
Capitalization Amortization
-------------- ------------
<S> <C> <C>
Historical Citizens $(13,128) 7,204
Historical ALFC and II (1,166) 1,457
-------- ------
Total Historical (14,294) 8,661
-------- ------
Reverse Historical ALFC and II 1,166 (1,457)
Capitalization of post-purchase (580) 72
-------- ------
Net pro-forma adjustment 586 (1,385)
-------- ------
Net (13,708) 7,276
======== ======
</TABLE>
(b) Amortization of cost of insurance acquired is presented in the
accompanying pro-forma statement of operations as follows:
<TABLE>
<S> <C>
Historical Citizens $ 421
-------
Interest accrued at 7% (470)
Amortization of ALFC and II cost of insurance 1,081
-------
Net pro-forma adjustment 611
-------
Pro-forma amortization $ 1,032
=======
</TABLE>
(c) Identifiable intangible assets include state licenses and agency
force and are being amortized over 10 years. Such amortization amounted to
$207,000 for the twelve months ended December 31, 1994.
(d) The excess of cost over net assets acquired is being amortized over
a 20-year period. Such amortization, reflected in the accompanying pro-forma
statement of operations, is $438,000.
I-XIX
<PAGE> 26
(e) Calculated using estimated common shares outstanding of 19,433,080.
I-XX
<PAGE> 27
PRO FORMA MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 (PRO FORMA BASIS)
Net income for the year ended December 31, 1994 was $4,560,000. Revenues
increased to $58,286,000. The merger of ALFC was the primary reason for the
increased revenues during 1995. ALFC has subsidiaries which engage in several
business segments that Citizens has not focused on. Primary among such
subsidiaries is the operation of funeral homes in Louisiana. Citizens intends to
evaluate such operations to determine their viability following the merger;
however, this business is immaterial to Citizens overall operations.
Premium income for the year ended December 31, 1994 was $51,612,000. This is
the impact of the ALFC merger which increased premiums by $7,698,000 during
the period. During 1995, management expects production of new premiums to
reach $12.5 million as a result of the new business generated by the Company's
agency force, as well as the field force of ALFC; thus, it is expected that
premium income will continue to increase in future years.
Net investment income for 1994 was $6,430,000. Such income was enhanced by the
$1,026,000 contribution from ALFC to earnings during the period. Management
expects to evaluate the portfolio of ALFC; however it has no plan for major
dispositions at this time.
Deferred acquisition costs reflect the capitalization of costs related only to
1994 production for ALFC, along with those historically capitalized for
Citizens. All previously capitalized costs were accounted for as a part of the
merger transaction.
Underwriting, acquisition, insurance and other expenses were $8,959,000
for the year. These expenses include the expenditures of ALFC and II for the
year 1994. Management believes that reductions in such level of overhead are
attainable in future years; however, such reductions cannot be achieved until
such time as ALFC's data processing system is converted to Citizens' data
processing system, which Management does not forsee occurring until sometime in
1996. Even after that time, reductions cannot be realized until Management has
made a complete evaluation of the affairs of ALFC following the transaction.
Management has not made an estimate of the amount of overhead reduction
anticipated, but believes overhead can be reduced in future years as the result
of economies of scale being achieved as the various companies operations are
integrated.
The amortization of the excess of cost over net assets acquired in the ALFC
transaction is based on an amortization of 20 years. The 20 year period is
based upon the expected life of the in force block of business acquired in the
transaction. Based upon an actuarial
I-XXI
<PAGE> 28
evaluation of the business and its historical runoff, significant portions of
the life and accident and health business remain in force after 20 years.
Management believes the amortization period best provides a correlation between
the amortization and the run off of the business. The amortization of the cost
of insurance acquired is based upon the proportion of the profit to the
expected lives of the respective policies. Intangible assets acquired in the
transaction which are primarily the state licenses of ALFC and its agency
force, are amortized over a period of 10 years.
ALFC has certain net operating loss carryforwards of more then $1.3 million at
the end of 1994. Although such carryforwards are significant, Management
believes them to be of little value to the combined entities following the
merger as the result of limitations imposed upon their utilization by the
Internal Revenue Code.
I-XXII
<PAGE> 29
PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS)
PRO-FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PURCHASE
CITIZENS INC HISTORICAL HISTORICAL ADJUSTMENTS AND
AND SUBSIDIARIES ALFC AND INSURANCE ELIMINATIONS PRO-FORMA
ASSETS SUBSIDIARIES INVESTORS CONSOLIDATED
------ ---------------- ------------ ---------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Long term Investments $ 95,600 $14,519 $2,193 $(1,060) (a) $111,252
Short term Investments 0 1,021 0 0 1,021
------- ------- ------ ------- --------
Total Investments 95,600 15,540 2,193 (1,060) 112,273
Cash 3,953 607 132 4,692
Other receivables 1,430 683 0 2,113
Accrued investment
income 1,275 295 33 1,603
Deferred policy
acquisition costs 35,191 6,840 49 (6,889) (b) 35,191
Cost of Insurance
acquired 2,226 0 0 5,906 (e) 8,132
Excess of cost over net
assets acquired 3,298 0 0 8,962 (c) 12,260
Other intangible assets 0 0 0 1,867 (d) 1,867
Deferred taxes 889 1,752 0 (980) (g) 1,661
Other assets 8,616 757 2 0 9,375
------- ------- ------ ------- --------
Total Assets $152,478 $26,474 $2,409 $ 7,806 $189,167
</TABLE>
I-XXIII
<PAGE> 30
PRO-FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL PURCHASE
LIABILTIIES AND CITIZENS INC ALFC AND INSURANCE ADJUSTMENTS AND PRO-FORMA
STOCKHOLDERS' EQUITY AND SUBSIDIARIES SUBSIDIARIES INVESTORS ELIMINATIONS CONSOLIDATED
-------------------- ---------------- ------------ ---------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Future policy benefit
reserves $104,153 $14,084 $ 717 $ 559 (f) $119,513
Other policyholder
liabilities 8,590 1,806 363 10,759
Other liabilities 2,417 339 33 2,789
Notes payable 695 0 296 991
Deferred tax liability 0 1,831 0 (1,831) (h) 0
Minority interest 0 16 93 (109) (h) 0
-------- ------- ------ -------- --------
Total liabilities 115,855 18,076 1,502 (1,381) 134,052
Class A common stock 21,457 256 819 17,423 (h) 39,955
Class B common stock 283 0 47 (47) (h) 283
Preferred stock 0 262 0 (262) (h) 0
Additional Paid-in
capital 0 6,024 576 (6,600) (h) 0
Unrealized loss on
investments (1,676) 0 (18) (18) (h) (1,676)
Retained earnings 18,740 1,856 (508) (1,353) (h) 18,733
38,804 8,398 916 9,178 57,296
Treasury stock (2,181) 0 (9) 9 (2,181)
-------- ------- ------ -------- --------
Total stockholders'
equity 36,623 8,398 907 9,187 55,114
-------- ------- ------ -------- --------
Total liabilities and
stockholders' equity $152,478 $26,474 $2,409 $7,806 $189,167
</TABLE>
I-XXIV
<PAGE> 31
EXPLANATION OF PRO-FORMA ADJUSTMENTS AS OF MARCH 31, 1995:
(a) Adjustment necessary to record acquired fixed maturities at
market value.
(b) Deferred policy acquisition costs are reflected in the
accompanying pro-forma financial statements as follows:
<TABLE>
<CAPTION>
<S> <C>
Historical Citizens $35,191
Historical ALFC and II 6,889
-------
Historical DAC 42,080
Reverse historical ALFC and II (6,889)
------
Net DAC $35,191
</TABLE>
(c) 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 ALFC's and II's historical future
policy benefit reserves and the estimated gross premium
reserve at March 31, 1995. 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 insurance acquired
is being amortized in proportion to the profit over the lives
of the respective policies.
Cost of insurance acquired is presented in the accompanying
pro-forma financial statements as follows:
<TABLE>
<CAPTION>
<S> <C>
Historical Citizens $2,226
ALFC and II cost of insurance
capitalized 5,906
------
Pro-forma cost of insurance
acquired $8,132
======
</TABLE>
(d) Allocation of purchase price to identifiable intangible
assets. Identifiable intangible assets include state
licenses and agency force and are being amortized over 10
years.
(e) Excess of cost over net assets acquired was calculated as
follows: (in thousands)
<TABLE>
<CAPTION>
ALFC II TOTAL
---- -- -----
<S> <C> <C> <C>
Acquisition of common
stock $ 17,575 929 18,504
Estimated fair value of
net assets acquired (8,602) (940) (9,542)
-------- ---- ------
Excess of cost
(purchase price) over
net assets acquired $ 8,973 (11) 8,962
</TABLE>
(f) Revaluation of policy benefit reserves to reflect Company
reserve assumption with regard to interest rates, lapse rates
and surrenders.
(g) Establish deferred taxes for basis differences between book
and tax value of assets and liabilities at March 31, 1995.
(h) 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-XXV
<PAGE> 32
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PURCHASE
CITIZENS INC. HISTORICAL HISTORICAL ADJUSTMENTS
AND ALFC AND INSURANCE AND PRO-FORMA
SUBSIDIARIES SUBSIDIARIES INVESTORS ELIMINATORS CONSOLIDATED
------------ ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Premiums $ 9,358 $ 1,867 $ 14 $11,239
Net investment income 1,487 285 23 1,795
Other (11) 71 0 0 60
-------- ------- ---- ----- -------
Total revenues 10,834 2,223 37 0 13,094
Benefits and Expenses
Policy benefits 7,252 712 32 7,996
Commissions 2,464 0 0 2,464
Capitalization of DAC (2,543) 0 0 (125)(a) (2,668)
Amortization of DAC 1,890 370 3 (281)(a) 1,982
Amortization of cost
of insurance acquired 92 0 0 195 (b) 287
Amortization of Other
intangibles 0 0 0 47 (c) 47
Amortization of excess
of cost over net assets
acquired 0 0 0 110 (d) 110
Other expenses 1,343 763 34 0 2,140
-------- ------- ---- ----- -------
Total benefits and
expenses 10,498 1,845 69 (54) 12,358
-------- ------- ---- ----- -------
Income before taxes $ 336 $ 378 $(32) $ 54 $ 736
Net income per share $ 0.04
(e)
</TABLE>
I-XXVI
<PAGE> 33
EXPLANATION OF PRO-FORMA STATEMENT OF OPERATIONS FOR THE THREE MONTH PERIOD
ENDED MARCH 31, 1995
(a) Amortization and capitalization of deferred policy acquisition
costs are reflected in the accompanying pro-forma statement of operations as
follows:
<TABLE>
<CAPTION>
Capitalization Amortization
-------------- ------------
<S> <C> <C>
Historical Citizens $(2,543) 1,890
Historical ALFC and II 0 373
------- -----
Total Historical (2,543) 2,263
------- -----
Reverse Historical ALFC and II 0 (373)
Capitalization of Post-Purchase (125) 92
------- -----
Net Pro-forma adjustment (125) (281)
------- -----
Net (2,668) 1,982
======= =====
</TABLE>
(b) Amortization of cost of insurance acquired is presented in the
accompanying pro-forma statement of operations as follows:
<TABLE>
<S> <C>
Historical Citizens $ 92
-----
Interest accrued at 7% (105)
Amortization of ALFC and II cost of insurance 300
-----
Net pro-forma adjustment 195
-----
Pro-forma amortization $ 287
=====
</TABLE>
Estimated amortization of cost of insurance acquired assuming a
purchase date of January 1, 1995 is $482,000, $433,000, $390,000, $360,000 and
$336,000 for each year, respectively, in the five year period ending December
31, 1999.
(c) Identifiable intangible assets include state licenses and agency
force and are being amortized over 10 years. Such amortization amounted to
$47,000 for the three months ended March 31, 1995.
(d) The excess of cost over net assets acquired is being amortized over a
20-year period. Such amortization, reflected in the accompanying pro-forma
statement of operations, is $110,000.
(e) Calculated using estimated common shares outstanding of 19,433,080.
I-XXVII
<PAGE> 34
(f) Revaluation of policy benefit reserves to reflect Company
reserve assumption with regard to interest rates, lapse rates
and surrenders.
(g) Establish deferred taxes for basis differences between book
and tax value of assets and liabilities at March 31, 1995.
(h) 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) Calculated using estimated common shares outstanding of
19,433,080.
I-XXVII
<PAGE> 35
PRO FORMA MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE-MONTHS ENDED MARCH 31, 1995 (PRO FORMA BASIS)
Net income for the three-months ended March 31, 1995 was $676,000. Revenues
increased to $13,094,000. The merger of ALFC was the primary reason for the
increased revenues during 1995. ALFC has subsidiaries which engage in several
business segments that Citizens has not focused on. Primary among such
subsidiaries is the operation of funeral homes in Louisiana. Citizens intends to
evaluate such operations to determine their viability following the merger;
however, this business is immaterial to Citizens overall operations.
Premium income for the first three months of 1995 was $11,239,000. This 33.1
percent increase is the result of the impact of the ALFC merger which increased
premiums by $1,867,000 during the period. During 1995, management expects
production of new premiums to reach $12.5 million as a result of the new
business generated by the Company's agency force, as well as the field force
of ALFC.
Net investment income in the first three months of 1995 was $1,795,000. Such
income was enhanced by the $285,000 contribution from ALFC to earnings during
the period. Management expects to evaluate the portfolio of ALFC; however, has
no plan for major dispositions at this time.
Deferred acquisition costs reflect the capitalization of costs related only to
1995 production for ALFC, along with those historically capitalized for
Citizens. All previously capitalized costs were accounted for as a part of the
merger transaction.
Underwriting, acquisition and insurance expenses were $2,140,000 following the
transaction. Management believes that reductions in such level of overhead are
attainable in future years; however, such reductions cannot be achieved until
such time as ALFC's data processing system is converted to Citizens' data
processing system, which Management does not forsee occurring until sometime in
1996. Even after that time, reductions cannot be realized until Management has
made a complete evaluation of the affairs of ALFC following the transaction.
Management has not made an estimate of the amount of overhead reduction
anticipated, but believes overhead can be reduced in future years as the result
of economics of scale being achieved as the various companies' operations are
integrated.
The amortization of the excess of cost over net assets acquired in the ALFC
transaction is based on an amortization of 20 years. The 20 year period is
based upon the expected life of the in force block of business acquired in the
transaction. Based upon an actuarial evaluation of the business and its
historical runoff, significant portions of the life and accident and health
business remain in force after 20 years. Management believes the amortization
period best provides a correlation between the amortization and the run off of
the business. The amortization of the cost of insurance acquired is based upon
the proportion of the profit to the expected lives of the respective policies.
Intangible assets acquired in the transaction which are primarily the state
licenses of ALFC and its agency force, are amortized over a period of 10 years.
ALFC has certain net operating loss carryforwards of more then $1.3 million at
the end of 1994. Although such carryforwards are significant, Management
believes them to be of little value to the combined entities following the
merger as the result of limitations imposed upon their utilization by the
Internal Revenue Code.
I-XXVIII
<PAGE> 36
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
1
<PAGE> 37
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 May 1995, Citizens began 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. Citizens has restricted the
transfer of such shares for a period of three years following the initial
purchase, and a legend to such effect will be placed on each certificate for
such shares. The initial offering price is $7.50 per share, which is a discount
to the current market price of the Citizens Class A Common Stock as quoted on
the American Stock Exchange.
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
2
<PAGE> 38
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
3
<PAGE> 39
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,
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.
4
<PAGE> 40
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, as demonstrated by a comparison
of Citizens' persistency rates against a commonly-used scale of persistency in
the industry.
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 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
5
<PAGE> 41
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
6
<PAGE> 42
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.
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
7
<PAGE> 43
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
8
<PAGE> 44
several years, suffered substantial losses on investments, which has reduced the
financial stability of several insurance companies. 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.
9
<PAGE> 45
COMBINED ANNUAL AND SPECIAL
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 September 14,
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
August 15, 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
10
<PAGE> 46
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 July 27, 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 July 27, 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."
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.
11
<PAGE> 47
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 July 27, 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.
<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 July 27, 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.
12
<PAGE> 48
<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 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.
13
<PAGE> 49
PROPOSED MERGER
BACKGROUND AND REASONS FOR THE MERGER
ALFC's 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
14
<PAGE> 50
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.
<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.
The resulting values were reviewed carefully by each party. Also
discussed at length were how payment would be made to ALFC
15
<PAGE> 51
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;
16
<PAGE> 52
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;
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; the Citizens Class A Common Stock can be sold for cash to satisfy
obligations of a decedent's estate, whereas it might be difficult to sell the
ALFC stock, which is only sporadically traded;
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;
17
<PAGE> 53
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.
ALFC management considered other alternatives to the Merger, which
consisted of ALFC raising additional capital or a possible combination with
another insurance company. ALFC determined, based on management's assessments of
its ability to raise capital and preliminary discussions with outside financing
sources, that ALFC would, in all likelihood, be unable to raise significant
additional capital. Also, ALFC management had, from time to time over various
years, informally discussed possible business combinations with other insurance
entities. ALFC management determined that, based on those discussions, no
business combination would result that would be as advantageous to ALFC
shareholders as the Citizens proposal.
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 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
18
<PAGE> 54
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 was received on July 13, 1995. The
parties 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
19
<PAGE> 55
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.
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, received on July 13, 1995, 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, which approval was given July 13,
1995, 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
October __, 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.
20
<PAGE> 56
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 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.
21
<PAGE> 57
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, they may be turned
over to a governmental authority in accordance with the respective abandoned
property laws of the various jurisdictions. In Colorado, the state in which
Citizens is incorporated, if an owner of stock cannot be located and does not
come forward for a period of five years, and if the last known address of the
shareholder is in Colorado, then the stock must be turned over to the state
treasurer. If the last known address of the shareholder is in another state,
then the stock must be turned over to the other state if that state's laws so
provide, otherwise the stock must be turned over to the state of Colorado.
Abandoned property laws vary from state to state, and further discussion herein
is not warranted. However, to the extent it might be permitted by abandoned
property and other applicable law, such unclaimed items shall 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.
22
<PAGE> 58
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, which was received July
13, 1995;
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
23
<PAGE> 59
7. Any party to the Merger Agreement may decline to proceed with
the Merger if the Effective Date does not occur by October __,
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).
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 October __, 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.
24
<PAGE> 60
STATUS REGARDING POSSIBLE WAIVER, MODIFICATION OR TERMINATION OF AGREEMENT
As of the date of this Proxy Statement-Prospectus, except for the
45-day proxy soliciation provision as explained below, to the best of the
knowledge of the parties to the Merger Agreement, there are no conditions
precedent which must be waived by any party in order for the Merger to be
consummated, nor does any party intend to seek to modify or terminate the Merger
Agreement based on existing circumstances. ALFC expects to waive the condition
that it will have 45 days to solicit proxies.
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.
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.
CONDUCT OF NON-INSURANCE RELATED BUSINESS FOLLOWING MERGER
ALFC conducts certain non-insurance businesses through subsidiaries. As
explained under "Information Concerning ALFC -- ALFC and Its Subsidiaries," in
the early 1980's, ALFC incorporated several corporations which became general
partners in oil and gas partnerships. These oil and gas subsidiaries hold
essentially only
25
<PAGE> 61
cash and are currently passive, with no activities contemplated. In 1981, ALFC
formed a subsidiary to market certain securities, but this corporation has been
relatively inactive since 1983. In addition, in 1984, ALFC incorporated First
American Investment Corporation which, in turn, has formed two funeral home
subsidiaries. After the merger, Citizens intends to assess, from a business
perspective, whether it will continue or dispose of the non-insurance
businesses. Citizens has no current plans to participate in the oil and gas
business. It should be noted that ALFC's non-insurance businesses are immaterial
to Citizens. In 1994, ALFC's Other Income of $187,000, which included the
revenues from the non-insurance businesses, was only .4% of Citizens' Total
Revenues of $49,157,000. Citizens intends to continue to devote virtually all of
its resources to the development and operation of its insurance business.
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.
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,
26
<PAGE> 62
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.
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<PAGE> 63
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
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<PAGE> 64
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.
A 1% deviation, plus or minus, in the Company's fixed maturity
portfolio would have increased or decreased the investment income by plus or
minus $143,420 in 1994 and plus or minus $117,731 in 1993. The Company's total
revenues would have increased or decreased by the same amounts. These numbers
are based on the long-term bond investments of American Liberty Life Insurance
Company at December 31, 1993 and December 31, 1994.
The Company's current reinvestment strategy is to maximize the
investment return without sacrificing the quality of investment. Yield curves
are also considered so that the Company does not extend the duration of the
investment at a minimal increase in investment yield. Management of the
Company is also investing its funds so that maturities occur over a wide range
of years so as to minimize the risk of yield volatility that can occur over
shorter durations of time. At December 31, 1994, the Company's bond
investments were rated as follows:
<TABLE>
<CAPTION>
Standard
NAIC and Poor's
Rating Rating Book Value
------ ---------- ----------
<S> <C> <C>
Class 1 AAA to A- $12,004,908
Class 2 BBB to BBB- 2,132,361
Class 3 BB+ to BB- 204,719
-----------
$14,341,988
==========
</TABLE>
At December 31, 1994, the bond maturity values were as follows:
<TABLE>
<S> <C>
Years 1 through 5 $ 1,288,000
Years 6 through 10 5,535,000
Years 11 through 20 3,804,765
Years 20 and above 3,510,999
-----------
$14,138,764
==========
</TABLE>
A sizeable adverse deviation in investment yield could have
deleterious effects if it continued for an extended period of time. This, of
course, would decrease the investment income available on new invested money
but would not affect investment income being realized on the existing bond
portfolio to the extent that bonds now in the portfolio were not called. The
call dates on the Company's portfolio vary from 1995 to 2013 so that the calls
would occur over a number of years, at or near par value and, in management's
view, should not present a problem for the Company.
All life insurance companies are subject to the sometimes volatile
nature of the investment market. Sustained periods of low investment yields
are problematical and usually result in life insurance companies decreasing the
interest rates they credit to their new insurance policies. If a life
insurance company can spread the maturity dates of its investments over a
number of years, so as to minimize the effects of cyclical investment
fluctuations, periods of low investment yields in the market place are usually
manageable. Historically the Company has never experienced a liquidity
problem.
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.
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
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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. Each year the Company obtains a certification from its
consulting actuary regarding the adequacy of its reserves, and it has recently
received a certification that its reserves are adequate with respect to both
regulatory requirements and generally accepted accounting principles.
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 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
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$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.
Each year, the National Association of Insurance Commissioners
("NAIC") calculates Insurance Regulatory Information System ("IRIS") ratios for
insurance companies. These ratios identify changes in a company's financial
statement that the NAIC considers unusual.
Out of the twelve NAIC IRIS ratings for American Liberty Life
Insurance Company ("ALLIC") for 1994, all are within acceptable values except
one. Ratio 2, Net Gain to Total Income, for which an unusual value is below 0,
was -1. IRIS ratings for 1993 were all within acceptable values except two.
Ratio 2, Net Gain to Total Income was -2. Ratio 11, Change in Asset Mix, for
which an unusual value is above 5, was 6.3
Any loss from operations will result in an unusual value. In 1994,
ALLIC had a $92,197 loss from operations, and in 1993, a $138,973 loss from
operations. An unusual value for the 1993 Ratio 11 resulted because the
Company changed from investing in certificates of deposit to investing in bonds
because of decreases in interest rates available on the former type of
investment.
Not all unusual results are necessarily indicative of a problem in a
company but are an indication of a value falling outside of the normal range.
The domicile state of the insurance company will usually initiate a request for
explanation of the IRIS results if three or more of the ratios are identified
as unusual.
In an effort to improve the financial results of the Company, a number
of rate increases were instituted in 1994 on certain accident and health
policies, for which there were high claim ratios. Additional rate increases
will be made in the future on accident and health policy forms where high claim
ratios persist. In 1993 and 1994 the Company incurred expenses in trying to
improve its lagging life insurance sales but failed to realize an improvement
in this area. During the fourth quarter of 1994, the Company began an
extensive review of its life insurance products and those of its competitors.
This review resulted in the redesign of certain products and the development of
new products which are scheduled for introduction in the first part of 1995.
Even though this process has initially been expensive, it is important that the
Company increase insurance sales and corresponding life insurance revenues.
The amount a company expends in writing a new policy is usually greater than
the first year's premium, but it will usually realize profits from the policy
in subsequent years.
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 31, 1993.
An
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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 1993 the NAIC introduced a calculation identified as the Risk Based
Capital Analysis (the "RBCA"). The RBCA was designed to produce a method of
measuring the amount of capital appropriate for a company to support its
overall business operations in light of its size and risk profile. The
objective of the RBCA is to act as an early warning mechanism to identify
under-capitalized companies for the purposes of initiating further regulatory
action. The calculation measures four major risks, namely "asset risk,"
"insurance risk," "interest rate risk" and "business risk." The "Total
Adjusted Capital" of ALLIC was $2,473,129 in 1994 and $2,213,292 in 1993. The
"Authorized Control Level Risk Based Capital" was $245,355 in 1994 and $239,659
in 1993. The "Authorized Control Level" is identified as the level at which
the Insurance Commissioner may take certain regulatory actions, including
placing a company under regulatory control. Three additional trigger points
also may require regulatory action. These three remaining trigger points,
which are expressed as a percent of "Authorized Control Level," are: (1)
"Company Action Level" (200%); (2) "Regulatory Action Level" (150%); and (3)
"Mandatory Control Level" (70%). At December 31, 1994, the Company's Total
Adjusted Capital expressed as a percent of the Authorized Control Level was
1008.0%, and at December 31, 1993, 923.5% -- well above the levels that would
trigger regulatory action.
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.
UPDATE FOR THREE MONTHS ENDED MARCH 31, 1995
The discussion below should be read in conjunction with the consolidated
financial statements of American Liberty Financial Corporation included in its
Annual Report on Form 10-KSB for the year ended December 31, 1994.
Plan of Operation
The Company's principal business is life insurance, which normally provides a
positive cash flow, particularly in years subsequent to the year in which
policies are written. The Company anticipates that ongoing operations will
provide sufficient liquidity and capital resources for the Company during
1995. Writing new life
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insurance business depletes statutory surplus funds in the first year, but
profits from that business should be realized in subsequent years. The Company
plans on constructing a new funeral home in 1995 and should have sufficient cash
on hand to complete the project. During the first three months of 1995 the
Company's invested assets increased $444,000.
During the third quarter of 1993, the Company changed its philosophy concerning
its life insurance marketing programs. This change involved a redirection of its
marketing efforts away from the brokerage business in an attempt to improve the
Company's persistency results. The Company fully expected that this change would
initially result in a decline in insurance sales through at least the first six
months of 1994. However, by the third quarter of 1994, it became apparent that
the Company was not getting the kind of market penetration it had expected in
life insurance sales as new life insurance sales lagged behind the previous
year. Subsequently, a complete review of the Company's life insurance products
and those of its competition was undertaken. As a result of this review, the
Company has changed some of its product line and developed new products that
have been targeted for the Company's specific market segment. In addition, a new
sales director has been hired to implement new sales activities in the states of
Louisiana and Mississippi. Marketing of the resulting new life products began
in 1995, and the Company has taken steps to introduce other new insurance
products as well. Even if successful, life insurance revenues are expected to
continue to decline through the first six months of 1995 and then slowly
increase during the last six months of 1995. This effort has been both
expensive and time consuming. It takes both time and money to develop
marketing concepts, products and to build a marketing organization.
Results of Operations
The Company realized a $281,000 net profit during the first three months of 1995
compared to a $116,000 loss for the same period in 1994. The following
discussion focuses on the individual components of the operating results.
Insurance revenues decreased $49,000 for the first three months of 1995 compared
to the same period last year. This decrease is comprised of a $28,000 increase
in accident and health revenues and a $77,000 decrease in life insurance
revenues. As explained
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previously, the Company is in the midst of changing its life insurance products
and marketing system. Life insurance revenues are expected to further decline
until at least mid year while the Company attempts to build and increase its own
marketing staff.
Net investment income increased $53,000 for the first three months of 1995. The
majority of this increase is attributable to an increase in the amount of
invested assets and was not caused by an increase in investment yields. Yields
available on bonds has continued to decline since the first of the year. Long
term bond yields have declined approximately 45 basis points while medium term
bond yields have declined approximately 60 basis points. It now appears that
investment yields may continue to slowly decline through the balance of 1995. It
should be pointed out that a decrease in available investment yields for new
invested money decreases the profits available to a life insurance company.
Other revenues increased from $48,000 in 1994 to $70,000 in 1995. This $22,000
increase was caused by increase in sales from the Company's funeral home located
in Baker, Louisiana.
Underwriting and insurance expenses declined $61,000 from 1994 to 1995 and
salaries showed a modest decline of $3,000 from 1994 to 1995. Underwriting and
insurance expenses are expected to increase during the balance of the year if
the Company's new marketing program is successful. Amortization of Deferred
Policy Acquisition costs remained the same at $370,000 for 1994 and 1995. The
magnitude of these numbers is reflective of a continued deterioration of the
Company's life insurance in force combined with the lack of new life insurance
sales.
Policyholder claim and benefit expenses increased from $729,000 in 1994 to
$893,000 in 1995. This $164,000 increase is comprised of a $65,000 increase in
death benefits and a $96,000 increase in accident and health benefits. The
remaining $3,000 increase is comprised of a number of small benefit and expense
items.
Policy reserves increased $415,000 in 1994 and decreased $207,000 in 1995. This
dramatic change in 1995 is comprised of a $81,000 increase in life policy
reserves and a $288,000 decrease in accident and health policy reserves. Life
insurance reserves increased $252,000 in 1994. Management believes that the
$171,000
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decrease in life reserve increases between 1994 and 1995 was caused by
an increase in the termination of life insurance policies combined with the lack
of any new life insurance business being written. The magnitude of reduction in
accident and health policy reserves is truly significant as it accounts for the
$281,000 net operating gain in the first quarter of 1995. During the first
quarter of 1995 the Company initiated a large rate increase on one of its
accident and health policy forms. The policyholders were given the option of
either paying the increase in premium or selecting a different policy coverage
that would be dated as of the current date. A large percentage of the
policyholders elected the new policy coverage rather that pay the higher
premium. This resulted in the benefit reserve being released on their old policy
and the reserve on the new policy was $0 because it was dated current.
Approximately 656 accident and health policyholders elected the new policy
coverage in the first quarter of 1995. The Company has one remaining group of
policyholders that must make this election in July 1995. We currently believe
that approximately 80 contract holders will elect the new policy coverage rather
than pay the higher premium.
In summary, management attributes the $281,000 net profit in the first quarter
of 1995 to the conversion of certain accident and health contracts. This
conversion resulted in a large amount of accident and health reserve being
released. The effect of this release of reserve is considered a nonrecurring
matter although a lesser effect for the 80 policies previously mentioned is
expected to be reflected in the third quarter financial statements. A
corresponding tax effect for the release in reserves has resulted in an increase
in deferred tax expense at the 34% statutory rate. Management has made material
changes in its life insurance products and the marketing of those life insurance
products. It is important to the Company's interests that this program succeed.
Future information regarding the progress of this program will be reported to
shareholders as the information becomes available.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes all 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 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"). As a Reorganization,
subject to the limitations and qualifications referred to herein, the Merger
will result in the following federal income tax consequences:
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(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. Provided the fractional
share was 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 share (taking into
account the holding period of the ALFC Stock surrendered) was greater than
one year. It is possible the distribution of cash may be treated as a dividend
taxable as ordinary income if the Internal Revenue Service (the "IRS")
determines that the distribution in redemption is essentially equivalent to a
dividend. See Code Sections 356, 302.
(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
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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 and ALLIC net operating losses or built-in losses,
if any, will be subject to certain limitations contained in Section 382 of the
Code. Code Section 383 will similarly limit the utilization of excess credits,
net capital losses, and foreign tax credits, if any. In addition, Code Section
384 will limit the use of preacquisition losses to offset built-in gains, if
any. Proposed regulations under Sections 382 and 1502 of the Code implement the
above restrictions.
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
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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
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 (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
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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,
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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.
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
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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, as amended,
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, 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 summary of dissenters' rights available to shareholders
of ALFC identifies and discusses all of the material information necessary to
perfect dissenters' rights. However, this 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 (the "Act"),
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 ACT.
42
<PAGE> 78
NOTE: UNDER SECTION 131 OF PART XIII OF THE ACT, 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. In order for a
shareholder to exercise dissenters' rights and receive payment for such
shareholder's shares (if the Merger is approved by less than 80% of the ALFC
Common shares), the shareholder must comply exactly with the requirements
explained below and in Part XIII of the Act. To briefly summarize, subject to
certain time constraints and other requirements, if the Merger is approved, the
shareholder must demand in writing the "fair cash value" of the shares. If the
corporation disagrees and does not pay such amount, it must within a certain
time notify the shareholder in writing and state the fair value of the shares
which it will agree to pay. If the corporation and shareholder cannot agree upon
a fair value, the shareholder must bring a lawsuit within a specified time, or
else the shareholder will be bound by the corporation's offer as to fair value
or a contention by the corporation that it owes no payment at all. The statute
does not specify a particular time that payment, after the determination of fair
value, becomes due, but rather requires the shareholder to bring an action to
collect the amount within five years after several specified events. FULL AND
EXACT COMPLIANCE WITH THE STATUTORY REQUIREMENTS IS ESSENTIAL FOR A SHAREHOLDER
TO SUCCESSFULLY EXERCISE DISSENTERS' RIGHTS. SHAREHOLDERS ARE URGED TO READ AND
UNDERSTAND THE DISCUSSION BELOW AND THE STATUTORY PROVISIONS ATTACHED AS
APPENDIX B TO THIS PROXY STATEMENT-PROSPECTUS.
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,
43
<PAGE> 79
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 Act. 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
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
44
<PAGE> 80
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,
if ALFC deposits, in the registry of the court the amount of money it had
offered the dissatisfied shareholder (which 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 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 Act, 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
45
<PAGE> 81
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.
46
<PAGE> 82
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.
47
<PAGE> 83
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 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.
48
<PAGE> 84
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
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.
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<PAGE> 85
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. Other contingent
liabilities of ALFC are set forth in Note J to the 1994 financial statements.
Such liabilities include the risks associated with regulatory approvals
currently being sought by First American Investment Corporation, a subsidiary of
ALFC which owns and operates funeral homes.
50
<PAGE> 86
MARKET FOR ALFC COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The stock of the Company is traded over the counter through brokers who are
members of the National Association of Securities Dealers, Inc. (NASD). The
following chart reflects the high and low bid and ask quotations, on light to
sporadic trading, for the four quarters of 1993 and 1994 as reported by the
Company's principal broker, J. C. Bradford and Company of New Orleans,
Louisiana.
<TABLE>
<CAPTION>
Ask Bid
------------------ ------------------
High Low High Low
---- ---- ---- ----
<S> <C> <C> <C> <C>
1993
- -----------
1st Quarter 2.00 2.00 1.00 1.00
2nd Quarter 2.00 2.00 1.00 1.00
3rd Quarter 2.00 2.00 1.00 1.00
4th Quarter 2.00 2.00 1.00 1.00
1994
- -----------
1st Quarter 2.00 2.00 1.00 1.00
2nd Quarter 2.00 2.00 1.00 1.00
3rd Quarter 2.00 2.00 1.00 1.00
4th Quarter (1)** 2.00 5.00 1.00
</TABLE>
(1)** There was no high asked price available for the fourth quarter of 1994.
The Company's common stock was held by approximately 3,181 shareholders
as of March 23, 1995 according to records of the Company's stock transfer agent.
No cash dividends have been declared or paid on the Company's common stock to
date. During 1989, 1990 and 1991, respectively, a 10% stock dividend was
declared and paid on the Company's common stock.
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.
51
<PAGE> 87
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.
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<PAGE> 88
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, 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.
ALFC's 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.
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<PAGE> 89
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.
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.
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<PAGE> 90
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.
55
<PAGE> 91
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.
56
<PAGE> 92
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 AND INFORMATION
CONCERNING EXECUTIVE OFFICERS
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. Following the information concerning the six nominees for directors
is information concerning two executive officers, Messrs. Roth and Nunnelley,
who are not also directors. 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
57
<PAGE> 93
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:
<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
58
<PAGE> 94
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 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.
59
<PAGE> 95
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.
The following two individuals are executive officers but not directors
of the Company:
<TABLE>
<CAPTION>
Principal Period of Service as
Name Age Occupation an Officer
- ---- --- ---------- --------------------
<S> <C> <C> <C>
Gary L. Roth 55 Administrative Vice
President Since May 1993
Robert R. Nunnelley 61 Controller and
Treasurer Since July 1991
</TABLE>
The executive officers of the Company serve at the discretion of the
Board of Directors.
Mr. Roth, was appointed Administrative Vice President of the Company on May 14,
1993. Mr. Roth has been in the life insurance business since 1964 and has a
variety of experience including manager of data processing, board member,
secretary, vice president and senior vice president of several companies. Mr.
Roth's past experience also includes service as vice president of research and
development of a software company based in Dallas, Texas.
Mr. Nunnelley, FLMI, was appointed Controller of the Company on July 8, 1991
and Treasurer of the Company on February 5, 1993. Mr. Nunnelley has
accumulated over thirty years of experience in the insurance industry and
brings with him a variety of managerial experience on both an executive and
departmental level. He has served in various capacities including, member of
the board of
60
<PAGE> 96
directors, vice president and chief operations officer, chief accounting
officer, chief financial officer, manager of accounting, data processing and
policy service departments.
No family relationship exists between or among any of the above named
persons. No officer or director is a director of any other company having a
class of equity securities registered under the Securities Act of 1934, as
amended, or any company registered as an investment company under the Investment
Company Act of 1940, as amended. There are no arrangements or undertakings
between any of the named directors and any other persons pursuant to which any
director was elected as a director or was nominated as a director. Based solely
upon a review of Forms 3, 4 and 5 furnished to the Company no person required to
file such forms failed to file any of the above forms on a timely basis.
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 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.
61
<PAGE> 97
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.
62
<PAGE> 98
FINANCIAL STATEMENTS
AMERICAN LIBERTY FINANCIAL CORPORATION
AND SUBSIDIARIES
<TABLE>
<S> <C>
FINANCIAL STATEMENTS FOR YEAR ENDED DECEMBER 31, 1994
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
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1995
Unaudited Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Unaudited Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Unaudited Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
<PAGE> 99
AMEND, SMITH & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
<TABLE>
<S> <C>
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
</TABLE>
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
<PAGE> 100
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
<PAGE> 101
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> 102
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
$4,889,862 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> 103
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> 104
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> 105
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> 106
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
</TABLE>
See notes to consolidated financial statements.
-7-
<PAGE> 107
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.
Investment Securities: In May 1993, the Financial Accounting Standards Board
issued SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Statement 115 requires the Company to classify its investments in
debt and equity securities into three categories as held-to-maturity, trading,
and available for sale. The classifications the Company utilizes determine the
related accounting treatment for each category of investments. Investments
classified as trading are accounted for at fair value; available for sale are
accounted for at fair value with unrealized gains or losses, net of taxes,
excluded from earnings, and in a separate component of shareholders' equity; and
held-to-maturity are accounted for at amortized cost. The Company adopted
Statement 115 effective December 31, 1993.
All investment securities are adjusted for amortization of premiums and
accretion of discounts. Amortization of premiums and accretion of discounts are
recorded to income over the contractual maturity or estimated life of the
individual investment on the level yield method. The Company has the ability and
intent to hold to maturity
-8-
<PAGE> 108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Investment Securities -- Continued
its investment securities classified as held-to-maturity; accordingly, no
adjustment has been made for the excess, if any, of amortized cost over market.
In determining the investment category classifications, management considers its
asset/liability strategy, changes in interest rates and prepayment risk, the
need to increase capital, and other factors. Under certain circumstances
(including the deterioration of the issuer's credit worthiness, a change in tax
law, or statutory or regulatory requirements), the Company may change the
investment security classification. All proceeds received in 1993 and 1994 from
securities classified as held-to-maturity were from calls and early redemptions
over which the Company had no control. There were no sales in the
held-to-maturity category. Gain or loss on sale of investments is based upon the
specific identification method.
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.
-9-
<PAGE> 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Cash Equivalents -- Continued
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 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
-10-
<PAGE> 110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Depreciation and Amortization -- Continued
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.
-11-
<PAGE> 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Future Policy Benefits -- Continued
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.
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
-12-
<PAGE> 112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Issuance of Stock by Subsidiary -- Continued
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,
-13-
<PAGE> 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE B -- NATURE OF BUSINESS - CONTINUED
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
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>
-14-
<PAGE> 114
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
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>
Mortgage-backed securities consist of the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
1994
GNMA $167,307 $- $14,952 $152,355
======== == ======= ========
1993
GNMA $212,930 $- $ 5,321 $207,609
======== == ======= ========
</TABLE>
The amortized cost and estimated market value of debt securities at December 31,
1994, by contractual maturity, are as follows:
-15-
<PAGE> 115
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
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
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
=========== ===========
</TABLE>
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:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
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
========== ==========
</TABLE>
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
-16-
<PAGE> 116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE F -- INDIVIDUAL PARTICIPATING LIFE POLICIES - CONTINUED
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
-17-
<PAGE> 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE G -- REINSURANCE - CONTINUED
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
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.
-18-
<PAGE> 118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE H -- INCOME TAXES - CONTINUED
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
-19-
<PAGE> 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE H -- INCOME TAXES - CONTINUED
income taxes in the Consolidated Statements of Operations are as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
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)
========= =========
</TABLE>
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
-20-
<PAGE> 120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE I -- RELATED PARTY TRANSACTIONS - CONTINUED
American Liberty Financial Corporation, in the normal course of business, is
involved in transactions with its subsidiaries. Such transactions are summarized
as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
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
======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Accounts receivable, net $61,681 $229,521
======= ========
</TABLE>
Although payments of the intercompany accounts receivable and 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.
-21-
<PAGE> 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE I -- RELATED PARTY TRANSACTIONS - CONTINUED
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, are General Partners of American
-22-
<PAGE> 122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE J -- CONTINGENT LIABILITIES - CONTINUED
Liberty Exploration Partners, 1980, and American Liberty Exploration Partners,
1981-1 (See Note D.). These non-operator partnerships own fractional oil and gas
working interests. If a future liability were to arise from operation of a
property, in excess of partnership resources, then the general partner would be
responsible for such partnership liability. No specific liability or claim is
known, and it is not possible to make an estimate of any loss. The partnerships
do not have any significant indebtedness.
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 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.
-23-
<PAGE> 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE J -- CONTINGENT LIABILITIES - CONTINUED
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 conditions discussed with the Insurance
Commissioner require 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. The Company currently does not meet these
conditions; however, FAIC is reviewing life insurance companies available for
purchase.
Although 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, it is management's intent to comply with conditions to
continue the offering. Management assesses that a favorable outcome is probable
and the offering will continue.
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
-24-
<PAGE> 124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE J -- CONTINGENT LIABILITIES - CONTINUED
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
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:
<TABLE>
<CAPTION>
Year Preferred Common
---- --------- ------
<S> <C> <C>
1994 360 958
1993 - -
</TABLE>
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
-25-
<PAGE> 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE L -- STATUTORY STOCKHOLDERS' EQUITY AND STATUTORY NET GAIN - CONTINUED
Company are as follows:
<TABLE>
<CAPTION>
Statutory
Statutory Net Gain
Stockholders' (Loss) From
Equity Operations
------------- -----------
<S> <C> <C>
December 31, 1994 $1,841,594 $(92,197)
December 31, 1993 2,136,904 (138,973)
</TABLE>
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.
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
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
========= ===========
</TABLE>
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,
-26-
<PAGE> 126
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
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.
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.
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<PAGE> 127
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
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:
<TABLE>
<CAPTION>
<S> <C>
1995 $ 3,411
1996 3,411
1997 3,411
1998 3,411
1999 3,411
Thereafter 139,851
--------
$ 156,906
=========
</TABLE>
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
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<PAGE> 128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
December 31, 1994
NOTE Q -- SUBSEQUENT EVENTS - CONTINUED
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.
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<PAGE> 129
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THREE MONTHS ENDED MARCH 31, 1995
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
(Unaudited) (Note)
------------- -----------------
<S> <C> <C>
ASSETS
Investments
Fixed maturities .......... $ 14,357,010 $ 14,172,110
Mortgage-backed securities 162,264 167,307
Short-term investments .... 1,020,808 764,022
Policy loans .............. 200,488 193,000
------------ ------------
TOTAL INVESTMENTS ....... 15,740,570 15,296,439
Cash ........................ 70,777 152,132
Restricted cash-Note B ...... 536,138 529,818
Accrued investment income ... 295,042 307,164
Deferred policy acquisition
costs ...................... 6,839,729 6,950,147
Deferred offering costs ..... 69,087 69,087
Property and equipment ...... 577,447 584,560
Accounts and notes receivable 482,365 477,118
Deferred tax asset-Note C ... 1,752,064 1,831,268
Other assets ................ 111,046 118,034
------------ ------------
TOTAL ASSETS ............ $ 26,474,265 $ 26,315,767
============ ============
</TABLE>
Note: The balance sheet at December 31, 1994 has been derived from audited
financial statements at that date.
See notes to condensed consolidated financial statements.
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<PAGE> 130
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
LIABILITIES (Unaudited) (Note)
------------ ------------
<S> <C> <C>
Policy reserves and contract
liabilities:
Future policy benefits $ 14,083,861 $ 14,183,923
Policy claims payable 1,040,641 941,297
------------- -------------
15,124,502 15,125,220
Other policyholders' funds 765,224 812,215
Other liabilities 276,552 360,300
Federal income taxes-Note C
Current 47,270 0
Deferred 1,830,906 1,870,328
------------- -------------
TOTAL LIABILITIES 18,044,454 18,168,063
------------- -------------
Deferred credit-sales
proceeds from public
stock offering of
subsidiary 15,351 15,351
------------- -------------
Minority interest in
consolidated subsidiary 16,001 14,954
------------- -------------
STOCKHOLDERS' EQUITY
Capital shares:
Preferred Stock, 8% non-cumulative
convertible and callable,
par value $24.875, 200,000
shares authorized, issued
and outstanding 10,285
shares in 1995 and 10,525
shares in 1994 255,839 261,809
Common Stock, par value
$.125, 2,129,600 shares
authorized, issued and
outstanding 2,099,828
shares in 1995 and
2,099,187 shares in 1994 262,479 262,398
Other stockholders equity:
Additional paid-in capital 6,024,078 6,018,187
Syndication costs on oil and gas
partnerships (80) (80)
Accumulated earnings 1,856,143 1,575,085
------------- -------------
</TABLE>
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<PAGE> 131
<TABLE>
<S> <C> <C>
TOTAL STOCKHOLDERS' EQUITY 8,398,459 8,117,399
------------- -------------
TOTAL LIABILITIES AND
AND STOCKHOLDERS' EQUITY $ 26,474,265 $ 26,315,767
============= =============
</TABLE>
Note: The balance sheet at December 31, 1994 has been derived from audited
financial statements at that date.
See notes to condensed consolidated financial statements.
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<PAGE> 132
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATION (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
------------ ------------
<S> <C> <C>
Revenues:
Insurance revenues $ 1,866,771 $ 1,915,571
Net investment income 284,741 232,167
Other 70,547 48,270
------------ ------------
TOTAL REVENUE 2,222,059 2,196,008
Benefits and expenses:
Insurance benefits paid
or provided:
Increase in policy reserves (207,031) 415,262
Policyholders' dividends 23,088 21,590
Policyholders' coupons 2,474 6,713
Claim and benefit expense 893,060 728,688
------------ ------------
711,591 1,172,253
Salaries 215,668 218,647
Underwriting and insurance
expenses 547,581 608,412
Amortization of deferred policy
acquisition costs 370,379 370,228
Equity in (gains) losses of
partnerships (93) (102)
------------ ------------
TOTAL BENEFITS AND EXPENSES 1,845,126 2,369,438
------------ ------------
NET GAIN (LOSS) BEFORE
INCOME TAXES 376,933 (173,430)
Federal income tax expense-Note C 94,828 (56,980)
Minority interest in net income
(loss) of consolidated
subsidiary 1,047 (656)
------------ ------------
NET GAIN (LOSS) $ 281,058 $ (115,794)
============ ============
Net gain (loss) per share of
common stock-Note D $ 0.13 $ (0.05)
============ ============
Weighted average number of
common shares outstanding
during the period-Note D 2,127,186 2,127,183
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE> 133
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
--------- ---------
<S> <C> <C>
CASH PROVIDED BY OPERATING
ACTIVITIES $ 375,469 $ 442,824
--------- ---------
Financing Activities
Proceeds of stock sale 0 2,773
--------- ---------
CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 0 2,773
--------- ---------
Investing Activities
Sales of Investments 193,565 250,759
Purchases of investments (640,517) (699,346)
Purchases of property and equipment (3,552) (895)
Sales of property and equipment 0 1,200
--------- ---------
CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (450,504) (448,282)
--------- ---------
INCREASE IN CASH (75,035) (2,685)
Cash and restricted cash
at beginning of period 681,950 643,932
--------- ---------
CASH AND RESTRICTED CASH AT END
OF PERIOD $ 606,915 $ 641,247
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE> 134
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-QSB as specified in
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1995
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1995. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report of Form 10-KSB for the year ended December 31, 1994.
NOTE B - RESTRICTED CASH
The restricted cash represents funds in escrow received from a public offering
of stock of the Company's subsidiary First American Investment Corporation.
These funds are represented by cash or cash equivalents and the use thereof is
restricted by agreement approved by the Louisiana Insurance Department.
Restricted cash increased $6,320 in 1995. This increase is reflective of
interest earned on cash received from stock sales.
NOTE C - INCOME TAXES
Deferred tax assets are those items that are expected to reduce income tax
liabilities in the future. For the Company, those items are primarily the excess
of the liability for future policy benefits over reserves determined for tax
purposes, net operating loss carryovers and alternative minimum tax credit
carryforwards. For the Company, deferred tax liabilities are mostly caused by
the balance sheet asset for deferred acquisition costs, 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 the Company. Because of this and the effects of the alternative
minimum tax, in a given year actual income tax payments by the Company may
exceed the income tax expense shown by the income statement. A valuation account
has been established for a portion of the deferred tax asset which may expire
before being used to offset taxable income.
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<PAGE> 135
NOTE D - NET INCOME PER SHARE
Net income per share of common stock is based upon the number of shares of
common stock outstanding during the year plus the assumed conversion of the
preferred stock. The weighted average number of shares assumed to be outstanding
for the three month period ended March 31, 1995 and 1994 was 2,127,186 and
2,127,183.
-7-
<PAGE> 136
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.
-1-
<PAGE> 137
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.
1.2 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
-2-
<PAGE> 138
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.
(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).
-3-
<PAGE> 139
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 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
-4-
<PAGE> 140
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:
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
-5-
<PAGE> 141
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 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
-6-
<PAGE> 142
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
-7-
<PAGE> 143
affected, or under their respective Articles of 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.
-8-
<PAGE> 144
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 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.
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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:
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.
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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 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
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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.
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.
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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 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.
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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 this
Agreement and the transactions contemplated herein as may be required by the
statutes, rules and regulations of such states.
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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
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best efforts in order to consummate the transactions contemplated hereby as
promptly as practicable.
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
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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, 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
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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 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;
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(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:
(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:
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(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 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
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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 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.
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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
ATTN: Patrick J. Browne
Phone: (303) 573-1600
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 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
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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.
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.
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Fourth: The executed agreement of merger is on file at American Liberty
Financial Corporation's offices at ____________________________.
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
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consummating the transactions contemplated by the
Agreement:
(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;
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(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;
(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.
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Letter to Louisiana Commissioner of Securities dated August 26,
1994.
Letter to Louisiana Commissioner of Insurance dated August 29,
1994.
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AGREEMENT TO AMEND
PLAN AND AGREEMENT OF MERGER
THIS AGREEMENT is made and entered into this 1st day of May, 1995, by
and among American Liberty Financial Corporation ("ALFC"), American Liberty Life
Insurance Company ("ALLIC"), Citizens, Inc. ("Citizens") and Citizens
Acquisition, Inc. ("Acquisition").
WHEREAS, the parties to this Agreement have entered into a Plan and
Agreement of Merger (the "Merger Agreement") dated December 8, 1994; and
WHEREAS, the parties hereto wish to amend the Merger Agreement;
NOW, THEREFORE, for good and valuable consideration consisting of the
promises below, it is agreed among the parties as follows:
That Subsections (f) of Section 8.1 of the Merger Agreement is hereby
amended in their entirety to read as follows (subsections (a) through (e) and
(g) of Section 8.1 shall remain unchanged):
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:
. . . .
(f) By any party if the Effective Date is not on or before August 31,
1995.
. . . .
All other terms of the Merger Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the undersigned have set their hands and seals this
1st day of May, 1995.
CITIZENS, INC. AMERICAN LIBERTY FINANCIAL CORPORATION
By:/s/ Harold E. Riley By:/s/ James I Dunham
------------------------- --------------------------
Harold E. Riley, Chairman James I. Dunham, President
CITIZENS ACQUISITION, INC. AMERICAN LIBERTY LIFE INSURANCE COMPANY
By:/s/ Harold E. Riley By:/s/ James I. Dunham
------------------------- --------------------------
Harold E. Riley, Chairman James I. Dunham, President
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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.
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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.
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(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.
(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
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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
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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 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.
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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.
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.
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(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:
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(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 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
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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:
(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
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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
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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:
(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:
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(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:
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(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
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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:
(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,
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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.
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(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.
(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.
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(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
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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.
(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.
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(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.
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(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 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
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(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:
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(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 furnished to the corporation, copies of
commitments
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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
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reccommendation, 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
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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
Exhibit
Number Description of Exhibits
- ------- -----------------------
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; Agreement to Amend Plan and
Agreement of Merger, dated May 1, 1995(f)
3.1 Articles of Incorporation, as amended(a)
3.2 Bylaws(e)
5.1 Opinion and consent of Jones & Keller, P.C. as to the
legality of Citizens, Inc. Common Stock(g)
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8.1 Opinion re: tax matters (g)
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)
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)
23.4 Consent of Consulting Actuarial Services, Inc.(c)
23.5 Consent of Rudd and Wisdom, Inc., consulting
actuaries(c)
25 Power of Attorney(c) (see signature pages)
- ----------
(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.
(e) Filed with the Registrant's Registration Statement on
May 2, 1995.
(f) Filed herewith as Appendix A to Proxy
Statement-Prospectus.
(g) Filed with Registrant's Registration Statement,
Amendment No. 1, on July 3, 1995.
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(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.
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.
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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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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
II-IV
<PAGE> 198
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;
(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-V
<PAGE> 199
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement, Amendment No. 4, to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Austin, State of Texas, on July 27, 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, Amendment No. 4, 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 July 27, 1995
Harold E. Riley Director
/s/ Mark A. Oliver, as attorney Vice Chairman, Chief Executive July 27, 1995
in fact for Randall Riley Officer and Director
Randall Riley
__________________________ Vice Chairman, Chief Actuary
T. Roby Dollar and Assistant Secretary
/s/ Mark A. Oliver, as attorney President, Chief Administrative July 27, 1995
in fact for Rick D. Riley Officer and Director
Rick D. Riley
/s/ Mark A. Oliver Executive Vice President, July 27, 1995
Mark A. Oliver Chief Financial Officer,
Secretary and Treasurer
/s/ Mark A. Oliver, as attorney Vice President and Controller July 27, 1995
in fact for John A. Templeton
John A. Templeton
/s/ Mark A. Oliver, as attorney Director July 27, 1995
in fact for Flay F. Baugh
Flay F. Baugh
/s/ Mark A. Oliver, as attorney Director July 27, 1995
in fact for Joe R. Reneau, M.D.
Joe R. Renau, M.D.
</TABLE>
II-VI
<PAGE> 200
<TABLE>
<S> <C> <C>
/s/ Mark A. Oliver, as attorney Director July 27, 1995
in fact for Steven F. Shelton
Steven F. Shelton
_________________________ Director
Ralph M. Smith. Th.D.
/s/ Mark A. Oliver, as attorney Director July 27, 1995
in fact for Timothy T. Timmerman
Timothy T. Timmerman
</TABLE>
II-VII
<PAGE> 201
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 September 14, 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
----------------------------------------------------------------------
<PAGE> 202
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> 203
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; Agreement to
Amend Plan and Agreement of Merger, dated
May 1, 1995 Appendix A
3.2 Bylaws (See Registrant's
Registration Statement dated
May 2, 1995)
5.1 Opinion and consent of Jones & Keller, P.C. as
to the legality of Citizens, Inc. Common Stock (See Registrant's Registration
Statement, Amendment No. 1,
dated July 3, 1995)
8.1 Opinion re: tax matters (See Registrant's Registration
Statement, Amendment No. 1,
dated July 3, 1995)
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. Filed herewith
23.2 Consent of KPMG Peat Marwick LLP Filed herewith
23.3 Consent of Amend, Smith & Co., P.C. Filed herewith
23.4 Consent of Consulting Actuarial Services, Inc. Filed herewith
23.5 Consent of Rudd and Wisdom, Inc., Consulting Actuaries Filed herewith
25 Power of Attorney (See Signature Page)
</TABLE>
<PAGE> 1
Exhibit 23.1
We consent to the use of our opinion, Exhibit 5.1, filed on July 3,
1995, 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.
Denver Colorado
July 27, 1995
<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
July 27, 1995
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Registration Statement, Amendment No. 4, 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,
Amendment No. 4, 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
July 27, 1995
<PAGE> 1
[LETTERHEAD]
EXHIBIT 23.4
ACTUARIES' CONSENT
We consent to the reference to and use of our report on American
Liberty Life Insurance Company in the amended Form S-4 of Citizens, Inc. The
report is set forth in our letter of February 15, 1995 to the independent
accountants of American Liberty Life Insurance Company.
CONSULTING ACTUARIAL SERVICES, INC.
By: /s/ ERNEST HUVAL
-----------------------------
Ernest Huval, President
Baton Rouge, Louisiana
July 27, 1995
<PAGE> 1
EXHIBIT 23.5
ACTUARIES' CONSENT
We consent to the reference to and the use of our February 27, 1995
Actuarial Report on Citizens Insurance Company of America in the amended Form
S-4 of Citizens, Inc.
RUDD AND WISDOM, INC.
CONSULTING ACTUARIES
By: /s/ CHRIS MCCAUL
------------------------------------
Chris McCaul
Austin, Texas
July 27, 1995
