<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1996
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------
CITIZENS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
COLORADO 6311 84-0755371
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
</TABLE>
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
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. FRANK G. NEWMAN, ESQ.
JONES & KELLER, P.C. NEWMAN & DAVENPORT, P.C.
1625 BROADWAY, SUITE 1600 2050 ALLIANZ FINANCIAL CENTRE LB135
DENVER, COLORADO 80202 2323 BRYAN STREET
(303) 573-1600 DALLAS, TEXAS 75201
(214) 754-0025
--------------------
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the effective date of this
Registration Statement
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
Title of each class of Amount to Proposed maximum Proposed Amount of
securities to be be registered offering price maximum aggregate registration
registered per share offering price fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, 133,212(1) $9.00(2) $1,198,908(2) $364
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.
================================================================================
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> 2
CITIZENS, INC.
Cross-Reference Sheet
For
Registration Statement on Form S-4 and Prospectus-Proxy Statement
<TABLE>
<CAPTION>
Form S-4
Item No. Item Caption Heading in Prospectus
- --------- ------------ ---------------------
<S> <C> <C>
1 Forepart of Registration Statement Outside Front Cover
and Outside Front Cover Page of
Prospectus
2 Inside Front and Outside Back Cover Inside Front Cover; The Merger
Pages of Prospectus
3 Risk Factors, Ratio of Earnings to Summary; Risk Factors; The
Fixed Charges and Other Information Merger
4 Terms of the Transaction Summary; The Merger; Comparison of
Rights of Securityholders; Certain
Federal Income Tax Consequences
5 Pro Forma Financial Information Not applicable
6 Material Contacts with the Registrant Summary; The Merger
7 Additional Information Required for Not applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
8 Interests of Named Experts and Not applicable
Counsel
9 Disclosure of Commission Position Not applicable
on Indemnification for Securities Act
Liabilities
10 Information with Respect to S-3 Incorporation of Certain Documents
Registrants by Reference; Risk Factors
11 Incorporation of Certain Information Incorporation of Certain Documents
by Reference by Reference
12 Information with Respect to S-2 or Not applicable
and S-3 Registrant
13 Incorporation of Certain Information Not applicable
by Reference
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C>
14 Information with Respect to Not applicable
Registrants Other Than S-2
or S-3 Registrants
15 Information with Respect to S-3 Not applicable
Companies
16 Information with Respect to S-2 or Not applicable
S-3 Companies
17 Information with Respect to Summary; Business of First American;
Companies Other than S-2 or Management's Discussion and
S-3 Companies Analysis - First American
18 Information if Proxies, Consents Not applicable
or Authorizations are to be Solicited
19 Information if Proxies, Consents or Summary; The Special Meeting
Authorizations Are Not to be Solicited
</TABLE>
iii
<PAGE> 4
FIRST AMERICAN INVESTMENT CORPORATION
400 EAST ANDERSON LANE
AUSTIN, TEXAS 78752
(512) 837-7100
_______, 1996
Dear Shareholder:
Enclosed please find an Information Statement-Prospectus relating to
approval by the holders of a majority of the outstanding shares of First
American Investment Corporation Common Stock, $.001 par value ("First American
Stock"), relating to (i) the sale of all or substantially all of the assets of
First American Investment Corporation ("First American") to an unaffiliated
third party pursuant to a Stock Purchase Agreement dated October 18, 1996 and
(ii) an Agreement and Plan of Merger dated October 31, 1996 ("Merger
Agreement") by and among First American, Citizens Insurance Company of
American, Inc. (a wholly-owned subsidiary of Citizens, Inc. and referred to
herein as "CICA") and CICA Acquisition, Inc. ("Acquisition," a wholly-owned
subsidiary of CICA). Upon consummation of the Merger Agreement each
outstanding share of First American Stock will be converted into .1111 shares
of Citizens, Inc. Class A Common Stock as described in the Information
Statement-Prospectus.
The enclosed Information Statement-Prospectus provides a description
of the proposed sale of assets and Merger, as well as information concerning
First American and Citizens, Inc.
The Board of Directors has unanimously approved the proposed sale of
assets and the Merger Agreement. Your Board believes the proposed sale of
assets and Merger Agreement and the consideration to be provided to the
shareholders is fair and in the best interest of First American shareholders
other than Citizens, Inc. and its subsidiaries.
DISSENTING SHAREHOLDERS WHO COMPLY WITH THE PROCEDURAL REQUIREMENTS OF
THE BUSINESS CORPORATION LAW OF LOUISIANA WILL BE ENTITLED TO RECEIVE PAYMENT
OF THE FAIR CASH VALUE OF THEIR SHARES. A COPY OF PART XIII OF THE LOUISIANA
BUSINESS CORPORATION LAW, WHICH SETS FORTH THE RIGHTS OF DISSENTERS IS ATTACHED
TO THIS INFORMATION STATEMENT-PROSPECTUS AS APPENDIX C.
ENCLOSED IS A LETTER OF TRANSMITTAL AND INSTRUCTIONS FOR SUBMISSION OF
YOUR SHARE CERTIFICATES. SHAREHOLDERS WHO PLAN TO DISSENT FROM THE MERGER
SHOULD NOT SUBMIT THEIR CERTIFICATES WITH THE LETTER OF TRANSMITTAL.
Very truly yours,
/s/ Harold E. Riley
Harold E. Riley
President and Chairman of the Board
Enclosures
<PAGE> 5
FIRST AMERICAN INVESTMENT CORPORATION
----------
NOTICE OF ACTION BY HOLDERS OF 94.5% OF THE SHARES
OF COMMON STOCK, $.001 PAR VALUE
ON NOVEMBER 5, 1996
NOTICE IS HEREBY GIVEN that pursuant to Louisiana law, 94.5% of the
holders of record of shares as of November 5, 1996 owning the $.001 par value
common stock ("First American Stock"), entitled to vote have approved (i) a
Stock Purchase Agreement dated October 18, 1996 by and between First American
Investment Corporation ("First American") and Funeral Services International,
Inc. ("Funeral Services"), attached hereto as Appendix B, under which Funeral
Services will acquire all of the outstanding stock of a wholly-owned subsidiary
of First American, Funeral Homes of Louisiana, Inc. ("Funeral Homes"), such
agreement providing for the sale of all or substantially all of the assets of
First American outside the ordinary course of business and (ii) an Agreement
and Plan of Merger dated October 31, 1996 ("Merger Agreement") by and among
First American, Citizens Insurance Company of American, Inc. (a wholly-owned
subsidiary of Citizens, Inc. referred to herein as "CICA") and CICA
Acquisition, Inc. ("Acquisition," a wholly-owned subsidiary of CICA). Upon
consummation of the Merger, each outstanding share of First American Stock
(other than shares held by Citizens, Inc., CICA, First American, and their
subsidiaries) will be converted into .1111 shares of Citizens, Inc. Class A
Common Stock, no par value ("Citizens Class A Stock"), as described in the
Information Statement-Prospectus. No fractional shares of Citizens Class A
Stock will be issued in the Merger; rather, share fractions will evidence the
right to receive a cash value of $9.00 per share per fractional share of
Citizens Class A Stock.
----------
NO PROXY IS BEING SOLICITED HEREBY AND YOU ARE NOT REQUESTED TO SEND
A PROXY.
----------
2
<PAGE> 6
FIRST AMERICAN INVESTMENT CORPORATION
INFORMATION STATEMENT
----------
CITIZENS, INC.
PROSPECTUS
CLASS A COMMON STOCK, NO PAR VALUE
UP TO 133,212 SHARES
----------
This Information Statement-Prospectus is furnished by the Board of Directors of
First American Investment Corporation ("First American") to holders of shares
of First American Common Stock, $.001 par value ("First American Stock"), in
connection with the sale of all or substantially all of the assets of First
American to an unaffiliated party, through a Stock Purchase Agreement, and with
the Merger Agreement as discussed below. This Prospectus pertains to the
number of shares of Class A Common Stock, no par value ("Citizens Class A
Stock"), of Citizens, Inc. ("Citizens") to be issued in connection with an
Agreement and Plan of Merger dated October 31, 1996 ("Merger Agreement") by and
among First American, Citizens Insurance Company of America, Inc. (a
wholly-owned subsidiary of Citizens referred to herein as "CICA") and CICA
Acquisition, Inc. ("Acquisition," a wholly-owned subsidiary of CICA). Upon
consummation of the Merger, each outstanding share of First American Stock will
be converted into .1111 shares of Citizens Class A Stock, as described in this
Information Statement-Prospectus, and Acquisition will be merged into First
American, with First American becoming a wholly-owned subsidiary of CICA. No
fractional shares of Citizens Class A Stock will be issued in the Merger;
rather, share fractions will evidence the right to receive a cash value of
$9.00 per share per fractional share of Citizens Class A Stock. The
approximate date of mailing of this Information Statement-Prospectus to
shareholders of First American is __________, 1996.
-------------
This Information Statement-Prospectus and the material which accompany it were
mailed to First American shareholders on or about _________, 1996.
-------------
The Citizens Class A Stock is listed on the American Stock Exchange under the
symbol "CIA." On _________, 1996, the closing price of Citizens Class A 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 INFORMATION 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 Information Statement-Prospectus, and if given or made,
such information or representation should not be relied upon as having been
authorized. This Information Statement-Prospectus does not constitute an offer
to exchange or sell, or a solicitation of an offer to exchange or purchase, the
securities offered
3
<PAGE> 7
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 Information Statement-Prospectus
nor any distribution of the securities to which this Information
Statement-Prospectus relates shall, under any circumstances, create an
implication that there has been no change in the affairs of Citizens, CICA,
Acquisition, or First American.
This Information Statement-Prospectus does not cover any resales of shares of
the securities offered hereby to be received by shareholders of First American
upon consummation of the Merger Agreement. No person is authorized to use this
Information Statement-Prospectus in connection with such resales, although such
securities may be traded without use of this Information Statement-Prospectus
by those shareholders of First American not deemed to be "affiliates" of either
First American or Citizens.
-------------
The principal executive offices of First American, Citizens, CICA and
Acquisition are located at 400 East Anderson Lane, Austin, Texas 78752,
telephone (512) 837-7100.
-------------
The date of this Information Statement-Prospectus is ___________, 1996.
4
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . 8
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Parties to the Merger . . . . . . . . . . . . . . . . . . . . 11
Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . 11
Consideration of the Merger by the First American Board . . . . . 11
Consideration of the Merger by the Citizens Board . . . . . . . . 12
Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . 12
Comparative Rights of Shareholders . . . . . . . . . . . . . . . . 12
The Parties to the Stock Exchange Agreement . . . . . . . . . . . 12
The Stock Purchase Agreement - Sale of Substantially All
of the Assets of First American . . . . . . . . . . . . . 13
Market Prices . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 14
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
FIRST AMERICAN VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF . . . . . . 19
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Background and Reasons for the Merger . . . . . . . . . . . . . . 20
Consideration of the Merger by the First American Board . . . . . 20
Consideration of the Merger by the Citizens Board . . . . . . . . 21
Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . 21
Stock Exchange Listing . . . . . . . . . . . . . . . . . . . . . . 22
Terms of the Merger Agreement . . . . . . . . . . . . . . . . . . 22
Receipt of Citizens Shares . . . . . . . . . . . . . . . . . . . . 22
Other Conditions to Consummation of the Merger . . . . . . . . . . 22
Termination or Amendment of the Merger Agreement . . . . . . . . . 23
Expenses and Liability for Termination . . . . . . . . . . . . . . 23
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . 23
INFORMATION CONCERNING CITIZENS . . . . . . . . . . . . . . . . . . . . . . 26
CERTAIN SECURITY OWNERSHIP OF CITIZENS . . . . . . . . . . . . . . . . . . 27
MANAGEMENT OF CITIZENS . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . 31
Executive Officer and Director Compensation . . . . . . . . . . . 32
BUSINESS OF FIRST AMERICAN . . . . . . . . . . . . . . . . . . . . . . . . 34
MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - FIRST AMERICAN . . . . . . . . . . . 35
Results of Operations . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
5
<PAGE> 9
<TABLE>
<S> <C>
Six Months ended June 30, 1996 and 1995 . . . . . . . . . 35
Three Months ended June 30, 1996 and 1995. . . . . . . . . 35
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . 35
COMPARISON OF RIGHTS OF SECURITYHOLDERS . . . . . . . . . . . . . . . . . . 37
Authorized Shares . . . . . . . . . . . . . . . . . . . . . . . . 37
Dividend Rights . . . . . . . . . . . . . . . . . . . . . . . . . 37
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . 38
Liability of Directors . . . . . . . . . . . . . . . . . . . . . . 38
Liquidation Rights . . . . . . . . . . . . . . . . . . . . . . . . 38
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . 39
SOURCE OF CITIZENS SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 40
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . 41
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES . . . . . . 41
</TABLE>
6
<PAGE> 10
AVAILABLE INFORMATION
Citizens is 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 the 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. Also, the SEC maintains a worldwide web site that
contains such materials of Citizens at "http://www.sec.gov." 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 Stock to be
issued in connection with the transactions described herein. This Information
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 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.
7
<PAGE> 11
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 Information Statement-Prospectus and are deemed to be a part hereof:
(a) Citizens' Annual Report on Form 10-K for the year ended December 31, 1995;
(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 Reports on Form 10-Q for the quarters ended
March 31 and June 30, 1996. 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
Information Statement-Prospectus, and until the later of consummation or
termination of the Merger, shall be deemed to be incorporated by reference into
this Information 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 Information Statement-Prospectus to the extent
that a statement contained herein or in any subsequently filed document that
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed to constitute a part of this Information Statement-Prospectus, except as
so modified or superseded.
THIS INFORMATION 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
PROSPECTUS IS SENT, UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH COPIES
SHOULD BE DIRECTED TO MARK A. OLIVER, SECRETARY, FIRST AMERICAN INVESTMENT
CORPORATION, 400 EAST ANDERSON LANE, AUSTIN, TEXAS 78752. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY ___________,
1996.
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
INFORMATION STATEMENT-PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CITIZENS OR
FIRST AMERICAN. THIS INFORMATION STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR A SOLICITATION TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS INFORMATION
STATEMENT-PROSPECTUS NOR ANY EXCHANGE OR SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF CITIZENS OR FIRST AMERICAN SINCE THE DATE AS OF WHICH INFORMATION IS
FURNISHED OR THE DATE HEREOF.
8
<PAGE> 12
SUMMARY
The following is a summary of certain information contained elsewhere
in this Information Statement-Prospectus. Reference is made to, and this
Summary is qualified in its entirety by, the more detailed information
contained elsewhere in this Information Statement-Prospectus, the exhibits
hereto and, the documents incorporated by reference herein. Each holder of
First American Stock should read carefully this Information
Statement-Prospectus and the appendix hereto in their entirety.
THE PARTIES TO THE MERGER
Citizens Insurance Company of America, Inc. ("CICA"), a Colorado
corporation, is a wholly-owned subsidiary of Citizens, Inc. ("Citizens"), a
Colorado corporation. CICA is an insurance company. Citizens is an insurance
holding company. The principal executive offices of CICA and Citizens are
located at 400 East Anderson Lane, Austin, Texas 78752, and the telephone
number at such office is (512) 837-7100.
CICA Acquisition, Inc. ("Acquisition," a wholly-owned subsidiary of
CICA) and was formed solely to effectuate the Merger. Acquisition has the same
principal executive office as Citizens.
First American is a Louisiana corporation which acts as a holding
company of a subsidiary engaged in the operation of a funeral home in
Louisiana. As used herein the term "First American" refers to First American
Investment Corporation and its subsidiaries, unless the context otherwise
requires. The principal executive offices of First American are located at 400
East Anderson Lane, Austin, Texas 78752, and its telephone number at that
address is (512) 837-7100.
THE MERGER AGREEMENT
SUMMARY OF THE MERGER CICA, Acquisition and First
American have entered into
an Agreement and Plan of
Merger dated October 31,
1996 ("Merger Agreement") in
which Acquisition will merge
with and into First
American and First American
shareholders (other than
First American, Citizens,
CICA, Acquisition, and their
subsidiaries) will receive
shares of Citizens Class A
Stock (the "Merger").
CONSIDERATION FOR EACH SHARE OF FIRST AMERICAN Pursuant to the Merger
Agreement, First American
shareholders will receive
.1111 shares of Citizens
Class A Stock for each one
share of First American
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 Stock equal to $9.00
per share. See "The
Merger--Receipt of Citizens
Shares."
9
<PAGE> 13
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
First American shareholder
approval is obtained and
shall become effective on
or as soon as possible
after the Closing Date.
It is anticipated that the
Closing will occur and the
Merger will be effective on
or shortly after shareholder
approval is obtained.
DISSENTERS' RIGHTS Under the Louisiana Business
Corporation Law,
shareholders of First
American have the right to
dissent from the Merger and
demand payment of the value
of their shares in cash.
See "Rights of First
American Dissenting
Shareholders To Receive
Payment For Shares" and
Appendix C which sets forth
the relevant Louisiana
statutes concerning rights
of dissenting shareholders.
CONDITIONS PRECEDENT TO THE MERGER The Merger is subject to the
satisfaction of a number of
conditions including (1) the
performance by each party
of its respective
obligations under the Merger
Agreement, (2) the absence
of any legal proceedings
relating to the
transactions contemplated by
the Merger Agreement, and
(3) the continued material
accuracy of representations
made by each party. See
"The Merger--Other
Conditions to Consummation
of the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO Citizens believes that the
HOLDERS OF FIRST AMERICAN STOCK following federal income tax
consequences are expected to
result from the Merger: (1)
each First American
shareholder will recognize
gain or loss upon the receipt
by him or her of shares of
Citizens Class A Stock in
exchange for his or her
shares of First American Stock
pursuant to the Merger.
Such gain or loss will be
capital gain or loss,
provided that such shares of
First American Stock are held
as a capital asset at the
time of the consummation of
the Merger, and would be
long-term capital gain or
loss if the First American
Stock had been held for
longer than one year; and
(2) a shareholder's basis in
the Citizens Class A Stock
received pursuant to the
Merger will be the fair
market value of the Citizens
Class A Stock on the date
of the Merger, and the
shareholder's holding period
for such shares will begin on
such date. See "Certain
Federal Income
Tax Consequences."
REGULATORY APPROVALS Citizens is not aware of
any federal or state
regulatory approvals required
in connection with the Merger.
10
<PAGE> 14
ACCOUNTING TREATMENT The Merger will be accounted
for as a "purchase"
transaction for accounting
and financial reporting
purposes.
REASONS FOR THE MERGER
First American was incorporated under Louisiana law in November 1984.
It conducted no operations until the late 1980's, when it determined to
undertake a public offering of its stock on an intrastate basis only in
Louisiana. The purpose of the offering was to organize and finance two funeral
home subsidiaries and a Louisiana life insurance company. Through December 31,
1995, 1,197,900 shares of First American Stock had been issued pursuant to the
public offering. No efforts were made to continue to sell the public offering
after that time. In 1992, First American began its funeral home operations
through a subsidiary with the construction of its only funeral home. First
American was unable to raise sufficient capital to form an insurance subsidiary
or commence operating a second funeral home. Virtually all of the shareholders
of First American who bought First American Stock in its public offering are
the shareholders to whom the Citizens Class A Stock will be received in the
Merger. The funeral operations of First American have resulted in continuous
losses since operations began in 1992. In 1994 and 1995 funeral home revenues
were approximately $259,000 and $273,000, respectively, and the net loss from
operations in each year was approximately $118,000. In September 1995, the
parent of First American, American Liberty Financial Corporation, was acquired
by Citizens. At that time, all of the officer and director positions of First
American were filled by officers and directors of Citizens. Thereafter,
Citizens conducted an in depth review of the operations of First American.
Citizens believes that First American, after several years of losses in the
funeral home business and without significant prospects for growth, should wind
up its business. In this regard, the Stock Purchase Agreement with Funeral
Services was executed. However, Citizens desires to extend the opportunity to
First American shareholders to participate in the ongoing ownership of Citizens
through ownership of Citizens Class A Stock. Accordingly, Citizens determined
to propose the Merger, under which it would, through a subsidiary, acquire
approximately 5.5% of First American Stock held by persons other than Citizens
or its subsidiaries. There is no trading market for the First American Stock.
Citizens Class A Stock is traded on the American Stock Exchange.
CONSIDERATION OF THE MERGER BY THE FIRST AMERICAN BOARD
The terms of the Merger reflect negotiations between the Citizens
Board and the First American Board. It should be noted that all of the First
American Board members are also either directors or full-time employees of
Citizens and, therefore, are faced with conflicts of interest in their decision
to recommend the Merger. See "Conflicts of Interest" below. The First
American Board has been advised by independent legal counsel but has not
retained an independent investment banking firm with respect to deliberations
concerning the Merger. Notwithstanding the foregoing, the First American Board
has determined that the Merger is fair and to the best interests of First
American shareholders (other than Citizens and its subsidiaries).
In reaching its determination, the First American Board considered
numerous factors, including, in particular, the near and future term prospects
of First American, including the potential liquidation value of First American,
the lack of outside financing alternatives available to First American, the
history of losses
11
<PAGE> 15
of First American, the nondiversification of the business of First American and
the lack of any trading market for the First American Stock. The First
American Board believes that the proposed consideration to be paid by Citizens
is substantially in excess of a liquidation or going concern value of First
American and substantially greater in value than any other potential offer to
acquire First American because the value of $1.00 per share for First American
Stock proposed to be purchased is substantially greater than any reasonable
value that could be achieved for First American. For example, the book value
per share of First American Stock as of June 30, 1996 was approximately $.02
per share. Also, assuming the sale of the stock of Funeral Homes is completed,
the book value per share of First American Stock will not increase
significantly. The First American Board did not attach a relative weight to
the factors it considered in reaching its decision but, considering all factors
discussed herein, determined that the Merger is fair to and in the best
interests of the First American shareholders. See "The Merger--Consideration
of the Merger by the First American Board."
CONSIDERATION OF THE MERGER BY THE CITIZENS BOARD
The Board of Directors of Citizens (the "Citizens Board") has
concluded that the Merger is the appropriate mechanism for accomplishing the
proposed acquisition of the shares of First American that Citizens or its
subsidiaries does not own. The Merger affords First American shareholders the
opportunity to maintain an ownership interest in Citizens through the ownership
of a security with substantially greater liquidity. At present, there is
virtually no market for First American Stock. The Citizens Board believes that
the Merger will provide First American shareholders consideration approximately
in equal value to the purchase price of their investment in the public offering
of First American. See "The Merger--Background and Reasons for the Merger."
CONFLICTS OF INTEREST
The terms of the Merger were negotiated between the Citizens Board and
the First American Board and the exchange ratio was finalized at .1111 per
share. Citizens has fiduciary duties to the public shareholders of First
American that conflict with the duties of the Citizens Board to Citizens and
its shareholders. The First American Board members who are also affiliates of
Citizens have conflicts of interest with regard to their obligations to the
shareholders of Citizens and First American. See "The Merger--Conflicts of
Interest."
COMPARATIVE RIGHTS OF SHAREHOLDERS
The rights of First American shareholders are currently governed by
Louisiana law, the First American Articles of Incorporation and the Bylaws of
First American. First American shareholders will become shareholders of
Citizens pursuant to the Merger. The rights of Citizens shareholders are
governed by Colorado law, the Citizens Articles of Incorporation, as amended,
and the Bylaws of Citizens. There are various differences between the rights
of First American shareholders and the rights of Citizens shareholders,
including, among others, dividend rights and voting rights. See "Description
of First American Stock--Comparison with Rights of Citizens Class A Stock."
THE PARTIES TO THE STOCK EXCHANGE AGREEMENT
First American is a Louisiana corporation which acts as a holding
company of a subsidiary engaged in the operation of a funeral home in
Louisiana. As used herein the term "First American" refers to First American
Investment Corporation and its subsidiaries, unless the context otherwise
requires. The principal executive offices of First American are located at 400
East Anderson Lane, Austin, Texas 78752, and its telephone number at that
address is (512) 837-7100.
12
<PAGE> 16
Funeral Services International, Inc. ("Funeral Services") is a
Louisiana corporation recently formed to engage in the business of acting as
the home operator. Funeral Services is not affiliated with First American,
Citizens, CICA, or any of their affiliates. Funeral Services is owned by L.
Roth ("Roth") and Eddie McCallum ("McCallum") of whom have been involved in the
management and operation of the business of First American.
THE STOCK PURCHASE AGREEMENT - SALE OF SUBSTANTIALLY ALL OF THE ASSETS OF FIRST
AMERICAN
The Stock Purchase Agreement dated October 18, 1996 is by and between
First American and Funeral Services and is attached hereto as Appendix B.
First American owns all of the outstanding capital stock of Funeral Homes and
Funeral Services desires to purchase Funeral Homes. The agreed upon purchase
price is $700,000 which will consist of payment in full of the existing
mortgage on the funeral homes of Funeral Homes (which as of June 30, 1996 was
approximately $80,000, along with a cash payment of approximately $620,000).
The closing of the Stock Purchase Agreement is anticipated to occur no later
than December 16, 1996. The Board of First American determined that the offer
for the stock of Funeral Homes is fair and reasonable and in the best interests
of First American and its shareholders.
MARKET PRICES
Citizens Class A Stock is traded on the American Stock Exchange
("AMEX") under the symbol "CIA." The high and low prices per share as supplied
by the AMEX Monthly Statistical Report are as follows. Prior to April, 1994,
Citizens Class A Stock was traded over the counter on the Nasdaq National
Market System and the prices were supplied by the NASDAQ Monthly Statistical
Report.
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ---------------- ----------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
March 31 $9.25 $8.25 $9.25 $7.13 $8.00 $7.75
June 30 8.94 5.13 9.69 8.25 8.25 8.12
September 30 8.13 5.88 15.63 7.25 8.38 7.63
December 31 -- -- 9.88 8.06 9.13 7.63
</TABLE>
As of October 31, 1996, the approximate number of record owners of
Citizens Class A Stock was 15,000. Citizens has not paid a cash dividend and
does not expect to pay cash dividends in the foreseeable future.
There is no trading market for the First American Stock.
13
<PAGE> 17
SELECTED FINANCIAL DATA
The tables below set forth, in summary form, selected financial data
of Citizens and First American. This data, which is not covered in the report
of the independent auditors, should be read in conjunction with the
consolidated financial statements and notes which are included elsewhere herein
(amounts in thousands except per share amounts).
CITIZENS, INC.
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
1996 1993 1992 1991
(Unaudited) 1995 1994 (As Restated) (As Restated) (As Restated)
------------ ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET OPERATING
REVENUES $ 29,180 $ 53,271 $ 49,157 $ 42,761 $ 33,134 $ 27,086
NET INCOME $ 666 $ 2,750 $ 4,175 $ 5,526 $ 3,907 $ 4,720
NET INCOME
PER SHARE $ 0.04 $ .16 $ .25 $ .34 $ .24 $ .31
TOTAL ASSETS $ 208,953 $ 205,486 $ 149,798 $ 134,105 $ 116,230 $ 76,482
TOTAL LIABILITIES $ 143,265 $ 140,773 $ 114,742 $ 106,090 $ 93,442 $ 63,282
TOTAL SHAREHOLDERS'
EQUITY $ 65,688 $ 64,713 $ 35,056 $ 28,015 $ 22,787 $ 13,083
BOOK VALUE PER
SHARE $ 3.26 $ 3.24 $ 1.99 $ 1.68 $ 1.37 $ .83
</TABLE>
FIRST AMERICAN INVESTMENT CORPORATION
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
1996
(Unaudited) 1995 1994 1993
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET OPERATING
REVENUES $ 177 $ 216 $ 195 $ 238
NET INCOME (LOSS) $ 35 $ (171) $ (155) $ (47)
NET INCOME (LOSS)
PER SHARE $ 0.002 $ (0.01) $ (0.01) $ (0.002)
TOTAL ASSETS $ 1,115 $ 1,078 $ 1,316 $ 1,401
TOTAL LIABILITIES $ 652 $ 649 $ 717 $ 647
TOTAL SHAREHOLDERS'
EQUITY $ 463 $ 429 $ 599 $ 754
BOOK VALUE PER
SHARE $ 0.02 $ 0.02 $ 0.03 $ 0.04
</TABLE>
14
<PAGE> 18
RISK FACTORS
The following risk factors, in addition to those discussed elsewhere
in this Information Statement-Prospectus, should be considered carefully in
evaluating Citizens and its business.
SIGNIFICANT MARKET OVERHANG. A registration statement of Citizens on
Form S-3 with the SEC is in effect relating to the public offer and sale by
certain holders of Citizens Class A Stock, including Harold E. Riley, Chairman
of the Board of Citizens. The registration statement relates to approximately
6,099,657 shares of Class A Common Stock or approximately 30% of the Citizens
Class A Stock outstanding. 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 Stock. Further, the prospect, even without the
actual sales, 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 Stock.
SALE OF SHARES AND EFFECT THEREOF. On October 27, 1994, Citizens
completed an offering of 916,375 shares of its Class A Stock under an exemption
from registration under the Securities Act of 1933. The offering was made
under Regulation S, which generally 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
an issuer, underwriter or dealer following the expiration of a 40-day period
after the close of the offering period. The offering price per share was
$7.00. Gross proceeds raised were $6,414,625 and net proceeds were
approximately $5,400,000. On December 21, 1994, Citizens contributed
$5,200,000 in capital to its wholly-owned life insurance subsidiary. The
subsequent resale of the Citizens Class A Stock sold in this offering into the
public market could adversely affect the price of the Citizens Class A 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
was $7.00 per share.
PROPOSED OFFERING OF 3,500,000 SHARES OF CITIZENS CLASS A 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 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
offering price is $7.50 per share. Management is unable to determine how
successful the offering will be. As of June 30, 1996, 125,450 shares had been
sold with gross proceeds of approximately $940,875.
Subsequent resale of these shares in the United States could have a
depressive effect upon the price of the Class A common shares, and it may be
assumed that overseas investors would have more of an incentive to sell their
Class A common shares because the price they paid for such stock will probably
be lower than the trading price of the Class A Common Stock.
ACQUISITION. On September 14, 1995, Citizens acquired First American,
a Baton Rouge, Louisiana based life insurance holding company, and former
parent of First American. Under the First American agreement, First American
shareholders received 1.10 shares of Citizens Class A Stock for each share of
First American Stock owned and 2.926 shares of Citizens Class A Stock for each
share of First American Preferred Stock owned. Citizens issued approximately
2.3 million Class A shares in connection with the transaction, which was
accounted for as a purchase. The subsequent sale of shares issued in this
transaction could have a depressive effect on the market price of the Class A
shares.
DEPENDENCE ON CITIZENS' CHAIRMAN. Citizens relies heavily on the
active participation of its Chairman of the Board, Harold E. Riley. The loss
of Mr. Riley's 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
15
<PAGE> 19
insurance on him totaling $1.25 million of which Citizens is the beneficiary.
Citizens has no disability insurance regarding Mr. Riley.
CONTROL. The shares of outstanding Citizens Class B Common Stock
("Citizens Class B Stock"), 100% of which is owned indirectly by Harold E.
Riley, Chairman of the Board of Citizens (through the Harold E. Riley Trust),
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.
INABILITY TO ELECT DIRECTORS. The Citizens Class A Stock 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 minority shareholders of Citizens cannot through their votes alone elect
any of Citizens' directors or otherwise control Citizens. Also, the Citizens
Class B Stock 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."
CONCENTRATION OF BUSINESS FROM PERSONS RESIDING IN THIRD WORLD
COUNTRIES. For the years ended December 31, 1995 and 1994, approximately 92.0%
and 91.8%, respectively, of Citizens' total insurance premium revenue was
derived from policies issued on the lives of Latin Americans. The policies
issued to such persons are ordinary, whole-life policies with an average face
amount of $60,000 and are marketed by independent marketing firms primarily to
heads of households which are in the top 3% to 5% income bracket of such
countries. Virtually all of the new business of Citizens' present life
insurance subsidiary comes from Latin America as well. There is a risk of loss
of a significant portion of sales to Latin Americans should adverse events
occur in the countries from which Citizens receives applications. To minimize
inherent risk, Citizens is not chartered as an insurance company in any foreign
country, maintains no assets or employees in foreign countries, accepts only
applications and premiums remitted directly to its main office in United States
currency drawn on U.S. banks, and includes various limitations to coverage
which are designed to minimize exposure to loss caused by social, economic and
political conditions. Citizens is not aware of any adverse trends in these
countries which would have a material adverse impact on Citizens' business.
Furthermore, management believes that political or economic instability in
these countries would likely have a favorable impact on Citizens' business
since such instability would generally strengthen the demand for U.S.
dollar-denominated policies.
NO DIVIDENDS. To date, Citizens has not paid cash dividends in
respect of its common stock 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
Citizens Class A Stock has a right to twice the cash dividends of the Citizens
Class B Stock. Because the Class B shareholders control Citizens, there is
little economic incentive for the Class B shareholders to determine 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 beneficiaries and
trustee of the Harold E. Riley Trust, which holds the Citizens Class B Stock,
are also the largest holders of Citizens Class A Stock.
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 its lapse and surrender rate within its
pricing assumptions for its insurance policies, Citizens believes that its
present lapse and surrender rate should not have a material adverse effect on
its financial results. For the years ended December 31, 1995, 1994 and 1993,
the Citizens' lapse ratio on ordinary business was 5.1%, 6.7% and 6.5%,
respectively.
16
<PAGE> 20
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 which are formed and operated within a particular
country. These types of companies are subject to risks of currency
fluctuations and generally use mortality tables which are based on the
experience of the local population as a whole. As a result, their prospects of
providing an economic return to policyholders are more uncertain than for U.S.
dollar-based policies, 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 which 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 life, which is the predominant type of life
insurance sold by Citizens. Finally, Citizens faces competition from companies
which 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 cash dividend on the policies
issued.
REGULATION. Insurance companies are subject to comprehensive
regulation in the jurisdictions in which they do business under statutes and
regulations administered by state insurance commissioners. Such regulation
relates to, among other things, prior approval of the acquisition of a
controlling interest in an insurance company; standards of solvency which must
be met and maintained; licensing of insurers and their agents; nature of and
limitations on investments; deposits of securities for the benefit of
policyholders; approval of policy forms and premium rates; triennial
examinations of insurance companies; annual and other reports required to be
filed on the financial condition of insurers or for other purposes; and
requirements regarding reserves for unearned premiums, losses and other
matters. Citizens is subject to this type of regulation in any state in which
it is licensed to do business. Such regulation could involve additional costs
and restrict operations.
Citizens is currently subject to regulation in Colorado under the
Colorado Insurance Holding Company Act. Intercorporate transfers of assets and
dividend payments from Citizens' life insurance subsidiaries are subject to
prior notice and approval if they are deemed "extraordinary" under these
statutes. Citizens is required under Colorado insurance laws to file detailed
annual reports with the Colorado Division of Insurance and all of the states in
which it is licensed. The business and accounts of life insurance subsidiaries
of Citizens are subject to examination by the Colorado Division of Insurance.
The most recent triennial examination of Citizens' life insurance subsidiary
was for the year ended December 31, 1994, although Citizens has been advised by
the Colorado Division of Insurance that an examination as of December 31, 1996
will commence in early 1997.
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.
UNINSURED CASH BALANCES. Citizens maintains average cash balances in
its primary depository, Texas Commerce Bank, Austin, Texas, that are
significantly in excess of Federal Deposit Insurance Corporation coverage. If
this depository were to cease business, Citizens would likely lose a
substantial
17
<PAGE> 21
amount of its cash. At September 30, 1996, Citizens had approximately $3
million in Texas Commerce Bank. However, management monitors the solvency of
all 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 1996.
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.
18
<PAGE> 22
FIRST AMERICAN VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of the date of this Information
Statement-Prospectus, the shares of First American Stock held by each person
who is known to First American to be the beneficial owner of more than 5% of
the First American Stock.
<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, Citizens, Inc. Beneficial(1) 20,500,000 94.5%
$.001 par value 400 East Anderson Lane
Austin, Texas 78752
- ----------
</TABLE>
(1) Held of record by CICA, a wholly-owned subsidiary of Citizens.
19
<PAGE> 23
THE MERGER
BACKGROUND AND REASONS FOR THE MERGER
First American was incorporated under Louisiana law in November 1984.
It conducted no operations until the late 1980's, when it determined to
undertake a public offering of its stock on an intrastate basis only in
Louisiana. The purpose of the offering was to organize and finance two funeral
home companies and a Louisiana life insurance company. In 1989 First American,
through a subsidiary, opened its first funeral home, which has incurred losses
in each year of operations. Through December 31, 1995, 1,198,900 shares of
First American Stock had been issued in the First American public offering. No
efforts were made afterwards to sell more stock in the offering. First
American did not raise sufficient capital to form an insurance subsidiary. The
funeral operations in 1994 and 1995 resulted in sales of $259,000 and $273,000,
respectively, but also resulted in net losses from operations in each of those
two years of approximately $118,000. In September 1995, the parent of First
American, American Liberty Life Insurance Company, was acquired by Citizens.
Thereafter, Citizens conducted an in depth review of the operations of First
American.
Citizens believes that after several years in the funeral home business
without significant prospects for growth, and therefore, achievement of net
income, that the funeral business of First American is uneconomic and should be
liquidated. First American recently entered into an agreement to sell Funeral
Homes to an unaffiliated party. See "Summary--The Stock Purchase Agreement -
Sale of Substantially All of the Assets of First American." However, Citizens
would like to offer the opportunity to shareholders of First American to
participate in the ongoing ownership of Citizens through ownership of Citizens
Class A Stock. Accordingly, Citizens decided to propose the Merger. The
Citizens Board believes that the First American shareholders who participate in
the Merger will receive shares in a company that has achieved significant
growth, has a much larger capitalization than First American, has a history of
earnings and whose Class A Stock trades on the American Stock Exchange.
CONSIDERATION OF THE MERGER BY THE FIRST AMERICAN BOARD
The terms of the Merger reflect negotiations between the Citizens
Board and the First American Board. It should be noted that the First American
Board members are also either directors or full-time employees of Citizens and
are, therefore, faced with conflicts of interest. See "Conflicts of Interest"
below. The First American Board has been advised by independent legal counsel
but has not retained an independent investment banking firm with respect to
deliberations concerning the Merger. Notwithstanding the foregoing, the First
American Board has determined that the Merger is fair and to the best interest
of First American shareholders (other than Citizens and its subsidiaries).
The First American Board met on October 11, 1996 and discussed the
offer of Citizens. At that meeting, the entire First American Board determined
that, after several years of attempting to establish a profitable funeral home
business, it would be better for the First American shareholders if they were
able to exchange their First American Stock for a security which has a trading
market, as well as own the stock of a corporation that has demonstrated
significant growth in its business and net income. The First American Board
did not receive a cash offer for the minority shares and did not consider such
offer; however, the First American Board believes that the offer by Citizens
herein described is substantially greater than if First American were to
attempt to sell or liquidate its business and dispose of its other assets and
distribute the proceeds to shareholders pro rata. At those meetings the Board
also discussed the near term and future prospects for First American. In
analyzing the exchange ratio, the First American Board reviewed the market
price history of the Citizens Class A Stock, along with the financial
statements of Citizens for the Year Ended December 31, 1995 and the financial
statements of Citizens for the six months ended June 30, 1996. The First
American Board also directed management to pursue a sale of the funeral home
operations of First
20
<PAGE> 24
American, which resulted in the agreement to sell Funeral Homes to an
unaffiliated party. See "Summary--The Stock Purchase Agreement - Sale of
Substantially All of the Assets of First American."
Of significant importance to the First American Board was the
willingness of Citizens to offer the First American shareholders Citizens Class
A Stock, which values the First American minority shares at $1.00 per share, or
the price each First American minority shareholder paid for his or her stock in
the First American public offering. From a valuation standpoint, on a per
share basis, this gives First American a value which is substantially greater
than any value it might achieve if it otherwise attempted to maximize the value
to its shareholders through a merger, sale of assets, liquidation or other
significant transaction.
In light of the continued losses of First American, and the diminution
of shareholders' equity of First American, the First American Board believes
that the Citizens offer is fair to the First American shareholders who are not
affiliates of Citizens or its subsidiaries.
In reaching its determination, the First American Board considered
numerous factors, including, in particular, the near and future term prospects
of First American, including the potential liquidation value of First American,
the lack of outside financing alternatives available to First American, the
history of losses of First American, the nondiversification of the business of
First American and the lack of any trading market for the First American Stock.
The First American Board believes that the proposed consideration to be paid by
Citizens is substantially in excess of a liquidation or going concern value of
First American and substantially greater in value than any offer to acquire
First American. For example, assuming that the sale of Funeral Homes is
completed, First American will only have a book value per share of
approximately $.054 per share, and the assets of First American will be mostly
cash. The First American Board did not attach a relative weight to the factors
it considered in reaching its decision but, considering all factors discussed
herein, determined that the Merger is fair to and in the best interests of the
First American shareholders.
THE BOARD OF DIRECTORS OF FIRST AMERICAN HAS DETERMINED THAT THE
MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE FIRST AMERICAN SHAREHOLDERS.
CONSIDERATION OF THE MERGER BY THE CITIZENS BOARD
The Board of Directors of Citizens (the "Citizens Board") has
concluded that the Merger is the appropriate mechanism for accomplishing the
proposed acquisition of the shares of First American that Citizens and its
subsidiaries do not own. The Merger affords First American shareholders the
opportunity to maintain an ownership interest in Citizens through the ownership
of a security with substantially greater liquidity. At present, there is
virtually no market for First American Stock, while the Citizens Class A Stock
trades on the American Stock Exchange ("AMEX"). The Citizens Board believes
that the Merger will provide First American shareholders consideration
approximately in equal value to the purchase price of their investment in the
public offering of First American. See "The Merger--Background and Reasons for
the Merger."
CONFLICTS OF INTEREST
Citizens, as a majority shareholder of First American, and the
directors of Citizens are accountable to the minority shareholders of First
American as fiduciaries. At the same time, the directors and officers of
Citizens owe a fiduciary duty to Citizens and its shareholders to manage
Citizens and its investments for the benefit of Citizens and its shareholders.
Because Citizens owns a majority of the shares of First American Stock, it has
the power to control the First American Board through the election of the
directors of First American. Accordingly, as the Merger constitutes a
transaction in which Citizens and the Citizens Board have
21
<PAGE> 25
a conflict of interest. Also, all of the members of the First American Board
are either full-time employees or members of the Citizens Board. Thus, such
persons have conflicts of interest in the Merger.
The terms of the exchange ratio were established after negotiations
between Citizens and the First American management and Board of Directors.
There is no assurance that the terms of the Merger are as favorable as could be
obtained in one or more transactions with an unrelated party.
STOCK EXCHANGE LISTING
The Citizens Class A Stock is listed on the AMEX, and the additional
shares of Citizens Class A Stock issuable upon consummation of the Merger have
been approved for listing on the AMEX upon official notice of issuance.
TERMS OF THE MERGER AGREEMENT
The discussion below contains a summary of the Merger Agreement
attached hereto as Appendix A.
The Merger Agreement provides that at the effective time of the Merger
each outstanding share of First American Stock shall be converted in .1111
shares of Citizens Class A Stock, except for shares held by First American,
Citizens, CICA, and any of their subsidiaries, all of which shares shall be
canceled. Neither certificates nor scrip for fractional shares of Citizens
Class A Stock will be issued, but in lieu thereof, each holder of shares of
First American Stock who would otherwise have been entitled to a fraction of a
share of Citizens Class A Stock, upon surrender of all the certificates
representing shares of First American Stock registered in the name of such
holder, will be paid the cash value of such fraction based on the price of
$9.00 per whole share of Citizens Class A Stock.
RECEIPT OF CITIZENS SHARES
Enclosed herewith is a "Letter of Transmittal" to the exchange agent,
American Stock Transfer and Trust Company (the "Exchange Agent"). After the
Merger becomes effective and after receiving a properly completed Letter of
Transmittal and the associated certificates from First American shareholders
involved, the Exchange Agent will distribute the Citizens Class A Stock to the
First American shareholders. The instructions accompanying the Letter of
Transmittal provide details with respect to the surrender of certificates for
First American shares and the procedure for obtaining certificates for Citizens
Class A Stock, including instructions for obtaining certificates for Citizens
Class A Stock for lost or destroyed certificates of First American shares.
After the date the Merger becomes effective, there will be no
transfers on the stock transfer books of First American of First American
shares which were issued and outstanding immediately prior to the date the
Merger becomes effective. If after the date the Merger becomes effective,
certificates representing First American shares are properly presented to First
American, they will be canceled and exchanged for certificates representing
Citizens Class A Stock in the ratio set forth above.
OTHER CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of CICA and First American 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. The absence of any proceedings instituted or threatened to
restrain or prohibit the transactions contemplated by the
Merger Agreement;
22
<PAGE> 26
3. The continued accuracy in all material respects of the
representations and warranties made by each party in the
Merger Agreement;
4. Any party to the Merger Agreement may decline to proceed with
the Merger if the effective date of the Merger does not occur
by March 31, 1997.
Any 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
Stock issuable cannot be amended without approval of the shareholders of First
American.
The Merger Agreement may be terminated and abandoned at any time
(whether before or after the approval and adoption by First American
shareholders) prior to the effective date of the Merger by unanimous consent of
CICA, Acquisition and First American, 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; or by any party if the effective date of
the Merger does not occur by March 31, 1997.
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.
DISSENTERS' RIGHTS
HOLDERS OF FIRST AMERICAN STOCK HAVE DISSENTERS' RIGHTS AS A RESULT OF
THE MERGER AND STOCK PURCHASE AGREEMENTS. PURSUANT TO PART XIII OF THE BCL,
THE SURVIVING CORPORATION IS REQUIRED TO NOTIFY EACH OF THE STOCKHOLDERS
ENTITLED TO DISSENTERS' RIGHTS THAT THE DISSENTERS' RIGHTS ARE AVAILABLE, AND
TO INCLUDE IN SUCH NOTICE A COPY OF PART XIII OF THE BCL. THE STATUTORY RIGHT
OF DISSENT GRANTED BY PART XIII OF THE BCL IS SUBJECT TO STRICT COMPLIANCE WITH
THE PROCEDURES SET FORTH IN PART XIII OF THE BCL. FAILURE TO FOLLOW ANY OF
SUCH PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER OR DISSENTERS' RIGHTS
UNDER PART XIII OF THE BCL. A COPY OF PART XIII OF THE BCL IS ATTACHED HERETO
AS APPENDIX C AND INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING IS A SUMMARY
OF THE MATERIAL PROVISIONS OF PART XIII OF THE BCL AND DOES NOT PURPORT TO BE
COMPLETE.
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS. In order for a
shareholder to exercise dissenters' rights and receive payment for such
shareholder's shares, the shareholder must comply exactly with the requirements
explained below and in Part XIII of the BCL. The corporation (First American)
is required to send a copy of the certificate of merger issued by the Louisiana
Secretary of State to the First American stockholders within 20 days after such
certificate is filed. Thereafter, the shareholder must demand in writing the
"fair cash value" of the shares within 20 days after receiving a copy of the
certificate of merger. 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
23
<PAGE> 27
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 termination of fair value, becomes due, but rather requires the
shareholder to bring an action to collect the amount with five years after
several specified events. FULL AND EXACT COMPLIANCE WITH THE STATUTORY
REQUIREMENTS IS ESSENTIAL FOR A SHAREHOLDER TO EXERCISE DISSENTERS' RIGHTS
SUCCESSFULLY. SHAREHOLDERS ARE URGED TO READ AND UNDERSTAND THE DISCUSSION
BELOW AND THE STATUTORY PROVISIONS ATTACHED AS APPENDIX C TO THIS PROSPECTUS.
A shareholder of First American who wishes to assert dissenters'
rights must file with First American a written demand for the cash value of his
or her shares within 20 days after receiving a copy of the certificate of
merger filed with the Louisiana Secretary of State. Each such shareholder may,
within 20 days after the mailing of such notice, but not thereafter, file with
First American a demand in writing for the fair cash value of his or her shares
as of the day before such vote was taken. The shareholder must state in
writing the value demanded, and give a post office address to which the reply
of First American 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 First American), the
certificate representing his or her shares, duly endorsed and transferred to
First American upon the sole condition that said certificates shall be
delivered to First American upon payment of the value of the shares determined
in accordance with the provisions of this Section 131 of Part XIII of the BCL.
The shareholder must also deliver to First American, 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
PERIOD, HE OR SHE SHALL CONCLUSIVELY BE PRESUMED TO HAVE ACQUIESCED TO THE
MERGER.
If First American 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 First
American'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 First American 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 First American 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 First American's disagreement, file suit against First American, in
the district court of East Baton Rouge Parish (the parish in which First
American 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 First American for the fair cash value of
his or her shares. No order or decree shall be made by the court staying the
Merger, and the Merger may be carried to completion notwithstanding any such
suit. FAILURE OF THE SHAREHOLDER TO BRING SUIT, OR TO INTERVENE IN SUCH A SUIT
WITHIN 60 DAYS AFTER RECEIPT OF NOTICE OF DISAGREEMENT BY FIRST AMERICAN SHALL
CONCLUSIVELY BIND THE SHAREHOLDER (1) BY FIRST AMERICAN'S STATEMENT THAT NO
PAYMENT IS DUE, OR (2) IF FIRST AMERICAN DOES NOT CONTEND THAT NO PAYMENT IS
DUE, TO ACCEPT THE VALUE OF HIS OR HER SHARES AS FIXED BY FIRST AMERICAN IN ITS
NOTICE OF DISAGREEMENT.
24
<PAGE> 28
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 First American; (2) the date First American becomes liable for
the value demanded by the shareholder due to First American's failure to give
notice of disagreement as to value; or (3) the date the shareholder become
bound by First American's valuation of the stock due to the shareholder's
failure to bring suit within 60 days after receipt of notice of First
American's disagreement as to value.
In the event that a dissatisfied shareholder rejects First American's
offer to pay the amount in cash deemed by First American to be the fair cash
value for the shares, First American shall deposit, in the registry of the
court the amount of money it had offered the dissatisfied shareholder. This
amount shall remain in the court's registry until a final determination on the
cause is made. If the amount finally awarded such a dissatisfied shareholder,
exclusive of interest and costs, is more than the amount offered and deposited
by First American, the costs of the court proceedings shall be borne by First
American. HOWEVER IF THE AMOUNT FINALLY AWARDED SUCH A DISSATISFIED
SHAREHOLDER, EXCLUSIVE OF INTEREST AND COSTS IS LESS THAN THE AMOUNT OFFERED
AND DEPOSITED BY FIRST AMERICAN, THEN THE COSTS OF THE PROCEEDING SHALL BE
BORNE BY SUCH A SHAREHOLDER. Under Section 131(H) of Part XIII of the BCL, 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 First American gives notice of disagreement. However, after such notice
of disagreement is given, withdrawal of notice of the election will require the
written consent of First American. If a notice of election is withdrawn or the
proposed Merger is abandoned or rescinded, or a court determines that the
shareholder is not entitled to receive payment for his or her shares, or the
shareholder otherwise loses his or her dissenter's rights, then that dissenter
will not have the right to receive payments for his or her shares, and the
share certificates will be returned or new certificates will be issued upon
request. Additionally, the dissatisfied shareholder will then be reinstated to
all rights as a shareholder as of the filing of the demand for value. If any
such rights shall have expired or any dividends or distributions, other than
cash, have been completed, the dissatisfied shareholder may receive at the
election of First American, the fair cash value as determined by the board of
directors of First American as of the time of such expiration or completion,
but without prejudice otherwise to any First American proceeding that may have
been taken in the interim.
25
<PAGE> 29
INFORMATION CONCERNING CITIZENS
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, 1995, as amended, which is
incorporated herein by reference.
26
<PAGE> 30
CERTAIN SECURITY OWNERSHIP OF CITIZENS
The following table sets forth information regarding the persons known
to Citizens to be the beneficial owners of more than 5% of Citizens Class A and
Class B Stock as of the date of this Information Statement-Prospectus.
<TABLE>
<CAPTION>
Shares Owned and
Name and Address Nature of Ownership Percent of Class
- ---------------- ------------------- ----------------
<S> <C> <C>
Harold E. Riley 5,536,086 Class A 28.4%
P.O. Box 149151 direct and indirect(1)
Austin, TX 621,049 Class B indirect(1) 100.0%
Marjorie D. Riley 1,120,000 Class A direct(2) 5.7%
3410 Tripp
Amarillo, TX
</TABLE>
- ----------
(1) See footnote (1) in the table immediately below.
(2) In record name.
The following table sets forth information as of the date of this
Information Statement-Prospectus with regard to the beneficial ownership of
Citizens common shares by each director, the named executive officers and by
the executive officers and directors as a group.
<TABLE>
<CAPTION>
Shares Owned and
Name and Address Nature of Ownership Percent of Class
- ---------------- ------------------- ----------------
<S> <C> <C>
Harold E. Riley 5,536,086 Class A direct and indirect (1) 28.4%
621,049 Class B indirect (1) 100.0
Rick D. Riley 338,321 Class A direct and indirect (2) 1.7
Randall H. Riley 111,311 Class A direct and indirect (4) (3)
Timothy T. Timmerman 47,237 Class A direct (3)
Charles E. Broussard 37,041 Class A direct (3)
Flay F. Baugh 34,459 Class A direct and indirect (5) (3)
Joe R. Reneau, M.D. 32,652 Class A direct (3)
T. Roby Dollar 30,612 Class A direct and indirect (6) (3)
Ralph M. Smith, Th.D. 15,389 Class A direct and indirect (7) (3)
Steven F. Shelton 1,886 Class A direct (3)
</TABLE>
27
<PAGE> 31
<TABLE>
<CAPTION>
Shares Owned and
Name and Address Nature of Ownership Percent of Class (continued)
- ---------------- ------------------- ----------------
<S> <C> <C>
Clayton D. Dunham -0- (3)
All executive officers 6,184,994 Class A direct and indirect 31.7
and directors as a group 621,049 Class B direct 100.0
(15 persons)
</TABLE>
- -------------
(1) Owns 5,280,599 shares of Class A Stock directly and spouse owns
255,487 shares of Class A Stock. The Harold E. Riley Trust, of which
Mr. Riley is the controlling Trustee, owns all of the 621,049 issued
and outstanding shares of Class B Stock.
(2) Son of Harold E. Riley. Owns 260,093 shares of Class A Stock
directly, 11,700 shares of Class A Stock as joint tenant with spouse,
and 66,528 shares of Class A Stock indirectly as trustee for minor
children.
(3) Less than one percent (1%).
(4) Son of Harold E. Riley. Owns 102,032 shares of Class A Stock
directly, 2,000 shares of Class A Stock as joint tenant with spouse,
and 5,958 shares of Class A Stock indirectly as trustee for minor
children; spouse owns 1,321 shares of Class A Stock.
(5) Owns 8,873 shares of Class A Stock directly and 25,586 shares of Class
A Stock as joint tenant with spouse.
(6) Owns 15,612 shares of Class A Stock directly and spouse owns 15,000
shares of Class A Stock.
(7) Owns 9,285 shares of Class A Stock directly and spouse owns 6,104
shares of Class A Stock.
Citizens is not aware of any arrangement, including any pledge by any
person of securities of Citizens, the operation of which may at a subsequent
date result in a change in control of Citizens.
28
<PAGE> 32
MANAGEMENT OF CITIZENS
DIRECTORS
The following table sets forth certain information regarding the
directors of Citizens.
<TABLE>
<CAPTION>
Principal Director
Name Age Occupation Since
- ---- --- ---------- --------
<S> <C> <C> <C>
Flay F. Baugh 82 Investments 1989
Temple, Texas
Charles E. Broussard 70 Rancher/Farmer 1996
Kaplan, Louisiana
Steven F. Shelton 40 Farmer/Rancher 1993
Lamar, Colorado
Timothy T. Timmerman 35 President, Texas Cable Systems 1989
Inc., TCSI-Huntsville and
Timmerman Investments, Inc.
Round Rock, Texas
T. Roby Dollar 58 Vice Chairman, Chief 1993
Actuary of Citizens
Austin, Texas
Joe R. Reneau, M.D. 64 Physician, Medical Consultant 1989
Austin, Texas
Harold E. Riley 67 Chairman of the Board of Citizens 1987
Austin, Texas
Randall H. Riley (1) 41 Vice Chairman, Chief Operating 1993
Officer of Citizens
Austin, Texas
Rick D. Riley (1) 42 Executive Vice President, 1989
Electronic Systems of Citizens
Austin, Texas
Ralph M. Smith, Th.D. 65 Pastor Emeritus 1993
Hyde Park Baptist Church
Austin, Texas
</TABLE>
- ---------
(1) Son of Harold E. Riley. There are no other family relationships between
or among Board members and the Executive Officers of Citizens.
29
<PAGE> 33
FLAY F. BAUGH, Investments; President, Baugh's Inc., Temple, Texas, a
company engaged in shoe manufacturing, from 1954 to present; Director of
Citizens Insurance Company of America, former parent of Citizens, from 1978 to
1988. Director of Citizens from 1989 to present.
CHARLES F. BROUSSARD, rancher and farmer; Director of American Liberty
Financial Corporation and American Liberty Life Insurance Company from 1977 and
1978, respectively, to present; Director of Universal Fabricators, Inc. a
company engaged in steel fabrication, from 1980 to present; President of
Inexpo, LA Livestock Sanitary Board Commission from 1988 to present; Director
for Acadian District Livestock Show from 1992 to present; Member of the
Wetlands Task Force from 1992 to present; and Vice President of the Midwinter
Fair Association from 1993 to present. Director of Citizens from 1996 to
present.
T. ROBY DOLLAR, Vice Chairman, Chief Actuary of Citizens and its
affiliates from 1994 to present; President of Citizens and its affiliates from
1992 to 1994; Executive Vice President and Chief Actuary of Citizens and its
affiliates from 1987 to 1992.
JOE R. RENEAU, M.D., Physician - Medical Consultant, Abbott
Laboratories, Austin, Texas, from 1987 to present and IBM, Austin, Texas, from
1992 to present; Medical Director of Citizens and its affiliates from 1987 to
present.
HAROLD E. RILEY, controlling shareholder of Citizens; Chairman of
Citizens Board and its affiliates from 1994 to present; Chairman of the Board
and Chief Executive Officer of Citizens and its affiliates from 1992 to
present; Chairman of the Board, Chief Executive Officer and President of
Citizens and its affiliates, from 1987 to 1992; Chairman of the Board,
President and Chief Executive Officer, Continental Investors Life Insurance
Company from 1989 to 1992.
RANDALL H. RILEY, Vice Chairman and Chief Operating officer of
Citizens from 1995 to present; Vice Chairman and Chief Executive Officer of
Citizens and its affiliates from 1994 to 1995; Vice Chairman and Marketing
Director of Citizens, from 1993 to present; General Manager, Negocios Savoy,
S.A. from 1989 to 1993. Director of Citizens from 1993 to present.
RICK D. RILEY, Executive Vice President of Citizens from 1995 to
present; Executive Vice President and Chief Operating Officer of Citizens from
September 1995 to October 1995; Chief Administrative Officer of Citizens and
its affiliates from 1994 to June 1995, and President thereafter until September
1995; Executive Vice President and Chief Operating Officer of Citizens and its
affiliates from 1990 to 1991 and 1992 to 1994; President, Computing Technology,
Inc. from 1991 to 1992; Executive Vice President, Data Processing, of Citizens
and its affiliates from 1987 to 1991; Executive Vice President, CILIC from 1989
to 1992.
STEVEN F. SHELTON, Rancher and farmer from 1974 to present; Director,
First Centennial Corporation, from January to October 1989 and August 1990 to
1992. Director of Citizens from 1993 to present.
RALPH M. SMITH, Th.D., Pastor Emeritus, Hyde Park Baptist Church,
Austin, Texas, from 1960 to March 1996. Director of Citizens from 1989 to 1990
and 1993 to present; Advisory Director of Citizens from 1991 to 1993.
30
<PAGE> 34
TIMOTHY T. TIMMERMAN, President, Texas Cable Systems, Inc.; President,
TCSI-Huntsville; President, Northeast Cablevision, Inc.; President, Timmerman
Investments Inc., Round Rock, Texas, from 1984 to present. Director of
Citizens from 1989 to present.
No director of Citizens is a director of any other company with a
class of securities registered under the Securities Exchange Act of 1934 or any
investment company registered under the Investment Company Act of 1940.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
executive officers of Citizens. Executive officers are elected annually by the
Citizens Board at the first meeting of the Citizens Board following the Annual
Meeting of Shareholders of Citizens:
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
Harold E. Riley (1) 68 Chairman of the Board and Chief Executive Officer
Randall H. Riley (2) 41 Vice Chairman and Chief Operating Officer
T. Roby Dollar (1) 57 Vice Chairman, Chief Actuary and Assistant Treasurer
Rick D. Riley (3) 42 Executive Vice President
Mark A. Oliver (1) 38 Executive Vice President, Chief Financial Officer
and Secretary/Treasurer
Clayton D. Dunham (4) 52 Senior Vice President and Director of Marketing
James C. Mott (5) 67 Senior Vice President and Executive Assistant to Chairman
John K. Drisdale, Jr. (6) 41 Vice President and Chief Counsel
William P. Barnhill (7) 45 Vice President and Controller
</TABLE>
- ---------------
(1) Messrs. H. Riley, Dollar, and Oliver have served since 1987. They
hold similar positions in affiliated subsidiaries. Messrs. H. Riley
and Oliver are also members of the First American Board.
(2) Randall H. Riley has served since September 1993 and holds similar
positions in affiliated subsidiaries. Prior to 1993, he served as
General Manager for Negocios Savoy, S.A., a marketing company. He is
also a member of the First American Board.
31
<PAGE> 35
(3) Rick D. Riley has served from 1987 to 1991 and 1992 to present and
holds similar positions in affiliated subsidiaries. From 1991 to
1992, he was President of Computing Technology, Inc. He is also a
member of the First American Board.
(4) Clayton D. Dunham was named Senior Vice President and Director of
Marketing of Citizens and its affiliates in November 1994. From 1990
to 1994, he served as President of DIA International. From 1987
through 1990, he was General Manager of Negocios Savoy, S.A.
(5) James C. Mott has served as Senior Vice President and Executive
Assistant to the Chairman since January 1996. During 1991, he served
as Coordinator in the Marketing Department of Citizens Insurance
Company of America, a subsidiary of Citizens. From 1992 through 1994,
Mr. Mott supervised the Customer Service Department of Citizens
Insurance Company of America. He took partial retirement in 1995
until activated to his current position. He is also a member of the
First American Board.
(6) John K. Drisdale, Jr., joined Citizens in December 1995 as Vice
President and Chief Counsel. From 1987 to 1992, he was Vice President
and General Counsel of Exeter Holdings Corp., an acquisition and
investments company. In 1992, Mr. Drisdale entered private law
practice as a partner in Forman, Perry, Watkins & Krutz. In 1993, he
started the law firm of Drisdale & Lindstrom PLLC from which he joined
Citizens.
(7) William P. Barnhill has served as Vice President and Controller of
Citizens since June 1996. From 1975 to 1981 he was Manager of Central
Disbursing of American General Insurance Company. From 1981 until
joining Citizens, he was Senior Vice President and Treasurer of
Western General Life Insurance Company.
EXECUTIVE OFFICER AND DIRECTOR COMPENSATION
The following table presents the aggregate compensation which was
earned by the Chairman and the Chief Executive Officer of Citizens for each of
the past three years, and for such other officers whose aggregate compensation
exceeded $100,000 in 1995. No other employee of Citizens earned total annual
salary and bonus in excess of $100,000 prior to 1994. There has been no
compensation awarded to, earned by or paid to any employee required to be
reported in any table or column in any fiscal year, other than what is set
forth in the table below.
<TABLE>
<CAPTION>
Summary of Compensation Table
------------------------------------
Long Term Compensation
-----------------------------
Annual Compensation Awards Payouts
------------------------------------ -------------------- -------
Restricted
Other Annual Stock Options LTIP All Other
Name and Principal Position Year Salary Bonus Compensation Award(s) SARs Payout Compensation
- --------------------------- ---- ------ ----- ------------ -------- ---- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harold E. Riley, Chairman 1995 $312,700 N/A N/A N/A N/A N/A $3,761 (1)
1994 $260,616 N/A N/A N/A N/A N/A $6,691 (1)
1993 $250,200 N/A N/A N/A N/A N/A N/A
Randall H. Riley, CEO 1995 $161,431 N/A N/A N/A N/A N/A $4,415 (1)
1994 $150,200 N/A N/A N/A N/A N/A N/A
Clayton Dunham, Senior VP and
Director of Marketing 1995 $120,200 N/A N/A N/A N/A N/A N/A
Steve Rekedal (2) 1995 $120,200 N/A N/A N/A N/A N/A N/A
</TABLE>
- ----------
(1) Profit-sharing plan allocation made in year indicated for the
preceding year.
(2) Mr. Rekedal, formerly Executive Vice President, resigned effective
December 31, 1995.
32
<PAGE> 36
Messrs. R.H. Riley and Clayton Dunham have employment contracts with
Citizens terminable by either party on 30 days or less notice without severance
pay or similar benefits. Harold E. Riley does not have an employment contract
with Citizens.
All employees of Citizens are covered under a non-contributory
profit-sharing plan. Under the terms of the Plan, all employees who have
completed one year of service are eligible to participate. Vesting begins
following completion of two years' service and employees become fully vested
after several years' service. During 1993, no contributions to the plan were
made. Citizens made $50,000 annual contributions to the plan in 1994 and 1995.
Messrs. H.E. Riley, R.H. Riley, Dunham and Rekedal had $55,831, $4,415, $0 and
$0, respectively, vested under the plan as of December 31, 1994, the last
allocation date.
The members of Citizens Board who are not officers of Citizens are
paid $300 per meeting, while Committee members who are not officers are paid
$150. Total directors' fees paid during 1995 were $4,500. In 1995, Messrs.
Reneau and Smith were paid $15,000 and $1,800, respectively, in 1995 for
services performed as consultants to Citizens.
33
<PAGE> 37
BUSINESS OF FIRST AMERICAN
First American, through a subsidiary, owns and operates a funeral home
in Louisiana. The funeral home performs all personal and professional services
relating to funerals, including preparation and embalming, securing necessary
vital statistical information, preparing and filing death certificates and
other forms, attention to funeral service details, use of funeral establishment
facilities, and the use of funeral service motor vehicles and equipment. In
addition, the funeral home also retails certain funeral merchandise such as
caskets, burial vaults, outside grave liners, cremation receptacles, flowers
and burial garments. First American has no employees, as the three employees
of the operation are provided by its parent corporation.
The services of the First American funeral home are available to the
general public, and it faces competition from other funeral home operators in
its area of operations. Competitive factors in First American's funeral home
operations include price, quality of services and location. There are other
funeral homes that have larger operations, histories of earnings and
significantly greater customer bases than First American. The funeral home
industry is characterized by a large number of independent operations, the vast
majority of which are locally owned and operated. Some firms operate both
funeral homes and cemeteries. There are in excess of 20,000 funeral homes
operating in the United States and Canada. The operations of most of these
funeral homes and of the individual locations of multi-home corporations are
limited to the local geographic areas in which they are located. The First
American funeral home must compete with the other firms in the same general
area. In order to compete successfully the funeral home must maintain
competitive prices and a good reputation and high professional standards, due
in part to the high incidence of business derived from families previously
served.
The operations of the First American funeral home are subject to
regulations, supervision and licensing under various state and local statutes,
ordinances and regulations and certain regulations of the Federal Trade
Commission. To date, compliance with such regulations has not had a
significant impact on the operations of First American.
In the late 1980's, First American commenced a public offering of its
shares on a "best efforts" basis to bona fide residents of Louisiana. Total
gross proceeds raised through December 31, 1995 were $1,198,900. The First
American funeral home was completed and open for business in September 1992.
In September 1995, the parent of First American, American Liberty
Financial Corporation was acquired by Citizens. After a thorough review of the
business of First American, Citizens determined that it would be in the best
interests of First American to wind up its business. It has not achieved a
profit since operations commenced in 1989.
There is no trading market for the securities of First American, and
it has never paid a dividend and has no plans to pay a dividend.
Citizens, through a subsidiary, owns 94.5% of the outstanding First
American Stock. There are no other persons who own more than 5% of the
outstanding First American Stock. No officer or director of First American
owns any First American Stock.
34
<PAGE> 38
MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - FIRST AMERICAN
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net income for the six months ended June 30, 1996 was $34,654, up from
the same period in 1995 when net income was $18,607. An increase in funeral
home sales was the primary reason for the improvement in net income.
Total revenues for the period were $177,148, a 24.7% increase over
1995 when revenues were $142,109. Funeral home sales were $220,491 compared to
$172,198 for the first six months of 1995, a 28.1% increase. Gross profit on
these sales was $153,227 in 1996, a margin of 69.5% while in 1995, gross profit
was $127,311 with a margin of 73.9%. Funeral business through June was up
compared to the prior year. During the first five months of 1996, First
American's funeral home in Baker, Louisiana held more services than all of 1994
and was within five of performing as many as the entire previous year. The
lower gross margin reflects some revenues that involved embalming and
transporting bodies as well as cremations that offer lower margins than full
services.
General expenses increased significantly during 1996 to $131,001 from
$105,352 in the prior year. Part of the increase is due to the addition of
health insurance benefits for the employees of the funeral home. Additionally,
due to the increased volume of funerals, additional staff was added for the
early part of the year. The hearse and limousine utilized in the funeral
operation were several years old and as such, First American's maintenance
expenses for the vehicles were approaching a point of diminishing returns given
the age and condition of them.
THREE MONTHS ENDED JUNE 30,1996 AND 1995
Net income for the quarter ended June 30, 1996 was $47,865, compared
to a loss of $346 for the same period in 1995. Increased revenues coupled with
decreased operating expenses contributed to the improvement in profitability.
Revenues for the quarter were $97,525, compared to $64,305 in the
prior year. Funeral home sales increased more than 46% during the quarter,
reaching $112,439 from $76,760. A significant increase in funeral activity was
the reason for the increase.
Additionally, interest income on cash increased to $ 17,830 from
$7,577 due to management's decision to invest First American's excess cash in
high grade commercial paper instruments as opposed to bank savings accounts.
The result of this move was to add an additional 2-4% to the return on cash.
Expenses declined compared to the previous year, to $44,391 from
$57,777. The decline is attributable to the method in which the current
management of the funeral home operations has managed the overhead in light of
the increase in volume of funerals.
LIQUIDITY AND CAPITAL RESOURCES
Recent consolidations in the funeral home industry have made it
extremely difficult for the small, independent funeral home to operate.
Several large, national and international firms dominate the industry, and due
to their capital base, their ability to attract outside capital and their
economies of scale, they
35
<PAGE> 39
present a significant impediment to the successful development and operation of
funeral homes such as the one operated by First American.
Management had previously planned on building and operating a second
funeral home in another suburb of Baton Rouge, Louisiana, along the same
operating philosophy as the existing facility; however, given the startup costs
experienced in the Baker facility and the drain on capital created by its
operations in its early years, management decided to suspend plans to proceed
with the second facility. First American currently has a significant amount of
indebtedness--approximately $80,000 on a mortgage loan on its Baker facility as
well as $520,000 in operating capital loans made by an affiliate.
Although the operations are experiencing growth under current
management, the task of expanding First American's capital base and its ability
to repay this significant debt create concerns about the long term viability of
the operations. Management has been working to explore the possibility of the
sale of the Baker funeral home. Although this operation is currently cash
flowing itself, any downturn in business or the economy could create a
situation where additional capital would need to be infused. Additionally,
management has been in discussion with its parent company, Citizens, Inc. about
a possible sale or merger.
36
<PAGE> 40
COMPARISON OF RIGHTS OF SECURITYHOLDERS
The holders of issued and outstanding First American Stock will
receive Citizens Class A Stock. The rights of the holders of Citizens shares
are governed by Citizens' Articles of Incorporation, bylaws and Colorado law,
while the rights of holders of First American Stock are governed by First
American's Articles of Incorporation, bylaws and Louisiana law. In most
respects, the rights of holders of Citizens Class A Stock and holders of First
American Stock are similar. The following is a brief comparison of the rights
of the holders of First American Stock with those of Citizens Class A Stock.
AUTHORIZED SHARES
The aggregate number of shares which Citizens is authorized to issue
is 50,000,000 shares of Class A Stock with no par value and 1,000,000 shares of
Class B Stock , with no par value; of which 21,069,411 shares of such Class A
Stock and 621,049 shares of Class B Stock are issued and outstanding, fully
paid and non-assessable. These numbers do not include treasury shares.
The aggregate number of shares which First American is authorized to
issue is 40,500,000 shares of Common Stock with par value of $.001 per share of
which 21,698,900 shares are issued and outstanding, fully paid and
non-assessable. These numbers do not include treasury shares.
DIVIDEND RIGHTS
The cash dividends paid upon each share of Citizens Class A Stock is
twice the cash dividends paid on each share of Citizens Class B Stock. Because
First American has only one class of Common Stock, no such difference exist in
the dividend rights of its Common Stock.
VOTING RIGHTS
The voting rights of Citizens Class A Stock and Class B Stock are
equal in all respects except that the holders of Class B 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 Stock have the exclusive right to
elect the remaining directors.
The holders of First American Stock are entitled to one vote for each
share of stock held. Neither the holders of First American Stock or Citizens
Class A 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
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.
First American's Articles of Incorporation provide that, with respect
to any action to be taken by First American 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.
37
<PAGE> 41
First American's bylaws provide that, subject to repeal or change by
action of First American's shareholders, the power to alter, amend, or repeal
First American'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 First American shareholders may be called by First
American's President, its Board of Directors, or the holders of one fifth (1/5)
or more of all the First American 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 First American.
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. First American'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 First American 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 First American and Citizens,
respectively. No holder of Citizens or First American 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 First
American.
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 First American 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 First
American, whether voluntary or involuntary, First American common shareholders
will be entitled to share, on a share-for-share basis, any of the remaining
amounts or funds of First American which are distributable to its shareholders
upon such liquidating, dissolution or winding up.
The Citizens Class A Stock to be issued upon consummation of the
Merger will be fully paid and non-assessable. First American shares, for which
full consideration has been paid, are deemed to the fully paid and
non-assessable.
38
<PAGE> 42
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary is for general information only. It is based on
the current provisions of the Internal Revenue Code of 1986 (the "Code"), the
applicable U.S. Treasury Regulations, judicial authority and administrative
rulings and practice, all of which are subject to change. The tax treatment of
a First American shareholder may vary depending upon such shareholder's
particular situation and certain shareholders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, and persons
who are not citizens or residents of the United States or who are as to the
United States foreign corporations, foreign partnerships and foreign estates or
trusts) may be subject to special rules not discussed below.
Citizens believes that the exchange of shares of Citizens Class A
Stock for shares of First American Stock pursuant to the Merger will be as set
forth below. Since no ruling from the Internal Revenue Service ("IRS") has
been or will be sought with respect to any aspect of the Merger, there can be
no assurance that the IRS will not take a contrary view as to the tax
consequences described herein. Furthermore, future legislative, judicial or
administrative changes or interpretations, which may or may not be retroactive,
could alter or modify the statements and conclusions set forth herein and could
affect the tax consequences to First American's shareholders described herein.
CONSEQUENCES
Citizens believes that the following federal income tax consequences
are expected to result:
(1) Each First American shareholder will recognize gain or loss
upon the receipt by him or her of shares of Citizens Class A Stock in exchange
for his or her shares of First American Stock pursuant to the Merger. Such
gain or loss will be capital gain or loss, provided that such shares of First
American Stock are held as a capital asset at the time of the consummation of
the Merger, and would be long-term capital gain or loss if the First American
Stock had been held for longer than one year.
(2) A shareholder's basis in the Citizens Class A Stock received
pursuant to the Merger will be fair market value of the Citizens Class A Stock
on the date of the Merger, and the shareholder's holding period for such shares
will begin on such date.
(3) Neither Citizens nor First American will recognize any taxable
income, gain or loss as a result of the consummation of the Merger; however, a
subsidiary of Citizens will recognize taxable gain as a result of the Merger
because it will be distributing Citizens Class A Stock it holds to complete the
Merger without a very limited basis in such stock. Citizens management
expects that the tax effect will be significant to Citizens on a consolidated
basis.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. FIRST AMERICAN SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS FOR MORE SPECIFIC AND DEFINITIVE ADVICE AS TO THE
FEDERAL INCOME TAX CONSEQUENCES TO THEM OF THE MERGER OF THEIR SHARES OF FIRST
AMERICAN STOCK PURSUANT TO THE MERGER, AS WELL AS ADVICE AS TO THE APPLICATION
AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS AND POSSIBLE
AMENDMENTS TO SUCH LAWS.
39
<PAGE> 43
SOURCE OF CITIZENS SHARES
The Citizens Class A Stock which will be issuable in the Merger will
be Class A Stock held by a Citizens wholly-owned subsidiary, CICA. Citizens
has 50,000,000 Class A Common shares authorized. CICA is obligated to reserve
sufficient shares of its Class A Stock to enable it to perform its obligations
under the Merger Agreement. The Citizens shares have been duly authorized and
validly issued, and fully paid and non-assessable.
EXPERTS
The consolidated financial statements of Citizens, Inc. and
subsidiaries as of December 31, 1995 and 1994 and for each of the years in the
three-year period ended December 31, 1995 have been incorporated by reference,
and the consolidated financial statements of First American Investment
Corporation and subsidiaries as of December 31, 1995 and 1994 and for each of
the years then ended included herein and in the registration statement in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference or appearing elsewhere herein, and upon
the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The legal status of the Citizens Class A Stock to be distributed
pursuant to the Merger will be passed upon by Jones & Keller, P.C., Denver,
Colorado.
40
<PAGE> 44
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
<TABLE>
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the Years Ended December 31, 1995 and 1994 . . F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995 and 1994 . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-7
Consolidated Balance Sheets as of June 30, 1996 (unaudited) and December 31, 1995 . . . . F-14
Consolidated Statements of Operations for the Six Months Ended June 30, 1996 and
1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-16
Consolidated Statements of Operations for the Three Months Ended
June 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . F-17
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . F-18
Consolidated Statements of Cash Flows for the Three Months Ended
June 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . F-19
Notes to Consolidated Financial Statements (unaudited) . . . . . . . . . . . . . . . . . F-20
</TABLE>
41
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First American Investment Corporation
Baton Rouge, Louisiana:
We have audited the accompanying consolidated balance sheet of First American
Investment Corporation and subsidiaries as of December 31, 1995, and the
related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the year 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. The accompanying financial statements of First
American Investment Corporation and subsidiaries as of December 31, 1994 and
for the year then ended, were audited by other auditors whose report thereon
dated February 27, 1995 expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides 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 First American Investment Corporation and subsidiaries as of December 31,
1995, and the consolidated results of their operations and their consolidated
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
March 8, 1996
F-1
<PAGE> 46
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 530,744 519,380
Accounts receivable:
Trade, net of allowance of $4,000 in 1995 and 8,395 59,278
$2,665 in 1994
Other - 11,295
Inventory 13,861 13,872
---------- --------
Total current assets 553,000 603,825
---------- --------
Restricted cash 17,266 16,867
Agents' accounts receivable, net of allowance for advances
in excess of commissions earned of $-0- in 1995 and
$147,138 in 1993 - 36,116
Property and equipment, at cost, net of accumulated
depreciation of $115,496 in 1995 and $100,773 in 1994 507,244 530,159
Deferred tax asset - 53,503
Other assets, net of accumulated amortization of $75,632 - 75,910
in 1995 and $3,248 in 1994
Total $1,077,510 1,316,380
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 47
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1995 1994
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Accounts payable and other accrued liabilities $ 1,516 49,877
Current portion of mortgage payable 10,732 9,811
---------- ---------
Total current liabilities 12,248 59,688
---------- ---------
Payable to affiliates 534,941 544,905
Mortgage payable 85,988 96,721
Deferred credit, sales proceeds collected from public
offering of stock, net of subscriptions receivable 15,750 15,351
---------- ---------
Total liabilities 648,927 716,665
---------- ---------
Stockholders' equity:
Common stock, par value $.001; 40,500,000 shares
authorized; 21,698,900 shares in 1995 and 1994
issued and outstanding 21,699 21,699
Additional paid-in capital 978,421 978,421
Treasury stock, 400 shares, at cost (400) (400)
Accumulated deficit (571,137) (400,005)
Total stockholders' equity 428,583 599,715
Total $1,077,510 1,316,380
========== =========
</TABLE>
F-3
<PAGE> 48
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31 ,1995 and 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Income:
Interest $ 17,654 17,385
Funeral home sales 273,092 258,702
Cost of goods sold (74,305) (80,733)
--------- ---------
216,441 195,354
--------- ---------
Expenses:
Advances in excess of commissions earned -- 17,892
General and administrative 316,743 271,140
Taxes, licenses and fees 8,593 21,048
--------- ---------
Total expenses 325,336 310,080
Other income (expense):
Miscellaneous income 456 6,941
Interest expense (9,190) (10,031)
--------- ---------
Total other expenses (8,734) (3,090)
--------- ---------
Loss from operations before provision for income taxes (117,629) (117,816)
--------- ---------
Provision for income taxes:
Current -- --
Deferred 53,503 36,644
--------- ---------
Total provision for income taxes 53,503 36,644
--------- ---------
Net loss $(171,132) (154,460)
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 49
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Additional Total
Common Treasury paid-in Accumulated stockholders'
stock stock capital deficit equity
-------- ------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 $ 21,699 (400) 978,421 (245,545) 754,175
Net loss -- -- -- (154,460) (154,460)
-------- ------ -------- -------- --------
Balances at December 31, 1994 21,699 (400) 978,421 (400,005) 599,715
Net loss -- -- -- (171,132) (171,132)
-------- ------ -------- -------- --------
Balances at December 31, 1995 $ 21,699 (400) 978,421 (571,137) 428,583
======== ====== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 50
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(171,132) (154,460)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation of property and equipment 25,232 38,327
Amortization 72,384 2,836
Advances in excess of commissions earned 36,116 18,855
Decrease in deferred tax assets 53,503 36,644
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable, trade 50,883 (15,857)
(Increase) in accounts receivable, other 11,295 (5,444)
Decrease in inventory 11 935
Increase (decrease) in accounts payable (48,361) 34,739
Decrease in other assets 3,526 1,231
(Decrease) increase in payable to affiliates (9,964) 64,070
--------- ---------
Net cash used by operating activities 23,493 21,876
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (2,317) (2,807)
Organization costs -- (959)
--------- ---------
Net cash used in investing activities (2,317) (3,766)
--------- ---------
Cash flows from financing activities:
Deferred offering costs incurred -- (1,039)
Increase in payable for costs of public stock offering -- 44
Sales proceeds collected from public offering of stock 399 1,700
Principal payments on mortgage (9,812) (8,970)
--------- ---------
Net cash provided by financing activities (9,413) (8,265)
--------- ---------
Increase in cash and restricted cash 11,763 9,845
Cash and restricted cash at beginning of year 536,247 526,402
--------- ---------
Cash and restricted cash at end of year $ 548,010 536,247
========= =========
Supplemental disclosure of cash flow information - interest paid $ 9,190 10,031
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 51
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies
The following is a summary of certain significant accounting policies
followed in the preparation of these consolidated financial statements.
(a) Nature of Business
The accompanying consolidated financial statements include the
accounts and operations of First American Investment Corporation (FAIC),
incorporated in the State of Louisiana on November 8, 1984 and its wholly
owned subsidiaries, Funeral Homes of America, Inc. and Funeral Homes of
Louisiana, Inc. FAIC and its subsidiaries are collectively referred to as
"the "Company." All significant intercompany accounts and transactions
have been eliminated.
FAIC is a 94.48%-owned subsidiary of American Liberty Life Insurance
Company (ALLIC), a wholly owned subsidiary of American Liberty Financial
Corp. (ALFC). In September 1995, ALFC was acquired by Citizens, Inc., the
ultimate majority stockholder at December 31, 1995.
The Company's primary operations include a funeral home located in
Louisiana.
(b) Cash Equivalents
For the purposes of cash flows, the Company considers cash and cash
equivalents
(Continued)
F-7
<PAGE> 52
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
to be composed of noninterest-bearing cash accounts and restricted cash,
and cash in escrow related to the public offering of stock.
(c) Deferred Income Taxes
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for
the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rate is recognized in income in the period that
includes the enactment date.
(d) Inventory
Inventory consists of caskets held by the funeral homes and is
recorded at cost.
(e) Depreciation
Depreciation is computed using the double-declining and
straight-line methods at rates estimated to recover the cost of the
related assets over their expected useful lives. The range of such lives
is from 5 to 31.5 years.
(f) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(Continued)
F-8
<PAGE> 53
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Related Party Transactions
Amounts payable to affiliates represents funds advanced to the
Company to satisfy certain operating expenses and debt requirements during
1995 and 1994 by the majority stockholder and its subsidiaries.
Mortgage loan payable to affiliate at December 31, 1995 and 1994 is as
follows:
1995 1994
---- ----
Mortgage to American Liberty Life Insurance $ 96,720 106,532
Company, dated October 27, 1992, original
amount $125,000, payable in 120 monthly
installments of $1,583.45 including interest at
9% annually. Payments commenced
November 1, 1992. Secured by first mortgage
on funeral home in Baker, Louisiana
Less current portion (10,732) (9,811)
-------- -------
$ 85,988 96,721
======== =======
(Continued)
F-9
<PAGE> 54
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
According to the terms of the agreement, the principal repayments are as
follows:
1996 $ 10,732
1997 11,739
1998 12,840
1999 14,045
2000 15,361
Thereafter 32,003
(3) Income Taxes
The Company files its federal income tax return on a consolidated
basis with American Liberty Financial Corporation and its subsidiaries
prior to the acquisition of ALFC by Citizens, Inc. and files a separate
consolidated return which includes its operations and its two wholly
owned subsidiaries for the period subsequent to the acquisition.
(Continued)
F-10
<PAGE> 55
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effect of temporary difference, primarily net operating loss
carryforwards, that gives rise to the deferred tax asset at December 31,
1995 and 1994 is presented below:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax asset $ 97,970 119,985
Deferred tax asset valuation account (97,970) (66,482)
-------- -------
$ - 53,503
======== =======
</TABLE>
A reconciliation of actual tax expense for 1995 and 1994 to the
"expected" tax expense (benefit) computed by applying the U.S. federal
corporate rate of 34% to loss before provision for federal income taxes
is as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Federal income tax statutory rate on taxable
income $(39,994) (40,057)
Write off of capitalized offering costs 72,397 --
Rate brackets and other -- 22,803
Valuation account 24,524 53,898
Other (3,424) --
-------- -------
$ 53,503 36,644
======== =======
</TABLE>
(Continued)
F-11
<PAGE> 56
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Public Offering of Stock
The offering of shares 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. The cumulative sales proceeds for
1,214,250 shares had been collected at December 31, 1995 and 1994.
Through December 31, 1995, 1,198,900 shares of common stock of FAIC
had been issued. In 1993, $500,000 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 was completed and opened for
business in September 1992. Upon the issuance of the above shares of
stock, American Liberty Financial Corporation's ownership percentage of
the outstanding stock of the Company was reduced from 100% to 94.4%.
Deferred offering costs included in other assets of $69,087 in 1994
represent commissions, costs, and expenses directly attributable to the
marketing of these securities. These costs were fully amortized at
December 31, 1995 as the offering was suspended in 1995 and management
does not anticipate reactivating.
(5) Agents' Accounts Receivable
Agents' accounts receivable in the amount of $36,116 at December 31,
1994 are collectible only to the extent of future commission earnings.
Such amounts were written off during 1995.
(Continued)
F-12
<PAGE> 57
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Lease Agreement
Funeral Homes of Louisiana, Inc. has a 50 year noncancellable land
lease on 3.41 acres with the City of Baker, Louisiana. This lease is
renewable for two successive twenty-four year periods at the option of
the Company. The initial cost of the lease is $1,000 per acre annually
and is subject to adjustment at the end of each five year period based on
change in the Consumer Price Index. At the end of the lease period, the
lessee retains the rights to all leasehold improvements. Lease expense
for 1995 and 1994 was $3,411. Future minimum lease payments, based on
current contract terms, are as follows:
1996 $ 3,411
1997 3,411
1998 3,411
1999 3,411
2000 3,411
Thereafter 139,851
F-13
<PAGE> 58
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996
ASSETS (UNAUDITED) 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 539,394 $ 530,744
Accounts receivable, net of allowance of
$4,000 in 1996 and 1995 69,271 8,395
Inventory 0 13,861
------------ ------------
TOTAL CURRENT ASSETS 608,665 553,000
------------ ------------
Restricted cash 9,910 17,266
Property and equipment, at cost net of accumulated
depreciation of $126,587 in 1996 and $115,496
in 1995 496,233 507,244
------------ ------------
TOTAL $ 1,114,808 $ 1,077,510
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE> 59
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) 1995
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 24,804 $ 1,516
Current portion of mortgage payable 11,739 10,732
------------ -------------
TOTAL CURRENT LIABILITIES 36,543 12,248
------------ -------------
Payable to affiliates 519,541 534,941
Mortgage payable 79,737 85,988
Deferred credit, sales proceeds collected from public
offering of stock, net of subscriptions receivable 15,750 15,750
------------ -------------
TOTAL LIABILITIES 651,571 648,927
SHAREHOLDERS' EQUITY:
Common stock, par value $.001; 40,500,000 shares
authorized; 21,700,900 shares issued in 1996 and
1995 and 21,700,500 shares outstanding in 1996
and 1995 21,699 21,699
Additional paid-in capital 978,421 978,421
Treasury stock, 400 shares, at cost (400) (400)
Accumulated deficit (536,483) (571,137)
------------ -------------
TOTAL SHAREHOLDERS' EQUITY 463,237 428,583
------------ -------------
TOTAL $ 1,114,808 $ 1,077,510
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE> 60
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
INCOME:
Funeral home sales $220,491 $ 172,198
Cost of goods sold (67,264) (44,887)
Interest 23,921 14,798
-------- ---------
TOTAL REVENUES 177,148 142,109
EXPENSES:
General and administrative 131,001 105,352
Taxes, licenses and fees 6,567 12,718
-------- ---------
TOTAL EXPENSES 137,568 118,070
OTHER INCOME (EXPENSE):
Interest expense (4,926) (5,432)
-------- ---------
TOTAL OTHER EXPENSES (4,926) (5,432)
INCOME FROM OPERATIONS BEFORE FEDERAL
INCOME TAXES 34,654 18,607
Federal income tax 0 0
-------- ---------
NET INCOME $ 34,654 $ 18,607
======== =========
PER SHARE OF COMMON STOCK $ 0.002 $ 0.001
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE> 61
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
INCOME:
Funeral home sales $112,439 $ 76,760
Cost of goods sold (32,744) (20,032)
Interest 17,830 7,577
-------- --------
TOTAL REVENUES 97,525 64,305
EXPENSES:
General and administrative 44,391 57,777
Taxes, licenses and fees 2,443 4,429
-------- --------
TOTAL EXPENSES 46,834 62,206
OTHER INCOME (EXPENSE):
Interest expense (2,826) (2,445)
-------- --------
TOTAL OTHER EXPENSES (2,826) (2,445)
INCOME (LOSS) FROM OPERATIONS BEFORE
FEDERAL INCOME TAXES 47,865 (346)
Federal income tax 0 0
-------- --------
NET INCOME (LOSS) $ 47,865 $ (346)
======== ========
PER SHARE OF COMMON STOCK $ 0.002 $ 0.000
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 62
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 34,654 $ 18,607
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation of property and equipment 11,091 16,198
(Increase) decrease in accounts receivable (60,876) 338
Decrease in inventory 13,861 53
Decrease in other assets 0 6,823
Increase (decrease) in accounts payable 23,288 16,620
(Decrease) in payable to affiliates (15,400) (23,801)
Other, net (80) (3,815)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,538 31,023
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage (5,244) (4,796)
---------- ----------
NET CASH (USED) BY FINANCING ACTIVITIES (5,244) (4,796)
---------- ----------
Increase in cash and restricted cash 1,294 26,227
Cash and restricted cash at beginning of year 548,010 544,265
---------- ----------
CASH AND RESTRICTED CASH AT END OF PERIOD $ 549,304 $ 570,492
========== ==========
Supplemental disclosure of cash flow information
- - interest paid $ 4,240 $ 5,116
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 63
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 47,865 $ (346)
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation of property and equipment 11,091 6,368
(Increase) decrease in accounts receivable (60,876) 23,683
Decrease in inventory 13,861 (716)
(Increase) in other assets 0 (3,290)
Increase (decrease) in accounts payable (21,905) (7,682)
(Decrease) in payable to affiliates -- (189)
Other, net (80) 0
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (10,044) 17,828
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage (5,647) (2,425)
----------- -----------
NET CASH (USED) BY FINANCING ACTIVITIES (5,647) (2,425)
----------- -----------
Increase (decrease) in cash and restricted cash (15,691) 15,403
Cash and restricted cash at beginning of period 564,995 555,089
----------- -----------
CASH AND RESTRICTED CASH AT END OF PERIOD $ 549,304 $ 570,492
=========== ===========
Supplemental disclosure of cash flow information
- - interest paid $ 2,826 $ 2,987
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 64
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
(1) FINANCIAL STATEMENTS
The following is a summary of certain significant accounting policies followed
in the preparation of these consolidated financial statements.
The accompanying consolidated financial statements include the accounts and
operations of First American Investment Corporation ("FAIC"), incorporated in
the State of Louisiana on November 8, 1984 and its wholly owned subsidiaries,
Funeral Homes of America, Inc. and Funeral Homes, FAIC and its subsidiaries are
collectively referred to as "First American." All significant intercompany
accounts and transactions have been eliminated.
FAIC is a 94.48%-owned subsidiary of American Liberty Life Insurance Company, a
wholly-owned subsidiary of American Liberty Financial Corp. ("First American").
In September 1995, First American was acquired by Citizens, Inc., the ultimate
majority shareholder at December 31, 1995.
First American's primary operations include a funeral home located in
Louisiana.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
The balance sheet for June 30, 1996, the statements of operations for the
three- and six- month periods ended June 30, 1996 and 1995 and the statements
of cash flows for the three- and six- month periods then ended have been
prepared by First American without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and changes in
cash flows at June 30, 1996, and for comparative periods presented have been
made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these financial statements and notes
thereto included in the audited financial statements as of December 31, 1995.
The results of operations for the period ended June 31, 1996 are not
necessarily indicative of the operating results for the full year.
F-20
<PAGE> 65
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated October 31, 1996, among Citizens
Insurance Company of America, Inc., a Colorado corporation ("CICA"), CICA
Acquisition, Inc., a Louisiana corporation ("Subsidiary"), and First American
Investment Corporation, a Louisiana corporation ("First").
WITNESSETH:
WHEREAS, the respective Boards of Directors of CICA, Subsidiary (all
of the outstanding stock of which is owned by CICA), and First deem it
advisable to merge Subsidiary into First (the "Merger") pursuant to this
Agreement and a Certificate of Merger to be executed by First and Subsidiary;
WHEREAS, CICA is a wholly-owned subsidiary of Citizens, Inc.
("Citizens") and holds shares of Citizens Class A Common Stock;
WHEREAS, CICA and Citizens own directly or indirectly approximately
94.5% of the outstanding shares of capital stock of First ("First Common
Stock"), consisting of 20,500,000 shares of First Common Stock, $.001 par value
per share;
NOW THEREFORE, in consideration of the mutual benefits to be derived
from this Agreement and of the representations, warranties, conditions and
promises hereinafter contained, CICA, Subsidiary, and First hereby adopt this
Agreement, whereby at the effective time of the Merger (as defined in Section
1.1 hereof) Subsidiary shall be merged into First and the outstanding shares of
First Common Stock shall be exchanged for shares of Citizens, Inc.
("Citizens") Class A Common Stock held by CICA, on the basis, terms and
conditions contained herein and, in connection herewith, agree as follows:
ARTICLE I
GENERAL
1.1 Execution of Certificate of Merger. Subject to the provisions
of this Agreement, a Certificate of Merger to effectuate the terms of this
Agreement shall be executed and acknowledged by each of Subsidiary and First
and thereafter delivered to the Secretary of State of the State of Louisiana
for filing and recording in accordance with applicable law as soon as
practicable on or after the Closing Date (as defined in Article VI hereof).
The Merger shall become effective upon the filing of the Certificate of Merger
with the Secretary of State of the State of Louisiana as provided by law ("the
effective time of the Merger"). At the effective time of the Merger the
separate existence of Subsidiary shall cease and Subsidiary shall be merged
with and into First (Subsidiary and First are sometimes referred to herein as
the "Constituent Corporations" and First, the corporation designated in the
Certificate of Merger as the surviving corporation, is sometimes referred to
herein as the "Surviving Corporation").
1.2 Transfer of Citizens Shares Held by CICA. CICA agrees that at
the effective time of the Merger it will transfer the shares of Citizens Class
A Common Stock to the extent set forth in, and in accordance with the terms of,
this Agreement.
1.3 Taking of Necessary Action. CICA, Subsidiary, and First,
respectively, shall take all such action as may be necessary or appropriate in
order to effectuate the transactions contemplated hereby. In case at any time
after the effective time of the Merger any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full title to all
A-1
<PAGE> 66
properties, assets, rights, approvals, immunities and franchises of either
First or Subsidiary, the officers and directors of such corporation at the
expense of the Surviving Corporation, shall take all such necessary action.
ARTICLE II
EFFECT OF MERGER ON CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
AND ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION
2.1 Conversion of Stock of First and Subsidiary.
(a) At the effective time of the Merger, each outstanding
share of First Common Stock shall be converted into .1111 shares of
Citizens Class A Common Stock, except for shares held by Dissenting
First Shareholders, First, Citizens, CICA, and any of their
subsidiaries, all of which shares shall be canceled.
(b) At the effective time of the Merger, each share of
Common Stock of Subsidiary which shall be issued and outstanding shall
remain outstanding and unchanged.
2.2 Exchange of Certificate.
(a) After the effective time of the Merger and within two
days after receiving a list of holders of record of First Common Stock
at the effective time of the Merger, CICA shall deliver to American
Stock Transfer & Trust Company (the "Exchange Agent") one or more
certificates representing a number of shares of Citizens Class A
Common Stock equal to the aggregate number of shares of Citizens Class
A Common Stock to be exchanged for the outstanding shares of First
Common Stock pursuant to Section 2.1 hereof (net of the sum of (i) the
number of shares of First Common Stock then owned by First, Citizens,
CICA, or any subsidiary of such corporations, and which are to be
canceled, and (ii) the number of shares of First Common Stock to which
shareholders of First who shall have filed with First written
objection to the Merger in the manner provided by the Louisiana
Business Corporation Law (the "Dissenting First Shareholders") would
have been entitled except for such dissents. Such certificate shall
thereafter be divided into certificates of such denominations and
registered in such names as the Exchange Agent may request, but under
no circumstances shall CICA be required to issue certificates for
fractional shares.
(b) After the effective time of the Merger, each holder
of a certificate theretofore evidencing outstanding shares of First
Common Stock (other than shares referred to in clauses (i) and (ii) of
Section 2. 2(a) hereof), upon surrender of the same to the Exchange
Agent or such other agent or agents as shall be appointed by the CICA,
shall be entitled to receive in exchange therefor a certificate or
certificates representing the number of full shares of Citizens Class
A Common Stock for which the shares of First Common Stock theretofore
represented by the certificate or certificates so surrendered shall
have been exchanged as provided in this Article II. As soon as
possible after the effective time of the Merger, the Exchange Agent
will send a notice and transmittal form to each holder of an
outstanding certificate which immediately prior to the effective time
of the Merger evidenced shares of First Common Stock, advising such
shareholder of the terms of the exchange effected by the Merger and
the procedure for surrendering to the Exchange Agent (which may
appoint forwarding agents) such certificate for exchange into one or
more certificates evidencing Citizens Class A Common Stock. Until so
surrendered, each outstanding certificate which, prior to the
effective time of the Merger, represented First Common Stock (except
shares referred to in clauses (i) and (ii) of Section 2.2(a) hereof)
will be deemed for all corporate
A-2
<PAGE> 67
purposes of CICA to evidence ownership of the number of full shares of
Citizens Class A Common Stock for which the shares of First Common
Stock represented thereby were exchanged; provided, however, until
such outstanding certificates formerly representing First Common Stock
are so surrendered, no dividend payable to holders of record of
Citizens Class A Common Stock as of any date subsequent to the
effective time of the Merger shall be paid to the holder of such
outstanding certificates in respect thereof. After the effective time
of the Merger there shall be no further registry of transfers on the
records of First of shares of First Common Stock and, if a certificate
representing such shares is presented to the Surviving Corporation, it
shall be canceled and exchanged for a certificate representing shares
of Citizens Class A Common Stock as herein provided. Upon surrender
of certificates of First Common Stock there shall be paid to the
record holder of the certificates of Citizens Class A Common Stock
issued in exchange therefor (i) the amount of dividends, if any,
theretofore paid with respect to such full shares of Citizens Class A
Common Stock as of any date subsequent to the effective time of the
Merger and (ii) at the appropriate payment date the amount of
dividends, if any, with a record date after the effective time of the
Merger but prior to surrender and a payment date subsequent to
surrender. No interest shall be payable with respect to the payment
of such dividends on surrender of outstanding certificates.
2.3 No Fractional Shares. Neither certificates nor scrip for
fractional shares of Citizens Class A Common Stock will be issued, but in lieu
thereof each holder of shares of First Common Stock who would otherwise have
been entitled to a fraction of a share of Citizens Class A Common Stock, upon
surrender of all the certificates representing shares of First Common Stock
registered in the name of such holder, will be paid the cash value of such
fraction based upon the price of $9.00 per whole share of Citizens Class A
Common Stock.
2.4 Certificates in Other Names. If any certificate evidencing
shares of Citizens Class A Common Stock is to be issued in a name other than
that in which the certificate surrendered in exchange therefor is registered,
it shall be a condition of the issuance thereof that the certificate so
surrendered shall be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange pay to the Exchange Agent
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Citizens Class A Common Stock in any name other than that of the
registered holder of the certificate surrendered or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
2.5 Dissenting First Shareholders. First shall give CICA (i)
prompt notice of any demands received from Dissenting First Shareholders for
payment for their shares of First Common Stock and (ii) the opportunity to
participate in all negotiations and proceedings with respect to any such
demands. First shall not, except with the prior written consent of CICA,
voluntarily make any payment with respect to, or settle or offer to settle, any
such demands for payment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of First. First represents and
warrants to CICA and Subsidiary as follows:
(a) Authority. Subject to the approval of this
Agreement by the shareholders of First as contemplated by Section 4.1
hereof, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part
of First, and this Agreement is a valid and binding obligation of
First. Neither the execution and delivery of this Agreement nor the
consummation of
A-3
<PAGE> 68
the transactions contemplated hereby nor compliance by First with any
of the provisions hereof will (i) conflict with or result in a breach
of any provision of its Articles of Incorporation or Bylaws, (ii)
result in a material default (or give rise to any right of
termination, cancellation, or acceleration) under any of the terms,
conditions or provisions of any agreement or other instrument or
obligation to which First or any corporation of which First owns,
directly or indirectly, more than 50% of the outstanding voting
securities (a "First Subsidiary") is a party, by which they or any of
their properties or assets may be bound, or (iii) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to
First, any First Subsidiary or any of their properties or assets. No
consent or approval by any governmental authority, other than
compliance with applicable federal and state securities laws, is
required in connection with the execution and delivery by First of
this Agreement and the Certificate of Merger or the consummation by
First of the transactions contemplated hereby.
3.2 Representations and Warranties of CICA and Subsidiary. CICA
and Subsidiary represent and warrant to First as follows:
(a) Organization, Standing and Power. CICA and
Subsidiary are corporations duly organized, validly existing and in
good standing under the laws of the States of Colorado and Louisiana,
respectively, have all requisite corporate power and authority to own,
lease and operate their properties and to carry on their businesses as
now being conducted.
(b) Authority. The execution and delivery by CICA and
Subsidiary of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of CICA and Subsidiary and this
Agreement is a valid and binding obligation of CICA and Subsidiary.
Neither the execution and delivery by CICA and Subsidiary of this
Agreement nor the consummation of the transactions contemplated hereby
nor compliance by CICA and Subsidiary with any of the provisions
hereof will (i) conflict with or result in a breach of any provision
of their respective Articles of Incorporation or Bylaws, (ii) result
in a material default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions, or
provisions of any note, bond, mortgage, indenture, license, agreement
or other instrument or obligation to which CICA or Subsidiary is a
party or by which they or any of their properties or assets may be
bound, or (iii) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to CICA or Subsidiary or any of their
properties or assets. No consent or approval by any governmental
authority, other than compliance with applicable federal and state
securities laws, is required in connection with the execution and
delivery by CICA or Subsidiary of this Agreement and the execution and
filing of the Certificate of Merger by Subsidiary or the consummation
by CICA or Subsidiary of the transactions contemplated hereby.
ARTICLE IV
CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME OF MERGER
4.1 Shareholder Authorization. First agrees to submit this
Agreement to its shareholders for authorization as soon as reasonably
practical.
4.2 Registration Statement. As soon as practicable hereafter CICA
will cause to be filed with the Securities and Exchange Commission the
Registration Statement for the purpose of registering the shares of Citizens
Class A Common Stock to be exchanged for the shares of First Common Stock
pursuant to Article II of this Agreement.
A-4
<PAGE> 69
4.3 Adjustment of Conversion Ratio. If at any time from the date
hereof until the effective time of the merger, Citizens shall increase or
reduce the number of shares of Citizens Class A Common Stock outstanding by
change in par value, split-up, reverse split, reclassification, or distribution
of stock dividends, the number of shares of Citizens Class A Common Stock into
which each outstanding share of First Common Stock shall be converted shall be
proportionately and equitably adjusted to the satisfaction of First.
ARTICLE V
CONDITIONS OF MERGER
5.1 Conditions of Obligations of CICA and Subsidiary. The
obligations of CICA and Subsidiary to perform this Agreement are subject to the
satisfaction of the following conditions unless waived by CICA and Subsidiary.
(a) Representations and Warranties. The representations
and warranties of First set forth in Section 3.1 hereof shall be true
and correct in all material respects as of the date of this Agreement
and as of the Closing Date as though made on and as of the Closing
Date, except as otherwise contemplated by this Agreement.
(b) Performance of Obligations of First. First shall
have performed all oblations required to be performed by it under this
Agreement prior to the Closing Date.
(c) Authorization of Merger. All action necessary to
authorize the execution, delivery and performance of this Agreement by
First, CICA and Subsidiary and the consummation of the transactions
contemplated hereby shall have been duly and validly taken by the
Boards of Directors of First, CICA, and Subsidiary respectively, and
the shareholders of First and Subsidiary.
(d) The Registration Statement. The Registration
Statement contemplated hereby shall be effective under the Securities
Act of 1933, as amended, and shall not be subject to a stop order or
any threatened stop order.
5.2 Conditions of Obligation of First. The obligation of First to
perform this Agreement is subject to the satisfaction of the following
conditions unless waived by First:
(a) Representations and Warranties. The representations
and warranties of CICA and Subsidiary set forth in Section 3.2 hereof
shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though made on and as of
the Closing Date, except as otherwise contemplated by this Agreement.
(b) Performance of Obligations of CICA and Subsidiary.
CICA and Subsidiary shall have performed all obligations required to
be performed by them under this Agreement prior to the Closing Date.
(c) Authorization of Merger. All action necessary to
authorize the execution, delivery and performance of this Agreement by
CICA, Subsidiary, and First and the consummation of the transactions
contemplated hereby shall have been duly and validly taken by the
Boards of Directors of CICA, Subsidiary, and First respectively, and
the shareholders of First and Subsidiary.
5.3 Condition of Obligations of CICA, Subsidiary, and First. The
obligations of CICA, Subsidiary, and First to perform this Agreement unless
waived by CICA, Subsidiary, and First, are subject
A-5
<PAGE> 70
to the condition that prior to the special meeting of shareholders of First to
authorize the Merger written objection to this Agreement shall not have been
filed with First by the holders of 1% of more of the outstanding shares of
First Common Stock pursuant to the provisions of the Louisiana Business
Corporation Law relating to the rights of dissenting shareholders.
ARTICLE VI
CLOSING DATE
The closing for the consummation of the transactions contemplated by
this Agreement shall, unless another date or place is agreed to in writing by
the parties hereto, take place at the offices of Jones & Keller, P.C. in
Denver, Colorado, on the date (the "Closing Date") which is the second business
day after the date the shareholders of First shall have given the approval
referred to in Section 4.1 hereof.
ARTICLE VII
TERMINATION, SURVIVAL OF REPRESENTATIONS,
WARRANTIES AND COVENANTS: WAIVER AND AMENDMENT
7.1 Termination. This Agreement shall be terminated, and the
Merger abandoned, if the shareholders of First shall not have authorized this
Agreement as required by Section 4.1 hereof. Notwithstanding approval by such
shareholders, this Agreement may be terminated at any time prior to the
effective time of the Merger, by:
(a) the unanimous consent of CICA, Subsidiary, and First;
(b) CICA and Subsidiary or First at any time after March
31, 1997;
(c) if events occur which render impossible the
compliance one or more of the conditions set forth in Section 5.1
hereof and are not waived by CICA and Subsidiary or if events occur
which render impossible of compliance one or more of the conditions
set forth in Section 5.2 hereof and are not waived by First or if
events occur which render impossible of compliance the condition set
forth in Section 5.3 hereof and are not waived by CICA, Subsidiary,
and First; or
(d) CICA or First if the Board of Directors of either
CICA or First shall have determined in its sole discretion exercised
in good faith that the Merger contemplated by this Agreement has
become inadvisable or impracticable by reason of the threat or the
institution of any litigation or proceeding or the institution of a
formal investigation, in either case to restrain or prohibit the
consummation of the transactions contemplated by this Agreement or to
obtain other relief in connection with this Agreement.
7.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement and the Merger, this Agreement shall become void
and have no effect, without any liability on the part of any party or its
directors, officers or shareholders.
7.3 Survival of Representations, Warranties and Covenants. The
respective representations and warranties, obligations, covenants and
agreements of First, CICA and Subsidiary contained herein (other than those
contained in Sections 1.2, 1.3, Article II and Section 8.1 hereof) shall expire
with, and be terminated and extinguished by, the effectiveness of the Merger
and shall not survive the effective time of the Merger. The sole right and
remedy arising from a misrepresentation or breach of warranty, from the failure
to perform any promise or discharge any obligation not specified in the
preceding sentence, from
A-6
<PAGE> 71
a failure to comply with obligations hereunder or from the failure of any of
the conditions to be met shall be the termination of this Agreement by the
aggrieved party.
7.4 Waiver and Amendment. Any term or provision of this Agreement
may be waived at any time by the party which is, or whose shareholders are,
entitled to the benefits thereof and this Agreement may be amended or
supplemented at any time, whether before or after the special meeting of First
shareholders referred to in Section 4.1 hereof; provided, however, that the
ratio at which shares of First Common Stock will be exchanged for shares of
Citizens Class A Common Stock as provided in Section 2.1 hereof, may not be
waived or amended after final adjournment of such special meeting of First
shareholders.
ARTICLE VIII
MISCELLANEOUS
8.1 Expenses. If the Merger becomes effective, each of CICA,
Subsidiary and the Surviving Corporation shall pay their respective expenses in
connection therewith, and any expenses incurred by the shareholders of
Subsidiary or First shall be borne by them. If the Merger shall not become
effective or shall be abandoned, then CICA, Subsidiary and First shall each
bear their expenses separately incurred in connection therewith.
8.2 Entire Agreement. This Agreement contains the entire
agreement among CICA, Subsidiary and First with respect to the Merger and the
related transactions and supersedes all prior arrangements or understandings
with respect thereto.
8.3 Descriptive Headings. Descriptive headings are for
convenience only and shall not control or effect the meaning or construction of
any provision of this Agreement.
8.4 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, addressed
as follows:
8.5 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but
one agreement.
A-7
<PAGE> 72
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf and its corporate seal to be hereunto
affixed and attested by its officers thereunto duly authorized, all as of the
day and year first above written.
CITIZENS INSURANCE COMPANY OF AMERICA, INC.
By:/s/ Harold E. Riley
----------------------------------------
Attest:/s/ Mark A. Oliver Title: President
------------------------
CICA ACQUISITION, INC.
By:/s/ Harold E. Riley
----------------------------------------
Attest:/s/ Mark A. Oliver
------------------------
FIRST AMERICAN INVESTMENT CORPORATION
By:/s/ Harold E. Riley
----------------------------------------
Title: President
Attest:/s/ Mark A. Oliver
------------------------
A-8
<PAGE> 73
APPENDIX B
STOCK PURCHASE AGREEMENT
This Agreement is entered into as of October 18, 1996, by and among
FIRST AMERICAN INVESTMENT CORPORATION, a Louisiana corporation ("Seller"), and
FUNERAL SERVICES INTERNATIONAL, INC., a Louisiana corporation ("Buyer"). Buyer
and Seller are referred to collectively herein as the "Parties."
RECITALS:
WHEREAS; Seller owns all of the outstanding capital stock of Funeral
Homes of Louisiana, Inc., a Louisiana corporation ("FHLI");
WHEREAS, Buyer is a Louisiana corporation whose sole shareholders are
Gary L. Roth ("Roth") and Eddie McCallum ("McCallum"), both of whom have been
involved in the management and operation of the business of FHLI prior to and
after the acquisition of FHLI by Seller; and
WHEREAS, this Agreement contemplates a transaction in which Buyer will
purchase from Seller, and Seller will sell to Buyer, all of the outstanding
capital stock of FHLI in return for cash and discharge of indebtedness to
American Liberty Life Insurance Company ("ALLIC") secured by certain assets of
FHLI.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, the Parties agree as follows.
1. PURCHASE AND SALE OF FHLI SHARES.
(a) Basic Transaction. On and subject to the terms and conditions of
this Agreement, Buyer agrees to purchase from Seller, and Seller agrees to sell
to Buyer, all of its FHLI Shares for the consideration specified in this
Section 1.
(b) Purchase Price. Buyer agrees to pay $700,000 (the "Purchase
Price") at Closing by (i) delivery of evidence satisfactory to Seller of
payment in full (the "Payoff Balance") of the Mortgage Loan, and (ii) wire
transfer of cash equal to the difference between the Purchase Price and the
Payoff Balance to an account designated in writing to Buyer by Seller.
(c) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place on November 1, 1996, or such other
date as Buyer and Seller may mutually determine (the "Closing Date").
(d) Deliveries at the Closing. The Parties shall deliver the
certificates, instruments and documents required by this Agreement to Escrow
Agent to be held in escrow until released at Closing in accordance with written
instructions from the party delivering same. The stock certificates
representing the FHLI Shares shall be endorsed in blank or accompanied by duly
executed assignment documents upon delivery to Escrow Agent by Seller.
2. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to
Buyer that, to its Knowledge, the following statements contained in this
Section 2 are correct and complete as of the date of this Agreement and, except
as otherwise notified pursuant to Section 4(e), will be correct and complete as
of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 2).
B-1
<PAGE> 74
(a) Organization of Seller. Seller and FHLI are duly organized,
validly existing, and in good standing under the laws of the jurisdiction of
their incorporation.
(b) Authorization of Transaction. At Closing, Seller will have full
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder, and this Agreement will constitute the valid
and legally binding obligation of Seller, enforceable in accordance with its
terms and conditions. Except as may be required under applicable securities
laws, Seller is not required to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by
this Agreement.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any provision of its charter or bylaws or any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
Seller is subject, or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
contract, lease, license, instrument, or other agreement to which Seller is a
party or by which it is bound or to which any of its assets is subject.
(d) Brokers' Fees. Seller has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which Buyer or FHLI could
become liable or obligated.
(e) FHLI Shares. Seller holds of record and owns beneficially all of
the outstanding FHLI Shares, free and clear of any restrictions on transfer
(other than any restrictions under the Securities Act and state securities
laws), security interests, options, warrants, purchase rights, contracts,
commitments, equities and claims. Except for this Agreement, neither Seller nor
FHLI is a party to any option, warrant, purchase right, or other contract or
commitment that could require Seller or FHLI to sell, transfer, or otherwise
dispose of any capital stock of FHLI. Neither Seller nor FHLI is a party to any
voting trust, proxy, or other agreement with respect to the voting of any
capital stock of FHLI.
(f) Trial Balances. The Current Trial Balance is, and except as
otherwise noted thereon the Closing Trial Balance will be, (i) prepared from
information provided by the McCallum and Roth as management of the funeral
home, (ii) relied on by Seller and the directors of FHLI for decisions
concerning FHLI, and (iii) fair presentations of the financial condition of
FHLI as of the date thereof.
(g) Leasehold Premises. The Lease, a complete copy of which has been
furnished to Buyer, is valid and enforceable subject to equitable principles or
the effect of bankruptcy or creditors' rights laws. The Premises constitute all
of the immovable property used or necessary for the lawful operation of FHLI as
presently conducted. There are no encroachments upon the Premises by any
buildings, structures, or improvements located on adjoining real estate. None
of the buildings, structures or improvements that are constructed on the
Premises and used in the present operation of FHLI encroaches upon adjoining
real estate, and all such buildings, structures, and improvements are
constructed in conformity with all "set-back" lines, easements and other
restrictions or rights of record, and all applicable building or safety codes
and zoning ordinances. There are no pending or threatened condemnation or
eminent domain proceedings that may affect the Premises. There are no
structural defects in the buildings, structures and other improvements located
on the Premises.
3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to
Seller that the following statements contained in this Section 3 are correct
and complete as of the date of this Agreement and, except as
B-2
<PAGE> 75
otherwise notified pursuant to Section 4(e), will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3).
(a) Organization of Buyer. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
Louisiana.
(b) Authorization of Transaction. Buyer has full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of Buyer, enforceable in accordance with its terms and conditions. Buyer is not
required to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any provision of the charter, bylaws or other organizational
documents of Buyer or any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Buyer is subject, or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which Buyer is a party or by which
it is bound or to which any of its assets are subject.
(d) Brokers' Fees. Buyer has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which Seller could become
liable or obligated.
(e) Investment. Buyer (i) understands that the FHLI Shares have not
been, and will not be, registered under the Securities Act or under any state
securities laws, and are being offered and sold in reliance upon federal and
state exemptions for transactions not involving any public offering, (ii) is
acquiring the FHLI Shares solely for its own account for investment purposes,
and not with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act, (iii) is a sophisticated investor
with knowledge and experience in business and financial matters, (iv) has
received certain information concerning FHLI and has had the opportunity to
obtain additional information as desired in order to evaluate the merits and
the risks inherent in holding the FHLI Shares, and (v) is able to bear the
economic risk and lack of liquidity inherent in holding the FHLI Shares.
(f) "AS IS" Sale. Buyer acknowledges that (i) Seller is not making
any representations or warranties to Buyer except as expressly contained in
this Agreement; (B) Roth and McCallum have been involved in the operations of
FHLI and, as a result, are in a better position than Seller to know or have the
opportunity to become aware of all material facts concerning FHLI, its assets,
liabilities and business. Accordingly, Buyer is not relying on any warranty or
representation of Seller except to the extent that neither Roth and McCallum
are aware, nor in the exercise of reasonable diligence, should have been aware
of the matters relating to such representation or warranty.
(g) Investigations. Buyer has exercised and will continue to exercise,
directly or indirectly through Roth and McCallum (each of whom shall be deemed
an agent of Buyer for all purposes of this Agreement including any transaction
contemplated hereby) and other agents, the right to inspect the assets, books,
records, contracts, premises and all other matters relating to FHLI. Buyer (A)
is relying solely on such inspections and on the individuals conducting same;
(B) has completed or prior to Closing will complete an inspection of all
tangible assets owned or used by FHLI and the physical condition thereof,
including accessibility and location of utilities, use or disposal of hazardous
materials by, on, from or in connection
B-3
<PAGE> 76
with such operations or assets, all matters with respect to taxes, assessments,
income and expense data, bonds, permissible uses, zoning, covenants, conditions
and restrictions, and other matters which might affect or influence Buyer's
intended purposes or Buyer's willingness to enter into this Agreement; and (C)
understands that Seller would not sell FHLI except on an "AS IS" basis.
4. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) General. Subject to any applicable fiduciary duties, each of the
Parties will use its commercially reasonable efforts to take all action and to
do all things necessary in order to consummate and make effective the
transactions contemplated by this Agreement (including satisfaction, but not
waiver, of the closing conditions set forth in Section 6).
(b) Notices and Consents. Each of the Parties will (and Seller will
cause FHLI to) give any notices to, make any filings with, and use its
commercially reasonable efforts to obtain any authorizations, consents, and
approvals of governments and governmental agencies as may be requested by the
other Party to this Agreement and necessary to consummate the transactions
contemplated by this Agreement.
(c) Restrictions on Recapitalization or Material Changes. Seller will
not cause or permit FHLI to declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock or redeem, purchase, or
otherwise acquire any of its capital stock.. Without the prior written consent
of Buyer, Seller will not directly or indirectly take or cause to be taken any
action which would have a materially adverse effect on FHLI or its assets or
business.
(d) Full Access. Seller will permit, and Seller will cause FHLI to
permit, agents and representatives of Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of FHLI, to all premises, properties, personnel, books,
records (including tax records), contracts, and documents of or pertaining to
FHLI.
(e) Notice of Developments. In the event either party to this
Agreement discovers information indicating that facts or circumstances exist
which would give rise to a breach of a representation or warranty either by the
discovering party or the other party to this Agreement, the discovering party
shall promptly give written notice thereof to the other party. If such notice
of breach is given on or before Closing, the party ("Nonbreaching Party") who
is not in breach or potential breach of the representation or warranty
described in the written notice may elect to (i) proceed to Closing, in which
case such breach shall be waived if not caused by the willful or negligent acts
or omission of the other party ("Breaching Party"), (ii) subject to the consent
of the Breaching Party, extend the Closing Date up to thirty (30) days, or
(iii) terminate the Agreement.
(f) Trial Balance. Seller will furnish Buyer a FHLI trial balance as
of a date no more than thirty (30) days before Closing.
5. POST-CLOSING COVENANT. If any further action is necessary after Closing to
carry out the purposes of this Agreement, each Party will take such further
action (including the execution and delivery of such further instruments and
documents) as any other Party reasonably may request, all at the sole cost and
expense of the requesting Party. Seller acknowledges and agrees that from and
after the Closing Buyer will be entitled to possession of all documents, books,
records (including tax records), agreements, and financial data of any sort
relating solely to FHLI.
B-4
<PAGE> 77
6. CONDITIONS TO OBLIGATION TO CLOSE.
(a) Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the transactions to be performed by Buyer in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties of Seller shall be true
and correct in all material respects at and as of the Closing Date;
(ii) Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of Buyer to own FHLI
Shares and to control FHLI, or (D) affect adversely the right of FHLI
to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) Seller shall have delivered to Buyer a certificate to the
effect that, to its Knowledge, each of the conditions specified in
Section 6(a)(i)-(iii) is satisfied in all respects;
(v) On or before the Closing, Buyer shall (A) have concluded
all investigations described in Section 3(g) and shall be satisfied
with the results thereof, (B) have obtained financing on terms and
conditions satisfactory to Buyer and in an amount sufficient to
consummate the transactions contemplated hereby, and (C) be satisfied
that there are no material adverse changes in the business or
condition of FHLI since the Current Trial Balance;
(vi) the Parties shall have received all authorizations,
consents, and approvals of governments and governmental agencies
required to consummate the transactions contemplated by this
Agreement;
(vii) Buyer shall have received the resignations, effective as
of the Closing, of each director and officer of FHLI;
(viii) all actions to be taken by Seller in connection with
consummation of the transactions contemplated hereby and all
certificates, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in
form and substance to Buyer;
(ix) a release of the mortgage and encumbrance securing the
Mortgage Loan, in form and substance reasonably satisfactory to
counsel to Buyer, shall be delivered to Escrow Agent for delivery to
Buyer upon Buyer's payment in full of the Mortgage Loan by wire
transfer; and
(x) Buyer shall have received an estoppel certificate from
the City of Baker, Louisiana confirming that all past due rent under
the Lease has been paid and that, to its knowledge, the Lease is valid
and enforceable.
Buyer may waive any condition specified in this Section 6(a) if it executes a
writing so stating at or prior to the Closing.
B-5
<PAGE> 78
(b) Conditions to Obligation of Seller. The obligation of Seller to
consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties of Buyer shall be true
and correct in all material respects at and as of the Closing Date;
(ii) Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect) or (C) result in any fine, penalty or
adverse effect against any Affiliate of FHLI;
(iv) Buyer shall have delivered to Seller a certificate to the
effect that each of the conditions specified in Section 6(b)(i), (ii)
and, to its Knowledge, (iii) is satisfied in all respects;
(v) On or before the Closing, Buyer shall confirm in writing
to Seller that Buyer (A) has concluded all investigations described in
Section 3(g) and is satisfied with the results thereof, and (B) has
obtained financing on terms and conditions satisfactory to Buyer and
in an amount sufficient to consummate the transactions contemplated
hereby;
(vi) the Parties shall have received all authorizations,
consents, and approvals of governments and governmental agencies
required to consummate the transactions contemplated by this
Agreement;
(vii) all actions to be taken by Buyer in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to Seller; and
(viii) this Agreement and the transactions contemplated hereby
shall be approved by the requisite vote of the Seller's Board of
Directors and shareholders on or before the Closing.
Seller may waive any condition specified in this Section 6(b) if it executes a
writing so stating at or prior to the Closing.
7. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) Survival of Representations and Warranties. The representations
and warranties of the Parties contained in Sections 2(d)-(f), inclusive, and
Sections 3(d)-(g), inclusive, shall survive the Closing. None of the other
representations and warranties of the Parties shall survive the Closing.
(b) Exclusivity. The representations, warranties and covenants
contained in this Agreement, subject to the limitations contained herein, are
the sole and exclusive representations and warranties relating to the
transactions contemplated by this Agreement and are in derogation of all
statutory, equitable, and other common or civil law rights or remedies.
B-6
<PAGE> 79
8. TERMINATION.
(a) Termination of Agreement. This Agreement may be terminated as
provided below:
(i) Buyer and Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) if the conditions of Sections 6(a)(v) or 6(b)(v) are not
satisfied on or before the Closing, Seller or Buyer may terminate this
Agreement by giving written notice to the other;
(iii) Buyer may terminate this Agreement by giving written
notice to Seller at any time prior to the Closing (A) in the event
Seller has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, Buyer has
notified Seller of the breach, and the breach has continued without
cure for a period of 10 days after the notice of breach, or (B) if the
Closing shall not have occurred on or before November 1, 1996, by
reason of the failure of any condition precedent under Section 6(a)
hereof (unless the failure results primarily from breach by Buyer of
any representation, warranty, or covenant contained in this
Agreement); and
(iv) Seller may terminate this Agreement by giving written
notice to Buyer at any time prior to the Closing (A) in the event
Buyer has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, Seller has
notified Buyer of the breach, and the breach has continued without
cure for a period of 10 days after the notice of breach, or (B) if the
Closing shall not have occurred on or before November 1, 1996, by
reason of the failure of any condition precedent under Section 6(b)
hereof (unless the failure results primarily from Seller breaching any
representation, warranty, or covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8(a) , all rights and obligations of the Parties hereunder
shall terminate without any liability of any Party to any other Party.
9. DEFINITIONS.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Closing" and "Closing Date" have the meanings set forth in Section
1(c).
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the
businesses and affairs of FHLI that is not already generally available to the
public.
"Closing Trial Balance" means the FHLI trial balance to be delivered
pursuant to Section 4(f).
"Current Trial Balance" means the FHLI trial balance as of September
30, 1996 attached as Exhibit A hereto.
"Escrow Agent" means Schaneville & Barringer, 918 Government Street,
Baton Rouge, Louisiana 70802-6095, Attn: Donald M. Meltzer, Tel: 504-383-9953,
Fax: 504-387-3198.
B-7
<PAGE> 80
"FHLI Share" means any share of capital stock of FHLI.
"Knowledge" means actual knowledge of the officer executing this
Agreement on behalf of the subject entity without investigation or imputation
of notice or knowledge from any other person or entity.
"Lease" means the Land Lease dated July 29, 1991 between the City of
Baker, Louisiana, as Lessor, and FHLI.
"Mortgage Loan" means the indebtedness owed by FHLI to ALLIC and
secured by certain assets of FHLI.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"Premises" means the funeral home facilities located on the real
property described in the Lease.
"Purchase Price" has the meaning set forth in Section 1(b).
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
10. MISCELLANEOUS.
(a) Confidentiality. Buyer will maintain the confidentiality of all
Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
Seller or destroy, at the request and option of Seller, all tangible and
intangible copies, reproductions, extracts, summaries and analyses of or
derived from, in whole or in part, the Confidential Information which are in
its possession. In the event that Buyer is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, that Buyer will notify Seller promptly
of the request or requirement so that Seller may seek an appropriate protective
order or waive compliance with these provisions. If, in the absence of a
protective order or the receipt of a waiver hereunder, Buyer is, on the advice
of counsel, compelled to disclose any Confidential Information to any tribunal
or else stand liable for contempt, Buyer may disclose the Confidential
Information to the tribunal; provided, however, that Buyer shall use its best
efforts to obtain, at the request of Seller, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the Buyer shall designate. The
foregoing provisions shall not apply to any Confidential Information which is
generally available to the public immediately prior to the time of disclosure
through no fault, in whole or in part, of Buyer. The provisions of this
Section 10(a) shall survive any termination of this Agreement.
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any individual or entity other than the Parties and
their respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including any documents referred
to herein) constitutes the entire agreement among the Parties and supersedes
any prior understandings, agreements, or representations by or among the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
B-8
<PAGE> 81
(d) Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
its rights, interests, or obligations hereunder.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices or other communications made pursuant hereto
shall be in writing, addressed to the Parties at their respective addresses set
forth below, and shall be deemed properly delivered, given or served on (i)
personal delivery against receipt copy signed by the recipient, (ii) facsimile
transmission with written confirmation of receipt by the recipient, (iii) the
third business day after being mailed by certified or registered mail, postage
prepaid, or (iv) one business day after being sent via Federal Express or other
recognized overnight service:
If to Seller: First American Investment Corporation
Attn: Mark A. Oliver
P.O. Box 149151
Austin, Texas, 78714-9151
Tel: 512-837-7100 Fax: 512-836-9334
If to Buyer: Funeral Services International, Inc.
Attn: Gary L. Roth or Eddie McCallum
6401 Groom Road
Baker, Louisiana 70714
Tel: 504-775-1991 Fax: 504-775-2095
Any Party may send any notice or other communication hereunder to the intended
recipient at the address set forth above using any other means including telex,
ordinary mail, or electronic mail, but no such notice or other communication
shall be deemed to have been duly given unless and until it is actually
received by the intended recipient. Any Party may change the address to which
notices or other communications hereunder are to be delivered by giving the
other Party notice in the manner herein set forth.
(h) Governing Law. 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 of any jurisdiction other than the State of Louisiana.
(i) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
Buyer and Seller. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
B-9
<PAGE> 82
(k) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby. FHLI will not bear Seller's costs and
expenses (including Seller's legal fees and expenses) incurred in connection
with this Agreement or any of the transactions contemplated hereby.
(l) Construction. 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 requires otherwise. The
word "including" shall mean including without limitation.
(m) Incorporation of Exhibits. Any exhibits identified in this
Agreement are incorporated herein by reference and made a part hereof.
* * * * * * *
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
SELLER:
FIRST AMERICAN INVESTMENT CORPORATION
By:/s/ Mark A. Oliver
------------------------------------------
Title: Executive Vice President and Treasurer
BUYER:
FUNERAL SERVICES INTERNATIONAL, INC.
By:/s/ Eddie McCallum
------------------------------------------
Title: President and Chief Executive Officer
Each of the undersigned hereby agrees and certifies that, as of the date of
this Agreement and as of Closing, (A) he is not aware of (i) any breach, or any
facts or circumstances which could lead to a breach, of any representation,
warranty or covenant of Seller contained in this Agreement, (ii) any untrue
statement of a material fact or omission to state any material fact necessary
in order to make the statements and information contained in any representation
or warranty of Seller not misleading, and (B) he will notify Seller immediately
if he should become aware, whether by the occurrence of any event, additional
knowledge or otherwise, of any breach or possible breach of his certification
in clause (A) of this paragraph. Each of the undersigned further agrees to be
personally bound by the provisions of Section 10(a) as if his name were
substituted for each reference to Buyer therein.
/s/ Gary L. Roth /s/ Eddie McCallum
- ------------------------- -------------------------
Gary L. Roth Eddie McCallum
B-10
<PAGE> 83
EXHIBIT A TO STOCK PURCHASE AGREEMENT
Current Trial Balance
FEDERAL HOMES OF LOUISIANA, INC.
ACCOUNTING TRIAL BALANCE - 9/30/96
<TABLE>
<S> <C> <C>
13856 INV RE-6401 GROOM RD, BAKER LA, FUNERAL HOME 477,130.14
13857 INV RE-6401 GROOM RD, BAKER LA - ENCUMBRANCES (88,762.25)
13858 INV RE-6401 GROOM RD, BAKER LA - ACCUM DEPRE (62,046.86)
15101 CASH-HOME OFF ACCTG DEPT PETTY CASH 303.28
15204 CKNG-HANCOCK BANK-BATON ROUGE LA 20,009.03
15213 CKNG-HANCOCK BANK (BAKER FH IMPREST) BTR LA 1,581.67
15605 SVNG-MERRILL LYNCH GOVT RESERVES 0.00
17501 FURNITURE & EQUIPMENT 88,170.92
17501 FURNITURE & EQUIPMENT-ACCUM DEPR (24,755.69)
17550 ACCOUNTS RECEIVABLE 58,496.06
17611 VEHICLES 112,370.83
17613 VEHICLES-ACCUM DEPR (60,314.83)
17621 INVENTORY-CASKETS 0.00
17622 INVENTORY-BURIAL GARMENTS 0.00
-----------
TOTAL ASSETS 522,182.30
28325 SALES TAX PAYABLE (542.83)
28710 SUSPENSEN-CONVERSION ACCTG DISCREPANCIES 0.00
28711 SUSPENSEN-MISC GENERAL ACCOUNTING 3,380.24
28720 CLEARING-BOND 0.00
29300 NOTES PAYABLE 0.00
-----------
TOTAL LIABILITIES 2,837.41
31101 CAPITAL PAID UP (63,000.00)
33101 GROSS PAID IN & CONTRIBUTED SURPLUS (525,000.33)
33301 UNASSIGNED SURPLUS FUNDS/RETAINED EARNINGS 81,092.72
-----------
TOTAL NET ASSETS (506,907.61)
57730 INV EXP-REAL ESTATE DEPRECATION EXPENSE 15,228.48
57740 INV EXP-SURPLUS NOTE, DEB. INT 6,277.96
59000 FH INC-PROFESSIONAL SERVICES-REGULAR (38,759.06)
59002 FH INC-PROFESSIONAL SERVICES-CREMATION 0.00
59004 FH INC-VIEWING FACILITIES USE-REGULAR (10,705.00)
59006 FH INC-VIEWING FACILITIES USE-CREMATION 0.00
59007 FH INC-VIEWING FACILITIES USE-CHILD 0.00
59010 FH INC-VIEWING FACILITIES USE-REGULAR ADULT (23,470.00)
59013 FH INC-SERVICES FACILITIES USE-CHILD 0.00
59017 FH INC-OTHER FACILITIES USE-CREMATION 0.00
59019 FH INC-EMBALMING-REGULAR ADULT (14,070.00)
59021 FH INC-EMBALMING-CREMATION 0.00
59022 FH INC-EMBALMING-CHILD 0.00
59023 FH INC-BODY PREPARATION (8,725.00)
59024 FH INC-CASKETS (136,300.25)
59025 FH INC-OUTER CONTAINERS-VAULT (24,344.00)
59026 FH INC-OUTER CONTAINERS-OTHER 0.00
</TABLE>
B-11
<PAGE> 84
<TABLE>
<S> <C> <C>
59027 FH INC-ALTERNATIVE CONTAINER (505.00)
59028 FH INC-CREMATION URNS 0.00
59030 FH INC-BURIAL GARMENTS (487.00)
59031 FH INC-REGISTER BOOKS (875.00)
59032 FH INC-ACKNOWLEDGEMENT CARDS (745.00)
59033 FH INC-SERVICE FOLDER (300.00)
59034 FH INC-TRANSFER OF REMAINS (6,005.00)
59035 FH INC-HEARSE TRANSPORTATION (3,670.00)
59036 FH INC-LIMO TRANSPORTATION (935.00)
59037 FH INC-SERVICES/UTILITY TRANSPORTATION (1,535.00)
59038 FH INC-MILEAGE CHARGES (1,124.00)
59040 FH INC-CEMETERY CHARGES (2,574.00)
59041 FH INC-CREMATORY CHARGES (1,310.00)
59042 FH INC-FLOWERS 0.00
59043 FH INC-OBITUARY NOTICES (4,901.65)
59044 FH INC-CERTIFIED COPIES (2,815.00)
59045 FH INC-PUBLIC TRANSPORTATION (358.00)
59046 FH INC-OUTSIDE FUNERAL DIRECTORS (1,730.00)
59047 FH INC-HAIRDRESSING (760.00)
59048 FH INC-PREMITS (120.00)
59900 FH INC-MISCELLANEOUS INCOME (13,889.26)
-----------
TOTAL INCOME (279,505.78)
69000 FH EXP-CASKETS 35,956.98
69001 FH EXP-OUTER CONTAINERS-VAULT 16,935.16
69004 FH EXP-CREMATION URNS 1,282.32
69006 FH EXP-BURIAL GARMENTS 648.91
69007 FH EXP-BOOKS, CARDS, ETC. 1,390.34
69009 FH EXP-CEMETARY CHARGES 760.00
69010 FH EXP-CREMATION CHARGES 575.00
69011 FH EXP-FLOWERS 96.04
69012 FH EXP-OBITUARY NOTICES 6,093.80
69013 FH EXP-CERTIFIED COPIES 2,370.00
69014 FH EXP-PUBLIC TRANSPORTATION 12,690.81
69015 FH EXP-OUTSIDE FUNERAL DIRECTORS 755.00
69017 FH EXP-HAIRDRESSING 760.00
69018 FH EXP-PERMITS, LICENSES AND FEES 115.00
69019 FH EXP-ALLOWANCES 1,116.58
69020 FH EXP-EMBALMING AND FUNERAL SUPPLIES 3,638.16
69030 FH EXP-REAL ESTATE LEASE PAYMENT 0.00
-----------
TOTAL FUNERAL HOME EXPENSES 85,184.10
72005 SALARIES & WAGES-OTHER (ACTUAL) 0.00
72045 SALARIES & WAGES ON CONTRACT LABOR (ACTUAL) 5,177.67
73115 CONTRIBUTION FOR EMPLOYEE BENEFIT PLANS 0.00
73315 OTHER EMPLOYEE WELFARE (ACTUAL) 881.84
73409 MANAGEMENT SERVICE FEE EXP 88,363.55
74125 LEGAL FEES & EXPENSES OTHER 0.00
74405 PUBLIC ACCOUNTANT & ACTUARY FEES (20.00)
72125 TRAVEL EXPENSE-OTHER (ACTUAL) 2,900.04
72165 ENTERTAINMENT EXPENSE-OTHER (ACTUAL) 1,074.65
</TABLE>
B-12
<PAGE> 85
<TABLE>
<S> <C> <C>
72205 ADVERTISING/PUBLIC RELATIONS EXPENSE (ACTUAL) 10,978.35
75305 POSTAGE EXPENSE (ACTUAL) 1,027.76
75335 TELEGRAPH AND TELEPHONE 4,955.57
75405 PRINTING-STATIONERY EXPENSE (ACTUAL) 1,109.13
75425 OFFICE SUPPLIES EXPENSE (ACTUAL) 1,287.02
75515 DEPRECIATION-VEHICLES (ACTUAL) 5,300.00
75525 DEPRECIATION-FURNITURE & EQUIPMENT (ACTUAL) 11,090.98
75605 EQUIPMENT-RENTAL (ACTUAL) 1,296.87
75615 EQUIPMENT-MAINTENANCE & REPAIR (ACTUAL) 927.76
75725 DATA PROCESSING-RIBBONS, SUPPLIES, ETC. EXP 0.00
76105 BOOKS & PERIODICALS (ACTUAL) 1,242.64
76205 BUREAU & ASSOCIATION DUES 1,260.94
76305 INSURANCE, EXCEPT ON REAL ESTATE 94.00
76405 MISCELLANEOUS LOSSES 15,617.24
76505 COLLECTION AND BANK SERVICE CHARGES 22.03
76615 SUNDRY-CONTRIBUTIONS & DONATIONS 1,030.00
76635 SUNDRY-MISCELLANEOUS (ACTUAL) 9,105.75
79125 REAL ESTATE-MAINT & REPAIR (ACTUAL) 2,631.03
79155 REAL ESTATE-SERV & SUPPLIES (ACTUAL) 3,270.08
79165 REAL ESTATE-UTILITIES (ACTUAL) 6,347.27
-----------
TOTAL GENERAL EXPENSES 176,972.14
81009 STATE TAX-REAL ESTATE 0.00
84005 STATE TAX-SUTA (ACTUAL) 0.00
84019 STATE TAX-OTHER (762.56)
85005 FEDERAL TAX-FICA (ACTUAL) 0.00
86005 FEDERAL TAX-FUTA (ACTUAL) 0.00
-----------
TOTAL STATE TAX EXPENSE (762.56)
94000 FEDERAL INCOME TAXES 0.00
-----------
TOTAL FEDERAL INCOME TAXES 0.00
</TABLE>
B-13
<PAGE> 86
AMENDMENT NO. 1 TO
STOCK PURCHASE AGREEMENT
This Amendment No. 1 ("Amendment") is entered into as of November 1,
1996, by and among FIRST AMERICAN INVESTMENT CORPORATION, a Louisiana
corporation ("Seller"), and FUNERAL SERVICES INTERNATIONAL, INC., a Louisiana
corporation ("Buyer").
RECITALS:
WHEREAS, Seller and Buyer entered into a Stock Purchase Agreement as
of October 18, 1996 ("Stock Purchase Agreement") which contemplates a Closing
Date of November 1, 1996; and
WHEREAS, Buyer has requested an extension of the Closing Date to
December 16, 1996.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, Buyer and Seller agree as follows:
1. AMENDMENT OF STOCK PURCHASE AGREEMENT. The Stock Purchase Agreement is
amended as follows:
(a) Section 1(c) is hereby amended in its entirety to read as follows:
"(c) The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place on December
16, 1996, or such other date as Buyer and Seller may mutually
determine (the "Closing Date")."
(b) Section 8(a)(iii) is hereby amended in its entirety to read as
follows:
"(iii) Buyer may terminate this Agreement by giving written
notice to Seller at any time prior to the Closing (A) in the
event Seller has breached any material representation,
warranty, or covenant contained in this Agreement in any
material respect, Buyer has notified Seller of the breach, and
the breach has continued without cure for a period of 10 days
after the notice of breach, or (B) if the Closing shall not
have occurred on or before December 16, 1996, by reason of the
failure of any condition precedent under Section 6(a) hereof
(unless the failure results primarily from breach by Buyer of
any representation, warranty, or covenant contained in this
Agreement); and"
(c) Section 8(a)(iv) is hereby amended in its entirety to read as
follows:
"(iv) Seller may terminate this Agreement by giving written
notice to Buyer at any time prior to the Closing (A) in the
event Buyer has breached any material representation,
warranty, or covenant contained in this Agreement in any
material respect, Seller has notified Buyer of the breach, and
the breach has continued without cure for a period of 10 days
after the notice of breach, or (B) if the Closing shall not
have occurred on or before December 16, 1996, by reason of the
failure of any condition precedent under Section 6(b) hereof
(unless the failure results primarily from Seller breaching
any representation, warranty, or covenant contained in this
Agreement)."
2. MISCELLANEOUS. The use of capitalized terms not defined in this Amendment
shall have the same meaning as defined in the Stock Purchase Agreement. Except
as expressly amended in Section 1 above, the Stock Purchase Agreement shall
remain in full force and effect as originally executed without any modification
thereof.
B-14
<PAGE> 87
IN WITNESS WHEREOF, Buyer and Seller have executed this Amendment as
of the date first above written.
SELLER:
FIRST AMERICAN INVESTMENT CORPORATION
By:/s/ Mark A. Oliver
------------------------------------------
Title: Executive Vice President and Treasurer
BUYER:
FUNERAL SERVICES INTERNATIONAL, INC.
By:/s/ Eddie McCallum
------------------------------------------
Title: President and Chief Executive Officer
Each of the undersigned hereby agrees and certifies that, as of the date of
this Amendment and as of Closing, (A) he is not aware of (i) any breach, or any
facts or circumstances which could lead to a breach, of any representation,
warranty or covenant of Seller contained in the Stock Purchase Agreement, (ii)
any untrue statement of a material fact or omission to state any material fact
necessary in order to make the statements and information contained in any
representation or warranty of Seller not misleading, and (B) he will notify
Seller immediately if he should become aware, whether by the occurrence of any
event, additional knowledge or otherwise, of any breach or possible breach of
his certification in clause (A) of this paragraph. Each of the undersigned
further agrees to be personally bound by the provisions of Section 10(a) of the
Stock Purchase Agreement as if his name were substituted for each reference to
Buyer therein.
/s/ Gary L. Roth /s/ Eddie McCallum
- --------------------- ------------------------
Gary L. Roth Eddie McCallum
B-15
<PAGE> 88
APPENDIX C
LOUISIANA BUSINESS CORPORATION LAW
PART XIII. DISSENTING SHAREHOLDERS' RIGHTS, FAIR PRICE
PROTECTION, AND CONTROL SHARE ACQUISITION
12:130 DEFINITIONS.--(1) "Safeguard period" shall mean the
twenty-four month period immediately following any merger, consolidation or any
other change in majority voting ownership of a corporation covered by this
Chapter.
(2) "Safeguarded entity" shall mean any pension plan, retirement
system, or any other fund that inures to the benefit of the employees of a
corporation covered under this Chapter.
(3) "interested person" shall mean any member, participant,
regular or disability retiree, beneficiary, or creditor of any safeguarded
entity.
(4) "Intentional misconduct" shall mean the intentional conduct
of any person which occurs during the safeguard period and which has the effect
of deleting, depleting or otherwise diminishing the assets being held in trust
by any safeguarded entity in a manner that is adverse to any interested person
as defined by R.S. 12: 130(3).
12:130.1 STANDARD OF CARE; REVIEW.--A. Any conduct which violates the
provisions of this Part which occurs during the safeguard period shall give
rise to the presumption that such conduct is intentional misconduct.
B. Any transaction that is executed during the safeguard period
which involves the assets of a safeguarded entity shall be subject to judicial
review under the standard of strict scrutiny.
12:130.2 INTENTIONAL MISCONDUCT; INJUNCTIVE RELIEF; CIVIL
PENALTY.--A. Any person who is found by a court to be liable for intentional
misconduct under this Part shall be subject to the penalties of this Section,
regardless of whether the person is or is not involved in the administration of
the safeguarded entity. Person as referred to in this Section includes any
individual, partnership, unincorporated association of individuals, joint stock
company, or corporation.
B. Any interested person may petition a court for injunctive
relief on the basis of another person's intentional misconduct, provided that
he can show the intentional misconduct will cause irreparable harm to the
interested person or to the safeguarded entity.
C. Any person whose intentional misconduct causes the
insolvency of a safeguarded entity shall oblige the person by whose misconduct
caused the insolvency to restore the safeguarded entity to a condition of
solvency. If such intentional misconduct causes damage to any interested
person, the person whose conduct caused the damage shall be obliged to repair
it, as ordered by any court, including the payment of prejudgment interest and
reasonable attorney's fees.
D. Jurisdiction for the enforcement of this Section shall be in
accordance with the provisions contained in Article 42 of the Louisiana Code of
Civil Procedure.
12:131 RIGHTS OF SHAREHOLDER DISSENTING FROM CERTAIN CORPORATE
ACTIONS.--A. Except as provided in subsection B of this Section, if a
corporation has, by vote of its shareholders, authorized a sale, lease or
exchange of all of its assets, or has, by vote of its shareholders, become a
party to a merger or consolidation, then, unless such authorization or action
shall have been given or approved
C-1
<PAGE> 89
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(G), the shareholders of
any subsidiaries party to the merger shall have the right to dissent without
regard to the proportion of the voting power which approved the merger and
despite the fact that the merger was not approved by vote of the shareholders
of any of the corporations involved.
B. The right to dissent provided by this Section shall not
exist in the case of:
(1) A sale pursuant to an order of a court having jurisdiction
in the premises.
(2) A sale for cash on terms requiring distribution of all or
substantially all of the net proceeds to the shareholders in accordance with
their respective interests within one year after the date of the sale.
(3) Shareholders holding shares of any class of stock which, at
the record date fixed to determine shareholders entitled to receive notice of
and to vote at the meeting of shareholders at which a merger or consolidation
was acted on, were listed on a national securities exchange, or were designated
as a national market system security on an inter-dealer quotation system by the
National Association of Securities Dealers, unless the articles of the
corporation issuing such stock provide otherwise or the shares of such
shareholders were not converted by the merger or consolidation solely into
shares of the surviving or new corporation.
C. Except as provided in the last sentence of this subsection,
any shareholder electing to exercise such right of dissent shall file with the
corporation, prior to or at the meeting of shareholders at which such proposed
corporate action is submitted to a vote, a written objection to such proposed
corporate action, and shall vote his shares against such action. If such
proposed corporate action be taken by the required vote, but by less than
eighty per cent of the total voting power, and the merger, consolidation or
sale, lease or exchange of assets authorized thereby be effected, the
corporation shall promptly thereafter give written notice thereof, by
registered mail, to each shareholder who filed such written objection to, and
voted his shares against, such action, at such shareholder's last address on
the corporation's records. Each such shareholder may, within twenty days after
the mailing of such notice to him, but not thereafter, file with the
corporation a demand in writing for the fair cash value of his shares as of the
day before such vote was taken; provided that he state in such demand the value
demanded, and a post office address to which the reply of the corporation may
be sent, and at the same time deposit in escrow in a chartered bank or trust
company located in the parish of the registered office of the corporation, the
certificates representing his shares, duly endorsed and transferred to the
corporation upon the sole condition that said certificates shall be delivered
to the corporation upon payment of the value of the shares determined in
accordance with the provisions of this Section. With his demand the shareholder
shall deliver to the corporation, the written acknowledgment of such bank or
trust company that it so holds his certificates of stock. Unless the objection,
demand and acknowledgment aforesaid be made and delivered by the shareholder
within the period above limited, he shall conclusively be presumed to have
acquiesced in the corporate action proposed or taken. In the case of a merger
pursuant to R.S. 12:112(G), 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
C-2
<PAGE> 90
in writing the shareholder, at the designated post office address, of its
disagreement, and shall state in such notice the value it will agree to pay if
any payment should be held to be due; otherwise it shall be liable for, and
shall pay to the dissatisfied shareholder, the value demanded by him for his
shares.
E. In the case of disagreement as to such fair cash value, or
as to whether any payment is due, after compliance by the parties with the
provisions of subsections C and D of this Section, the dissatisfied
shareholder, within sixty days after receipt of notice in writing of the
corporation's disagreement, but not thereafter, may file suit against the
corporation, or the merged or consolidated corporation, as the case may be, in
the district court of the parish in which the corporation or the merged or
consolidated corporation, as the case may be, has its registered office,
praying the court to fix and decree the fair cash value of the dissatisfied
shareholder's shares as of the day before such corporate action complained of
was taken, and the court shall, on such evidence as may be adduced in relation
thereto, determine summarily whether any payment is due, and, if so, such cash
value, and render judgment accordingly. Any shareholder entitled to file such
suit may, within such sixty-day period but not thereafter, intervene as a
plaintiff in such suit filed by another shareholder, and recover therein
judgment against the corporation for the fair cash value of his shares. No
order or decree shall be made by the court staying the proposed corporate
action, and any such corporate action may be carried to completion
notwithstanding any such suit. Failure of the shareholder to bring suit, or to
intervene in such a suit, within sixty days after receipt of notice of
disagreement by the corporation shall conclusively bind the shareholder (1) by
the corporation's statement that no payment is due, or (2) if the corporation
does not contend that no payment is due, to accept the value of his shares as
fixed by the corporation in its notice of disagreement.
F. When the fair value of the shares has been agreed upon
between the shareholder and the corporation, or when the corporation has become
liable for the value demanded by the shareholder because of failure to give
notice of disagreement and of the value it will pay, or when the shareholder
has become bound to accept the value the corporation agrees is due because of
his failure to bring suit within sixty days after receipt of notice of the
corporation's disagreement, the action of the shareholder to recover such value
must be brought within five years from the date the value was agreed upon, or
the liability of the corporation became fixed.
G. If the corporation or the merged or consolidated
corporation, as the case may be, shall, in its notice of disagreement, have
offered to pay to the dissatisfied shareholder on demand an amount in cash
deemed by it to be the fair cash value of his shares, and if, on the
institution of a suit by the dissatisfied shareholder claiming an amount in
excess of the amount so offered, the corporation, or the merged or consolidated
corporation, as the case may be, shall deposit in the registry of the court,
there to remain until the final determination of the cause, the amount so
offered, then, if the amount finally awarded such shareholder, exclusive of
interest and costs, be more than the amount offered and deposited as aforesaid,
the costs of the proceeding shall be taxed against the corporation, or the
merged or consolidated corporation, as the case may be; otherwise the costs of
the proceeding shall be taxed against such shareholder.
H. Upon filing a demand for the value of his shares, the
shareholder shall cease to have any of the rights of a shareholder except the
rights accorded by this Section. Such a demand may be withdrawn by the
shareholder at any time before the corporation gives notice of disagreement, as
provided in subsection D of this Section. After such notice of disagreement is
given, withdrawal of a notice of election shall require the written consent of
the corporation. If a notice of election is withdrawn, or the proposed
corporate action is abandoned or rescinded, or a court shall determine that the
shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares, his share certificates shall be
returned to him (and, on his request, new certificates shall be issued to him
in exchange for the old ones endorsed to the
C-3
<PAGE> 91
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.
(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:
C-4
<PAGE> 92
(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 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.
C-5
<PAGE> 93
(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 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 person is an
interested shareholder, the number of shares of voting stock deemed to be
outstanding shall include shares deemed owned by the person through application
of Subsection (3) of this Section, but may not include any other shares of
voting stock which may be issuable pursuant to any agreement, arrangement, or
understanding, or upon exercise of conversion rights, warrants or options, or
otherwise.
(10) "Market value" means the following:
(a) In the case of stock, the highest closing sale price during
the thirty-day period immediately preceding the date in question of a share of
such stock on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which such stock is listed, or if such
stock is not listed on any such exchange, the highest closing bid quotation
with respect to a share of such stock during the thirty-day period preceding
the date in question on the National Association of Securities Dealers, Inc.,
Automated Quotations Systems or any system then in use, or if no such
quotations are available, the fair market value on the date in question of a
share of such stock as determined by the board of directors of the corporation
in good faith.
(b) In the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by the
board of directors of the corporation in good faith.
(11) "Subsidiary" means any corporation of which voting stock
having a majority of the votes entitled to be cast is owned, directly or
indirectly, by the corporation.
(12) "Voting stock" means shares of capital stock of a
corporation entitled to vote generally in the election of directors.
12:133 VOTE REQUIRED IN BUSINESS COMBINATIONS.--In addition to any
vote otherwise required by law or the charter of the corporation, a business
combination shall be recommended by the board of directors and approved by the
affirmative vote of at least each of the following:
(1) Eighty percent of the votes entitled to be cast by
outstanding shares of voting stock of the corporation voting together as a
single voting group.
C-6
<PAGE> 94
(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:
(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.
C-7
<PAGE> 95
(2) The aggregate amount of the cash and the market value as of
the valuation date of consideration other than cash to be received per share by
holders of shares of any class or series of outstanding stock other than common
stock is at least equal to the highest of the following, whether or not the
interested shareholder has previously acquired any shares of a particular class
or series of stock:
(a) The highest per share price, including any brokerage
commissions, transfer taxes, and soliciting dealers' fees, paid by the
interested shareholder for any shares of such class of stock acquired by it:
(i) Within the two-year period immediately prior to the
announcement date of the proposal of the business combination; or
(ii) In the transaction in which it became an interested
stockholder, whichever is higher; or
(b) The highest preferential amount per share to which the
holders of shares of such class of stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution, or winding up of the
corporation; or
(c) The market value per share of such class of stock on the
announcement date or on the determination date, whichever is higher; or
(d) The price per share equal to the market value per share of
such class of stock determined pursuant to Subparagraph (c) of this Paragraph,
multiplied by the fraction of:
(i) The highest per share price, including any brokerage
commissions, transfer taxes, and soliciting dealers' fees, paid by the
interested shareholder for any shares of any class of voting stock acquired by
it within the two-year period immediately prior to the announcement date, over
(ii) The market value per share of the same class of voting stock
on the first day in such two-year period on which the interested shareholder
acquired any shares of the same class of voting stock.
(3) The consideration to be received by holders of any class or
series of outstanding stock is to be in cash or in the same form as the
interested shareholder has previously paid for shares of the same class or
series of stock. If the interested shareholder has paid for shares of any class
of stock with varying forms of consideration, the form of consideration for
such class of stock shall be either cash or the form used to acquire the
largest number of shares of such class or series of stock previously acquired
by it.
(4)(a) After the interested stockholder has become an interested
shareholder and prior to the consummation of such business combination:
(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
C-8
<PAGE> 96
(bb) An increase in such annual rate of dividends as necessary to
reflect any reclassification, including any reverse stock split,
recapitalization, reorganization, or any similar transaction which has the
effect of reducing the number of outstanding shares of the stock; and
(iii) The interested shareholder did not become the beneficial
owner of any additional shares of stock of the corporation except as part of
the transaction which resulted in such interested shareholder's becoming an
interested shareholder or by virtue of proportionate stock splits or stock
dividends.
(b) The provisions of (i) and (ii) of Subparagraph (a) shall not
apply if no interested shareholder or an affiliate or associate of the
interested shareholder voted as a director of the corporation in a manner
inconsistent with (i) and (ii), and the interested shareholder, within ten days
after any act or failure to act inconsistent with such Sub-subparagraphs,
notifies the board of directors of the corporation in writing that the
interested shareholder disapproves thereof and requests in good faith that the
board of directors rectify such act or failure to act.
(5) After the interested stockholder has become an interested
shareholder, the interested stockholder may not have received the benefit,
directly or indirectly, except proportionately as a shareholder, of any loans,
advances, guarantees, pledges, or other financial assistance, or any tax
credits, or other tax advantages provided by the corporation or any of its
subsidiaries, whether in anticipation of or in connection with such business
combination or otherwise.
C.(1) Whether or not such business combinations are authorized or
consummated in whole or in part after January 1, 1985, or after the interested
shareholder became an interested stockholder, the requirements of R.S. 12:133
shall not apply to business combinations that specifically, generally, or
generally by types, as to specifically identified or unidentified existing or
future interested shareholders or their affiliates, have been approved or
exempted therefrom by resolution of the board of directors of the corporation:
(a) Prior to January 1, 1985, or such earlier date as may be
irrevocably established by resolution of the board of directors; or
(b) If involving transactions with a particular interested
shareholder or its existing or future affiliates, at any time prior to the time
that the interested shareholder first became an interested shareholder.
(2) Unless by its terms a resolution adopted under this
Subsection is made irrevocable, it may be altered or repealed by the board of
directors, but this shall not affect any business combinations that have been
consummated or are the subject of an existing agreement entered into prior to
the alteration or repeal.
D.(1) Unless the articles or bylaws of the corporation
specifically provide otherwise, the requirements of R.S. 12:133 shall not apply
to business combinations of a corporation that on January 1, 1985, had an
existing interested shareholder, whether a business combination is with the
existing shareholder or with any other person that becomes an interested
shareholder after January 1, 1985, or their present or future affiliates unless
at any time after January 1, 1985, the board of directors of the corporation
elects by resolution to be subject, in whole or in part, specifically,
generally, or generally by types as to specifically identified or unidentified
interested shareholders to the requirements of R.S. 12:133.
(2) The articles or bylaws of the corporation may provide that
if the board of directors adopts a resolution under Subsection (D)(1) of this
Section, the resolution shall be subject to approval of the shareholders in the
manner and by the vote specified in the articles or the bylaws.
C-9
<PAGE> 97
(3) An election under this Subsection may be added to but may
not be altered or repealed except by an amendment to the articles adopted by a
vote of shareholders meeting the requirements of Subsection (E)(1)(b) of this
Section.
(4) If a corporation elects under this Subsection to be included
within the provisions of R.S. 12:132, R.S. 12:133, and R.S. 12:134 generally,
without qualification or limitation, it shall file with the secretary of state
articles supplementary including a copy of the resolution making the election
and a statement describing the manner in which the resolution was adopted. The
articles supplementary shall be executed in the manner required by R.S. 12:32
of the Chapter. The articles supplementary constitute articles of amendment
under R.S. 12:31 of this Chapter.
E.(1) Unless the articles of the corporation provide otherwise,
the requirements of R.S. 12:133 shall not apply to any business combination of
any of the following:
(a) A corporation having fewer than one hundred beneficial
owners of its stock.
(b) A corporation whose original articles of incorporation have
a provision, or whose shareholders adopt an amendment to its articles after
January 1, 1985, by a vote of at least eighty percent of the votes entitled to
be cast by outstanding shares of voting stock of the corporation, voting
together as a single voting group and two-thirds of the votes entitled to be
cast by persons who are not interested shareholders of the corporation, voting
together as a single voting group, expressly electing not to be governed by
R.S. 12:132, R.S. 12:133 and R.S. 12:134.
(c) An investment company registered under the Investment
Company Act of 1940.
(2) For purposes of Subparagraph (1) of this Subsection, all
shareholders of a corporation that have executed an agreement to which the
corporation is an executing party governing the purchase and sale of stock of
the corporation or a voting trust agreement governing stock of the corporation
shall be considered a single beneficial owner of the stock covered by the
agreement. F. A business combination of a corporation that has a provision in
its articles permitted by R.S. 12:112 or R.S. 12:121(B), which allows for
reduction of the vote required for the transactions described therein is
subject to the voting requirements of R.S. 12:133 unless one of the
requirements or exemptions of Subsection (B), (C), (D), or (E) of this Section
have been met.
12:135 DEFINITIONS.--As used in R.S. 12:135 through 140.2:
(1) "Control shares" means shares that, except for the
provisions of R.S. 12:135 through 140.2, would have voting power with respect
to shares of an issuing public corporation that, when added to all other shares
of the issuing public corporation owned by a person or in respect to which that
person may exercise or direct the exercise of voting power, would entitle that
person, immediately after acquisition of the shares, directly or indirectly,
alone or as a part of a group, to exercise or direct the exercise of the voting
power of the issuing public corporation in the election of directors within any
of the following ranges of voting power:
(a) One-fifth or more but less than one-third of all voting
power.
(b) One-third or more but less than a majority of all voting
power.
(c) A majority or more of all voting power.
C-10
<PAGE> 98
(2)(a) "Control share acquisition" means the acquisition, directly
or indirectly, by any person of ownership of, or the power to direct the
exercise of voting power with respect to, issued and outstanding control
shares.
(b) For purposes of this Paragraph, shares acquired within
ninety days or shares acquired pursuant to a plan to make a control share
acquisition are considered to have been acquired in the same acquisition.
(c) For purposes of this Paragraph, a person who acquires shares
in the ordinary course of business for the benefit of others in good faith and
not for the purpose of circumventing the provisions of R.S. 12:135 through
140.2 has voting power only of shares in respect of which that person would be
able to exercise or direct the exercise of votes without further instruction
from others.
(d) The acquisition of any shares of an issuing public
corporation does not constitute a control share acquisition if the acquisition
is consummated in any of the following circumstances:
(i) Before May 4, 1987.
(ii) Pursuant to a contract existing before May 4, 1987 or
pursuant to a tender offer or exchange offer made in writing before May 4, 1987
for any securities of an issuing public corporation whether the time for
acceptance is extended on or after May 4, 1987, whether the offeror waives any
conditions of the offer on or after May 4, 1987, and whether the transaction is
closed on or after May 4, 1987.
(iii) Pursuant to the laws of successions, descent, and
distribution.
(iv) Pursuant to the satisfaction of a pledge or other security
interest created in good faith and not for the purpose of circumventing the
provisions of R.S. 12:135 through 140.2.
(v) Pursuant to a merger, consolidation, or share exchange
effected in compliance with Part XI of this Chapter if the issuing public
corporation, or a wholly-owned subsidiary thereof, is a party to the agreement
of merger or consolidation or the plan of exchange.
(vi) By an employee benefit plan or related trust of the issuing
public corporation.
(e) The acquisition of shares of an issuing public corporation
in good faith and not for the purpose of circumventing the provisions of R.S.
12:135 through 140.2 by or from:
(i) Any person whose voting rights had previously been
authorized by shareholders in compliance with the provisions of R.S. 12:135
through 140.2; or
(ii) Any person whose previous acquisition of shares of an
issuing public corporation would have constituted a control share acquisition
but for Subparagraph (d) of this Paragraph does not constitute a control share
acquisition, unless the acquisition entitles any person, directly or
indirectly, alone or as a part of a group, to exercise or direct the exercise
of voting power of the corporation in the election of directors in excess of
the range of the voting power otherwise authorized.
(3) "interested shares" means the shares of an issuing public
corporation in respect of which any of the following persons may exercise or
direct the exercise of the voting power of the corporation in the election of
directors:
C-11
<PAGE> 99
(a) An acquiring person or member of a group with respect to a
control share acquisition.
(b) Any officer of the issuing public corporation.
(c) Any employee of the issuing public corporation who is also a
director of the corporation.
(4) "Issuing public corporation" means a corporation that has:
(a) One hundred or more shareholders;
(b) Its principal place of business, its principal office, or
substantial assets, whether owned directly or through one or more wholly-owned
subsidiaries, within Louisiana; and
(c) One or more of the following:
(i) More than ten percent of its shareholders reside in
Louisiana.
(ii) More than ten percent of its shares owned by Louisiana
residents.
(iii) Ten thousand shareholders reside in Louisiana.
(5) The residence of a shareholder is presumed to be the address
appearing in the records of the corporation. Shares held by banks, except when
held as trustee, guardian, or tutor, by brokers, or by nominees shall be
disregarded for purposes of calculating the percentages or numbers described in
Paragraph (4).
(6) For purposes of Paragraph (4):
(a) "Substantial assets" means assets having a value of at least
five million dollars;
(b) "Value" means:
(i) in the case of assets other than cash or securities, the
value of the property as determined in good faith by the board of directors of
the corporation; and
(ii) In the case of securities, the highest closing sale price
during the thirty day period immediately preceding the date in question of a
security on the composite tape for New York Stock Exchange listed securities
or, if the securities are not quoted on the composite tape or not listed on the
New York Stock Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934, as amended, on which the
securities are listed or, if the securities are not listed on any such
exchange, on the National Association of Securities Dealers, Inc., Automated
Quotations National Market System or, if the securities are not quoted on the
National Association of Securities Dealers, Inc., Automated Quotations National
Market System, the highest closing bid quotation during the thirty day period
preceding the date in question of a security on the National Association of
Securities Dealers, Inc., Automated Quotations System or any system then in use
or, if no such quotation is available, the fair market value on the date in
question of a security determined in good faith by the board of directors of
the corporation; and
C-12
<PAGE> 100
(c) "Within Louisiana" means:
(i) In a case of corporeal property, the presence of such
corporeal property within Louisiana;
(ii) In the case of incorporeal property represented by a written
instrument, the presence of such written instrument within Louisiana; and
(iii) In the case of incorporeal property not represented by a
written instrument, the presence of the commercial domicile of the corporation
within Louisiana.
12:136 LAW APPLICABLE TO CONTROL SHARE VOTING RIGHTS.--Unless the
corporation's articles of incorporation or bylaws, as in effect before a
control share acquisition has occurred, provide that the provisions of R.S.
12:135 through 140.2 do not apply to control share acquisitions of shares of
the corporation, control shares of an issuing public corporation acquired in a
control share acquisition have only such voting rights as are conferred by R.S.
12:140.
12:137 NOTICE OF CONTROL SHARE ACQUISITION.--A. Any person who
proposes to make or has made a control share acquisition may at the person's
election deliver an acquiring person statement to the issuing public
corporation at the issuing public corporation's registered office.
B. However, if any of the shares to be acquired are being held
in a trust account or any other type of account or fund on behalf of a
safeguarded entity as defined in R.S. 12:130(2), the acquiring person statement
shall be mandatory and shall be provided to the chairman of the board of
trustees of the safeguarded entity or the administrator, or the corporate
employee who is responsible for managing the entity. The trustee,
administrator, or manager shall upon receipt of such statement distribute
copies to all interested persons as defined in R.S. 12:130(3).
C. The acquiring person statement shall set forth all of the
following:
(1) The identity of the acquiring person and each other member
of any group of which the person is a part for purposes of determining control
shares.
(2) A statement that the acquiring person statement is given
pursuant to this Section.
(3) The number of shares of the issuing public corporation
owned, directly or indirectly, by the acquiring person and each other member of
the group.
(4) The range of voting power under which the control share
acquisition falls or would, if consummated, fall.
(5) If the control share acquisition has not taken place:
(a) A description in reasonable detail of the terms of the
proposed control share acquisition; and
(b) Representations of the acquiring person. together with a
statement in reasonable detail of the facts upon which they are based, that the
proposed control share acquisition, if consummated, will not be contrary to
law, and that the acquiring person has the financial capacity to make the
proposed control share acquisition.
C-13
<PAGE> 101
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 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 recommendation, 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:
C-14
<PAGE> 102
(1) Each voting group entitled to vote separately on the
proposal by a majority of all the votes entitled to be cast by that voting
group, with the holders of the outstanding shares of a class being entitled to
vote as a separate voting group if the proposed control share acquisition
would, if fully carried out, result in any of the changes described in R.S.
12:31(C); and
(2) Each voting group entitled to vote separately on the
proposal by a majority of all the votes entitled to be cast by that group,
excluding all interested shares.
12:140.1 REDEMPTION OF CONTROL SHARES,-- A. If authorized in a
corporation's articles of incorporation or bylaws before a control share
acquisition has occurred, control shares acquired in a control share
acquisition with respect to which no acquiring person statement has been filed
with the issuing public corporation may, at any time during the period ending
sixty days after the last acquisition of control shares by the acquiring
person, be subject to redemption by the corporation at the fair value thereof
pursuant to the procedures adopted by the corporation.
B. Control shares acquired in a control share acquisition are
not subject to redemption after an acquiring person statement has been filed
unless the shares are not accorded full voting rights by the shareholders as
provided in R.S. 12:140.
12:140.2 RIGHTS OF DISSENTING SHAREHOLDERS.--A. Unless otherwise provided
in a corporation's articles of incorporation or bylaws before a control share
acquisition has occurred, in the event control shares acquired in a control
share acquisition are accorded full voting rights and the acquiring person has
acquired control shares with a majority or more of all voting power, all
shareholders of the issuing public corporation have dissenters' rights as
provided in this Section.
B. As soon as practicable after such events have occurred, the
board of directors shall cause a notice to be sent to all shareholders of the
corporation advising them of the facts and that they have dissenters' rights to
receive the fair cash value of their shares.
C. As used in this Section, "fair cash value" means a value not
less than the highest price paid per share by the acquiring person in the
control share acquisition.
D. As used in this Section, "dissenters' rights" means the
right to require the issuing public corporation to purchase shares at fair cash
value.
C-15
<PAGE> 103
FIRST AMERICAN INVESTMENT CORPORATION - CITIZENS, INC.
LETTER OF TRANSMITTAL
ATTENTION SHAREHOLDER: Please read carefully the instructions on the reverse
side and complete the form below.
This Transmittal Letter Relates to the Following Certificates of Common Stock
of First American Investment Corporation
<TABLE>
<CAPTION>
Certificate Number
Number(s)(1) of Shares(1)
<S> <C> <C>
---------- -----------
---------- -----------
---------- -----------
---------- -----------
---------- -----------
</TABLE>
(1) Attach additional schedule, if necessary.
NOTE: The above securities must be attached to this form when submitted.
American Stock Transfer and Trust Company
Attn: Isaac Freilich
40 Wall Street, 46th Floor
New York, New York 10005
Gentlemen:
Pursuant to the Information Statement-Prospectus dated __________, 1996
relating to First American Investment Corporation and Citizens Insurance
Company of America, Inc., the undersigned herewith surrenders the
certificate(s) identified above representing shares of First American
Investment Corporation stock in exchange for Citizens, Inc. Class A Common
Stock.
Please issue the stock in the name of the undersigned at the address given
above, except as indicated below.
1
<PAGE> 104
- --------------------------
FILL IN ONLY IF THE NEW CERTIFICATE IS TO BE MAILED TO
OTHER THAN THE ADDRESS AS SHOWN ABOVE
*SPECIAL MAILING INSTRUCTIONS*
MAIL TO:
Name
-----------------------
Address
--------------------
Please check appropriately:
This is a permanent change of address
-----
OR
A special address to be used only to mail the new certificate
-----
(MUST BE SIGNED BY REGISTERED OWNER EXACTLY AS NAME APPEARS ON STOCK
CERTIFICATES.)
Date: , 1996 X
-------------------- ---------------------------
Area Code (____) Tel. No. X
---------- ---------------------------
Signature(s) of Registered
Owner(s) or Authorized Agent
(IT IS MANDATORY THAT YOU COMPLETE THE ENCLOSED W-9 FORM.)
Social Security/Tax ID No.
---------------
NOTE: QUESTIONS REGARDING THIS FORM MAY BE DIRECTED TO AMERICAN STOCK TRANSFER
AND TRUST COMPANY, ATTN: ISAAC FREILICH, 40 WALL STREET, 46TH FLOOR, NEW YORK,
NEW YORK 10005, (718) 921-8259. IF YOU HAVE ANY QUESTIONS CONCERNING THE
COMPANY, PLEASE CONTACT IT DIRECTLY.
2
<PAGE> 105
TRANSMITTAL INSTRUCTIONS
1) GENERAL - This Letter of Transmittal must be properly filled in,
dated, and signed, and submitted WITH the existing stock
certificate(s) listed on the face hereof to American Stock Transfer
and Trust Company, Attn: Isaac Freilich, 40 Wall Street, 46th
Floor, New York, New York 10005, the Exchange Agent. If sent by
mail, the Letter of Transmittal and the existing certificate(s)
should be sent to American Stock Transfer and Trust Company, Attn:
Isaac Freilich, 40 Wall Street, 46th Floor, New York, New York
10005. The Letter of Transmittal and certificate(s) may also be
hand delivered to the Exchange Agent at 40 Wall Street, 46th Floor,
New York, New York 10005. IF YOU MAIL THE LETTER OF TRANSMITTAL
AND THE CERTIFICATE(S), IT IS RECOMMENDED THAT YOU INSURE THEM, AND
USE REGISTERED MAIL, RETURN RECEIPT REQUESTED. YOU BEAR ALL RISK
OF LOSS OR DELAY IN THE MAILS. NEITHER THE COMPANY NOR THE
EXCHANGE AGENT WILL HAVE ANY RESPONSIBILITY FOR CERTIFICATES NOT
ACTUALLY RECEIVED BY THE EXCHANGE AGENT.
The signature on the Letter of Transmittal should correspond with
the name on the face of your existing certificate(s), which is
reflected on the label affixed to the face of the Letter of
Transmittal. If there is insufficient space on the face of the
Letter of Transmittal to list all of your existing certificates,
please attach a separate list. If shares of stock owned by you are
registered differently on several certificates, it will be
necessary for you to complete, sign, and submit as many separate
Letters of Transmittal as there are different registrations of your
shares.
2) ISSUANCE OF NEW CERTIFICATE; SIGNATURE GUARANTEE - A) If the new
certificate(s) is to be issued in the same name as appears on the
existing certificate(s), the surrendered certificate(s) need not be
endorsed. B) If the new certificate is to be issued in a name
different from that which appears on the surrendered
certificate(s), the surrendered certificates must be endorsed or
accompanied by an appropriate stock power, and, in either case,
your signature must be guaranteed by a commercial bank or trust
company, or by a member of the Midwest, Pacific, American, or New
York Stock Exchange. In case of joint ownership, all joint owners
must sign. Endorsements of trustees, executors, administrators,
guardians, officers of corporations, attorneys-in-fact, or others
acting in a representative capacity, must include the full title of
the endorser in such capacity and must be accompanied by proper
evidence of the signer's authority to act.
If a name on any existing certificate(s) surrendered is (are) not
exactly the same as the name in which the new certificate(s) is to
be issued (but they are one and the same person), the incorrect
certificate(s) should be signed twice -- once exactly as the name
appears on the face thereof, and again exactly as the name should
appear on the new certificate(s) to be issued. Such signatures
must be signature guaranteed as specified in the preceding
paragraph.
3) SPECIAL MAILING INSTRUCTIONS AND CHANGE OF ADDRESS - If the new
certificate(s) is (are) to be mailed to an address other than that
shown as the registered owner, as reflected on the label affixed to
the face of the Letter of Transmittal, please complete the Special
Mailing Instructions at the end of the Letter of Transmittal.
These instructions should be completed even though the new
certificate is to be issued in the same name as the registered
owner of the existing certificate(s). Please indicate whether the
address given in the Special Mailing Instructions reflects a change
of address which should be made on the shareholder records of the
Company, or is to be used only for mailing the new certificate.
3
<PAGE> 106
4) NUMBER OF CERTIFICATES - Unless the Exchange Agent is otherwise
instructed, each shareholder will receive one certificate for all
of the certificates surrendered with the Letter of Transmittal. If
you wish to have more than one certificate issued, please give
complete instructions to the Exchange Agent with the Letter of
Transmittal.
5) QUESTIONS - If you have any questions concerning the Letter of
Transmittal or any other matter relating to the exchange, please
contact the Research Department of the Exchange Agent by mail at
the address given on the face of the Letter of Transmittal or
questions by telephone should be directed to the Exchange Agent at
(718) 921-8259.
4
<PAGE> 107
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 limit 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(e)
2.21 Plan and Agreement of Merger and Exchange(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(c)
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)
10.8 Self-Administered Automatic Reinsurance Agreement -
Citizens Insurance Company of America and Riunione
Adriatica di Sicurta, S.p.A.(c)
II-1
<PAGE> 108
10.9 Plan and Agreement of Exchange - Citizens Insurance
Company of America and American Investment Network,
Inc.(c)
10.11 Agreement and Plan of Merger dated March 31, 1996 -
Citizens Insurance Company of America, Inc., CICA
Acquisition, Inc., and First American Investment
Corporation (see Appendix A)(c)
10.12 Stock Purchase Agreement dated October 18, 1996 by
and between First American Investment Corporation and
Funeral Services International, Inc. (see Appendix
B)(c)
11 Statement re: Computation of per share earnings(d)
22 Subsidiaries of the Registrant(d)
23.1 Consent of Jones & Keller, P.C. (see Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP(c)
25 Power of Attorney (see signature page)
- ----------------
(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 Form
S-4, Registration No. 33-59039, filed with the Commission on
May 2, 1995.
(f) Filed with the Registrant's Registration Statement on Form
S-4, Registration No. 33-63275, filed with the Commission on
October 6, 1995.
(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
II-2
<PAGE> 109
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.
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 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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 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.
II-3
<PAGE> 110
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-4
<PAGE> 111
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Austin,
State of Texas, on November 12, 1996.
CITIZENS, INC.
By: /s/ HAROLD E. RILEY
------------------------------------------
Harold E. Riley, Chairman of the Board
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers or
directors of the Registrant, by virtue of their signatures to this Registration
Statement appearing below, hereby constitute and appoint Harold E. Riley and
Mark A. Oliver, attorneys-in-fact in their names, place, and stead to execute
any and all amendments to this Registration Statement in the capacities set
forth opposite their names and hereby ratify all that said attorneys-in-fact
may do by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ HAROLD E. RILEY Chairman of the Board November 12, 1996
- ---------------------
Harold E. Riley
/s/ RANDALL H. RILEY Vice Chairman, Chief Executive November 12, 1996
- ----------------------- Officer and Director
Randall H. Riley
/s/ T. ROBY DOLLAR Vice Chairman, Chief Actuary November 12, 1996
- ----------------------- and Assistant Secretary
T. Roby Dollar
/s/ RICK D. RILEY President, Chief Administrative November 12, 1996
- ----------------------- Officer and Director
Rick D. Riley
/s/ MARK A. OLIVER Executive Vice President, November 12, 1996
- ----------------------- Secretary/Treasurer and
Mark A. Oliver Chief Financial Officer
/s/ WILLIAM P. BARNHILL Vice President and Controller November 12, 1996
- -----------------------
William P. Barnhill
Director November 12, 1996
- -----------------------
Flay F. Baugh
</TABLE>
<PAGE> 112
<TABLE>
<S> <C> <C>
/s/ JOE R. RENEAU, M.D. Director November 12, 1996
- ------------------------
Joe R. Reneau, M.D.
Director November 12, 1996
- ------------------------
Steven F. Shelton
/s/ RALPH M. SMITH, TH.D. Director November 12, 1996
- ------------------------
Ralph M. Smith, Th.D.
/s/ TIMOTHY T. TIMMERMAN Director November 12, 1996
- ------------------------
Timothy T. Timmerman
Director November 12, 1996
- ------------------------
Charles E. Broussard
</TABLE>
<PAGE> 113
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C> <C>
5.1 Opinion and consent of Jones & Keller, P.C. as to the legality of Citizens, Inc.
Common Stock Filed herewith
10.8 Self-Administered Automatic Reinsurance Agreement - Citizens Insurance Company of
America and Riunione Adriatica di Sicurta, S.p.A. Filed herewith
10.9 Plan and Agreement of Exchange - Citizens Insurance Company of America and American
Investment Network, Inc. Filed herewith
10.11 Agreement and Plan of Merger dated March 31, 1996 - Citizens Insurance Company of
America, Inc., CICA Acquisition, Inc., and First American Investment Corporation (see Appendix A)
10.12 Stock Purchase Agreement dated October 18, 1996 by and between First American
Investment Corporation and Funeral Services International, Inc.
(see Appendix B)
11 Statement re: Computation of per share earnings (see "Financial Statements")
23.1 Consent of Jones & Keller, P.C. (see Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP Filed herewith
25 Power of Attorney (see Signature Pages)
</TABLE>
<PAGE> 1
EXHIBIT 5.1 AND 23.1
JONES & KELLER, P.C.
ATTORNEYS AT LAW
1625 BROADWAY, SUITE 1600
DENVER, COLORADO 80202
TELEPHONE: (303) 573-1600
FACSIMILE: (303) 573-0769
November 12, 1996
Citizens, Inc.
400 East Anderson Lane
Austin, Texas 78714-9151
Gentlemen:
We have acted as special counsel for Citizens, Inc. ("Citizens") in
connection with a Registration Statement on Form S-4, to be filed by Citizens
under the Securities Act of 1933 with the Securities and Exchange Commission.
The Registration Statement relates to the proposed issuance of up to 133,212
shares of Common Stock, no par value, to be issued in connection with the
Merger relating to First American Investment Corporation. The Registration
Statement and exhibits thereto to be filed with the Securities and Exchange
Commission under such Act are referred to herein as the "Registration
Statement".
This letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business
Law (1991).
We have examined the Articles of Incorporation of Citizens as filed
with the Colorado Secretary of State, the Bylaws of Citizens, and the minutes
of the meetings and records of proceedings of the Board of Directors of
Citizens, the applicable laws of the State of Colorado and a copy of the
Registration Statement.
Based upon the foregoing, and having regard for such legal
considerations as we deemed relevant, we are of the opinion that the
above-referenced 133,212 shares of Common Stock of Citizens are legally issued,
fully paid and non- assessable.
We hereby consent to the use of this opinion as part of the
Registration Statement and to the reference to our name under the heading
"Legal Matters" in this Information Statement-Prospectus constituting a part of
the Registration Statement.
Very truly yours,
/s/ Jones & Keller, P.C.
Jones & Keller, P.C.
<PAGE> 1
EXHIBIT 10.8
Self-Administered
Automatic Reinsurance Agreement
Effective
between
Citizens Insurance Company of America
Denver, Colorado
(hereinafter referred to-as the "Ceding Company")
and
Riunione Adriatica di Sicurta', S.p.A.
Trieste, Italy
(hereinafter referred to as the "Reinsurer")
<PAGE> 2
<TABLE>
<CAPTION>
Table of Contents Page
----------------- ----
<S> <C> <C>
Article I Basis of Reinsurance 3
Article II Mode of Notification and Cession 4
Article III Liability of Reinsurer 4
Article IV Plan of Reinsurance 5
Article V Reinsurance Premiums 5
Article VI Premium Taxes and Policy Expenses 6
Article VII Automatic Reinsurance Coverage after Policy Change 6
Article VIII Information to Reinsurer after Policy Change 8
Article IX Recapture 8
Article X Claims 9
Article XI List of Risks Reinsured and List of Amendments 10
Article XII Accounting 10
Article XIII Errors and Omissions 11
Article XIV Inspection of Records 12
Article XV Insolvency 12
Article XVI Arbitration 13
Article XVII Parties to Agreement 13
Article XVIII Duration of Agreement; Termination 14
Article XIX Effective Date; Execution 14
Exhibit I SAR Reinsurance Premiums 15
Exhibit II Retention Limits of the Ceding Company 23
Exhibit III Limits and Special Conditions for the First Excess 24
Exhibit IV Calculation of the Net Amount at Risk Reinsured 25
Exhibit V List of Risks Reinsured 26
Exhibit VI List of Amendments 27
Exhibit VII Preliminary Surplus Advice
Exhibit VIII Automatic Cession Notification
Appendix I International Guidelines 28
Appendix I-A Foreign National Business 29
Appendix I-B Conditional Receipt 31
</TABLE>
2
<PAGE> 3
Article I
Basis of Reinsurance 1. On and after the effective date of
this Agreement, the Ceding Company
shall cede to Reinsurer, subject to
the limitations outlined in Exhibit
III, its entire (100%) First Excess,
i.e., the amount of new direct
agency Standard and Substandard
individual issues of Life Insurance
policies and Waiver of Premium
Disability benefits in excess of the
Ceding Company's regular retention
for such benefits as shown in
Exhibit II. Reinsurer shall
automatically accept such First
Excess within the limits indicated
in Exhibit III, provided that the
Ceding Company has applied its
normal underwriting rules and
retains its regular retention.
2. The term "new direct agency issues"
as used in this Article shall
include issues on the lives of U.S.
Citizens and non-U.S. Citizens as
stipulated in Appendix I-A. It shall
not include brokerage business,
reinsurance business, or except as
provided herein, issues of
conversions.
3. If the Ceding Company is already on
the risk for its regular retention
under policies previously issued,
reinsurance up to the limits
indicated in Exhibit III will be
accepted automatically in accordance
with Paragraph 1 above, provided the
Ceding Company has assessed the risk
under the new application by
applying the same underwriting rules
it would have applied had the new
policy fallen completely within its
regular retention.
4. Any risk which falls within the
automatic coverage granted by this
Agreement may nevertheless be
submitted to Reinsurer for its
underwriting opinion. If such risk
is acceptable for coverage, it shall
automatically be reinsured under-
this Agreement. Any other risk
ineligible for automatic coverage
hereunder, or which the Ceding
Company desires to reinsure
facultatively, may be submitted to
Reinsurer for facultative
underwriting by forwarding to
Reinsurer copies of the original
applications, all medical
examinations or reports, inspection
reports and all other information
which the Ceding Company may have
pertaining to the insurability of
the risk. Any such risk shall, upon
acceptance by the Ceding Company of
Reinsurer's underwriting decision,
be reinsured under this Agreement.
5. The reinsurance under this Agreement
shall be maintained in force as long
as the original policy carried by
the Ceding Company remains in force,
except as provided in Articles VII
Automatic Reinsurance Coverage after
Policy Change, IX Recapture, and
XVIII Duration of Agreement;
Termination.
6. Notwithstanding any provision to the
contrary in Article I Basis of
Reinsurance of said Agreement,
Reinsurer shall be automatically
bound under any claim for which the
Ceding Company is liable under a
conditional receipt issued in
respect of business reinsured
automatically or submitted
exclusively to Reinsurer under said
Article I. Reinsurer's liability on
standard retention on the policy
applied-for. In no event, however,
shall Reinsurer's liability on any
one life,
3
<PAGE> 4
including previous reinsurance ceded
to Reinsurer, by the Ceding Company,
exceed the automatic acceptance
limits provided by this Agreement.
The Ceding Company's conditional
receipt is attached hereto and the
Ceding Company shall be obligated to
advise Reinsurer of any changes or
modifications of such receipt.
Article II
Mode of Notification Ceding
and Cession 1. If (a) the First Excess as defined
in Exhibit m herein is greater than
$300,000 of life Insurance and (b)
the Ceding Company automatically
cedes to Reinsurer as herein
provided and the total amount ceded
to Reinsurer on the same life,
including previous cessions, exceeds
either of the foregoing specified
amounts, then the Ceding Company
shall notify Reinsurer:
a. within forty-eight (48) hours
after underwriting approval
of the risk by mailing a
Preliminary Surplus Advice
(Exhibit VII), and either
b. within five (5) working days
after the policy issued on
such application has been
delivered and paid for, by
mailing a copy of the
Preliminary Surplus Advice
indicating the actual amount
ceded hereunder, or
c. within sixty (60) working days
after underwriting approval
of the risk if the policy
issued on such application
was refused or remains
undelivered, by mailing a
copy of the Preliminary
Surplus Advice marked
"Canceled" and indicating
date of cancellation.
2. For risks automatically ceded and
not subject to the notification
requirements of Paragraph 1. The
first notice to Reinsurer regarding
any such automatic cession will be
sent to Reinsurer on the first of
each month following the Issue
Month. The notification will be a
copy of Citizen's Underwriter
Worksheet (see Exhibit VIII).
3. For risks to be reinsured
facultatively hereunder in
accordance with Article I, Paragraph
4, the Ceding Company shall forward
to Reinsurer a Preliminary Surplus
Advice marked "Facultative" within
five (5) working days after the
original policy has been reported
delivered and paid for.
Article III
Liability of Reinsurer 1. The liability of Reinsurer shall
begin and terminate simultaneously
with that of the Ceding Company,
provided that, in the case of a
facultative submission, Reinsurer
has notified the Ceding Company of
its acceptance of the risk and the
Ceding Company has mail Advice in
accordance with Paragraph 3 of
Article II Mode of Notification and
Cession.
4
<PAGE> 5
2. Reinsurer has no liability under
this Agreement for any policy amount
or benefit not expressly referred to
in Article I Basis of Reinsurance,
or in any Addendum to this Agreement
relating to reinsurance of other
benefits.
3. The Ceding Company will provide
Reinsurer with copies of its policy
and rider forms, rate schedules and
underwriting rules for the business
eligible fr reinsurance under this
Agreement and shall keep Reinsurer
informed of any changes therein.
4. Reinsurer shall not be liable for
any amount paid by the Ceding
Company for punitive, exemplary, or
compensatory damages awarded to the
beneficiary of an insured, arising
out of the conduct of the Ceding
Company in the investigation, trial,
or settlement of any claim, or the
failure to pay or a delay to pay any
benefits under any policy unless
Reinsurer was informed of the
circumstances and participated in
the decision which resulted in such
liability.
Article IV
Plan of Reinsurance l. Life reinsurance shall be ceded on
the Risk Premium basis for the Net
Amount at Risk reinsured. For the
purpose of this Agreement, the Net
Amount at Risk reinsured during any
calendar year is defined as the
difference between the First Excess
(as defined in Article I and Exhibit
III) and the reserve thereon at the
end of the prior calendar year. Such
reserve shall be determined as the
statutory mean reserve based on the
Ceding Company's reserve standard
unless an approximate method of
determination is applicable as shown
in Exhibit IV. In either case,
reserves shall be rounded to the
nearer dollar.
2. For original policies issued on a
level term plan for twenty (20)
years or less or on a reducing term
plan for any period of years, the
Net Amount at Risk reinsured during
all years shall be for the amount of
the First Excess reinsured and
reserves shall be disregarded.
3. Except as otherwise provided in
Exhibit IV hereof, or by Addendum to
this Agreement, the Net Amount at
Risk reinsured will be level during
any calendar year.
4. Reinsurance of Waiver of Premium
Disability benefits shall be in
accordance with the original policy
terms of the Ceding Company subject
to the limitations in Exhibit III.
Article V
Reinsurance Premiums 1. The reinsurance premiums for Life
reinsurance shall consist of a basic
rate per thousand of Net Amount at
Risk reinsured in accordance with the
schedule of rates attached hereto
(Exhibit I). Rates for females at
ages 15 and higher are equal to the
rates for a male four years younger.
For females aged 11-14, males age 10
rates are used. Male and female rates
for ages 0-10 are identical.
2. For purposes of premium calculation,
based on the table of rates
contained in Exhibit I, the attained
age shall be taken as the issue
5
<PAGE> 6
age (nearest or last birthday as
appropriate),-plus the difference
between the respective calendar year
and the calendar year at issue
3. The reinsurance premiums for Waiver
of Premium Disability benefits shall
be as shown in Exhibit I.
4. Except as otherwise provided in
Exhibit m, for all new reinsurance
originating without current evidence
of insurability (conversions,
options, etc.) calendar years for
entering the premium table, Exhibit
I will be counted starting with the
calendar year of the last check of
insurability.
5. All reinsurance premiums payable by
the Ceding Company to Reinsurer
under this Agreement shall be paid
on the calendar year basis in
advance regardless of the mode of
premium payment of the policies
reinsured. Reinsurance premiums
shall be payable as long as the
reinsurance remains in force.
Should any reinsurance be reduced or
terminated within any calendar year,
the proportionate part of the
reinsurance premium paid shall be
refunded at the beginning of the
calendar year next following the
reduction or termination provided,
however, that for policies reduced
or terminated during the second
calendar year after issue the refund
shall not exceed 50% of the
reinsurance premium paid.
6. For technical reasons relating to
the uncertain status of deficiency
reserve requirements by the various
state insurance departments, the
Life reinsurance premiums contained
herein cannot be guaranteed for more
than one year. For all reinsurance
ceded at these rates, however,
Reinsurer shall continue to accept
premiums no lower than those arrived
at based on these rate schedules.
Article VI
Premium Taxes and Policy
Expenses 1. When Reinsurer is not required to pay
state premium taxes on reinsurance
premiums received from the Ceding
Company, it shall reimburse the
Ceding Company for any such taxes
the latter may be required to pay
with respect to the part of the
premium received under the Ceding
Company's original policies which is
remitted to Reinsurer as reinsurance
premium.
2. The Ceding Company shall bear the
expense of all medical examinations,
inspection fees, and other charges
incurred in connection with the
issuance of any policy reinsured
hereunder.
Article VII
Automatic Reinsurance Coverage
after Policy Change l. Reinsurer will continue to grant
automatic reinsurance coverage in
accordance with the provisions of
this Agreement after renewal,
conversion or amendment of any
policy reinsured hereunder provided
that the amounts and benefits to be
reinsured following the change do
not exceed the amounts and benefits
initially reinsured hereunder in
respect of such policy. The
following rules will apply for
6
<PAGE> 7
the recalculation of the amounts
reinsured with Reinsurer after a
policy change.
2. If an original policy is reduced,
the Ceding Company will retain the
same Net Amount at Risk and the same
other benefits on that life that it
had before the reduction. The
reduction shall be applied first to
the reinsurance based on the
original policy or policies reduced
or terminated. If further reduction
in reinsurance is required, the
policies for which reinsurance is to
be terminated or reduced shall be
determined by the chronological
order in which they were issued,
the first issued being the first
terminated or reduced, and so on. If
the reinsurance required to be
reduced under this Article is shared
among Reinsurer and other
reinsurers, the reduction shall be
pro-rated among all reinsurers in
proportion to the amount of
reinsurance carried by each. If the
amount of reinsurance remaining is
less than the amount of the minimum
cession specified in Exhibit II,
such reinsurance shall be canceled.
3. If any policy reinsured hereunder is
changed to extended term insurance,
Reinsurer's proportion of the amount
of insurance under such policy shall
remain unchanged.
4. Should any change or conversion of
any policy reinsured hereunder
increase the et Amount at Risk or
other benefits insured, Reinsurer's
proportion of the amount of
insurance and benefits under such
policy shall remain unchanged unless
the limits provided under Paragraph
1 are exceeded. In the event that
the limits under Paragraph 1 are
exceeded, Reinsurer will accept both
the excess and any additional
amounts required to be reinsured in
order to keep the Ceding Company's
retention within the limits stated
in Exhibit II, provided that the
total Net Amount at Risk reinsured
after the increase does not exceed
the limitations of automatic
Coverage (Exhibit III), and provided
further that such increase is
underwritten in accordance with
Article I Basis of Reinsurance,
Paragraph 3. Premiums for the
amended cessions will be calculated
in accordance with Article V
Reinsurance Premiums, Paragraph 4.
5. If after any reinsured policy has
been terminated, changed to reduced
paid-up insurance or changed to
extended- term insurance, such
policy is reinstated according to
the general reinstatement rules of
the Ceding Company, the-reinsurance
hereunder shall be restored with the
same Net Amount at Risk and other
benefits reinsured as if no change
had occurred.
6. Policies issued because of options
exercised under provisions of
Guaranteed Insurability benefits are
not included under this Agreement,
and shall be added by Addendum if
such benefits are to be reinsured.
Article VIII
Information to Reinsurer
after Policy Change 1. All amendments and terminations of
reinsurance under this Agreement
occurring during any calendar year
will be shown in the
7
<PAGE> 8
List of Amendments prepared for such
calendar year in accordance with
Article XI List of Risks Reinsured
and List of Amendments.
2. If any policy change increases the
Net Amount at Risk or other benefits
reinsured hereunder by more than
10%, the Ceding Company will notify
Reinsurer within two (2) weeks after
such change becomes effective by
submitting a Preliminary Surplus
Advice (Exhibit VII) marked
"Amended."
Article IX
Recapture 1. At intervals of five (5) years, the
Ceding Company is entitled to
recapture reinsurance on all cessions
which have been in force under this
Agreement for at least five (5)
years. The first recapture date is
the end of the seventh (7th) full
calendar year following the effective
date of this Agreement. Subsequent
recapture dates will follow at
intervals of five (5) full calendar
years.
2. In order to effect recapture, the
Ceding Company will reduce each
cession eligible under this
Agreement by an amount which will
increase the Net Amount at Risk for
life insurance or other benefit
retained by the Ceding Company to
its then regular retention. Any
recapture reducing the Net Amount at
Risk reinsured below the amount of
the minimum cession according to
Exhibit II will result in complete
recapture of the reinsurance on that
life.
3. Before recapturing on a cession
according to this provision, the
Ceding Company will proceed with all
recaptures allowed for policies
previously issued on the same life
and for all other reinsurance
cessions on the same policy, whoever
the reinsurer may be.
4. The Ceding Company may waive
recapture on any recapture date, but
only if such waiver applies to all
reinsurance then eligible for
recapture hereunder.
5. The Ceding Company shall notify
Reinsurer at least sixty (60) days
prior to each recapture date of its
intended recapture action. Any
questions of recapture eligibility
or procedure will then be resolved
during such sixty (60) day period.
6. If recapture is effected, the List
of Risks Reinsured for the calendar
year following recapture will
identify the risks involved and show
the new reinsurance amounts
applicable. In the event recapture
results in cancellation of any
cession, such cancellation will be
shown on the List of Amendments for
the calendar year of recapture.
7. It is hereby agreed and understood
that risks of which no part is
retained by the Ceding Company or
where the Ceding Company does not
retain its regular retention limit
at issue, shall be considered not
subject to recapture.
Article X
Claims 1. In the event any policy is
terminated by death while reinsured
under this Agreement, Reinsurer
shall pay to the Ceding Company the
Net
8
<PAGE> 9
Amount at Risk reinsured with respect
to such policy during the calendar
year of death.
2. In the event Waiver of Premium
Disability benefits are validly
claimed under any policy reinsured
for such benefits hereunder,
Reinsurer shall pay the Ceding
Company annually during the
continuance of disability the yearly
gross premium (exclusive of the
premiums for the Waiver benefit
itself) due under such policy for
the reinsured portion of the Waiver
benefit. In suitable cases, the
Ceding Company and Reinsurer may
agree to replace the annual payments
of Reinsurer by the payment of a
lump sum. If disability terminates,
a refund, if appropriate, will be
made by the Ceding Company to
Reinsurer. The payment of
reinsurance premiums in accordance
with Article V Reinsurance Premiums
for the other benefits still
reinsured will continue during the
disability claim period.
3. In the event any policy reinsured
hereunder becomes a claim before
such policy has appeared on any List
of Risks Reinsured, the Ceding
Company will calculate the amount
payable by Reinsurer in accordance
with this Agreement and will submit
to Reinsurer all papers necessary to
demonstrate that the risk involved
was covered automatically hereunder.
In addition, the Ceding Company will
inform Reinsurer of all other
reinsurance, if any, ceded on the
same policy.
4. For any claim incurred after the
policy affected has appeared on a
List of Risks Reinsured, Reinsurer
will pay the Net Amount at Risk or
other benefits reinsured, as
appropriate, shown in the List of
Risks Reinsured applicable to the
calendar year of incurral, unless
the benefits reinsured were amended
according to Article VII Automatic
Reinsurance Coverage after Policy
Change, but not reflected in such
List. In such case, Reinsurer will
pay the Net Amount at Risk or other
benefits reinsured which would
appear in the List of Amendments for
the calendar year of incurral, and
the Ceding Company shall furnish
proof that the amended Net Amount at
Risk and other benefits reinsured
are in accordance with the
provisions of this Agreement.
5. In the event less than the full
amount insured is paid as a claim or
if any special expenses are incurred
in the settlement of a claim (such
as attorney's fees, court and
arbitration costs, special
investigations, etc., but excluding
salaries of employees), Reinsurer
and the Ceding Company shall share
in the amount of such reduction or
special expenses in proportion to
their respective Net Amounts at Risk
under the policy affected.
6. Reinsurer and the Ceding Company
shall share in any increase or
reduction resulting from the
Insured's misstatement of his age in
proportion to their respective Net
Amounts at Risk under the policy
affected.
7. Notice will be faxed to the
Reinsurer of any claim reinsured
under this agreement. In every case
of loss, proofs acceptable to the
Ceding Company shall likewise be
taken as sufficient by Reinsurer.
9
<PAGE> 10
The Ceding Company shall fax
Reinsurer copies of death
certificates.
8. At the end of each calendar quarter,
a copy of the checks showing payment
of all claims and claim expenses
paid by the Ceding Company during
the quarter and reinsured by the
Reinsurer under this agreement will
be faxed to the Reinsurer and paid
within ten days of receipt by the
Reinsurer. Should-the total amount
of claims and claim expenses paid by
the Ceding Company exceed $250,000
prior to the end of any quarter,
proof of such payments will be faxed
to the Reinsurer and paid within ten
days of receipt by the Reinsurer.
Article XI
Lists of Risks Reinsured and
List of Amendments 1. Before January 15 of each calendar
year following the date of this
Agreement, the Ceding Company will
provide Reinsurer with the List of
Risks Reinsured for the current
calendar year. This List will
include all reinsurance in force
under this Agreement at the
beginning of the calendar year and
contain information as outlined in
Exhibit V.
2. Before January 15 of each calendar
year, beginning with the second year
following the date of this
Agreement, the Ceding Company will
provide Reinsurer, for adjustment of
coverage and premium, with the List
of Amendments for the preceding
calendar year. This List will
include all cessions amended during
the preceding calendar year in
accordance with Article VII
Automatic Reinsurance Coverage after
Policy Change, exclusive of (a)
amendments occurring during the
calendar year of issue of any
policy, and (b) certain corrections
referred to in Article XIII Errors
and Omissions. In detail, the List
will contain information as outlined
in Exhibit VI.
Article XII
Accounting and Nondisclosure
of Confidential Information 1. The Ceding Company shall remit the
total of the reinsurance premiums
shown - in the List of Risks
Reinsured simultaneously with the
List.
2. Should the balance of changes in
reinsurance premiums for the
preceding calendar year shown in the
List of Amendments be in favor of
Reinsurer, the Ceding Company shall
remit said balance, increased by 2%
for interest, simultaneously with
the List. Should this balance be in
favor of the Ceding Company,
Reinsurer shall remit said balance,
increased by 2% for interest, within
ten (10) working days of receipt of
the List.
3. Reinsurer is entitled to ask for
correction of any of the Lists
within ninety (90) days after their
receipt. The amount of any
correction in reinsurance premiums
is due immediately after agreement
between the Ceding Company and
Reinsurer.
4. Failure of the Ceding Company to pay
any of the reinsurance premiums
shown in the List of Risks Reinsured
by March 31 of the
10
<PAGE> 11
calendar year covered by such List
shall automatically terminate the
liability of Reinsurer under this
Agreement as of midnight on that
date. Payment of only a portion of
this premium by said March 31 shall
reduce the liability of Reinsurer
under this Agreement as of midnight
on that date. The reduced liability
will be determined by applying to the
total liability under this Agreement
the ratio of the reinsurance premiums
paid to the total of the reinsurance
premiums due. Payment of a portion or
of the total of the outstanding
premiums and interest, if any, after
said March 31 shall reinstate a
proportionate part of the total
liability of Reinsurer effective on
and after the date of receipt of the
payment at Reinsurer's home office.
5. All amounts due under Paragraphs 1,
2, and 3 preceding and not paid by
March 31 of the respective calendar
year, are subject to 0.5% additional
interest for each full month after
March 31.
6. Since reinsurance coverage and
premium payments are on the calendar
year basis, Reinsurer, will not hold
any reserves, other than claims
reserves, for the reinsurance
covered by this Agreement at the end
of the calendar year.
7. During the course of business
necessary under this agreement, CICA
may reveal to RAS certain
confidential or proprietary
information which includes but is
not limited to the following:
various trade secrets, data
processing methods, marketing
concepts, programs, formulas,
pattens, devices, inventions,
processes, policy forms and
identities of customers, sales
agents, managing agents, associates
and employees of CICA RAS shall not
disclose, directly or indirectly, to
others, Including corporate
subsidiaries and affiliates, any
confidential or proprietary
information of CICA except as may be
specifically authorized in writing
by an officer of CICA. RAS will also
do all things necessary to prevent
any of its employees,
representatives and agents from
disclosing any such information. RAS
*er agrees to use any confidential
or proprietary information of CICA
solely for the purpose of
reinsurance under this agreement.
Article XIII
Errors and Omissions 1. The List of Risks Reinsured is the
basis for the reinsurance coverage
provided by Reinsurer for the
respective calendar year on the
reinsurance in force at the beginning
of that year. Any unintentional
clerical error or omission in the
amounts reinsured shall not be
corrected during the current calendar
year but will be reflected in the
List of Risks Reinsured for the
subsequent calendar year, unless by
such error or omission
a. any risk not eligible for
reinsurance under this
Agreement is shown as
reinsured, or
b. the amount retained by the
Ceding Company exceeds its
retention at issue (Exhibit
II) by more than $5,000 or
11
<PAGE> 12
c. the benefits reinsured by
Reinsurer and other
reinsurers exceed the
benefits insured under the
policy less the Ceding
Company's retention thereon,
if any, or
d. the amount of any benefit
reinsured by Reinsurer
exceeds 125% of the
corresponding amount during
the preceding calendar year,
or
e. the amount of any benefit
reinsured by Reinsurer
exceeds the Automatic
Coverage (Exhibit III).
2. In those cases described in
Paragraph 1, Reinsurer shall be
notified in writing and the
reinsurance shall be corrected
retroactively. Correction of the
reinsurance premium will be
accounted for in the List of
Amendments applicable to the
calendar year in which the error was
discovered. The Ceding Company shall
also check its entire reinsured
portfolio for similar discrepancies.
3. Any other failure of either party to
comply with any provision of this
Agreement, if shown to be
unintentional and the result of
misunderstanding or oversight, shall
be corrected by restoring both
parties to the positions they would
have occupied had no such error or
oversight occurred.
Article XIV
Inspection of Records Reinsurer shall have the right, at any
reasonable time, to inspect, at the office of
the Ceding Company, all books, records and
documents relating to the reinsurance under
this Agreement.
Article XV
Insolvency 1. In the event of insolvency of the
Ceding Company, all reinsurance shall
be payable directly to the
liquidator, receiver or statutory
successor of said Ceding Company,
without diminution because of the
insolvency of the Ceding Company.
2. In the event of insolvency of the
Ceding Company, the liquidator,
receiver or statutory successor
shall give Reinsurer written notice
of the pendency of a claim on a
policy reinsured hereunder within a
reasonable time after such claim is
filed in the insolvency proceeding.
During the pendency of any such
claim, Reinsurer may investigate
such claim and interpose in the name
of the Ceding Company (its
liquidator, receiver or statutory
successor), but at its own expense,
in the proceeding where such claim
is to be adjudicated, any defense or
defenses which Reinsurer may deem
available to the Ceding Company or
its liquidator, receiver or
statutory successor.
3. The expense thus incurred by
Reinsurer shall be chargeable,
subject to court approval, against
the Ceding Company as part of the
expense of it liquidation to the
extent of a proportionate share of
the benefit which may accrue to the
Ceding Company solely as a result of
the defense undertaken by Reinsurer.
Where two r more reinsures are
participating in the same claim and
a majority in
12
<PAGE> 13
interest elect to interpose a defense
or defenses to any such claim, the
expense shall be apportioned in
accordance with the terms of the
respective reinsurance agreements as
though such expense had been
incurred by the Ceding Company.
4. In the event of insolvency of the
CEDING COMPANY, the arbitration
provisions of this agreement shall
also be subject to the laws of the
State of Colorado.
Article XVI
Arbitration 1. All disputes and differences between
the two contracting parties upon
which an amicable understanding
cannot be reached are to be decided
by arbitration. The arbitrators shall
regard this Agreement rather from the
standpoint of practical business and
equity than from that of the strict
law, for the purpose of carrying out
its evident intent.
2. The court of arbitration, which is
to be held in the city in which the
Executive office of the Ceding
Company is located, shall consist of
three arbitrators who must be
executive officers of life insurance
companies, other than the two
parties to this Agreement, familiar
with the reinsurance business. One
of the arbitrators is to be
appointed by the Ceding Company, the
second by Reinsurer, and the third
is to be selected by these two
representatives before the beginning
of the arbitration. Should the two
arbitrators be unable to agree upon
the choice of a third, the
appointment shall be left to the
President of the American Council of
Life Insurance. or its successor
organization.
3. The arbitrators shall decide by a
majority of votes and from their
written decision there can be no
appeal. The cost of arbitration,
including the fees of the
arbitrators, shall be borne by the
losing party unless the arbitrators
shall decide otherwise.
Article XVII
Parties to Agreement
Colorado Law This is an agreement solely between the
Ceding Company and Reinsurer. The acceptance
of reinsurance hereunder shall not create any
right or legal relation whatever between
Reinsurer and the insured or the beneficiary
under any policy of the Ceding Company which
may be reinsured hereunder.
All provisions of this reinsurance agreement
other than the arbitration provisions are
subject to the laws of the State of Colorado.
Reinsurer agrees to maintain continuous
qualification as a reinsurer in the State of
Colorado during the continuance of any
insurance contracts under this Agreement.
Article XVIII
Duration of Agreement:
Termination 1. This Agreement shall be unlimited as
to its duration, but may be
terminated at any time, for new
reinsurance only, by either party
giving not less than ninety (90) days
notice of termination in writing
13
<PAGE> 14
to the other party and the Colorado
Insurance Department by registered
mail stating the Termination Date.
Reinsurer shall continue to accept
reinsurance during the ninety (90)
days aforesaid and shall remain
liable on all reinsurance already
placed in force under the terms of
this Agreement until such contracts
are terminated between the original
insured and the Ceding Company.
2. In the event of non-payment of any
amounts due hereunder by either
party within three (3) months of the
respective due dates, except as
provided by Article XIII Errors and
Omissions, Paragraph 2, the other
party shall have the right to cancel
all reinsurance in force under this
Agreement by giving thirty (30) days
written notice. Payment of the
amounts due, with interest according
to Article XII Accounting, Paragraph
5, during such thirty (30) days will
nullify the cancellation.
Article XIX
Effective Date;
Execution The said Citizens Insurance Company of
America, Denver, Colorado, and the said
Reinsurer, declare that this Agreement and
all its terms shall be effective as of
January 1, 1995, and shall apply to eligible
policies applied for on and after such date,
notwithstanding that such policies may have
been backdated for up to six (6) months to
save age. In witness whereof they have by
their respective officers executed and
delivered this Agreement in duplicate.
Citizens Insurance Company of America
By:/s/ Roby Dollar
------------------------------------
Title: President
Date: October 4, 1994
Riunione Adriatica di Sicurta', S.p.A.
By:/s/ Lino Loer
------------------------------------
Title: Manager
Date: October 4, 1994
14
<PAGE> 15
Exhibit 1
SAR Reinsurance Premiums
1. Reinsurance premiums under this Agreement for the first calendar year
(from the effective date of the policy to the net December 31) are,
with certain exceptions noted below, zero.
2. Life reinsurance premiums for standard risks shall be calculated by
multiplying the Net Amount at Risk reinsured during the calendar year
by the appropriate premium rate for such year from the appropriate
schedule shown in this Exhibit:
Age Nearest Birthday SAR NR ANB
Age Last Birthday SAR NR ALB
Rates for females shall be in accordance with the respective rate
schedule applicable.
3. Life reinsurance premiums for substandard risks accepted subject to a
Table Rating shall be calculated by multiplying the corresponding
standard risk life reinsurance premiums by the appropriate Mortality
Factor from the table:
<TABLE>
<CAPTION>
Table Rating Mortality Factor**
------------ --------- ------
<S> <C> <C>
A (1) 1.25
AA (1 1/2) 1.375
B (2) 1.50
BB (2 1/2) 1.625
C (3) 1.75
D (4) 2.00
E (5) 2.25
F (6) 2.50
G (7) 2.75
H (8) 3.00
I (9) 3.25
J (10) 3.50
L (12) 4.00
P (16) 5.00
</TABLE>
** Substandard reinsurance premiums for the second calendar year only
shall be 150% of the premiums calculated from the table.
15
<PAGE> 16
Exhibit I
(continued)
4. Life reinsurance premiums for substandard risks accepted subject to a
flat extra premium shall be the sum of
a. The applicable standard or substandard reinsurance premiums,
calculated from Paragraphs 2 and 3 above, and
b. The following percentages of the policy annual flat extra
premiums applicable to the initial amount of reinsurance
hereunder on such risks:
<TABLE>
<CAPTION>
Term of Flat Second Subsequent
Extra Premium Calendar Year Calendar Years
------------- ------------- ---------------
<S> <C> <C>
More than five years 102.5% 90%
Five years or less 135.0% 90%
</TABLE>
5. Reinsurance premiums for Waiver of Premium Disability benefits payable
for the second and later calendar years shall be equal to 90% of the
policy annual premiums for such benefits applicable to the amount of
such benefits reinsured hereunder. If premiums for the Waiver of
Premium Disability benefit are automatically included in the gross
Life Insurance premiums under any policy reinsurance hereunder, then
reinsurance premiums for the Waiver of Premium Disability benefit, for
second and later calendar years, shall be 100% of the Ceding Company's
net annual premiums for the reinsured amount of such benefit.
6. For standard risks only, the reinsurance premium for the excess over
$1,500,000 on any one life reinsured under this Agreement for the
first calendar year (from the effective date of the policy to the net
December 31) shall be based on the second calendar year rate for the
issue age. Such first year premium shall be prorated over the year of
issue as follows:
First year prorated premium = n/360 (tabular rate), where n is
the number of days from the issue date to December 31,
assuming 30-day months, and the tabular rate is the second
calendar-year rate for the age at issue.
7. The Life reinsurance premiums for reinsurance of Joint Whole Life
policies at Standard or Substandard rates shall for each insured be
85% of the premium applicable for an individual life shown in Exhibit
I of the Agreement. Such rate shall be applied to the Net Amount at
Risk for each individual.
In case of reinsurance under a Joint Whole Life Policy where the Joint
Insureds die simultaneously or within 60 days of each other, thus
requiring the Ceding Company to pay twice the amount of Life Insurance
insured under the Joint Whole Life Policy, Reinsurer shall for each of
the joint lives reinsured pay the net amount at risk plus 50% of the
terminal reserve used in calculating the net amount at risk in
accordance with Article IV, Paragraph 1, relating to the amount
reinsured on the respective life.
16
<PAGE> 17
Exhibit I (Continued)
Self-Administered Automatic Reinsurance Premiums Per $1,000
<TABLE>
<CAPTION>
Standard Non-Refund Age Last Birthday Appendix 2
Calender Year
Issue
Age 1 2 3 4 5 6 7 8 9
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 0.00 3.41 1.65 1.34 1.19 1.10 1.04 0.99 0.95
1 0.00 1.65 1.34 1.19 1.10 1.04 0.99 0.95 0.91
2 0.00 1.34 1.19 1.10 1.04 0.99 0.95 0.91 0.90
3 0.00 1.19 1.10 1.04 0.99 0.95 0.91 0.90 0.90
4 0.00 1.10 1.04 0.99 0.95 0.91 0.90 0.90 0.94
5 0.00 1.04 0.99 0.95 0.91 0.90 0.90 0.94 1.03
6 0.00 0.99 0.95 0.91 0.90 0.90 0.94 1.03 1.17
7 0.00 0.95 0.91 0.90 0.90 0.94 1.03 1.17 1.34
8 0.00 0.91 0.90 0.90 0.94 1.03 1.17 1.34 1.52
9 0.00 0.90 0.90 0.94 1.03 1.17 1.34 1.52 1.69
10 0.00 0.90 0.94 1.03 1.17 1.34 1.52 1.69 1.84
11 0.00 0.94 1.03 1.17 1.34 1.52 1.69 1.84 1.94
12 0.00 1.12 1.23 1.37 1.53 1.68 1.82 1.93 1.98
13 0.00 1.36 1.46 1.57 1.70 1.81 1.89 1.96 1.99
14 0.00 1.53 1.62 1.70 1.81 1.89 1.93 1.96 1.97
15 0.00 1.64 1.71 1.78 1.86 1.91 1.93 1.93 1.93
16 0.00 1.69 1.76 1.81 1.87 1.90 1.89 1.89 1.88
17 0.00 1.70 1.77 1.82 1.86 1.87 1.85 1.84 1.83
18 0.00 1.67 1.74 1.78 1.81 1.81 1.79 1.78 1.77
19 0.00 1.60 1.67 1.71 1.74 1.73 1.71 1.70 1.71
20 0.00 1.52 1.58 1.64 1.65 1.64 1.63 1.63 1.65
21 0.00 1.44 1.51 1.57 1.58 1.57 1.57 1.58 1.62
22 0.00 1.38 1.45 1.52 1.53 1.52 1.53 1.56 1.61
23 0.00 1.33 1.42 1.49 1.50 1.49 1.52 1.56 1.62
24 0.00 1.29 1.39 1.46 1.47 1.48 1.51 1.57 1.64
25 0.00 1.26 1.37 1.45 1.47 1.48 1.53 1.60 1.70
26 0.00 1.25 1.37 1.45 1.48 1.51 1.57 1.66 1.78
27 0.00 1.27 1.39 1.48 1.51 1.57 1.64 1.76 1.90
28 0.00 1.32 1.43 1.53 1.58 1.65 1.74 1.87 2.05
29 0.00 1.37 1.49 1.59 1.66 1.72 1.79 1.89 2.04
30 0.00 1.43 1.56 1.67 1.76 1.82 1.85 1.93 2.07
31 0.00 1.49 1.63 1.76 1.88 1.96 2.01 2.12 2.29
32 0.00 1.54 1.69 1.86 2.00 2.11 2.19 2.33 2.52
33 0.00 1.57 1.76 1.95 2.13 2.27 2.38 2.55 2.77
34 0.00 1.60 1.83 2.06 2.28 2.44 2.59 2.79 3.04
<CAPTION>
Standard Non-Refund Age Last Birthday Appendix 2
Calender Year
Issue Attained
Age 10 11 12 13 14 15 16+ Age
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 0.91 0.90 0.91 0.96 1.06 1.21 1.39 15
1 0.90 0.90 0.95 1.05 1.20 1.39 1.59 16
2 0.90 0.94 1.04 1.19 1.38 1.58 1.77 17
3 0.94 1.04 1.18 1.37 1.56 1.76 1.92 18
4 1.03 1.18 1.36 1.55 1.74 1.91 2.03 19
5 1.17 1.35 1.54 1.73 1.89 2.02 2.07 20
6 1.34 1.53 1.71 1.88 2.00 2.06 2.05 21
7 1.52 1.69 1.86 1.98 2.04 2.04 2.02 22
8 1.69 1.84 1.96 2.02 2.02 2.01 1.99 23
9 1.84 1.95 2.00 2.00 1.99 1.98 1.97 24
10 1.94 1.98 1.98 1.97 1.96 1.96 1.95 25
11 1.97 1.96 1.95 1.94 1.94 1.94 1.93 26
12 1.97 1.94 1.94 1.94 1.94 1.94 1.93 27
13 1.97 1.94 1.93 1.94 1.95 1.96 1.98 28
14 1.95 1.92 1.91 1.93 1.96 2.00 2.03 29
15 1.91 1.88 1.88 1.92 1.98 2.03 2.09 30
16 1.86 1.84 1.85 1.91 1.98 2.05 2.13 31
17 1.82 1.81 1.83 1.90 1.97 2.06 2.15 32
18 1.77 1.78 1.81 1.89 1.97 2.08 2.19 33
19 1.73 1.75 1.80 1.89 2.00 2.12 2.26 34
20 1.69 1.73 1.80 1.91 2.04 2.20 2.86 35
21 1.67 1.73 1.83 1.96 2.12 2.30 2.50 36
22 1.67 1.76 1.88 2.04 2.23 2.44 2.67 37
23 1.70 1.81 1.96 2.15 2.37 2.62 2.89 38
24 1.74 1.88 2.06 2.29 2.55 2.84 3.14 39
25 1.82 1.97 2.18 2.44 2.74 3.08 3.42 40
26 1.92 2.10 2.34 2.63 2.96 3.34 3.72 41
27 2.06 2.27 2.54 2.86 3.23 3.63 4.05 42
28 2.24 2.47 2.78 3.13 3.53 3.97 4.43 43
29 2.22 2.46 2.80 3.18 3.61 4.09 4.72 44
30 2.22 2.48 2.85 3.27 3.73 4.25 5.05 45
31 2.48 2.77 3.19 3.64 4.14 4.71 5.56 46
32 2.75 3.08 3.54 4.04 4.61 5.24 6.15 47
33 3.03 3.41 3.92 4.49 5.14 5.85 6.84 48
34 3.34 3.77 4.33 4.99 5.73 6.55 7.63 49
</TABLE>
Female Rates: Ages 0-10 same as male rates ages 0-10; ages 11-14
same as male rate age 10;
Ages 15 & over same as male rates ages 4 years younger.
17
<PAGE> 18
Exhibit I (Continued)
Self-Administered Automatic Reinsurance Premiums Per $1,000
<TABLE>
<CAPTION>
Standard Non-Refund Age Last Birthday Appendix 2
Calender Year
Issue
Age 1 2 3 4 5 6 7 8 9
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
35 0.00 1.64 1.91 2.18 2.44 2.64 2.83 3.06 3.33
36 0.00 1.70 2.02 2.34 2.63 2.87 3.10 3.36 3.67
37 0.00 1.80 2.17 2.53 2.85 3.13 3.41 3.71 4.06
38 0.00 1.94 2.36 2.76 3.11 3.43 3.76 4.10 4.49
39 0.00 2.10 2.57 3.02 3.39 3.76 4.15 4.53 4.97
40 0.00 2.28 2.80 3.29 3.70 4.12 4.57 4.99 5.49
41 0.00 2.45 3.04 3.58 4.03 4.50 5.01 5.48 6.03
42 0.00 2.62 3.27 3.87 4.37 4.89 5.46 5.99 6.58
43 0.00 2.78 3.50 4.17 4.74 5.30 5.92 6.51 7.14
44 0.00 2.95 3.73 4.48 5.12 5.73 6.40 7.06 7.72
45 0.00 3.12 3.98 4.81 5.52 6.20 6.93 7.67 8.36
46 0.00 3.31 4.26 5.17 5.96 6.70 7.52 8.35 9.09
47 0.00 3.52 4.58 5.57 6.42 7.25 8.21 9.15 9.96
48 0.00 3.74 4.93 6.00 6.89 7.85 9.00 10.07 10.96
49 0.00 3.99 5.31 6.46 7.38 8.48 9.85 11.06 12.05
50 0.00 4.25 5.71 6.95 7.92 9.15 10.73 12.09 13.18
51 0.00 4.52 6.13 7.48 8.51 9.85 11.62 13.13 14.31
52 0.00 4.78 6.55 8.03 9.13 10.54 12.47 14.11 15.38
53 0.00 5.04 6.95 8.60 9.78 11.24 13.27 15.02 16.37
54 0.00 5.31 7.37 9.19 10.47 11.97 14.08 15.94 17.37
55 0.00 5.65 7.90 9.93 11.33 12.85 15.04 17.00 18.54
56 0.00 6.11 8.57 10.87 12.41 13.97 16.20 18.28 19.97
57 0.00 6.66 9.37 11.99 13.74 15.29 17.50 19.69 21.62
58 0.00 7.31 10.31 13.33 15.32 16.83 18.92 21.22 23.45
59 0.00 8.05 11.36 14.82 17.09 18.54 20.49 22.87 25.46
60 0.00 8.89 12.53 16.42 18.99 20.43 22.25 24.71 27.69
61 0.00 9.86 13.83 18.11 20.99 22.49 24.25 26.82 30.16
62 0.00 1098 15.25 19.79 22.96 24.67 26.50 29.18 32.84
<CAPTION>
Standard Non-Refund Age Last Birthday Appendix 2
Calender Year
Issue Attained
Age 10 11 12 13 14 15 16+ Age
<S> <C> <C> <C> <C> <C> <C> <C> <C>
35 3.68 4.15 4.79 5.53 6.36 7.28 8.47 50
36 4.06 4.58 5.28 6.09 7.00 8.01 9.30 51
37 4.49 5.06 5.82 6.69 7.68 8.78 10.17 52
38 4.97 5.59 6.41 7.37 8.44 9.65 11.15 53
39 5.49 6.16 7.06 8.12 9.32 10.65 12.29 54
40 6.04 6.76 7.77 8.97 10.33 11.84 13.63 55
41 6.62 7.41 8.53 9.90 11.46 13.17 15.14 56
42 7.22 8.07 9.32 10.87 12.63 14.57 16.75 57
43 7.81 8.74 10.12 11.86 13.84 16.01 18.43 58
44 8.43 9.45 10.97 12.89 15.10 17.51 20.16 59
45 9.12 10.23 11.89 14.00 16.42 19.08 21.98 60
46 9.92 11.12 12.93 15.24 17.90 20.81 23.98 61
47 10.86 12.17 14.13 16.68 19.60 22.81 26.26 62
48 11.96 13.37 15.49 18.32 21.56 25.11 28.87 63
49 13.16 14.68 16.98 20.12 23.73 27.66 31.75 64
50 14.42 16.06 18.57 22.05 26.06 30.40 34.86 65
51 15.69 17.49 20.22 24.06 28.49 33.27 38.16 66
52 16.89 18.87 21.87 26.10 30.98 36.25 41.59 67
53 18.03 20.21 23.50 28.13 33.47 39.24 45.09 68
54 19.17 21.59 25.18 30.21 36.00 42.28 48.64 69
55 20.53 23.17 27.06 32.53 38.85 45.71 52.67 70
56 22.21 25.13 29.31 35.24 42.19 49.75 57.38 71
57 24.15 27.49 32.12 38.43 45.94 54.21 62.55 72
58 26.33 30.16 35.43 42.27 50.21 59.08 68.17 73
59 28.74 33.14 39.12 46.72 55.33 64.71 74.40 74
60 31.41 36.44 43.24 51.71 61.31 71.48 81.89 75
61 34.39 40.12 47.79 57.25 67.99 79.31 90.78 76
62 37.65 44.14 52.76 63.35 75.36 87.99 100.67 77
</TABLE>
Female Rates: Ages 0-10 same as male rates ages 0-10; ages 11-14
same as male rate age 10;
Ages 15 & over same as male rates ages 4 years younger.
18
<PAGE> 19
Exhibit I (Continued)
Self-Administered Automatic Reinsurance Premiums Per $1,000
<TABLE>
<CAPTION>
Standard Non-Refund Age Last Birthday Appendix 2
Calender Year
Issue
Age 1 2 3 4 5 6 7 8 9
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
63 0.00 12.24 16.78 21.44 24.89 26.95 28.98 31.77 35.71
64 0.00 13.65 18.45 23.17 26.91 29.42 31.74 34.66 38.85
65 0.00 15.19 20.30 25.11 29.18 32.19 34.85 37.94 42.42
66 0.00 16.86 22.36 27.37 31.84 35.38 38.41 41.73 46.56
67 0.00 18.67 24.63 29.96 34.90 39.00 42.45 46.07 51.30
68 0.00 20.63 27.14 32.89 38.36 43.04 46.96 50.94 56.65
69 0.00 22.73 29.91 36.25 42.34 47.60 52.02 56.44 62.74
70 0.00 24.78 32.71 39.83 46.61 52.38 57.26 62.19 69.12
<CAPTION>
Standard Non-Refund Age Last Birthday Appendix 2
Calender Year
Issue Attained
Age 10 11 12 13 14 15 16+ Age
<S> <C> <C> <C> <C> <C> <C> <C> <C>
63 41.16 48.50 58.13 69.97 83.41 97.49 111.52 78
64 45.01 53.26 63.95 77.10 92.01 107.63 123.12 79
65 49.34 58.57 70.32 84.74 101.11 118.25 135.26 80
66 54.29 64.54 77.41 93.12 110.96 129.67 148.26 81
67 59.89 71.20 85.26 102.30 121.79 142.18 162.49 82
68 66.13 78.56 93.96 112.73 134.01 156.33 178.48 83
69 73.14 86.73 103.68 124.51 148.10 172.69 196.76 84
70 80.40 95.06 113.60 136.70 162.80 189.74 217.22 85
237.80 86
258.16 87
278.86 88
297.29 89
311.99 90
324.11 91
337.40 92
356.94 93
383.45 94
409.92 95
431.40 96
451.12 97
471.61 98
492.50 99
</TABLE>
Female Rates: Ages 0-10 same as male rates ages 0-10; ages 11-14
same as male rate age 10;
Ages 15 & over same as male rates ages 4 years younger.
19
<PAGE> 20
Exhibit I (Continued)
Self-Administered Automatic Reinsurance Premiums Per $1,000
<TABLE>
<CAPTION>
Standard Non-Refund Age Nearest Birthday Appendix 2
Calender Year
Issue
Age 1 2 3 4 5 6 7 8 9
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 0.00 4.96 1.86 1.43 1.24 1.13 1.07 1.01 0.97
1 0.00 1.86 1.43 1.24 1.13 1.07 1.01 0.97 0.92
2 0.00 1.43 1.24 1.13 1.07 1.01 0.97 0.92 0.90
3 0.00 1.24 1.13 1.07 1.01 0.97 0.92 0.90 0.89
4 0.00 1.13 1.07 1.01 0.97 0.92 0.90 0.89 0.90
5 0.00 1.07 1.01 0.97 0.92 0.90 0.89 0.90 0.97
6 0.00 1.01 0.97 0.92 0.90 0.89 0.90 0.97 1.09
7 0.00 0.97 0.92 0.90 0.89 0.90 0.97 1.09 1.25
8 0.00 0.92 0.90 0.89 0.90 0.97 1.09 1.25 1.43
9 0.00 0.90 0.89 0.90 0.97 1.09 1.25 1.43 1.60
10 0.00 0.89 0.90 0.97 1.09 1.25 1.43 1.60 1.77
11 0.00 0.90 0.97 1.09 1.25 1.43 1.60 1.77 1.90
12 0.00 0.97 1.09 1.25 1.43 1.60 1.77 1.90 1.97
13 0.00 1.26 1.36 1.48 1.63 1.76 1.86 1.95 1.99
14 0.00 1.46 1.55 1.65 1.77 1.86 1.92 1.97 1.98
15 0.00 1.60 1.68 1.75 1.84 1.91 1.94 1.95 1.95
16 0.00 1.67 1.74 1.80 1.87 1.91 1.91 1.91 1.90
17 0.00 1.70 1.77 1.82 1.87 1.89 1.87 1.86 1.85
18 0.00 1.70 1.77 1.81 1.84 1.84 1.82 1.81 1.80
19 0.00 1.64 1.71 1.75 1.78 1.77 1.75 1.74 1.74
20 0.00 1.56 1.62 1.67 1.69 1.68 1.66 1.66 1.67
21 0.00 1.47 1.54 1.60 1.61 1.60 1.59 1.60 1.63
22 0.00 1.40 1.47 1.53 1.55 1.54 1.54 1.56 1.61
23 0.00 1.35 1.43 1.50 1.51 1.50 1.52 1.56 1.61
24 0.00 1.31 1.40 1.47 1.48 1.48 1.51 1.56 1.62
25 0.00 1.27 1.37 1.45 1.46 1.47 1.51 1.58 1.66
26 0.00 1.25 1.36 1.44 1.47 1.49 1.54 1.62 1.73
27 0.00 1.25 1.37 1.45 1.48 1.53 1.60 1.70 1.83
28 0.00 1.29 1.41 1.50 1.54 1.60 1.68 1.81 1.97
29 0.00 1.34 1.45 1.55 1.61 1.69 1.80 1.93 2.12
30 0.00 1.40 1.52 1.62 1.70 1.75 1.78 1.84 1.96
31 0.00 1.46 1.59 1.71 1.81 1.88 1.92 2.02 2.17
<CAPTION>
Standard Non-Refund Age Nearest Birthday Appendix 2
Calender Year
Issue Attained
Age 10 11 12 13 14 15 16+ Age
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 0.92 0.90 0.90 0.92 0.99 1.12 1.29 15
1 0.90 0.89 0.91 0.99 1.12 1.29 1.49 16
2 0.89 0.91 0.98 1.11 1.28 1.48 1.68 17
3 0.90 0.97 1.10 1.27 1.47 1.67 1.85 18
4 0.97 1.10 1.26 1.46 1.65 1.84 1.99 19
5 1.09 1.25 1.45 1.64 1.82 1.98 2.07 20
6 1.25 1.44 1.63 1.81 1.96 2.06 2.07 21
7 1.43 1.61 1.79 1.94 2.04 2.06 2.03 22
8 1.60 1.77 1.92 2.02 2.04 2.02 2.00 23
9 1.77 1.91 2.00 2.02 2.00 1.99 1.98 24
10 1.90 1.98 2.00 1.98 1.97 1.97 1.96 25
11 1.97 1.98 1.96 1.95 1.95 1.95 1.94 26
12 1.97 1.94 1.93 1.93 1.93 1.93 1.91 27
13 1.97 1.94 1.94 1.94 1.94 1.94 1.95 28
14 1.96 1.93 1.92 1.93 1.95 1.98 2.00 29
15 1.93 1.90 1.90 1.93 1.97 2.01 2.05 30
16 1.88 1.85 1.86 1.91 1.98 2.05 2.12 31
17 1.84 1.83 1.84 1.90 1.97 2.05 2.13 32
18 1.79 1.79 1.82 1.89 1.96 2.06 2.16 33
19 1.75 1.76 1.80 1.88 1.98 2.09 2.21 34
20 1.70 1.73 1.79 1.89 2.01 2.15 2.30 35
21 1.67 1.72 1.81 1.93 2.07 2.24 2.42 36
22 1.66 1.74 1.85 1.99 2.16 2.36 2.57 37
23 1.68 1.77 1.91 2.09 2.29 2.52 2.77 38
24 1.71 1.84 2.00 2.21 2.45 2.72 3.00 39
25 1.77 1.91 2.11 2.36 2.64 2.95 3.27 40
26 1.86 2.03 2.25 2.52 2.84 3.20 3.56 41
27 1.98 2.17 2.42 2.73 3.08 3.47 3.87 42
28 2.14 2.36 2.65 2.99 3.37 3.79 4.23 43
29 2.33 2.58 2.91 3.27 3.68 4.14 4.62 44
30 2.10 2.34 2.69 3.09 3.53 4.03 4.81 45
31 2.34 2.62 3.01 3.44 3.92 4.46 5.29 46
</TABLE>
Female Rates: Ages 0-10 same as male rates ages 0-10; ages 11-14
same as male rate age 10;
Ages 15 & over same as male rates ages 4 years younger.
20
<PAGE> 21
Exhibit I (Continued)
Self-Administered Automatic Reinsurance Premiums Per $1,000
<TABLE>
<CAPTION>
Standard Non-Refund Age Nearest Birthday Appendix 2
Calender Year
Issue
Age 1 2 3 4 5 6 7 8 9
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
32 0.00 1.52 1.66 1.81 1.94 2.03 2.10 2.22 2.40
33 0.00 1.55 1.72 1.90 2.06 2.18 2.28 2.43 2.64
34 0.00 1.58 1.79 2.00 2.20 2.35 2.48 2.66 2.90
35 0.00 1.61 1.86 2.11 2.35 2.53 2.70 2.91 3.17
36 0.00 1.66 1.95 2.25 2.52 2.75 2.95 3.20 3.49
37 0.00 1.74 2.08 2.42 2.73 2.99 3.24 3.52 3.85
38 0.00 1.86 2.25 2.63 2.97 3.27 3.57 3.90 4.26
39 0.00 2.01 2.46 2.88 3.24 3.59 3.95 4.30 4.72
40 0.00 2.19 2.68 3.15 3.54 3.93 4.35 4.75 5.22
41 0.00 2.36 2.92 3.43 3.86 4.30 4.78 5.23 5.75
42 0.00 2.53 3.15 3.72 4.19 4.69 5.23 5.73 6.30
43 0.00 2.70 3.38 4.02 4.55 5.08 5.68 6.25 6.85
44 0.00 2.86 3.61 4.32 4.92 5.51 6.15 6.77 7.42
45 0.00 3.03 3.85 4.63 5.31 5.95 6.65 7.35 8.02
46 0.00 3.21 4.11 4.98 5.73 6.44 7.21 7.98 8.70
47 0.00 3.41 4.41 5.36 6.18 6.96 7.83 8.71 9.48
48 0.00 3.62 4.74 5.78 6.65 7.54 8.58 9.587 10.43
49 0.00 3.86 5.11 6.22 7.12 8.15 9.41 10.55 11.49
50 0.00 4.11 5.50 6.69 7.64 8.80 10.29 11.57 12.61
51 0.00 4.38 5.92 7.20 8.20 9.49 11.17 12.61 13.75
52 0.00 4.65 6.34 7.75 8.81 10.20 12.06 13.64 14.87
53 0.00 4.91 6.75 8.31 9.45 10.88 12.87 14.57 15.88
54 0.00 5.17 7.15 8.88 10.10 11.59 13.67 15.47 16.86
55 0.00 5.45 7.59 9.50 10.83 12.34 14.49 16.40 17.87
56 0.00 5.85 8.20 10.36 11.82 13.36 15.58 17.60 19.20
57 0.00 6.36 8.93 11.37 13.00 14.57 16.81 18.95 20.74
58 0.00 6.96 9.811 12.61 14.47 16.01 18.18 20.43 22.49
59 0.00 7.65 10.80 14.04 16.16 17.64 19.66 22.00 24.40
60 0.00 8.44 11.91 15.59 18.01 19.44 21.31 23.73 26.51
61 0.00 9.34 13.15 17.25 19.97 21.42 23.18 25.69 28.86
62 0.00 10.38 14.51 18.97 22.00 23.56 25.31 27.94 31.46
<CAPTION>
Standard Non-Refund Age Nearest Birthday Appendix 2
Calender Year
Issue Attained
Age 10 11 12 13 14 15 16+ Age
<S> C> <C> <C> <C> <C> <C> <C> <C>
32 2.61 2.92 3.36 3.83 4.36 4.95 5.83 47
33 2.88 3.24 3.72 4.25 4.85 5.52 6.47 48
34 3.18 3.58 4.11 4.73 5.42 6.18 7.21 49
35 3.50 3.95 4.55 5.25 6.04 6.91 8.05 50
36 3.85 4.35 5.02 5.80 6.67 7.64 8.89 51
37 4.26 4.81 5.53 6.37 7.32 8.37 9.71 52
38 4.71 5.31 6.10 7.01 8.04 9.19 10.63 53
39 5.22 5.86 6.71 7.72 8.84 10.10 11.67 54
40 5.76 6.45 7.40 8.52 9.793 11.20 12.90 55
41 6.32 7.07 8.13 9.42 10.87 12.47 14.35 56
42 6.92 7.74 8.92 10.38 12.04 13.86 15.93 57
43 7.51 8.40 9.712 11.35 13.22 15.27 17.57 58
44 8.11 9.08 10.53 12.36 14.46 16.75 19.28 59
45 8.75 9.823 11.40 13.42 15.73 18.26 21.04 60
46 9.49 10.64 12.37 14.58 17.11 19.89 22.92 61
47 0.34 11.60 13.48 15.90 18.68 21.73 25.03 62
48 1.38 12.74 14.77 17.45 20.52 23.89 27.49 63
49 2.54 14.00 16.21 19.18 22.60 26.33 30.25 64
50 3.78 15.35 17.75 21.06 24.86 28.98 33.24 65
51 5.06 16.77 19.38 23.04 27.26 31.81 36.48 66
52 6.32 18.20 21.05 25.08 29.72 34.73 39.83 67
53 7.46 19.54 22.68 27.12 32.24 37.76 43.35 68
54 8.59 20.88 24.31 29.14 34.70 40.72 46.82 69
55 9.75 22.30 26.05 31.27 37.30 43.83 50.46 70
56 1.31 24.04 28.06 33.78 40.40 47.59 54.87 71
57 3.11 26.22 30.56 36.69 43.98 51.90 59.88 72
58 5.18 28.75 33.68 40.17 47.89 56.52 65.22 73
59 7.47 31.57 37.17 44.36 52.52 61.64 71.12 74
60 0.00 34.70 41.07 49.07 58.14 67.77 77.67 75
61 2.82 38.18 45.40 54.34 64.48 75.19 86.10 76
62 5.96 42.05 50.18 60.16 71.49 83.42 95.46 77
</TABLE>
Female Rates: Ages 0-10 same as male rates ages 0-10; ages 11-14
same as male rate age 10;
Ages 15 & over same as male rates ages 4 years younger.
21
<PAGE> 22
Exhibit I (Continued)
Self-Administered Automatic Reinsurance Premiums Per $1,000
<TABLE>
<CAPTION>
Standard Non-Refund Age Nearest Birthday Appendix 2
Calender Year
Issue
Age 1 2 3 4 5 6 7 8 9
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
63 0.00 11.57 15.98 20.61 23.92 25.78 27.68 30.41 34.22
64 0.00 12.91 17.57 22.27 25.86 28.12 30.28 33.13 37.19
65 0.00 14.38 19.32 24.07 27.96 30.72 33.20 36.19 40.51
66 0.00 15.99 21.27 26.14 30.39 33.66 36.50 39.69 44.33
67 0.00 17.72 23.44 28.59 33.28 37.09 40.32 43.77 48.79
68 0.00 19.61 25.82 31.11 36.52 40.90 44.58 48.36 53.81
69 0.00 21.64 28.45 34.44 40.20 45.17 49.34 53.51 59.49
70 0.00 23.82 31.36 38.05 44.48 50.03 54.70 59.37 65.98
<CAPTION>
Standard Non-Refund Age Nearest Birthday Appendix 2
Calender Year
Issue Attained
Age 10 11 12 13 14 15 16+ Age
<S> <C> <C> <C> <C> <C> <C> <C> <C>
63 39.33 46.23 55.34 66.53 79.23 92.56 105.88 78
64 42.98 50.76 60.91 73.41 87.58 102.42 117.16 79
65 47.04 55.76 66.98 80.78 96.441 112.83 129.07 80
66 51.64 61.37 73.66 88.70 105.78 123.67 141.44 81
67 56.94 67.70 81.15 97.540 116.13 135.66 155.08 82
68 62.83 74.69 89.37 107.21 127.44 148.69 169.89 83
69 69.42 82.43 98.55 118.25 140.58 163.96 187.07 84
70 76.86 91.03 108.80 130.77 155.62 181.41 206.44 85
227.99 86
247.60 87
268.72 88
289.00 89
305.57 90
318.41 91
329.80 92
344.99 93
368.89 94
398.01 95
421.82 96
440.97 97
461.26 98
481.96 99
</TABLE>
Female Rates: Ages 0-10 same as male rates ages 0-10; ages 11-14
same as male rate age 10;
Ages 15 & over same as male rates ages 4 years younger.
22
<PAGE> 23
Exhibit II
Retention Limits of the Ceding Company
The retention limits of the Ceding Company on any one life for the benefits
reinsured hereunder are as follows:
Life Insurance
<TABLE>
<CAPTION>
Issue
Ages Standard Substandard
----- -------- -----------
Tables 1 Tables 5
through 4 through 16
--------- ----------
<S> <C> <C> <C>
All
Ages 75,000 75,000 None to be
accepted
Minimum Cession: $1,000
</TABLE>
Waiver of Premium Disability Benefits
Same as for Life Insurance
Accidental Death Benefits
None
23
<PAGE> 24
Exhibit III
Limits and Special Conditions
for the First Excess
1. Overall Limits
Automatic coverage of any risk for Life Insurance with or without Waiver of
Premium Disability benefits shall be granted under this Agreement only if,
according to the Ceding Company's papers, the overall sum in force and applied
for on the same life with all insurance companies does not exceed 1,500.000 of
Life Insurance with or without Waiver of Premium Disability benefits.
2. First Excess
The First Excess of the Ceding Company to be automatically covered under this
Agreement, including previous reinsurance ceded to Reinsurer by the Ceding
Company on the same life, is defined as follows:
a. Life Insurance
1. Issue ages up to 65 years.
2. Standard and Substandard risks rated up to and
including Table 16 (500% total mortality) written by
the Ceding Company on any U.S. citizen through duly
licensed agents contracted with the Ceding Company.
Issues also include non-U.S. Citizens in countries
stipulated in Appendix I-A.
3. United States of America Risks: 600% of the retention
of the Ceding Company, but not more than $300,000 on
any one life.
International Risks: 400% of the retention of the
Ceding Company, but not more than $300,000 on any one
life.
The minimum cession will be $1,000. If the total
First Excess is less than such minimum, the Ceding
Company will increase its retention to the full
amount insured on that life.
b. Waiver of Premium Disability benefits
Same as for Life insurance, subject to age and substandard
issue limits imposed by the Ceding Company on such risks.
3. Supplementary Benefit Forms
Supplementary benefits to be covered automatically under this Agreement shall
be those provided in the following policy forms issued by the Ceding Company:
a. Waiver of Premium Disability benefits, Form Nos. B11172S,
B11372S, B11472S, B11572S, B11972E, B12172E, B12272E.
b. Increasing Term Death Benefit in amount of Premium Coverage.
100% reinsurance shall be provided for an amount equal to or
greater than $5,000 with respect to each person.
c. No Accidental Death supplemental benefits are covered under
this Agreement.
24
<PAGE> 25
Exhibit IV
Calculation of the Net Amount at Risk Reinsured
For calculate Net Amount at Risk according to Article IV Plan of Reinsurance,
Paragraph 1, the Ceding Company will use the following approximate procedure:
* Subtract Tabular Benefit Decreases
* Subtract Decreases in Commuted Value
* Add Tabular Benefit Increases
* Add Built-In Return Premium Benefit Increases
* Subtract Accumulated Statutory Mean Reserves
25
<PAGE> 26
Exhibit V
List of Risks Reinsured
The List of Risks Reinsured will be prepared at the beginning of each calendar
year in accordance with Article X and will include, for each cession in force
at that time, the following information for the applicable reinsurance, in
policy number order:
1. Basic
a. Policy Number
b. Name of Insured (last name first)
c. Plan code
d. Sex
e. Date of birth (month, day, year)
f. Effective date of issue (month, day, year)
g. Age at issue
h. Business code (new, new with issue effective before preceding
calendar year, converted, reinstated, unchanged, amended by
change of direct policy, amended by recapture).
2. Life Insurance
a. Rating (Table and/or Flat Extra)
b. Total Gross Life Amount Insured on this policy
c. Amount of First Excess reinsured
d. Attained age for the current calendar year
e. Life Net Amount at Risk reinsured for the current
calendar-year
f. Life reinsurance Premium for the current calendar year.
3. Waiver of Premium Disability benefits
a. Rating
b. Insured Code (Insured, Payor)
c. Benefit Code
d. Life Amount reinsured for WPD
e. WPD reinsurance premium for the current calendar year.
A policy count and subtotals for new issues and renewals along with grand
totals should be provided for items in Sub-paragraphs 2d, 2e, 2f, 3d, and 3e.
26
<PAGE> 27
Exhibit VI
List of Amendments
The List of Amendments will be prepared as of the end of each calendar year in
accordance with Article XI, and will include, for each cession which is amended
during that calendar year because of policy change (Article VII) or because of
certain errors and omissions (Article XIII), the following information for the
applicable reinsurance:
1. Basic
a. Policy Number
b. Name of insured (last name first)
c. Sex
d. Date of birth (month, day, year)
e. Attained age for the calendar year
f. Amendment Code
g. Effective date of amendment (month, day, year)
h. Number of days from date of amendment through December 1 of
the calendar year (for business amended in the second calendar
year not more than 183 days).
2. Life Insurance
a. Rating Table and/or Flat Extra)
b. Life Net Amount at Risk reinsured on last List of Risks
Reinsured or prior to amendment
c. New Life Net Amount at Risk reinsured
d. Adjustment to life reinsurance premium for the calendar year.
3. Waiver of Premium Disability benefits
a. Rating
b. Life amount reinsured for WPD on last List of Risks Reinsured
or prior to amendment
c. New Life amount reinsured for WPD
d. Adjustment to WPD reinsurance premium for the calendar year.
A policy count and subtotals by Amendment Code along with a grand total should
be provided for items in Sub-paragraphs 2b, 2c, 2d, 3b, 3c, and 3d.
The List of Amendments will also include policies with issue dates in the
previous calendar year which failed to appear on the List of Risks Reinsured
applicable to the current calendar year.
27
<PAGE> 28
APPENDIX I
CITIZEN'S
INTERNATIONAL GUIDELINES
1. Must be in U.S. Currency.
2. Minimum issue amount is $50,000
3. Amount over $375,000 will be sent facultative to _______________ and
they will consider on an individual basis.
4. Application and Medical Papers must be written in English or Spanish.
5. Attending Physician's Statement required on all applicants.
6. Supplemental benefits will be offered only on rider forms that contain
special protective exceptions. (see attached examples)
7. We will not consider applications on:
A. Political or Military figures or their families.
B. Private pilots or crew members without an aviation exclusion.
C. Children under the age of 14 for an amount exceeding $150,000.
(includes in force and applied for)
D. Children age 15-20 for an amount exceeding 250,000. (includes
in force and applied for)
E. Applicant over Age 65.
F. Applicants with coronary artery disease or insulin dependent
diabetic.
G. Will not issue with rating over Table four.
H. Substandard risks rated higher than Table 4.
8. Medical examinations by an MD. required on all applications. (see
other medical requirements attached)
9. We will use appointed examiners or, when available, Embassy Affiliated
doctors.
10. Inspection Requirements: Inspection reports are made by investigative
firms with H. O. approval.
Inspection Report required on all amounts.
11. We will keep our full retention on each risk. (In force coverage and
current application combined)
28
<PAGE> 29
Appendix IA
Any of the countries listed below upon mutual agreement between Ceding Company
and Reinsurer.
<TABLE>
<S> <C> <C>
NORTH AMERICA Ukraine Djibouti
Uzbekistan Egypt
Canada Equatorial Guinea
Ethiopia
ASIA Gabon
MIDDLE AMERICA Gambia
Afghanistan Ghana
Antigua and Barbuda Bahrain Guinea
Aruba Bangladesh Guinea-Bissau
Anguilla Bhutan Kenya
Cayman Islands Brunei Lesotho
British Virgin Islands Cambodia Liberia
Montserrat China Libya
Turks and Caicos Islands Cyprus, Northern Madagascar
Cuba India Malawi
Dominica Indonesia Mali
Guadeloupe Iran Mauritania
Martinique Iraq Mauritius
Haiti Israel Morocco
Nicaragua Japan Mozambique
St. Kitts and Nevis Jordan Namibia
Korea, North Niger
Korea, South Nigeria
SOUTH AMICA Kuwait Reunion
Laos Rwanda
Falkland Islands Lebanon St. Helena
Suriname Malaysia Sao Tome and Principe
Maldives Senegal
Mongolia Seychelles
EUROPE Myanmar Sierra Leone
Nepal Somalia
Albania Oman South Africa
Andorra Pakistan Sudan
Armenia Gatar Swaziland
Azerbaijan Saudi Arabia Tanzania
Belarus Sri Lanka Togo
Bosnia and Herzegovina Syria Tunisia
Bulgaria Taiwan Uganda
Croatia Thailand. Zaire
Czechoslovakia Turkey Zambia
Estonia United Arab Emirates Zimbabwe
Georgia Vietnam
Gibraltar Yemen
Greece OCEANIA
Hungary
Kazakhstan AFRICA Fiji
Kyrgyzstan Kiribati
Latvia Algeria Marshall Islands
Lithuania Angola Micronesia
</TABLE>
29
<PAGE> 30
<TABLE>
<S> <C> <C>
Malta Benin Nauru
Macedonia Botswana Northern Mariana Islands
Moldova Burkina Faso Palau
Monaco Burundi Papua New Guinea
Poland Cameroon Pitcairn Islands
Romania Cape Verde Solomon Islands
Russia Central African Republic Tonga
San Marino Chad Tuvalu
Slovenia Comoros Vanuatu
Tajikistan Congo Western Samoa
Turkmenistan Cote D' Ivoire
</TABLE>
30
<PAGE> 31
Appendix 1B
- --------------------------------------------------------------------------------
RECEIPT
DO NOT DETACH UNLESS FULL FIRST PREMIUM IS PAID WITH APPLICATION
No. 007258
RECEIVED FROM ___________________________ THE SUM OF $____________ for the
full first premium specified in the application for insurance in the
Citizens Insurance Company of America which bears the same number and date
as this receipt. The insurance under the policy for which application is
made shall be effective on the date of this receipt or the date of
completion of the medical examination (if and when required by the
Company) whichever is the later date, if the Proposed insured is on this
date in good health and if, in the opinion of the authorized Officers of
the Company, at its offices in Austin, Texas, the Proposed insured is a
risk insurable and acceptable for insurance under the Company's
underwriting rules and practices on the plan of insurance for the amount
of insurance and at the premium rate set forth in the application,
exclusive of any amendments in the space for "Home Office Endorsement."
However, even if the Proposed insured is so insurable and acceptable, the
maximum liability of the Company's under this receipt shall be $50,000 or
the amount of the application, whichever is the lesser, insurance under
this receipt shall terminate upon issuance and delivery to the applicant
to the policy applied for. If the Proposed Insured is not now in good
health and is not so insurable and acceptable the Company has no liability
under this receipt and the above payment will be returned by the Company's
check, upon surrender of this receipt. This receipt shall be void if given
for check or draft which is not honored on presentation. The Company shall
have 60 days from the date of application to consider and act upon said
application. Either an affirmative declination of the application by the
Company or failure of the Company to offer a policy within such 60 days
shall be deemed a declination of the application, and this receipt shall
be void as of the date of such declination.
DATE: ______, 19____ AGENTS SIGNATURE _________________________
- --------------------------------------------------------------------------------
P.O. BOX 149151, AUSTIN, TEXAS 78714-9151 TELEPHONE: 512-837-7100
- --------------------------------------------------------------------------------
AGREEMENT CONTAINED IN APPLICATION: I hereby declare that all statements
and answers herein and on the reverse side of this application and
attachments hereto are complete and true and made by me to obtain the
policy applied for and I agree that: (1) the Company shall not be bound
by any promise or statement made by or to any salesman or other person,
unless same be in writing and approved by the Company; (2) my acceptance
of any contract issued hereon shall constitute a ratification of any
changes noted by the Company in the space for "Home Office Endorsement";
(3) if within sixty (60) days from the date of this application a policy
is not received by me, or if I am not notified of its approval or
declination within that period, this application will be declined; (4)
should I obtain this insurance as a result of false, misleading, omitted,
or incomplete statements in the application and death should occur due to
a cause directly or indirectly related to such statements or directly or
indirectly form bodily injury intentionally or unintentionally inflicted
by another person, or from (i) any activity that is illegal or criminal
in nature, or the association with person involved in such activity; (ii)
the commission of an assault or crime by or against the insured; (iii)
involvement with or use of illegal or controlled chemicals, drugs or
substances; (iv) war or any act of war, declared or undeclared, or nation
against nation, state against state or faction against faction including
but not limited to the use of military or police forces or any other
governmental agency to protect the public; (v) involvement in or as a
result of any riot, insurgency or insurrection; (vi) service in police or
military forces or political or judicial positions of any country,
combination or countries or international organization; (vii) voluntary
exposure to hazards which result in bodily injury; (viii) failure to
exercise the care that a prudent person would employ in the operation or
use of any vehicle, tool, or machine; (ix) any immunological disorder or
any infection resulting form the disease AIDS (Acquired Immune Deficiency
Syndrome) and/or ARC (AIDS Related Complex); or if coverage would not
have been issued, for any reason, for the amount applied for due to such
stats, the liability under this policy shall be limited to the premiums
paid hereon; (5) unless the initial premium is paid in cash with this
application, there shall be no insurance contract until a policy has been
delivered to me during the good health of the Proposed Insured, and while
the habits and occupation remain as described in this application. The
owner of the policy, if other than the Proposed Insured, adopts as his
own all statements and answers made in this application.
- --------------------------------------------------------------------------------
ABOVE REFERENCED IN SPANISH WITH RECEIPT No. 116404
31
<PAGE> 32
AMENDMENT TO SELF ADMINISTERED
AUTOMATIC REINSURANCE AGREEMENT
between
Citizens Insurance company of America (CICA)
Denver, Colorado
(Ceding Company)
and
Riunione Adriatics di Sicurta', S.p.A. (RAS)
Trieste, Italy
(Reinsurer)
By the Amendment, it is hereby mutually agreed and understood that Addendum No.
1, Intermediary Clause, is deleted from this agreement prior to its effective
date and that all transactions under this agreement are to be direct
transactions between the ceding company and the Reinsurer.
All other terms and conditions remain unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed in triplicate by their duly authorized officers.
In Austin, Texas this 29th day of December, 1994.
Citizens Insurance Company of America
/s/ Roby Dollar /s/ Charles Melgar
- ------------------------------- ----------------------
By: Roby Dollar, Vice Chairman Charles Melgar, V.P.
and in Trieste, Italy this 30th day of December, 1994.
Riunione Adriatica di Sicurta', S.p.A.
By:/s/ Lino Loer Title: Manager
----------------
32
<PAGE> 33
ADDENDUM NO. 1
INTERMEDIARY CLAUSE
to
Self-Administered Automatic Reinsurance Agreement
between
Citizens Insurance Company of America (CICA)
Denver, Colorado
(Ceding Company)
and
Riunione Adriatica di Sicurta', S.p.A. (RAS)
Trieste, Italy
(Reinsurer)
Ballantyne, McKean & Sullivan, Ltd. (BMS) London, England, is hereby recognized
as the Intermediary negotiating this Agreement for all business hereunder. All
communications (including but not limited to notice, statements, premiums,
return premiums, commissions, taxes, losses, loss adjustment expense, salvages
and loss settlements) relating thereto shall be transmitted to CICA or RAS
through BMS. Payments by CICA to BMS shall be deemed to constitute payment to
RAS. Payments by RAS to BMS shall be deemed only to constitute payment to CICA
to the extent that such payments are actually received by CICA.
All other terms and conditions remain unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed
in triplicate by their duly authorized officers.
In Austin, Texas this 4th day of October, 1994.
CITIZENS INSURANCE COMPANY OF AMERICA
/s/ Roby Dollar Title: President
- -----------------------
By: Roby Dollar
and in Austin this 4th day of October, 1994.
Riunione Adriatica di Sicurta', S.p.A.
/s/ Lino Loer Title: Manager
- -----------------------
33
<PAGE> 34
AMENDMENT TO SELF ADMINISTERED
AUTOMATIC REINSURANCE AGREEMENT
between
Citizens Insurance Company of America (CICA)
Denver, Colorado
(Ceding Company)
and
Riunione Adriatica di Sicurta', S.p.A. (RAS)
Trieste, Italy
(Reinsurer)
By this Amendment, it is hereby mutually agreed and understood that Addendum
No. 1, Intermediary Clause, is deleted from this agreement prior to its
effective date and that all transactions under this agreement are to be direct
transactions between the ceding company and the Reinsurer.
All other terms and conditions remain unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed in triplicate by their duly authorized officers.
In Austin, Texas this 29th day of December, 1994.
Citizens Insurance Company of America
/s/ Roby Dollar /s/ Charles Melgar
- ------------------------------ ---------------------
By: Roby Dollar, Vice Chairman Charles Melgar, V.P.
and in Trieste, Italy this 4th day of January, 1995
Riunione Adriatica di Sicurta', S.p.A.
By:/s/ Dario Schiller Title: Manager
---------------------
Dario Schiller
/s/ Enrico Stokelj Proxyholder
- ------------------------
Enrico Stokelj
34
<PAGE> 35
AMENDMENT NO. 3
to the
SELF-ADMINISTERED AUTOMATIC REINSURANCE AGREEMENT
dated January 1, 1995
between
CITIZENS INSURANCE COMPANY OF AMERICA
DENVER, COLORADO
(hereinafter referred to as the CEDING COMPANY)
and
RIUNIONE ADRIATICA DI SICURTA' S.P.A.
TRIESTE, ITALY
(hereinafter referred to as the REINSURER)
35
<PAGE> 36
Effective April 13, 1995, this agreement shall be amended as follows:
Paragraph 9 shall be added to Article X "Claims",:
CLAIMS
9. The REINSURER agrees to reimburse the CEDING COMPANY
for each claim with respect to which this agreement
affords indemnity within 90 days after the REINSURER
receives proof which is satisfactory to the REINSURER
that the CEDING COMPANY has paid the claim.
Article XVII, shall be amended as follows:
PARTIES TO AGREEMENT;
COLORADO LAW
This is an agreement solely between the Ceding Company and
Reinsurer. The acceptance of reinsurance hereunder shall not
create any right or legal relation whatever between Reinsurer
and the insured or the beneficiary under any policy of the
Ceding Company which may be reinsured hereunder.
All provisions of this reinsurance agreement including the
arbitration provisions are subject to the laws of the State of
Colorado.
Reinsurer agrees to maintain continuous qualification as a
reinsurer in the State of Colorado during the continuance of
any insurance contracts under this Agreement.
This Agreement shall constitute the entire agreement between
the parties with respect to the business being reinsured
hereunder. There are no other understandings between the
parties other than as expressed in this agreement. Any change
or modification to this agreement shall be null and void
unless made by amendment to this agreement and signed by both
parties.
This Amendment shall be attached to and form a part of the Self-Administered
Automatic Reinsurance Agreement between the Ceding Company and Riunione
Adriatica di Sicurta', S.p.A., effective January l, 1995.
IN WITNESS WHEREOF, the said Citizens Insurance Company of America, Denver,
Colorado, and the said Riunione Adriatica di Sicurta', Trieste, Italy, have by
their respective officers executed and delivered this Amendment in duplicate.
CITIZENS INSURANCE COMPANY OF AMERICA
/s/ Roby Dollar Vice Chairman
---------------- ---------------
signature title
/s/ Mark A. Oliver EVP
------------------- ---------------
signature title
Date: June 5, 1995
-------------
RIUNIONE ADRIATICA DI SICURTA', S.P.A.
By:/s/ Dario Schiller Manager
------------------- ---------
By:/s/ Lino Loer Manager
-------------- ---------
signature title
Date: Trieste, May 18, 1995
----------------------
36
<PAGE> 37
ADDENDUM NO. 1
SELF ADMINISTERED AUTOMATIC REINSURANCE AGREEMENT
dated January 1, 1995
between
CITIZENS INSURANCE COMPANY OF AMERICA
Denver, Colorado
- - Hereinafter referred to as CEDING COMPANY
AND
RIUNIONE ADRIATICA DI SICURTA', S.p.A.
Trieste, Italy
- - hereinafter referred to as the REINSURER
Ballantyne, McKean & Sullivan Ltd. Latham House, 16 Minories, London, EC3N 1AX,
is hereby recognized as the Intermediary under this Life Insurance Treaty for
all business hereunder. All communications (including but not limited to
notices, statements, premiums, return premiums, commissions, taxes, losses,
loss adjustment expenses, salvages and loss settlements) relating thereto shall
be transmitted to the CEDING COMPANY or the REINSURER through Ballantyne,
McKean & Sullivan Ltd. Payments made by the CEDING COMPANY to the Intermediary
shall be deemed to constitute payment to the REINSURER. Payments by the
REINSURER to the Intermediary shall be deemed only to constitute payment to the
CEDING COMPANY to the extent that such payments are actually received by the
CEDING COMPANY.
Made in duplicate to one effect only.
London, TRIESTE O9 AGO. 1995
THE CEDING COMPANY THE REINSURER
CITIZENS INSURANCE COMPANY OF RIUNIONE ADRIATICA DI SICURTA'
AMERICA
/s/ Roby Dollar /s/ Dario Schiller
- ---------------- -------------------
Vice Chairman
/s/ Mark A. Oliver
- -------------------
Executive Vice President
37
<PAGE> 38
BMS TERMS OF ENGAGEMENT
This contract defines the basis of trading between Ballantyne, McKean
and Sullivan Limited (hereinafter referred to as "BMS") and Citizens Insurance
Company of America, Denver, Colorado (hereinafter referred to as the Client).
1. FUNDAMENTAL PRINCIPLES.
As a Lloyd's Broker BMS is governed by Lloyd's Regulations. In
addition the Lloyd's Code of Practice defines a recognized standard of
professional conduct for all members of the Lloyd's community and this is
followed within BMS. Many of the recommendations of this Code are included
within these Terms of Engagement and a full copy is attached for your
information.
Our principles of operation are as follows:
1.1 BMS will at all times conduct its business with utmost good
faith and integrity.
1.2 BMS will comply with the written standards established by the
Client for the cession or retrocession of all risks.
2. INITIAL ADVICE/FIRM ORDER
2.1 BMS will provide objective and independent advice relating to
the stated reinsurance requirements of the Client.
2.2 The Client will provide BMS with written instructions to
procure a reinsurance contract on his behalf and comply with
the reasonable requests of BMS made in connection with the
procurement of the reinsurance contract.
2.3 Upon receipt of written instructions to proceed BMS will
provide the Client with copy of the Placing Slip. This
information should be reviewed by the Client.
2.4 During the placing of the reinsurance contract, BMS will keep
the Client advised of progress made on a timely basis.
3. DISCLOSURE OF INFORMATION.
3.1 It is the duty of the Client to disclose all material
information. Failure to disclose such information may result
in the reinsurance contract and/or a claim being rescinded
and/or not paid.
3.2 Upon request from the Client BMS shall disclose the amount of
brokerage and where practicable the nature and amount of
commission or other remuneration BMS receives as a result of
effecting reinsurances for the Client.
4. CONFIDENTIALITY OF INFORMATION.
4.1 Any information acquired by BMS from the Client will not be
used or disclosed except in the normal course of negotiating,
maintaining or renewing a contract of reinsurance for that
Client or unless the consent of the Client has been obtained
38
<PAGE> 39
5. CHOICE OF REINSURERS.
5.1 BMS will exercise reasonable skill and care in the selection
of security.
5.2 BMS will select Reinsurers objectively in the best interests
of the Client.
5.3 BMS will regularly review the Reinsurers used and will advise
the Client of any significant changes in status.
5.4 BMS will select security in accordance with its current
Security and Evaluation Procedures.
5.5 BMS does not warrant or guarantee the performance of the
contract between the Client and the Reinsurers.
5.6 BMS will disclose any relationship with any reinsurer to which
business will be ceded or retroceded.
6. BOOKS AND RECORDS.
6.1 BMS will at all times comply with Section 10-2-905 of the
Colorado Insurance Laws (Books and records - reinsurance
intermediary-producers) a copy of which is attached hereto).
6.2 The Client will have access to and the right to copy and audit
all accounts and records maintained by BMS related to the
business BMS transacts on the Client's behalf. Such accounts
and records will be kept in a form which is usable by the
Client.
7. ACCOUNTING.
7.1 BMS will render accounts accurately detailing all material
transactions, including information necessary to support all
commissions, charges, and other fees received by, or owing to
BMS. Any funds due to the Client will be remitted as quickly
as possible but nevertheless within 15 days of receipt by BMS.
7.2 All funds collected for the Client's account will be held in a
fiduciary capacity in a bank which is a U.S. financial
institution acceptable to the Insurance Commissioner of the
State of Colorado.
8. CLAIMS.
8.1 The Client must notify BMS promptly of all claims affecting
the reinsurance contract and disclose all material facts.
Should the claim require a collection to be made from
Reinsurers reasonable evidence will be required that the
original claim has been paid.
8.2 BMS will advise Reinsurers of all claims notified by the
Client and will co-ordinate all further negotiations.
8.3 Where required by the contract BMS will arrange for Funding
Securities to be established in respect of loss and unearned
premium reserves at the end of each year.
9. TRANSFER OF BUSINESS.
9.1 Should the Client wish to transfer business to another Broker,
BMS will make available all such documentation to which the
Client is entitled and which is reasonably necessary for the
new Broker to discharge his duties to the Client.
39
<PAGE> 40
10. GENERAL SERVICING.
10.1 BMS shall be responsible for and will provide any relevant
service requested by the Client in relation to any reinsurance
contract placed for the Client by BMS notwithstanding the
expiry of the contract, unless BMS is satisfied that the
Client has instructed a new broker to assume such
responsibilities and that the new broker has accepted such
instructions.
11. COMPLAINTS.
11.1 Any complaints regarding the service provided by BMS should be
made in writing to the Chairman of Ballantyne, McKean &
Sullivan Ltd and in the event that the Client fails to obtain
satisfaction from BMS he should appeal to the Council of
Lloyd's as regulators of Lloyd's Brokers.
12. STATEMENT OF FINANCIAL CONDITION.
12.1 Upon request BMS will provide the Client with a copy of the
latest audited accounts.
12.2 Upon request BMS will provide the client with details of its
current E & O coverage.
12.3 BMS will notify the Client in writing if it fails to meet the
Lloyd's Solvency requirements, fails to comply with any
Lloyd's Rules or enters into any disputes with the Council of
Lloyd's.
13. COMPLIANCE WITH. APPLICABLE LAW
13.1 Where appropriate BMS will comply with all applicable law
regarding the operations of reinsurance intermediaries.
14. TERMINATION.
14.1 The Client may terminate this agreement at any time, with or
without cause, by giving BMS 10 days notice in writing.
15. CONTACTS.
15.1 This document applies to all contracts of reinsurance placed
by BMS for the Client.
16. GOVERNING LAW.
16.1 This agreement shall be construed, interpreted and enforced in
accordance with the Law of the State of Colorado in the United
States of America.
SIGNED: /s/ Roger Cooke DATED: July 17, 1995
---------------- ---------------
on behalf of Ballantyne, McKean and Sullivan Ltd.
SIGNED: /s/ Mark A. Oliver DATED: August 17, 1995
------------------- -----------------
/s/ Roby Dollar
----------------
on behalf of Citizens Insurance Company of America
40
<PAGE> 1
EXHIBIT 10.9
PLAN AND AGREEMENT OF EXCHANGE
This Plan and Agreement of Exchange ("Agreement") is entered into
between and among CITIZENS INSURANCE COMPANY OF AMERICA, a Colorado-domiciled
insurance company ("CICA") and AMERICAN INVESTMENT NETWORK, INC., a Mississippi
corporation ("American").
WITNESSETH
WHEREAS, CICA, which was chartered on February 13, 1968 in Colorado as
Continental Investors Life Insurance Company, Inc. ("CILIC"), and by Articles
of Merger filed with the Secretary of State of Colorado on August 31, 1988,
CILIC changed its corporate name to Citizens Insurance Company of America is a
wholly owned subsidiary of Citizens, Inc., a Colorado corporation ("Citizens");
and
WHEREAS, American, which was chartered in 1987 in the State of
Mississippi as Great American Investment Network, Inc., and in 1995 changed its
name to American Investment Network, Inc., owns all of the issued and
outstanding capital stock of United Security Life Insurance Company, a
Mississippi-domiciled stock insurance company ("USLI"), which was chartered in
1967 in the State of Mississippi as American Empire Life Insurance Company,
which name was changed in 1973 to Financial Security Life of Mississippi, which
was in 1994 merged with United Security Life Insurance Company, a corporation
chartered in 1987 in the State of Mississippi, and at which time the name of
the merged corporation was changed to United Security Life Insurance Company;
and
WHEREAS, CICA and American desire to effect a share exchange pursuant
to Mississippi Code Ann. 79-4-11.01 et seq. and 83-19-99 et seq. (together the
"Exchange Act") in which all the outstanding shares of Class "A" Common Stock
and Class "B" Common Stock of American will be exchanged for shares of Class A
Common Stock of Citizens owned and held by CICA;
NOW, THEREFORE, it is agreed among the parties as follows:
ARTICLE I
The Exchange
1.1 Subject to the terms and conditions set forth herein, the
transactions contemplated by this Agreement shall be completed at a closing
("Closing") on a closing date ("Closing Date") to occur as soon as possible
after all regulatory approvals and shareholder approvals are obtained in
accordance with law and as required by this Agreement. On the Closing Date, all
of the documents to be furnished to American and CICA, including the documents
to be furnished pursuant to Article VII of this Agreement, shall be delivered
to Jones & Keller, P.C., counsel to CICA ("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 terms of the Exchange shall be:
(i) The Exchange shall be effective ("Effective
Date") as of the filing of the Certificate of
Exchange by American and CICA with the
Secretary of State and the Commissioner of
Insurance of the State of Mississippi or, if
later, the date specified therein.
(ii) At and as of the Effective Date:
1
<PAGE> 2
(a) each shareholder of American prior to the
Effective Date shall cease to be a shareholder of
American;
(b) The ownership of all issued and outstanding
stock of American (other than shares for which
dissenter's rights are perfected in accordance with
the Exchange Act) shall vest in CICA automatically
without any physical transfer or deposit of the
certificates representing such shares, and CICA will
become the sole shareholder of American;
(c) the holders of each issued and outstanding
share of American Class A or Class B Common Stock
prior to the Effective Date (other than any shares
for which dissenter's rights are perfected in
accordance with the Exchange Act) shall have the
right to receive from CICA in accordance with Article
II of the Agreement one (1) share of Citizens Class A
common stock, no par value, for each seven and
two-tenths (7.2) shares of American Class A or Class
B Common Stock prior to the Effective Date, 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 American shares
outstanding; and
(d) the holders of each issued and outstanding
share of American Class A or Class B Common Stock
prior to the Effective Date for which dissenter's
rights are perfected in accordance with the Exchange
Act shall have the right to receive from American
payment therefor in accordance with the Exchange Act.
(iii) The directors and officers of American shall
be removed as of the Effective Date, and the
directors and officers of CICA shall become
the directors and officers of American as of
the Effective Date.
(iv) The Exchange shall have the effect set forth
in the Exchange Act.
1.3 On the Closing Date, American and CICA will file with the
Secretaries of State of Mississippi and Colorado Articles of Share Exchange in
the forms attached hereto as Exhibit A.
ARTICLE II
Exchange of Shares
2.1 At the Effective Date, the shares of Citizens Class A common
stock to be exchanged as provided in Section 1.2 shall be distributed by CICA
to shareholders of American (other than those shares as to which dissenters'
rights have been perfected in accordance with the Exchange Act).
2.2 The stock transfer books of American shall be closed on the
Effective Date, and thereafter no transfers of the stock of American shall be
made. CICA 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 American and to
deliver for such surrendered certificates, shares of Class A common stock of
Citizens. If outstanding certificates for shares of American are not
surrendered or the payment for them is 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 CICA
(and to the extent not in its possession shall be paid over to it), free and
clear of all claims
2
<PAGE> 3
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 American 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 exchanged 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 by American for such
fractional share at the rate per share as calculated in the previous sentence.
2.4 At the Effective Date, each holder of a certificate or
certificates representing shares of American, upon presentation and surrender
of such certificate or certificates to the Exchange Agent, shall be entitled to
receive the consideration set forth herein, except that holders of those shares
as to which dissenters' rights shall have been asserted and perfected pursuant
to the Exchange Act 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 American previously held shall be canceled.
Until so presented and surrendered, each certificate or certificates which
represented issued and outstanding shares of American 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 American 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 CICA
No representations or warranties are made by any director, officer,
employee or shareholder of CICA as individuals, except as and to the extent
stated in this Agreement or in a separate written statement (the "CICA
Disclosure Statement"). CICA hereby represents, warrants and covenants to
American, except as stated in the CICA Disclosure Statement, as follows:
3.1 Citizens and CICA are, respectively, a corporation and an
insurance company, each duly organized, validly existing and in good standing
under the laws of the State of Colorado, and each have 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 and
CICA, copies of which have been delivered to American, are complete and
accurate, and the minute books of Citizens and CICA 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 and
CICA.
3.2 The aggregate number of shares which Citizens is authorized to
issue is 50,000,000 shares of Class A common stock, no par value, and 1,000,000
shares of Class B common stock, no par value; of which 21,651,161 shares of
such Class A common stock are issued and 19,572,614 shares are outstanding,
fully paid and nonassessable and 621,049 shares of Class B common stock are
issued and outstanding, fully paid and nonassessable. There are 1,955,457
shares of Class A common stock of Citizens owned and held by CICA that will be
used to satisfy the exchange obligations of CICA under the Agreement. 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
3
<PAGE> 4
76,000 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.
3.3 CICA has 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 have any liability or obligation to pay any fee or commission to
any broker, agent or finder with respect to the transaction contemplated hereby
except to Merger & Acquisition Profiles, Inc.
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 CICA will conflict with or result in a breach or violation of the
Articles of Incorporation or Bylaws of CICA.
3.5 The execution, delivery and performance of this Agreement have
been duly authorized and approved by the Board of Directors of CICA.
3.6 CICA has delivered to American consolidated financial
statements of Citizens and its subsidiaries, dated December 31, 1995 and June
30, 1996. 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 its subsidiaries for the
periods included. The December 31, 1995 and June 30, 1996 Citizens consolidated
financial statements have been prepared in accordance with generally accepted
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. Citizens and its subsidiaries 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 CICA has delivered to American a list and description of all
pending legal proceedings involving Citizens, none of which will materially
adversely affect it, 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 Citizen, threatened against Citizens or
affecting any of its assets or properties, and Citizens is not in any material
breach or violation of or default under any contract or instrument to which
Citizens 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 under any contract or other instrument to which Citizens is
a party or by which it or any of its properties may be bound or affected, or
under its respective Articles of Incorporation or Bylaws, nor is there any
court or regulatory order pending, applicable to Citizens or its subsidiaries.
3.9 Citizens shall not enter into or consummate any transactions
prior to the Effective Date other than (i) in the ordinary course of business
or (ii) business acquisitions, combinations and exchanges. Citizens will not
pay any dividend or, except in the ordinary course of business, enter into an
agreement or transaction which would adversely affect its financial condition.
3.10 Neither CICA nor Citizens is a party to any contract
performable in the future except insurance policies, customary agent contracts,
normal reinsurance agreements, agreements with subsidiaries, and those which
will not adversely affect it.
4
<PAGE> 5
3.11 The representations and warranties of CICA shall be true and
correct as of the date hereof and as of the Effective date.
3.12 CICA has delivered, or will deliver within two weeks of the
date of this Agreement, to American true and correct copies of Citizens Annual
Report to Shareholders for the years ended December 31, 1995 and 1994. CICA
will also deliver to American on or before the Closing Date any reports
relating to the financial and business condition of Citizens which are filed
with the SEC after the date of this Agreement and any other reports sent
generally to its shareholders after the date of this Agreement. Citizens has
duly filed all reports required to be filed by it under the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended (the
"Federal Securities Laws"). No such reports, or any reports sent to the
shareholders of Citizens generally as of their respective dates, contained any
untrue statement of material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements in such
reports, in light of the circumstances under which they were made, not
misleading.
3.13 CICA has delivered to American a copy of each of the
consolidated federal income tax returns of Citizens and its subsidiaries for
the year ended December 31, 1994 and for any additional open years. The
provisions for taxes paid by Citizens are believed by Citizens to be sufficient
for payment of all accrued and unpaid federal, state, county and local taxes of
Citizens (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.
3.14 Citizens has no employee benefit plan, except for a
noncontributory, qualified profit-sharing plan and a group accident and health
insurance plan.
3.15 No representation or warranty by CICA in this Agreement, the
CICA 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 IV
Representations, Warranties and Covenants of American
No representations or warranties are made by any director, officer,
employee or shareholder of American as individuals, except as and to the extent
stated in this Agreement or in a separate written statement (the "American
Disclosure Statement"). American hereby represents, warrants and covenants to
CICA, except as stated in the American Disclosure Statement, as follows:
4.1 American and USLI are, respectively, a corporation and an
insurance company duly organized, validly existing and in good standing under
the laws of the State of Mississippi, each having 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 American and
USLI, copies of which have been delivered to CICA, are complete and accurate,
and the minute books of American and USLI 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 American and USLI.
4.2 The aggregate number of shares which American is authorized to
issue is 15,000,000 shares of Class A common stock, participating, no par
value, and 2,500 shares of Class B Common Stock,
5
<PAGE> 6
participating (by virtue of a 1994 amendment to the Articles of Incorporation),
$1.00 par value; of which 5,025,490 shares of such Class A Common Stock are
issued and 5,021,764 are outstanding, fully paid and nonassessable and 2,500
shares of Class B Common Stock are issued and outstanding, fully paid and
nonassessable. American 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 as shown on the American Disclosure
Statement attached to and made a part of this Agreement. There are 3,726 shares
of Class A common stock owned and held by USLI.
The aggregate number of shares which USLI is authorized to issue is
4,000 shares of Common Stock, participating, $500.00 par value, of which 2,000
shares are issued and outstanding, fully paid and nonassessable. USLI 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.
All issued and outstanding shares of USLI stock are owned and held by American.
The subsidiaries of American 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. American
directly or indirectly owns all of the issued and outstanding capital stock of
such subsidiaries, including USLI. There are no outstanding options, warrants
or other rights to purchase or subscribe to, or securities convertible into or
exchangeable for any shares of capital stock of any subsidiary of American or
USLI, except as shown on the American Disclosure Statement.
4.3 American and USLI 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 American
and its subsidiaries have 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 transaction contemplated
herein by American will conflict with or result in a breach or violation of any
Articles of Incorporation or Bylaws of American or its subsidiaries.
4.5 The execution of this Agreement has been duly authorized and
approved by American's Board of Directors.
4.6 American has delivered to CICA consolidated financial
statements of American and its subsidiaries, dated December 31, 1995 and June
30, 1996, and the annual and quarterly convention statements of USLI as of
December 31, 1995 and the six months ended June 30, 1996, as filed with the
Mississippi Department of Insurance. All such statements, herein sometimes
called "American 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 American and
USLI for the periods indicated. The December 31, 1995 and June 30, 1996
American consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and the December 31, 1995 and
June 30, 1996 convention statements have been prepared in accordance with
statutory accounting practices.
6
<PAGE> 7
4.7 Since the dates of the American Financial Statements there
have not been any material adverse changes in the business or condition,
financial or otherwise, of American or any of its subsidiaries. None of
American or its subsidiaries have any material liabilities or obligations,
secured or unsecured (whether accrued, absolute, contingent or otherwise),
except as disclosed in the American Financial Statements
4.8 American has delivered to CICA a list and description of all
pending legal proceedings involving American or any of its subsidiaries, all of
which are listed on the American Disclosure Statement, none of which will
materially adversely affect American or such subsidiary, 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 American,
threatened against American or USLI or affecting any of its assets or
properties, and American and USLI are not in any material breach or violation
of or default under any contract or instrument to which American or USLI 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
American or USLI under any contract or other instrument to which American or
USLI is a party or by which either of them 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 American or USLI.
4.9 Neither American nor USLI 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 USLI had admissible values at least equal to
those attributed to them on its December 31, 1995 or June 30, 1996 convention
statements.
4.11 Neither American nor USLI nor any subsidiary of American or
USLI 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, except as set out on the American
Disclosure Statement attached to this Agreement.
4.12 All policy and claim reserves of USLI have been properly
provided for and are adequate to comply with all regulatory requirements
regarding same.
4.13 The representations and warranties of American shall be true
and correct as of the date hereof and as of the Effective Date.
4.14 American has delivered, or will deliver within two weeks of
the date of this Agreement, to CICA true and correct copies of American's
Annual Report to Shareholders for the years ended December 31, 1995 and 1994
and each of its other reports to shareholders and filings with the Securities
and Exchange Commission ("SEC") for the years ended December 31, 1995, 1994 and
1993. American will also deliver to CICA on or before the Closing Date any
reports relating to the financial and business condition of American 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. American 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 American 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.
7
<PAGE> 8
4.15 American has delivered to CICA a copy of each of the federal
income tax returns of American for the years ended December 31, 1995, 1994 and
1993 and for any additional open years. The provisions for taxes paid by
American are believed by American to be sufficient for payment of all accrued
and unpaid federal, state, county and local taxes of American (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 American.
4.16 Neither American nor USLI have any employee benefit plans,
except for a noncontributory 401K plan and a group accident, health and life
insurance plans.
4.17 No representation or warranty by American in this Agreement,
the American 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
American 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
American, such date to be the earliest practicable date after the proxy
statement may first be sent to American shareholders without objection by
applicable governmental authorities. CICA will furnish to American the
information relating to Citizens required by the Federal Securities Laws to be
included in the proxy statement. CICA represents and warrants that at the time
of the American shareholders' meeting, the proxy statement, insofar as it
relates to Citizens and contains information furnished by CICA 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 American, subject to its fiduciary obligations to shareholders,
shall use its best efforts to obtain the requisite approval of American
shareholders of this Agreement and the transactions contemplated herein.
American and CICA shall take all reasonable and necessary steps and actions to
comply with and to secure American shareholders approval of this Agreement and
the transactions contemplated herein as may be required by the statutes, rules
and regulations of such states.
5.2 At all times prior to the Effective Date, during regular
business hours each party will permit the other to examine its books and
records and the books and records of any 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
advisors 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.
8
<PAGE> 9
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 American and CICA shall promptly provide each other with
information as to any significant developments in the performance of this
Agreement, and shall promptly notify the other if it discovers that any of its
representations, warranties and covenants contained in this Agreement or in any
document delivered in connection with this Agreement was not true and correct
in all material respects or became untrue or incorrect in any material respect.
5.4 All parties to this Agreement shall take all such action as
may be reasonably necessary and appropriate and shall use their best efforts in
order to consummate the transactions contemplated hereby as promptly as
practicable.
ARTICLE VI
Procedure for Exchange
6.1 As soon as practical and in any event within 30 days after the
Execution of this Agreement, the parties shall file with the Insurance
Commissioner of Mississippi all of the documents required by Mississippi law.
ARTICLE VII
Conditions Precedent to the Consummation of the Exchange
The following are conditions precedent to the consummation of the
Agreement on or before the Effective Date:
7.1 CICA and American 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 American and CICA 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 a meeting of
the shareholders of American duly and properly called for such purposes 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 all necessary approvals are obtained from the
Commissioners of Insurance of the States of Colorado and Mississippi in
accordance with the provisions of the laws of said states. CICA and American as
soon as practical after the execution and delivery of this Agreement, agree to
file and to use their best efforts to obtain such approvals of the transactions
contemplated by this Agreement. Neither CICA nor American shall be obligated to
file a suit or to appeal from any Commissioner's adverse ruling, nor shall CICA
or American be obligated to make any material changes in any lawful, good faith
management policy in order to gain such approval. In the event either approval
is denied, this Agreement shall terminate.
9
<PAGE> 10
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 CICA and American.
7.6 The representations and warranties by CICA and American 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 CICA; or (2) events or changes (which shall not in the aggregate,
have materially and adversely affected the business, assets, or financial
condition of American or Citizens) during or arising after the date of this
Agreement.
7.7 American shall have furnished CICA with:
(1) a certified copy of a resolution or resolutions duly
adopted by the Board of Directors of American
approving this Agreement and the transactions
contemplated by it in accordance with applicable law
and directing the submission thereof to a vote of the
shareholders of American;
(2) a certified copy of a resolution or resolutions duly
adopted by the shareholders of American approving
this Agreement and the transactions contemplated by
it in accordance with applicable law;
(3) an opinion of Spencer, Tyra & Crecink, counsel for
American, dated as of the Closing Date as set forth
in "Exhibit B" attached hereto;
(4) an agreement from each "affiliate" of American 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 Rule 144; (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.
7.8 CICA shall furnish American with:
(1) a certified copy of a resolution or resolutions duly
adopted by the Board of Directors approving this
Agreement and the transactions contemplated by it;
and
10
<PAGE> 11
(2) an opinion dated the Effective Date of Jones &
Keller, P.C., counsel for CICA, 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 American and/or CICA) prior to the Effective date.
(a) By mutual consent of the Boards of Directors of CICA
and American:
(b) By CICA or American, if any condition set forth in
Article VII relating to the other party has not been
satisfied or has not been waived;
(c) By CICA or American, 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 CICA, if dissenters' rights are perfected in
accordance with the Exchange Act for more than 2.5 of
the outstanding shares of American; or
(f) By either party if the Effective Date does not occur
within ninety (90) days from the date hereof.
(g) By any party, if it is 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 the Agreement may be waived
at any time by the party which is entitled to the benefit thereof, by action by
its Board of Directors; provided, however, that such action shall be taken only
if, in the judgment of the Board of Directors taking the action, such waiver
will not have a materially adverse effect on the benefits intended under this
Agreement to the party waiving such term or condition.
ARTICLE IX
Termination of Representation and
Warranties and Certain Agreements
9.1 The respective representations and warranties of the parties
hereto shall expire with, and be terminated and extinguished by consummation of
the Agreement; provided, however, that the covenants and agreements of the
parties hereto shall survive in accordance with their terms.
11
<PAGE> 12
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.
Except as otherwise disclosed in their respective Disclosure Statements, CICA
and American each represent to the other 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 American or Citizens or any of their respective subsidiaries 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 of
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 share exchange ratio hereunder shall
not be amended without approval of the requisite shareholders of American.
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 CICA, Inc.: and to American:
Citizens Insurance Company American Investment Network, Inc.
of America United Security Life Insurance
Post Office Box 149151 Company
Austin, Texas 78714-9159 660 Lakeland East Drive
Attn: Harold E. Riley Flowood, Mississippi 39208
Chairman Attn: John S. Camara, President
Phone: (512) 837-7100 Phone: (601) 936-2090
Fax: (512) 836-9334 Fax: (691) 939-4372
with copies to: with copies to:
Jones & Keller, P.C. Spencer, Tyra & Crecink
1625 Broadway, Ste 1600 660 Lakeland East Drive, Ste 100
Denver, Colorado 80202 Jackson, Mississippi 39208
Attn: Reid A. Godbolt, Esq. Attn: Ernest O. Spencer, III, Esq.
Phone: (303) 573-1600 Phone: (601) 939-9193
Fax: (303) 573-0769 Fax: (601) 939-9195
</TABLE>
12
<PAGE> 13
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
CICA and American. However, either CICA or American may issue at any time any
press release or other public statement it believes on the advise of its
counsel it is obligated to issue to avoid liability under the law relating to
disclosures to itself or any of its affiliates, 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 h 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 references to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context otherwise requires. The word "including" shall
mean including without limitation.
10.9 The Exhibits and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
10.10 This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Mississippi without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Mississippi or any other jurisdiction) that would cause the application of
the laws or any jurisdiction other than the State of Mississippi.
IN WITNESS WHEREOF, the parties have set their hands and seals this
28th day of October, 1996.
<TABLE>
<S> <C>
CITIZENS INSURANCE COMPANY AMERICAN INVESTMENT NETWORK,
OF AMERICA INC.
By:/s/ Mark A. Oliver By:/s/ John S. Camara
------------------- -------------------
Mark A. Oliver John S. Camara, President
Executive Vice-President
and Treasurer
</TABLE>
13
<PAGE> 14
EXHIBIT A
OFFICE OF THE MISSISSIPPI SECRETARY OF STATE
P.O. BOX 136, JACKSON, MS 39205-0135, (601) 359-1333
ARTICLES OF MERGER OR SHARE EXCHANGE
PROFIT CORPORATION
The undersigned corporation pursuant to Section 79-1-1.05, as amended, hereby
executes the following document and sets forth:
1. Name of Corporation 1: American Investment Network, Inc.
2. Name of Corporation 2: Citizens Insurance Company of America.
3. Name of Corporation 3:
4. The future effective date is January 1, 1997.
5. The plan of merger or share exchange (attach page).
6. Mark appropriate box.
(a) Shareholder approval of the plan of merger or share exchange
- ------ was not required.
X (b) If approval of the shareholders of one or more corporations
- ------ party to the merger or share exchange was required
(i) the designation, number of outstanding shares, and number
of votes entitled to be cast by each class entitled to vote
separately on the plan as to each corporation were
<TABLE>
<CAPTION>
Name of corporation Designation No. of outstanding shares No. of votes entitled to be cast
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Investment Class A Common
Network, Inc. Stock 5,021,764 5,021,764
American Investment Class B Common
Network, Inc. Stock 2,500 2,500
AND the total number of votes cast for and against the plan by each class entitled to vote separately on the plan was
Name of corporation Class Total No. of votes cast for plan No. of votes cast against plan
- ------------------------------------------------------------------------------------------------------------------------------------
American Investment Class A Common
Network, Inc. Stock
American Investment Class B Common
Network, Inc. Stock
</TABLE>
and the number of votes cast for the plan by each class was sufficient for
approval by that class.
14
<PAGE> 15
Name of Corporation 1
AMERICAN INVESTMENT NETWORK, INC.
By:/s/ John S. Camara
- --------------------------------------
President
Name of Corporation 2
AMERICAN INVESTMENT NETWORK, INC.
By:/s/ Mark A. Oliver
- --------------------------------------
Executive Vice President and Treasurer
15
<PAGE> 16
ATTACHMENT TO ARTICLES OF SHARE EXCHANGE
OF
AMERICAN INVESTMENT NETWORK, INC.
AND
CITIZENS INSURANCE COMPANY OF AMERICA
In accordance with Mississippi Code Ann. 79-4-11.01 et seq. and
83-19-99 et. seq. (together the "Exchange Act"), a plan and agreement of
exchange ("Plan of Exchange") has been approved, adopted and executed by
American Investment Network, Inc. and Citizens Insurance Company of America as
follows:
1. The Exchange shall be effective as of January 1, 1997
("Effective Date").
2. At and as of the Effective Date:
(a) each shareholder of American prior to the Effective
Date shall cease to be a shareholder of American:
(b) the ownership of all issued and outstanding stock of
American (other than shares for which dissenter's rights are
perfected in accordance with the Exchange Act) shall vest in
CICA automatically without any physical transfer or deposit of
the certificates representing such shares, and CICA will
become the sole shareholder of American;
(c) the holders of each issued and outstanding share of
American Class A or Class B Common Stock prior to the
Effective Date (other than any shares for which dissenter's
rights are perfected in accordance with the Exchange Act)
shall have the right to receive from CICA in accordance with
Article II of the Plan of Exchange one (1) share of Citizens
Class A common stock, no par value, for each seven and
two-tenths (7.2) shares of American Class A or Class B Common
Stock; 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 American shares outstanding; and
(d) the holders of each issued and outstanding share of
American Class A or Class B Common Stock prior to the
Effective Date for which dissenter's rights are perfected in
accordance with the Exchange Act shall have the right to
receive from American payment therefor in accordance with the
Exchange Act.
3. The Exchange shall have the effect set forth in the Exchange
Act.
4. The Plan of Share Exchange has been approved by the
Shareholders of American. No shareholder approval by the shareholders CICA,
Colorado stock insurance company, was required, pursuant to Section
7-111-103(7) of the Colorado Business Corporation Act and Sections 79-4-11.01
et seq. of the Mississippi Code of 1972, as amended.
16
<PAGE> 17
ARTICLES OF SHARE EXCHANGE
Pursuant to the provisions of the Colorado Business Corporation Act,
AMERICAN INVESTMENT NETWORK, INC., a Mississippi corporation ('American"), and
CITIZENS INSURANCE COMPANY OF AMERICA, a stock insurance company organized
under the laws of the State of Colorado ("CICA"), adopt the following articles
of share exchange:
FIRST: The plan of share exchange (the "Plan of Exchange") is
summarized as follows: At and as of the effective time set forth below (the
"Effective Date"):
(a) each shareholder of American Prior to the Effective
Date shall cease to be a shareholder of American;
(b) the ownership of all issued and outstanding stock of
American (other than shares for which dissenter's rights are perfected
in accordance with applicable law) shall vest in CICA automatically
without any physical transfer or deposit of the certificates
representing such shares, and CICA will become the sole shareholder of
American;
(c) the holders of each issued and outstanding share of
American Class A or Class B Common Stock prior to the Effective Date
(other than any shares for which dissenter's rights are perfected in
accordance with applicable law) shall have the right to receive form
CICA in accordance with Article II of the Plan of Exchange one (1)
share of Citizens Class A common stock, no par value, for each seven
and two-tenths (7.2) shares of American Class A or Class B Common
Stock; 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
American shares outstanding; and
(d) the holders of each issued and outstanding share of
American Class A or Class B Common Stock prior to the Effective Date
for which dissenter's rights are perfected in accordance with
applicable law shall have the right to received from American payment
therefor in accordance with applicable law.
SECOND: The plan of share exchange was approved by the shareholders of
American. Approval by the shareholders of CICA was not required.
THIRD: As to American, whose shareholders were required to vote for
approval, the number of votes cast for the plan by each voting group entitled
to vote separately on the share exchange was sufficient for approval by that
voting group.
FOURTH: These articles are to become effective on January 1, 1997 at
12:01 a.m., unless prior to the effective date they are abandoned and a
statement of abandonment if filed prior to the effective date.
Dated: __________, 1996
AMERICAN INVESTMENT NETWORK, INC. CITIZENS INSURANCE COMPANY
OF AMERICA, INC.
By: By:
------------------------------ --------------------------------
Title: President Title: Executive Vice President
and Treasurer
17
<PAGE> 18
EXHIBIT B
Opinion of Counsel for American
At the Closing, American shall deliver to CICA an opinion, in form and
substance satisfactory to CICA and its counsel, dated the Closing Date, of
Spencer, Tyra & Crecink, counsel to American, to the effect that:
(i) The execution, delivery, and performance of the Agreement by
American 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 American is a party or by which American is bound or the
charter or bylaws of American or other governing instruments
of American
(ii) The Agreement has been duly authorized, executed and delivered
by American and is a legal, valid and binding obligation of
American enforceable against American 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) American and USLI are, respectively, a corporation and a stock
insurance company duly organized, validly existing and in good
standing under the laws of the State of Mississippi;
(iv) American has full corporate power and authority to enter into
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 American or its subsidiaries which will
constitute a breach of the representations, warranties or
covenant under the Agreement or will prevent American from
consummating the transactions contemplated by the Agreement;
(vi) The authorized and outstanding capital stock of American and
USLI are 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
American or USLI, or calling for or requiring the issuance of
any securities or rights convertible into or exchangeable for
shares of capital stock of American or USLI, except as
disclosed in the Agreement; and
(viii) The execution, delivery, and performance of the Agreement, and
the performance by American of its obligations thereunder, is
not in contravention of 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, American, USLI or any of their material properties.
18
<PAGE> 19
EXHIBIT C
Opinion of Counsel for CICA
At the Closing, CICA shall deliver to American, an opinion, in form
and substance satisfactory to American and its counsel, dated the Closing Date,
of Jones & Keller, P.C., counsel to CICA, to the effect that:
(i) The execution, delivery, and performance of the Agreement by
CICA 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 CICA is a party or by which CICA is bound or the charter
or bylaws of CICA or other governing instruments of CICA;
(ii) The Agreement has been duly authorized, executed and delivered
by CICA and is a legal, valid and binding obligation of CICA
enforceable against CICA 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 and CICA respectively are a corporation and a stock
insurance company, duly organized, validly existing and in
good standing under the laws of the State of Colorado;
(iv) CICA 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 CICA which will constitute a breach of the
representations, warranties or covenants under the Agreement
or will prevent CICA from consummating the transactions
contemplated by the Agreement;
(vi) The authorized and outstanding capital stock of Citizens is as
stated in Section 3.2 of the Agreement, and each of the shares
of Class A common stock to be issued pursuant to the agreement
has been duly authorized and when issued pursuant to the terms
of the Agreement shall be validly issued and fully paid and
non-assessable and issued in violation of the preemptive
rights of any party;
(vii) To such counsel's knowledge, after due inquiry, except as set
forth in the Agreement or CICA's 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;
(viii) The execution, delivery, and performance of the Agreement, and
the performance by CICA of its obligations thereunder, is not
in contravention of 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 CICA or any of its subsidiaries
or any of its or their material properties;
19
<PAGE> 20
(xi) Consummation of the transaction in accordance with the terms
of the Agreement will constitute a reorganization within the
meaning of the Internal Revenue Code of 1986, as amended (the
"Code"); American and CICA will each be a party to the
reorganization; no gain or loss will be recognized pursuant to
the Code by American as a consequence of the transactions
contemplated hereby; CICA will succeed to and take into
account the items of American described in the Code; when a
American shareholder receives solely Citizens Class A common
stock in accordance with the transactions contemplated hereby,
such American shareholder will not recognize gain or loss; the
basis for the Citizens Class A common stock to be received by
American shareholders will be the same as the basis for the
shares of American stock they surrender in connection with the
transactions contemplated hereby; the holding period for any
American shareholder of the Citizens Class A common stock
received in the transactions contemplated hereby will include
the period during which the shares of the American stock
surrendered were held provided that the American stock was a
capital asset in the hands of such American shareholder on the
Effective Date; and the payment of cash to any American
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; and
(x) The exchange of Citizens Class A common stock for shares of
American stock is exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section
3(a)(10) thereof and, with respect to state securities laws
and the securities laws of other applicable jurisdictions, if
any, is either exempt from qualification or registration
thereunder or such qualification or registration requirements
have been satisfied.
20
<PAGE> 21
CICA DISCLOSURE STATEMENT
Pursuant to the provisions of Article III of the Plan and Agreement of
Exchange between and among CICA and American, CICA hereby makes the following
disclosures respecting the similarly numbered sections in the Plan and
Agreement of Exchange:
3.3 At the Effective Date, brokerage commissions will be owed to
Merger & Acquisition Profiles, Inc.
3.7 Citizens has the liabilities disclosed in the Citizens
Financial Statements and those incurred thereafter in the
ordinary course of business.
3.10 Computer Maintenance Agreement between Computing Technology,
Inc. and Wang Laboratories, effective 7/1/91 and amended
8/26/91.
21
<PAGE> 22
AMERICAN DISCLOSURE STATEMENT
Pursuant to the provisions of Article IV of the Plan and Agreement of
Exchange between and among CICA and American, American hereby makes the
following disclosures respecting the similarly numbered sections in the Plan
and Agreement of Exchange:
4.2 Outstanding warrants, options, or other rights to purchase or
subscribe to, or securities convertible into, or exchangeable
for, shares of capital stock of American:
(1) Stock Incentives issued to certain key employees of
Great American Investment Network, Inc. and USLI
pursuant to the 1994 Stock Incentive Plan, adopted by
the Board of Directors on November 30, 1994, and
approved by the Shareholders on May 3, 1994.
4.7 American has liabilities disclosed in their financial
statements and those incurred thereafter in the ordinary
course of business.
4.8 Pending litigation: As of the date of execution hereof, the
following litigation against American and/or USLI was ending:
(1) David Anderson and Marty Stanford, D/B/A Premiere
Insurance Agency, and Chiropractic National
Association, Plaintiffs, versus United Security Life
Insurance Company, Defendant, Civil Action No.
96-002(r)L, in the Circuit Court of Lee County,
Mississippi.
(2) Donald and Karen Mayo, Plaintiffs, versus United
Security Life Insurance Company, Defendant, Civil
Action No. 95-268(f)L, in the Circuit Court of Lee
County, Mississippi.
4.11 American is subject to the following contracts and agreements
which are, or may be, performable in the future, copies of
which have heretofore been furnished to CICA:
(1) Settlement Agreement dated March 2, 1995, among
Robert Tillman and Tillman Insurance Agency, Inc.
("Plaintiffs"), and The Gain Agency, Inc., Great
American Investment Network, Inc., Walter L. Shelton
and Jesse Byrd (Defendants).
(2) Executive Compensation Plan and Agreement adopted
November 11, 1994 by the Directors, and approved by
the Shareholders on May 2, 1995, between Great
American Investment Network, Inc. and Walter L.
Shelton and Jesse L. Byrd.
(3) Employment Agreement dated August 23, 1996, between,
American, USLI and John S. Camara.
(4) Employment Agreement dated August 23, 1996, between,
American, USLI and H. Harold Crumpler.
(5) Employment Agreement dated August 23, 1996, between,
American, USLI and Phillip E. Faller.
(6) Employment Agreement dated August 23, 1996, between,
American, USLI and Linda M. Pepper.
22
<PAGE> 23
(7) Contract Agreements between Great American Investment
Network, Inc. and the individual members of Magnolia
Consulting Group, an unincorporated
(8) Promissory Note dated December 19, 1994, in favor of
Merchants and Farmers Bank, in the original principal
amount of $535,562.62, with a final maturity date of
December 15, 1999. The Promissory Note is secured by
a Deed of Trust between the parties dated as of the
same date, and recorded in the Office of the Chancery
Clerk of Rankin County, Mississippi in Book 1018 at
Page 89.
(9) Second Deed of Trust dated March 2, 1995, securing
the Settlement Agreement referenced as Item No. (1),
above, among Great American Investment Network, Inc.,
Mark T. Davis as Trustee, and Dale Hubbard, Tillman
Insurance Agency, Inc. and Robert Tillman,
beneficiaries. This instrument is recorded in the
Office of the Chancery Clerk of Rankin County,
Mississippi in Book 1031 at Page 649.
23
<PAGE> 1
EXHIBIT 23.2
[KPMG LOGO]
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
November 12, 1996
