<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 17, 1997
Registration No. 333-16163
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------
CITIZENS, INC.
(Exact name of registrant as specified in its charter)
COLORADO 6311 84-0755371
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
400 EAST ANDERSON LANE
AUSTIN, TEXAS 78752
(512) 837-7100
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
----------
HAROLD E. RILEY, CHAIRMAN OF THE BOARD
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(3)
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.
(3) Previously paid.
===============================================================================
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 Information Statement-Prospectus
Form S-4
<TABLE>
<CAPTION>
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 Analysis
S-3 Companies - First American
18 Information if Proxies, Consents Not applicable
or Authorizations are to be Solicited
19 Information if Proxies, Consents or Summary
Authorizations Are Not to be Solicited
</TABLE>
iii
<PAGE> 4
FIRST AMERICAN INVESTMENT CORPORATION
400 EAST ANDERSON LANE
AUSTIN, TEXAS 78752
(512) 837-7100
January __, 1997
Dear Shareholder:
Enclosed please find an Information Statement-Prospectus relating to
approval by the holder of a majority of the outstanding shares of First
American Investment Corporation Common Stock, $.001 par value ("First American
Stock"), of an Agreement and Plan of Merger dated October 31, 1996 ("Merger
Agreement") by and among First American Investment Corporation ("First
American"), Citizens Insurance Company of America ("CICA"), a wholly-owned
subsidiary of Citizens, Inc. ("Citizens"), and CICA Acquisition, Inc., a
wholly-owned subsidiary of CICA ("Acquisition"). Upon consummation of the
Merger Agreement each outstanding share of First American Stock will be
converted into .1111 shares of Citizens Class A Common Stock as described
in the Information Statement-Prospectus.
The enclosed Information Statement-Prospectus provides a description of
the Merger, as well as information concerning First American and Citizens, Inc.
The Board of Directors has unanimously approved the Merger Agreement. Your
Board believes the 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 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 B.
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 HOLDER 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 an
Agreement and Plan of Merger dated October 31, 1996 ("Merger Agreement") by and
among First American Investment Corporation ("First American"), Citizens
Insurance Company of America ("CICA"), a wholly-owned subsidiary of Citizens,
Inc. ("Citizens"), and CICA Acquisition, Inc., a wholly-owned subsidiary of
CICA ("Acquisition"). Upon consummation of the Merger, each outstanding share
of First American Stock (other than shares held by First American or CICA and
its affiliates) will be converted into .1111 shares of Citizens 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 the cash value of such share based on the price of $9.00 per
whole 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 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 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
("CICA"), a wholly-owned subsidiary of Citizens, 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 the cash value of such share based on the
price of $9.00 per whole share of Citizens Class A Stock. The approximate date
of mailing of this Information Statement-Prospectus and accompanying
information to shareholders of First American is January __, 1997.
CICA directly owns 94.5% of the outstanding First American Stock, and has
approved the Merger Agreement. Citizens, as the parent company of CICA, owns
100% of CICA and beneficially owns the First American Stock held by CICA.
--------------------------
The Citizens Class A Stock is listed on the American Stock Exchange under the
symbol "CIA." On January __, 1997, 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 hereby, or the solicitation of a proxy, in any jurisdiction
to or from any person to whom it is unlawful to
3
<PAGE> 7
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 January __, 1997.
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........................................ 9
Reasons for the Merger...........................................10
Consideration of the Merger by the First American Board..........12
Consideration of the Merger by the Citizens Board................12
Conflicts of Interest............................................12
Comparative Rights of Shareholders...............................13
The Parties to the Merger Agreement..............................13
Market Prices....................................................13
Selected Financial Data..........................................13
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..........21
Consideration of the Merger by the Citizens Board................22
Conflicts of Interest............................................23
Stock Exchange Listing...........................................23
Terms of the Merger Agreement....................................23
Receipt of Citizens Shares.......................................24
Other Conditions to Consummation of the Merger...................24
Expenses and Liability for Termination...........................24
Dissenters' Rights...............................................24
INFORMATION CONCERNING CITIZENS...........................................27
CERTAIN SECURITY OWNERSHIP OF CITIZENS....................................28
MANAGEMENT OF CITIZENS....................................................30
Directors........................................................30
Executive Officers...............................................32
Executive Officer and Director Compensation......................33
BUSINESS OF FIRST AMERICAN................................................35
MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - FIRST AMERICAN......................36
Results of Operations............................................36
Years ended December 31, 1995, 1994 and 1993............36
Liquidity and Capital Resources..................................37
Results of Operations............................................37
</TABLE>
5
<PAGE> 9
<TABLE>
<S> <C>
Nine Months ended September 30, 1996 and 1995..........37
Three Months ended September 30, 1996 and 1995.........38
Liquidity and Capital Resources.................................38
COMPARISON OF RIGHTS OF SECURITYHOLDERS..................................40
Authorized Shares...............................................40
Dividend Rights.................................................40
Voting Rights...................................................40
Preemptive Rights...............................................41
Liability of Directors..........................................41
Liquidation Rights..............................................41
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................................43
SOURCE OF CITIZENS SHARES................................................44
EXPERTS..................................................................44
LEGAL MATTERS............................................................44
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...............................F-1
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES..........F-1
</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,
as amended on January __, 1997; (b) the description of the Citizens' Class A
Stock contained in its Registration Statement on Form 8-A declared effective by
the SEC on April 14, 1994; (c) Citizens' Quarterly Reports on Form 10-Q for the
quarters ended March 31, June 30 and September 30, 1996; and (d) Citizens'
Current Reports on Form 8-K dated October 28, November 19 and December 23,
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
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 INFORMATION
STATEMENT-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.
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 appendices hereto and,
the documents incorporated by reference herein. Each holder of First American
Stock should read carefully this Information Statement-Prospectus and the
appendices hereto in their entirety.
THE PARTIES TO THE MERGER
Citizens Insurance Company of America ("CICA"), a Colorado corporation, is
a wholly-owned subsidiary of Citizens, Inc. ("Citizens"), a Colorado
corporation. CICA is an insurance company which directly owns 94.5% of the
outstanding First American Stock. 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 or
CICA and its affiliates) 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
the cash value of such share
based on the price of $9.00
per whole share of Citizens
Class A Stock. See "The
Merger--Receipt of Citizens
Shares."
CLOSING DATE The Merger Agreement provides
that the actions contemplated
thereby will be completed
at closing ("Closing") on a
closing date ("Closing Date")
which the parties intend will
be as soon as possible after
distribution of this
Information Statement-
Prospectus.
9
<PAGE> 13
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 B which sets forth
the relevant Louisiana
statutes concerning rights
of dissenting shareholders.
See "The Merger--
Dissenters' Rights."
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 material 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.
ACCOUNTING TREATMENT The Merger will be accounted
for as a "purchase"
transaction for accounting
and financial reporting
purposes.
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
an intrastate offering of First American Stock in Louisiana. The purpose of the
intrastate offering was to organize and finance two funeral
10
<PAGE> 14
home subsidiaries and a Louisiana life insurance company. Through December 31,
1995, 1,198,900 shares of First American Stock had been issued pursuant to the
offering in the state of Louisiana. No efforts were made to continue to sell
the intrastate 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
offering in Louisiana are the shareholders to whom the Citizens Class A Stock
will be issued 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 the business of First
American, after several years of losses in the funeral home business and without
significant prospects for growth, has little potential for significant positive
operating results which could allow shareholder value to increase. Therefore,
management attempted to sell the funeral home. A proposed sale of the funeral
home in 1996 for $700,000 was unsuccessful. At this time, Citizens intends to
have the funeral home operated in the ordinary course of business. No
negotiations, either preliminary or definitive, are pending for the sale of the
funeral home, and management is not actively pursuing such a sale.
Notwithstanding any possible sale of the funeral home business and
dissolution of First American, 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.
Although the minority shareholders of First American hold approximately
5.5% of First American, Citizens felt it would be beneficial for minority
shareholders to obtain liquidity for their investment. Management undertook an
extensive study of the options available to remedy the situation, including
exploration of the effect of liquidation or sale of First American. The only
viable solution was the pending proposal.
Given the fact that the book value of the minority holders is slightly
more than two cents per share, and recognizing that the investment made by the
holders of First American was $1.00 per share, management desired to minimize
the impact of any disposition of First American on the minority holders of
First American Stock. Citizens' shares were valued at their market price near
the date of the Merger Agreement ($9.00 per share) and First American minority
holders' shares were assigned a $1.00 per share value despite the book value of
slightly more than two cents per share. Citizens management believes that this
offer is very fair to the minority shareholders of First American.
Because the proposed acquisition offers holders of First American the
opportunity to recoup their original investment, the Board of First American
felt it was in First American's best interest to accept the proposal and to
allow the minority shareholders the opportunity of an investment in Citizens
Class A Stock. Based on the exchange ratio of one share of First American stock
for .1111 share of Citizens Class A Stock, approximately 133,212 shares of
Citizens Class A Stock will be issued to the minority holders of First American
stock. This represents total consideration of approximately $1.2 million in
market value of Citizens Class A Stock to be paid to the minority holders in
the merger for their approximate 5.5% ownership interest in First American. The
First American Board believes that such consideration is more than adequate for
a company with net losses in 1994 and 1995, total shareholders' equity of
approximately $504,000 as of September 30, 1996, and minimal prospects for
future meaningful positive financial results. See "The Merger--Background and
Reasons for the Merger."
11
<PAGE> 15
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" and "Risk Factors" 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 in the best interests of First
American shareholders (other than Citizens and its subsidiaries, including
CICA).
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 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 September 30, 1996 was
slightly more than $.02 per share. 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 other than
Citizens and its subsidiaries. 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 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 than First American shares. 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 equal in
value to the purchase price of their investment in the public offering of First
American. See "The Merger--Consideration of the Merger by the Citizens Board."
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.
The officers and directors of Citizens, as well as Citizens itself, have
fiduciary duties to the public shareholders of First American that conflict with
the duties of such persons 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. Notwithstanding the First American Board's belief that the Merger
Agreement terms are fair, potential adverse effects of the foregoing conflicts
of interest could conceivably include a decreased exchange ratio in the Merger,
the inability of First American shareholders (other than First American and
CICA) to participate directly in the potential dissolution and liquidation of
First American and in any profits of First American. See "The Merger-- Conflicts
of Interest."
12
<PAGE> 16
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 and the Bylaws
of Citizens. There are various differences between the rights of First American
shareholders and the rights of Citizens shareholders, including, dividend
rights and voting rights. Cash dividends paid upon each share of Citizens Class
A Stock are required to be twice the cash dividends paid on each share of
Citizens Class B Stock. To date, Citizens has never declared a cash dividend on
any of its stock. Because First American has only one class of Common Stock, no
such difference exists on dividend rights of its Common Stock. In addition,
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 the simple majority of the members of the Citizens Board of Directors and
the holders of the Class A Stock have the exclusive right to elect the
remaining directors. In contrast, the holders of First American Stock are
entitled to one vote for each share of stock held. Also, Colorado statutory law
limits the liability of directors to their corporation and shareholders except
in limited situations; Louisiana statutory law does not provide similar
protection to directors. See "Comparison of Rights of Securityholders."
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 for each of the calendar quarters in the years
indicated are as follows.
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
QUARTER ENDED HIGH LOW HIGH LOW
------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
March 31 $9.25 $8.25 $9.25 $7.13
June 30 8.94 5.13 9.69 8.25
September 30 8.13 5.88 15.63 7.25
December 31 9.75 7.69 9.88 8.06
</TABLE>
As of December 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>
Nine Months
Ended
Sept. 30, 1996 1993 1992 1991
(Unaudited) 1995 1994 (As Restated) (As Restated) (As Restated)
----------- -------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET OPERATING
REVENUES $ 46,156 $ 53,271 $ 49,157 $ 42,761 $ 33,134 $ 27,086
NET INCOME $ 1,312 $ 2,750 $ 4,175 $ 5,526 $ 3,907 $ 4,720
NET INCOME
PER SHARE $ 0.07 $ .16 $ .25 $ .34 $ .24 $ .31
TOTAL ASSETS $214,192 $205,486 $149,798 $134,105 $116,230 $ 76,482
TOTAL LIABILITIES $147,432 $140,773 $114,742 $106,090 $ 93,442 $ 63,282
TOTAL SHAREHOLDERS'
EQUITY $ 66,670 $ 64,713 $ 35,056 $ 28,015 $ 22,787 $ 13,083
BOOK VALUE PER
SHARE $ 3.31 $ 3.24 $ 1.99 $ 1.68 $ 1.37 $ .83
</TABLE>
Citizens adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standard No. 109 "Accounting for
Income Taxes" in 1993 and applied the provisions of Statement 109 retroactively
to January 1, 1991. The above table reflects the restatement for adoption of
Statement 109 as of and for the years ended December 31, 1991 and 1992.
In 1993, Citizens extended for 36 months the exercise date of stock
options held by a consultant relating to 100,000 shares of Citizens Class A
Stock. As a result, Citizens recognized compensation expense of $425,000 in
1993, which represents the amount the market value at the date of extension
exceeded the option price. The 1993 financial statements were restated to
reflect the compensation expense described above.
FIRST AMERICAN INVESTMENT CORPORATION
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months
Ended
Sept. 30,
1996
(Unaudited) 1995 1994 1993 1992 1991
----------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET OPERATING
REVENUES $ 227 $ 216 $ 195 $ 232 $ 44 $ 35
NET INCOME (LOSS) $ 22 $ (171) $ (155) $ (47) $ (113) $ (58)
NET INCOME (LOSS)
PER SHARE $ 0.001 $ (0.01) $ (0.01) $(0.002) $(0.005) $(0.002)
TOTAL ASSETS $ 1,129 $ 1,078 $ 1,316 $ 1,379 $ 1,416 $ 1,030
TOTAL LIABILITIES $ 625 $ 649 $ 717 $ 625 $ 1,100 $ 601
TOTAL SHAREHOLDERS'
EQUITY $ 504 $ 429 $ 599 $ 754 $ 316 $ 429
BOOK VALUE PER
SHARE $ 0.02 $ 0.02 $ 0.03 $ 0.04 $ 0.02 $ 0.02
</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.
CONFLICTS OF INTEREST. Citizens beneficially owns 94.5% of the outstanding
First American Stock. Also, all members of the First American Board are either
officers of Citizens or members of the Citizens Board. Since all of such
persons, including Citizens, owe fiduciary duties to both Citizens and First
American, they have conflicts of interest in the Merger which conceivably could
make the terms of the Merger less advantageous to the minority shareholders of
First American. See "Summary--Conflicts of Interest" and "The Merger--Conflicts
of Interest."
LACK OF FAIRNESS OPINION OR APPRAISAL. The First American Board has not
retained nor sought investment banking or appraisal services to value First
American or provide advice regarding the fairness of the terms of the Merger.
The lack of a fairness opinion or appraisal conceivably could have negatively
impacted the amount of consideration to be received by the minority holders of
First American Stock.
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.
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.
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, President and Chief Executive Officer 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 Securityholders."
15
<PAGE> 19
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.
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 commenced 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 December 31, 1996, approximately 133,000 shares had been sold in
the offering. 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 American Liberty
Financial Corporation, a Baton Rouge, Louisiana based life insurance holding
company ("ALFC"), and former parent of First American. 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
Citizens Class A shares.
DEPENDENCE ON CITIZENS' CHAIRMAN. Citizens relies heavily on the active
participation of its Chairman of the Board, President and Chief Executive
Officer, Mr. 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 insurance on
him totaling $1.25 million of which Citizens is the beneficiary. Citizens has no
disability insurance regarding Mr. Riley.
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 and South 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. Most of the new life insurance business of Citizens' comes from
Latin America and South America. There is a risk of loss of a significant
portion of sales in these countries 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
16
<PAGE> 20
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.
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.
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 this
17
<PAGE> 21
statute. Citizens is required under Colorado insurance laws to file detailed
annual reports with the Colorado Division of Insurance and all of the states in
which it is licensed. The business and accounts of life insurance subsidiaries
of Citizens are subject to examination by the Colorado Division of Insurance.
The most recent triennial examination of Citizens' life insurance subsidiary
was for the year ended December 31, 1991, and Citizens has been advised by
the Colorado Division of Insurance that an examination as of December 31, 1996
will commence in 1997.
Citizens is currently not subject to regulation in the various countries
in which its independent marketing consultants solicit applications for
insurance policies because acceptance of the applications and issuance of the
policies in the U.S. do not constitute conducting 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 amount of its
cash. At September 30, 1996, Citizens had approximately $3 million in Texas
Commerce Bank. However, management monitors the solvency of this depository
and does not believe a material risk of loss exists since this financial
institution is 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 for the foreseeable future.
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
an offering of its stock on an intrastate basis only in Louisiana. The purpose
of the intrastate offering was to organize and finance two funeral home
companies and a Louisiana life insurance company. In 1992 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 intrastate offering in
Louisiana. No efforts were made afterwards to sell more stock in the intrastate
offering. First American did not raise sufficient capital to form an insurance
subsidiary or commence operating a second funeral home. 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 Financial Corporation, 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, the funeral business of First American has little potential for
significant positive results. Thus, First American shareholders have doubtful
prospects for growth in the value of their shares, and there is very little
likelihood of First American ever paying cash dividends on its stock. Also,
there are no prospects at this time for the sale of the funeral home business,
as a sale agreement reached in mid-1996 did not close in December 1996.
Notwithstanding these adverse facts, Citizens would like to offer shareholders
of First American the opportunity 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.
The First American Board has been concerned for some time about the
inability of First American shareholders to sell their shares. A number of
these holders had inquired over the past two years as to their ability to
liquidate their investment; however, they had been unable to find buyers for
their shares due to the limited number of holders and the lack of a trading
market. Additionally, although the funeral home operation has experienced sales
growth over the past two years, First American management was further concerned
about the ability of First American to retire its debt within the foreseeable
future. Without additional working capital it would be difficult to expand the
funeral home operations of First American to additional locations as originally
planned, or to pay cash dividends to shareholders.
The management of Citizens, which acquired control of First American in
September 1995, reviewed the issues regarding First American. The minority
shareholders of First American hold approximately 5.5% of First American, and
Citizens believed it would be beneficial for minority shareholders to obtain
liquidity for their investment. Management undertook an extensive study of the
options available to remedy the situation, including exploration of the effect
of liquidation or sale of First American. The only viable solution was the
pending proposal.
Given the fact that the book value of the minority holders is slightly
more than two cents per share, and recognizing that the investment made by the
minority holders of First American was $1.00 per share, management desired to
minimize the impact of any disposition of First American on the minority
holders of First American Stock. Citizens' shares were valued at their market
price around the date of the Merger Agreement ($9.00 per share) and First
American minority holders' shares were assigned a $1.00 per share value despite
the book value of slightly more than two cents per share. Citizens management
believes that this offer is very fair to the minority shareholders of First
American.
20
<PAGE> 24
Because the proposed transaction offers holders of First American the
opportunity to recoup their original investment, the Board and management of
First American felt it was in First American's best interest to accept the
proposal and to allow the minority shareholders the opportunity of an
investment in Citizens Class A Stock. Based on the exchange ratio of one share
of First American Stock for .1111 share of Citizens Class A Stock,
approximately 133,212 shares of Citizens Class A Stock will be issued to the
minority holders of First American Stock. This represents total consideration
of approximately $1.2 million in market value of Citizens Class A Stock to be
paid to the minority holders in the Merger for their approximate 5.5% ownership
interest in First American. The First American Board believes that such
consideration is more than adequate for a company with net losses in 1994 and
1995, total shareholders' equity of approximately $504,000 as of September 30,
1996, and minimal prospects for future meaningful positive financial results.
Upon consummation of the acquisition of the minority interest in First
American, Citizens expects to incur a non-recurring charge to earnings of
approximately $250,000. This charge is based upon the fair market value of the
shares to be issued, less the minority interest acquired, and approximately
$700,000 of goodwill, which will be amortized over a ten-year period. The
goodwill relates to the funeral operation value of First American.
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 officers 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 or
the fairness concerning the Merger. The lack of advice and/or a fairness opinion
from an investment banking firm conceivably could have negatively impacted the
amount of consideration to be received by the minority shareholders of First
American. Notwithstanding the foregoing, the First American Board has determined
that the Merger is fair and in 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
described herein 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 had directed management to pursue a sale of the funeral
home operations of First American; a sales contract reached in mid-1996 to sell
the funeral home for $700,000 did not close in December 1996. No negotiations
are pending for such sale, and First American is not actively pursuing a sale.
Upon consummation of the Merger, each share of First American Stock will
be converted .1111 share of Citizens Class A Stock, except for shares held by
First American, CICA and any of their affiliates; thus, after the Merger,
Citizens will beneficially own all of the outstanding First American Stock. It
is contemplated that the funeral home business will continue to be operated in
the ordinary course of business. Management cannot estimate when, if ever, a
sale of the funeral home would be made,
21
<PAGE> 25
and if so, the terms thereof. Assuming sale of the funeral home business, it is
contemplated that First American will be liquidated and dissolved. Citizens,
through its subsidiary CICA, would receive all of the net assets of First
American upon liquidation.
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 sale of assets, liquidation or other significant
transaction.
In light of the foregoing, the First American Board believes that the
Citizens offer is fair to the 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 of First American, the nondiversification of the business of
First American and the lack of any trading market for the First American Stock.
The near and future prospects of First American do not include any meaningful
expansion or probability of net income. Furthermore, it is highly unlikely that
any dividends to shareholders would be paid, if at all. In addition to the
small size of First American it was highly unlikely that First American would
ever have a market for its common stock, thus, impeding the ability of
shareholders to realize the value for their shares. The liquidation value of
First American would, in the Board's opinion, substantially diminish any
potential value to minority shareholders in that such shareholders only own
approximately 5.5% of First American. In light of the fact that the book value
per share of common stock is approximately two cents per share, it is highly
unlikely that the minority shareholders of First American would ever receive
any valuation that would be substantially near their original investment of
$1.00 per share. All of these factors were discussed and reviewed by the First
American Board. The only viable course of action to the minority shareholders
was to receive a stock with a substantial history of liquidity and on a value
basis which would allow them to receive approximately $1.00 per share. This
alternative was so superior to any other alternative that the First American
Board determined to proceed with the Merger. 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, even assuming that the unsuccessful sale of the funeral home of First
American could take place, and the proceeds were distributed pro rata to
shareholders in liquidation, the minority shareholders of First American would
only receive pennies on their investment. 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 OTHER THAN
CITIZENS AND ITS AFFILIATES.
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 equal in
value to the purchase price of their investment in the intrastate offering of
First American.
22
<PAGE> 26
CONFLICTS OF INTEREST
Citizens, as a majority beneficial 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 beneficially owns a majority (94.5%) 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, the Merger
constitutes a transaction in which Citizens and the Citizens Board have a
conflict of interest. Also, all of the members of the First American Board are
either officers of Citizens or members of the Citizens Board. Thus, such persons
have conflicts of interest in the Merger. These conflicts of interest were
addressed by the First American Board in attempting to maximize the value to be
received in the Merger by minority shareholders of First American. In addition,
each party was represented separately by outside counsel; no other mechanism
was put in place to minimize these conflicts.
The terms of the Merger 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 American Stock Exchange, and
the additional shares of Citizens Class A Stock issuable upon consummation of
the Merger have been approved for listing on the American Stock Exchange 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. Shareholders of First American are urged to read Appendix
A in its entirety.
The Merger Agreement provides that at the effective time of the Merger
each outstanding share of First American Stock shall be converted into .1111
shares of Citizens Class A Stock, except for shares held by First American or
CICA and its affiliates, 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 share based on the price of $9.00 per whole share of Citizens
Class A Stock.
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.
23
<PAGE> 27
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;
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).
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. It is estimated that First American and Citizens (and its
affiliates) will incur approximately $20,000 and $25,000 in expenses,
respectively.
DISSENTERS' RIGHTS
HOLDERS OF FIRST AMERICAN STOCK HAVE DISSENTERS' RIGHTS AS A RESULT OF THE
MERGER AGREEMENT. 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
24
<PAGE> 28
WAIVER OR DISSENTERS' RIGHTS UNDER PART XIII OF THE BCL. A COPY OF PART XIII OF
THE BCL IS ATTACHED HERETO AS APPENDIX B 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 shareholders 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 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 B 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
25
<PAGE> 29
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.
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 became 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 ss. 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.
26
<PAGE> 30
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.
27
<PAGE> 31
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
James I. Dunham 621,018 Class A direct 3.2
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>
28
<PAGE> 32
<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 6,814,258 Class A direct and indirect 34.9
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.
29
<PAGE> 33
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 68 Chairman of the Board, President 1987
and Chief Executive Officer of Citizens
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.
30
<PAGE> 34
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.
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.
31
<PAGE> 35
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, President and Chief Executive Officer
Randall H. Riley (2) 41 Vice Chairman and Chief Operating Officer
T. Roby Dollar (1) 58 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) 68 Senior Vice President and Executive Assistant to Chairman
John K. Drisdale, Jr. (6) 42 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.
(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
32
<PAGE> 36
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.
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.
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<PAGE> 37
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.
34
<PAGE> 38
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.
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 (CICA), 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.
Certain Accounting Matters of First American. After the parent of First
American, American Liberty Financial Corporation, was acquired by Citizens in
September 1995, the Board of Directors of First American replaced its
independent auditors, Smith, Carney & Co., P.C. ("Smith Carney"), with the
independent auditors for Citizens, KPMG Peat Marwick LLP. The report of Smith
Carney on the financial statements of First American as of December 31, 1994,
states: "As discussed in Note J of the 1994 notes to the consolidated financial
statements, the ability of the Company to continue its stock offering depends
upon obtaining approval from, and meeting certain requirements of the Insurance
Commissioner of Louisiana, and being able to obtain funding for a proposed life
insurance subsidiary. Approval of the offering and the outcome of these matters
cannot presently be determined. Accordingly, the financial statements do not
include any adjustments that might result from the outcome of this
uncertainty." As indicated above, the intrastate stock offering of First
American was completed in 1995 with gross proceeds of approximately $1,198,900.
There were no disagreements with Smith Carney on any matter, the accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
As required by Securities and Exchange Commission rules, Smith Carney's
consent was requested to include its audit report dated February 27, 1995 in the
Registration Statement of which this Information Statement-Prospectus is a part.
On January 14, 1997, pursuant to its policy of requiring indemnification where
it issues a consent as predecessor auditor, Smith Carney requested that Citizens
indemnify Smith Carney and its associated persons for reasonable and appropriate
legal and other costs associated with the successful defense in any litigation
or other legal proceeding that could arise from the inclusion of Smith Carney's
audit report dated February 27, 1995 in the Registration Statement. For this
purpose, a successful defense is one in which the indemnified party is neither
decreed to have been culpable, nor pays any damages as a result of a judgment or
settlement. In order to satisfy the Securities and Exchange Commission
requirement of inclusion of the audit report of Smith Carney on First American,
Citizens agreed to the requested indemnification on January 16, 1997. In
accordance with guidance reported by the American Institute of Certified Public
Accountants, the indemnification provision was requested by Smith Carney after
KPMG Peat Marwick LLP issued its report on the 1995 financial statements of
First American, and provides that any indemnification is void and any funds
advanced to Smith Carney are required to be returned to Citizens if a court,
after adjudication, finds that Smith Carney is liable for professional
malpractice relating to its audit of First American addressed in Smith Carney's
report dated February 27, 1995.
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<PAGE> 39
MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - FIRST AMERICAN
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
A net loss of $171,132 was incurred for the year ended December 31, 1995,
compared to losses of $154,460 and $74,242, respectively for the years ended
December 31, 1994 and 1993. Significant increases in operating expenses without
proportional increases in funeral home sales was the primary reason for the
increased loss in 1995. A decline in funeral home sales contributed to the
significant increase in operating loss from 1993 to 1994.
Total revenues for the year ended December 31, 1995 were $216,897, a 7.2%
increase over 1994 when total revenues were $202,295. The 1994 revenues
represent a decline of 15.1% from 1993. Funeral home sales were $273,092 in
1995, compared to $258,702 for the same period in 1994, and $307,639 in 1993.
The 1995 increase reflects improvement in the number of funerals at First
American's Baker, Louisiana facility, while the decrease from 1993 to 1994
reflects the impact of a change in local management of the facility. Management
believes that the revenues of the funeral home will continue to improve in the
coming years as the facility becomes more entrenched in its market and its
reputation spreads. Management believes that the long term possibilities of the
facility are somewhat limited by the area in which it operates. Baker,
Louisiana is a suburb of Baton Rouge, Louisiana of moderate size. As a result
of the size of the community and the competition in the funeral market for the
area, management believes growth of 10-15% per year for the next five years
would reflect positive results for the facility.
General expenses increased significantly during 1995 to $316,743 from
$271,140 in 1994 and $222,334 in 1993. The growth in expenses from 1993 to 1995
reflects increases in the overall cost of operating the funeral facility, as
well as costs related to the terminated stock offering of First American. When a
management change was made at the Baker facility in 1994, the new managers
salary reflected an increase over the cost of prior management. Additionally,
an assistant director was added in order to permit the director to visit with
the community to promote the facility. Management believes this plan will
provide long term increases in sales, although the related costs have lowered
near term profit. In 1995, because the hearse and limousine utilized in the
funeral operation were several years old, having been acquired as used vehicles,
maintenance expenses for them became significant and their performance
unreliable. During 1996, management intends to search for suitable replacements
in order to lower the maintenance expenses and improve the availability of such
vehicles. However, a lack of available cash may impact management's ability to
replace them. Over the past three years, a significant amount of expense was
incurred in updating the offering documents related to the sale of shares of
First American Stock. Following the change of control of First American in
September 1995, this offering was terminated due to new management's view that
the likelihood of success was limited relative to the cost facts associated
with maintaining the offering. Both legal and accounting expenses were
significant in 1994 and 1995. Legal fees for 1994 were $29,671, while audit
fees were $6,507 and salaries related to the offering were $42,923. In 1995,
legal fees amounted to $20,105, while accountant fees were $7,828. Due to the
termination of the offering and changes in the manner in which the funeral home
operates, management is optimistic that some expense reduction will be achieved
in 1996, with greater deductions achieved in future years.
36
<PAGE> 40
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 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 $91,000 on a mortgage loan on its Baker facility,
owed to its parent, 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 raise concerns about the long term viability of the
operations. Management believes the sale of this operation will be necessary at
some time in the future to insure the long term viability of First American.
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. Management is unable to predict the success of this
endeavor, and the amount of debt owed by First American continues to limit its
ability to attract outside capital or to expand operations further.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Net income for the nine months ended September 30, 1996 was $22,911, an
improvement over the same period in 1995, when a net loss of $13,602 was
incurred. A significant increase in funeral home sales was the primary reason
for the improvement in net income.
Total revenues for the period were $227,355, a 24.9% increase over 1995,
when revenues were $181,913. Funeral home sales were $287,123 compared to
$222,938 for the same period in 1995, a 28.8% increase. Gross profit on said
sales was $201,048 in 1996, a margin of 70.0% while in 1995, gross profit was
$161,448 with a margin of 72.4%. Funeral business through September was up
significantly 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 have lower margins than full
services.
General expenses increased significantly during 1996 to $197,500 from
$188,540 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. Management was successful in acquiring
replacements for these vehicles during the third quarter with the assistance of
First American's parent. It is expected that the new vehicles will result in a
reduction in operating expenses in future periods.
37
<PAGE> 41
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
A net loss for the quarter ended September 30, 1996 of $11,743 was
incurred, compared to a loss of $32,209 for the same period in 1995. Increased
revenues coupled with decreased operating expenses and improved profit margins
on funeral sales contributed to the improvement.
Revenues for the quarter were $50,207, compared to $39,804 in the prior
year. Funeral home sales increased more than 31% during the quarter, reaching
$66,632 from $50,740, although this rate was lower than that seen in earlier
periods of 1996. Continued increases in funeral activity were the reason for
the growth. Gross profits on funeral sales were $47,821 in 1996, with a margin
of 71.7%, compared to gross profits of $34,137 and a margin of 67.3% in the
prior year. This improvement in profit margin, which relates to the types of
services performed, was the primary reason for the improvement in operating
results. Management is pleased with the improvement in margin during the
quarter, since there were no material price increases in the funeral area.
Several suppliers, notably casket makers and vault manufacturers, have notified
First American to expect price increases in 1997. As a result, management is
reviewing the pricing structure in its funeral operations and expects to
increase prices in early 1997 to maintain and expand profit margins.
Expenses declined compared to the previous year, to $67,237 from $69,330.
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, as well as to a refund of taxes paid to local
authorities during the quarter.
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 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 $91,000 on a mortgage loan on its Baker facility,
owed to its parent, 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 spent much of the early part of 1996 working to explore
the possibility of the sale of the Baker funeral home and was successful in
entering into a contract with the on-site management of the funeral home to
sell the facility for $700,000. Management believed the sale of this operation
was required to insure the long term viability of First American. Although the
funeral home is currently cash flowing itself, any downturn in business or the
economy could create a situation where additional capital would need to be
infused. After much discussion between the parties, the contract expired on
December 16, 1996 due to the inability of the purchaser to arrange sufficient
financing to close. Management did receive an additional preliminary, oral
offer for the facility from an unrelated party; however, such party's offer
was significantly less than the previous offer and management declined to
proceed with negotiations. No further sales discussions are anticipated. No
other viable sale opportunities of the funeral operation exist at this time.
Based upon these facts, management has determined to withdraw the funeral home
from sale for the foreseeable future and to
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<PAGE> 42
focus on improving cash flows and profitability in the operation. Management is
unable to predict the success of this endeavor, and the amount of debt owed by
First American continues to limit its ability to attract capital or to expand
operations further.
Management entered into discussions with Citizens, its ultimate parent, in
1996 toward an alternative solution to First American's problems. In addition
to the operating problems facing First American, it has a minority shareholder
group that owns 5.52% of the outstanding shares, but who contributed
approximately $1,199,000 of the capital of First American. No market has
developed for First American Stock, leaving this group owning a minority
interest in a company that has no trading for its shares, and thus an
inability to recoup any of its investment. Management gave consideration to
liquidating First American; however, lacking the cash or the book value per
share to return a reasonable amount of investors' capital, decided against
such an option. An agreement was reached with Citizens whereby investors would
receive one share of Citizens Class A Stock for every nine shares of First
American Stock owned. Citizens is a significantly larger entity than First
American, with several thousand shareholders and an active trading market.
Citizens shares are listed on the American Stock Exchange. Further, the
proposed transaction affords First American holders the opportunity to recoup
their original $1.00 investment in First American, rather than receiving only
pennies per share for their investment. Should the pending transaction not be
completed, management will be forced to consider other alternatives to funding
the future of First American's operations.
39
<PAGE> 43
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.
Both Colorado and Louisiana law allow corporations to authorize one or
more classes of stock with or without par value and such designations,
preferences, limitations and other rights as allowed by the articles of
incorporation.
DIVIDEND RIGHTS
The cash dividends paid upon each share of Citizens Class A Stock are
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 exists in
the dividend rights of its Common Stock.
Generally, both Colorado and Louisiana law allow the Board of Directors to
declare dividends from time to time as long as such payment of dividends would
not make the corporation insolvent or the corporation's net assets after such
payment are sufficient that upon dissolution or liquidation the corporation can
satisfy any preferential rights of shareholders other than those receiving the
dividend.
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
40
<PAGE> 44
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.
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 breach of duty of loyalty, acts or omissions not in
good faith or which involve intentional misconduct, or any transaction from
which the director derived an improper personal benefit. Neither the Articles
of Incorporation of First American nor Louisiana law limit the personal
liability of a director regarding breach of duty.
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
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<PAGE> 45
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 liquidation, 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.
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<PAGE> 46
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary discusses the material tax consequences of the
Merger and 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 with a very limited basis in such stock. Citizens management expects
that the tax effect will be insignificant 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.
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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 for the year 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. The consolidated financial statements
included herewith of First American and its subsidiaries as of December 31,
1994 and for each of the years in the two-year period ended December 31, 1994
have been audited by Smith, Carney & Co., P.C., independent accountants, as
stated in their report appearing herein (which report expresses an unqualified
opinion and includes an explanatory paragraph referring to an uncertainty
concerning the ability of First American to continue its stock offering), and
have been so included in reliance upon the report of such firm given upon their
authority 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.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report..................................................................F-2
Independent Auditors' Report..................................................................F-3
Consolidated Balance Sheets as of December 31, 1995 and 1994..................................F-4
Consolidated Statements of Operations for the Year Ended December 31, 1995,
1994 and 1993........................................................................F-6
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993.....................................................F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993........................................................................F-8
Notes to Consolidated Financial Statements....................................................F-9
Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995....................F-16
Consolidated Statements of Operations for the Nine Months Ended September 30, 1996
and 1995 (unaudited).................................................................F-18
Consolidated Statements of Operations for the Three Months Ended September 30, 1996
and 1995 (unaudited).................................................................F-19
Consolidated Statements of Changes in Cash Flows for the Nine Months Ended
September 30, 1996 and 1995..........................................................F-20
Consolidated Statements of Changes in Cash Flows for the Three Months Ended
September 30, 1996 and 1995..........................................................F-21
Notes to Consolidated Financial Statements....................................................F-22
</TABLE>
F-1
<PAGE> 49
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.
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-2
<PAGE> 50
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, 1994, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the years ended December 31, 1994 and 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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, 1994, and
the consolidated results of their operations and their consolidated cash flows
for the years ended December 31, 1994 and 1993 in conformity with generally
accepted accounting principles.
As discussed in Note J of the 1994 notes to the consolidated financial
statements, the ability of the Company to continue its stock offering depends
upon obtaining approval from, and meeting certain requirements of the Insurance
Commissioner of Louisiana, and being able to obtain funding for a proposed life
insurance subsidiary. Approval of the offering and the outcome of these matters
cannot presently be determined. Accordingly, the financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Smith, Carney & Co., P.C.
SMITH, CARNEY & CO , P.C.
Oklahoma City, Oklahoma
February 27, 1995
F-3
<PAGE> 51
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 530,744 $ 6,429
Accounts receivable:
Trade, net of allowance of $4,000 in 1995 and
$2,665 in 1994 8,395 59,278
Other 0 11,295
Inventory 13,861 13,872
---------- ----------
TOTAL CURRENT ASSETS 553,000 90,874
---------- ----------
Restricted cash, funds in escrow and cash equiva-
lents per public offering of stock 17,266 529,818
Agents' accounts receivable, net of allowance for
advances in excess of commissions earned of
$0 in 1995 and $163,064 in 1994 0 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 0 53,503
Deferred offering costs 0 69,087
Other assets, net of accumulated amortization of
$6,545 in 1995 and $3,248 in 1994 0 6,843
---------- ----------
TOTAL $1,077,510 $1,316,380
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 52
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
- ------------------------------------ ----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 1,516 $ 19,257
Note payable, officer 0 30,620
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, affiliate 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
SHAREHOLDERS' 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 SHAREHOLDERS' EQUITY 428,583 599,715
----------- -----------
TOTAL $ 1,077,510 $ 1,316,380
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 53
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
INCOME: 1995 1994 1993
- ------- --------- --------- ---------
<S> <C> <C> <C>
Funeral home sales $ 273,092 $ 258,702 $ 307,639
Cost of goods sold (74,305) (80,733) (89,582)
Interest 17,654 17,385 14,369
--------- --------- ---------
TOTAL REVENUES 216,441 195,354 232,426
EXPENSES:
Advances in excess of commissions earned 0 17,892 32,000
General and administrative 316,743 271,140 222,334
Taxes, licenses and fees 8,593 21,048 23,256
--------- --------- ---------
TOTAL EXPENSES 325,336 310,080 277,590
OTHER INCOME (EXPENSE):
Miscellaneous income 456 6,941 5,750
Interest expense (9,190) (10,031) (9,885)
--------- --------- ---------
TOTAL OTHER EXPENSES (8,734) (3,090) (4,135)
--------- --------- ---------
LOSS FROM OPERATIONS BEFORE PROVISIONS
FOR INCOME TAXES (117,629) (117,816) (49,299)
--------- --------- ---------
Provisions for (benefit from) income taxes:
Current 0 0 (2,057)
Deferred 53,503 36,644 0
--------- --------- ---------
TOTAL PROVISIONS FOR (BENEFIT FROM)
INCOME TAXES 53,503 36,644 (2,057)
--------- --------- ---------
NET LOSS $(171,132) $(154,460) $ (47,242)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 54
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Additional Accum- Total
Common Treasury Paid-In ulated Shareholders'
Stock Stock Capital Deficit Equity
----- ----- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balances at Dec. 31, 1992 $ 21,092 $ (400) $ 493,918 $(198,303) $ 316,307
Issuance of Stock 607 0 484,503 0 485,110
Net Loss 0 0 0 (47,242) (47,242)
--------- --------- --------- --------- ---------
Balances at Dec. 31, 1993 21,699 (400) 978,421 (245,545) 754,175
Net Loss 0 0 0 (154,460) (154,460)
--------- --------- --------- --------- ---------
Balances at Dec. 31, 1994 21,699 (400) 978,421 (400,005) 599,715
Net Loss 0 0 0 (171,132) (171,132)
--------- --------- --------- --------- ---------
Balances at Dec. 31, 1995 $ 21,699 $ (400) $ 978,421 $(571,137) $ 428,583
========= ========= ========= ========= =========
</TABLE>
F-7
<PAGE> 55
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: 1995 1994 1993
- ------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Net loss $(171,132) $(154,460) $ (47,242)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation of property and equipment 25,232 38,327 43,814
Amortization 72,384 2,836 2,836
Advances in excess of commissions earned 36,116 18,591 32,000
Decrease in deferred tax assets 53,503 36,644 0
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable, trade 50,883 (15,857) (34,721)
Decrease (increase) in accounts receivable, officer
and parent 11,295 (5,444) (5,851)
(Increase) decrease in inventory 11 935 (1,197)
Increase (decrease) in accounts payable (48,361) 4,119 (11,901)
(Increase) decrease in other assets 3,526 1,231 (1,210)
(Decrease) in operating portion of loans payable,
parent and affiliates (9,964) (35,361) (3,127)
--------- --------- ---------
NET CASH USED BY OPERATING ACTIVITIES 23,493 (108,439) (26,599)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans made - accounts receivable, agents 0 0 (53,336)
Payments on accounts receivable, agents 0 264 6,008
Purchase of property and equipment (2,317) (2,807) (21,592)
Organization costs 0 (959) (1,646)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (2,317) (3,502) (70,566)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred offering costs incurred 0 (1,039) (29,068)
Increase in payable for costs of public stock offering 0 44 1,193
Sales proceeds collected from public offering of stock 399 1,700 59,050
Proceeds from loan payable - parent 0 99,431 94,873
Proceeds from note payable - officer 0 30,620 0
Principal payments on mortgage (9,812) (8,970) (8,200)
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES (9,413) 121,786 117,848
--------- --------- ---------
Increase in cash and restricted cash 11,763 9,845 20,683
Cash and restricted cash at beginning of year 536,247 526,402 505,719
--------- --------- ---------
Cash and restricted cash at end of year $ 548,010 $ 536,247 $ 526,402
========= ========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 9,190 $ 10,031 $ 9,885
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 56
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-9
<PAGE> 57
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-10
<PAGE> 58
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-11
<PAGE> 59
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-12
<PAGE> 60
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, 1994 and 1993 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 1993
---- ---- ----
<S> <C> <C> <C>
Federal income tax statutory rate on taxable
income $(39,994) (40,057) (16,762)
Write off of capitalized offering costs 72,397 -- --
Rate brackets and other -- 22,803 2,121
Valuation account 24,524 53,898 12,584
Other (3,424) -- --
-------- ------- -------
$ 53,503 36,644 (2,057)
======== ======= =======
</TABLE>
(Continued)
F-13
<PAGE> 61
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-14
<PAGE> 62
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, 1994, and 1993 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-15
<PAGE> 63
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996
ASSETS (UNAUDITED) 1995
- ------ ----------- ----
<S> <C> <C>
CURRENT ASSETS:
Cash $ 530,552 $ 530,744
Accounts receivable, net of allowance of
$4,000 in 1996 and 1995 58,496 8,395
Inventory 0 13,861
---------- ----------
TOTAL CURRENT ASSETS 589,048 553,000
---------- ----------
Restricted cash 9,857 17,266
Property and equipment, at cost, net of accumulated
depreciation of $147,116 in 1996 and $115,496
in 1995 530,555 507,244
---------- ----------
TOTAL $1,129,460 $1,077,510
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE> 64
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 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 $ 912 $ 1,516
Current portion of mortgage payable 11,478 10,732
----------- -----------
TOTAL CURRENT LIABILITIES 12,390 12,248
----------- -----------
Payable to affiliates 519,541 534,941
Mortgage payable 77,284 85,988
Deferred credit, sales proceeds collected from public
offering of stock, net of subscriptions receivable 15,750 15,750
----------- -----------
TOTAL LIABILITIES 624,965 648,927
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 1,031,421 978,421
Treasury stock, 400 shares, at cost (400) (400)
Accumulated deficit (548,225) (571,137)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 504,495 428,583
----------- -----------
TOTAL $ 1,129,460 $ 1,077,510
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 65
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
INCOME: 1996 1995
- ------- --------- ---------
<S> <C> <C>
Funeral home sales $ 287,123 $ 222,938
Cost of goods sold (86,075) (61,490)
Interest 26,307 20,465
--------- ---------
TOTAL REVENUES 227,355 181,913
EXPENSES:
General and administrative 198,238 174,682
Taxes, licenses and fees (738) 13,858
--------- ---------
TOTAL EXPENSES 197,500 188,540
OTHER INCOME (EXPENSE):
Interest expense (6,944) (6,975)
--------- ---------
TOTAL OTHER EXPENSES (6,944) (6,975)
INCOME FROM OPERATIONS BEFORE FEDERAL
INCOME TAXES 22,911 (13,602)
Federal income tax 0 0
--------- ---------
NET INCOME $ 22,911 $ (13,602)
========= =========
PER SHARE OF COMMON STOCK $ 0.001 $ (0.001)
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 66
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
INCOME: 1996 1995
- ------- -------- --------
<S> <C> <C>
Funeral home sales $ 66,632 $ 50,740
Cost of goods sold (18,811) (16,603)
Interest 2,386 5,667
-------- --------
TOTAL REVENUES 50,207 39,804
EXPENSES:
General and administrative 67,237 69,330
Taxes, licenses and fees (7,305) 1,140
-------- --------
TOTAL EXPENSES 59,932 70,470
OTHER INCOME (EXPENSE):
Interest expense (2,018) (1,543)
-------- --------
TOTAL OTHER EXPENSES (2,018) (1,543)
INCOME FROM OPERATIONS BEFORE FEDERAL
INCOME TAXES (11,743) (32,209)
Federal income tax 0 0
-------- --------
NET INCOME $(11,743) $(32,209)
======== ========
PER SHARE OF COMMON STOCK $ (0.001) $ (0.001)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 67
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
- ------------------------------------- --------- ---------
<S> <C> <C>
Net income (loss) $ 22,911 $ (13,602)
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Depreciation of property and equipment 31,620 24,382
(Increase) decrease in accounts receivable (50,101) 8,535
Decrease in inventory 13,861 889
Decrease in other assets 0 839
Increase (decrease) in accounts payable (604) 29,262
(Decrease) in payable to affiliates (15,400) (25,363)
(Purchase) sale of property and equipment (1,930) 2,652
Other, net 0 396
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 357 27,990
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage (7,958) (7,276)
--------- ---------
NET CASH (USED) BY FINANCING ACTIVITIES (7,958) (7,276)
--------- ---------
Increase (decrease) in cash and restricted cash (7,601) 20,714
Cash and restricted cash at beginning of year 548,010 536,247
--------- ---------
CASH AND RESTRICTED CASH AT END OF PERIOD $ 540,409 $ 556,961
========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 6,278 $ 6,975
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE> 68
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
- ------------------------------------- --------- ---------
<S> <C> <C>
Net income (loss) $ (11,743) $ (32,209)
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Depreciation of property and equipment 20,529 8,184
(Increase) decrease in accounts receivable 10,775 179
Decrease in inventory 0 836
(Increase) decrease in other assets 0 (5,984)
Increase (decrease) in accounts payable (23,892) 12,642
(Decrease) in payable to affiliates 0 (1,562)
Purchase of property and equipment (1,930) 2,652
Other, net 80 4,211
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (6,181) (11,051)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage (2,714) (2,480)
--------- ---------
NET CASH (USED) BY FINANCING ACTIVITIES (2,714) (2,480)
--------- ---------
Increase (decrease) in cash and restricted cash (8,895) (13,531)
Cash and restricted cash at beginning of period 549,304 570,492
--------- ---------
CASH AND RESTRICTED CASH AT END OF PERIOD $ 540,409 $ 556,961
========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 2,038 $ 1,859
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE> 69
FIRST AMERICAN INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 1996, the statements of operations for the
three- and nine- month periods ended September 30, 1996 and 1995 and the
statements of cash flows for the three- and nine-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 September 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 be read in
conjunction with the financial statements and notes thereto included in the
audited financial statements as of December 31, 1995. The results of operations
for the period ended September 30, 1996 are not necessarily indicative of the
operating results for the full year.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated October 31, 1996, among Citizens
Insurance Company of America, 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
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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
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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
share based on 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
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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.
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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
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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
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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.
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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
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 Title: Chairman
--------------------------
FIRST AMERICAN INVESTMENT CORPORATION
By:/s/ Harold E. Riley
--------------------------------
Title: President
Attest:/s/ Mark A. Oliver
--------------------------
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APPENDIX B
LOUISIANA BUSINESS CORPORATION LAW
PART XIII. DISSENTING SHAREHOLDERS' RIGHTS, FAIR PRICE
PROTECTION, AND CONTROL SHARE ACQUISITION
12:130 DEFINITIONS.--(1) "Safeguard period" shall mean the twenty-four
month period immediately following any merger, consolidation or any other
change in majority voting ownership of a corporation covered by this Chapter.
(2) "Safeguarded entity" shall mean any pension plan, retirement
system, or any other fund that inures to the benefit of the employees of a
corporation covered under this Chapter.
(3) "interested person" shall mean any member, participant, regular or
disability retiree, beneficiary, or creditor of any safeguarded entity.
(4) "Intentional misconduct" shall mean the intentional conduct of any
person which occurs during the safeguard period and which has the effect of
deleting, depleting or otherwise diminishing the assets being held in trust by
any safeguarded entity in a manner that is adverse to any interested person as
defined by R.S. 12: 130(3).
12:130.1 STANDARD OF CARE; REVIEW.--A. Any conduct which violates the
provisions of this Part which occurs during the safeguard period shall give
rise to the presumption that such conduct is intentional misconduct.
B. Any transaction that is executed during the safeguard period which
involves the assets of a safeguarded entity shall be subject to judicial review
under the standard of strict scrutiny.
12:130.2 INTENTIONAL MISCONDUCT; INJUNCTIVE RELIEF; CIVIL PENALTY.--A. Any
person who is found by a court to be liable for intentional misconduct under
this Part shall be subject to the penalties of this Section, regardless of
whether the person is or is not involved in the administration of the
safeguarded entity. Person as referred to in this Section includes any
individual, partnership, unincorporated association of individuals, joint stock
company, or corporation.
B. Any interested person may petition a court for injunctive relief
on the basis of another person's intentional misconduct, provided that he can
show the intentional misconduct will cause irreparable harm to the interested
person or to the safeguarded entity.
C. Any person whose intentional misconduct causes the insolvency of
a safeguarded entity shall oblige the person by whose misconduct caused the
insolvency to restore the safeguarded entity to a condition of solvency. If
such intentional misconduct causes damage to any interested person, the person
whose conduct caused the damage shall be obliged to repair it, as ordered by
any court, including the payment of prejudgment interest and reasonable
attorney's fees.
D. Jurisdiction for the enforcement of this Section shall be in
accordance with the provisions contained in Article 42 of the Louisiana Code of
Civil Procedure.
12:131 RIGHTS OF SHAREHOLDER DISSENTING FROM CERTAIN CORPORATE ACTIONS.
- -A.Except as provided in subsection B of this Section, if a corporation has, by
vote of its shareholders, authorized a sale, lease or exchange of all of its
assets, or has, by vote of its shareholders, become a party to a merger or
consolidation, then, unless such authorization or action shall have been given
or approved
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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 a payment is due, it shall, within twenty days after
receipt of such demand and acknowledgment, notify
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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
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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:
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(i) Any interested shareholder, or
(ii) Any other corporation, whether or not itself an interested
shareholder, which is, or after the merger, consolidation, or share exchange
would be, an affiliate of an interested stockholder that was an interested
shareholder prior to the transaction.
(b) Any sale, lease, transfer, or other disposition, other than in the
ordinary course of business, in one transaction or a series of transactions in
any twelve-month period to any interested shareholder or any affiliate of any
interested shareholder, other than the corporation of any of its subsidiaries,
of any assets of the corporation or any subsidiary having, measured at the time
the transaction or transactions are approved by the board of directors of the
corporation, an aggregate book value as of the end of the corporation's most
recently ended fiscal quarter of ten percent or more of the total market value
of the outstanding stock of the corporation or of its net worth as of the end
of its most recently ended fiscal quarter.
(c) The issuance or transfer by the corporation or any subsidiary, in
one transaction or a series of transactions, of any equity securities of the
corporation or any subsidiary which has an aggregate market value of five
percent or more of the total market value of the outstanding stock of the
corporation, to any interested shareholder or any affiliate of any interested
shareholder, other than the corporation or any of its subsidiaries, except
pursuant to the exercise of warrants or rights to purchase securities offered
pro rata to all holders of the corporation's voting stock or any other method
affording substantially proportionate treatment of the holders of voting stock.
(d) The adoption of any plan or proposal for the liquidation or
dissolution of the corporation in which anything other than cash will be
received by an interested shareholder or any affiliate of any interested
shareholder.
(e) Any reclassification of securities including any reverse stock
split or recapitalization of the corporation or any merger, consolidation, or
share exchange of the corporation with any of its subsidiaries which has the
effect, directly or indirectly, in one transaction or a series of transactions,
of increasing by five percent or more of the total number of outstanding shares
the 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.
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(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.
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(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.
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(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
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(bb) An increase in such annual rate of dividends as necessary to
reflect any reclassification, including any reverse stock split,
recapitalization, reorganization, or any similar transaction which has the
effect of reducing the number of outstanding shares of the stock; and
(iii) The interested shareholder did not become the beneficial owner of
any additional shares of stock of the corporation except as part of the
transaction which resulted in such interested shareholder's becoming an
interested shareholder or by virtue of proportionate stock splits or stock
dividends.
(b) The provisions of (i) and (ii) of Subparagraph (a) shall not
apply if no interested shareholder or an affiliate or associate of the
interested shareholder voted as a director of the corporation in a manner
inconsistent with (i) and (ii), and the interested shareholder, within ten days
after any act or failure to act inconsistent with such Sub-subparagraphs,
notifies the board of directors of the corporation in writing that the
interested shareholder disapproves thereof and requests in good faith that the
board of directors rectify such act or failure to act.
(5) After the interested stockholder has become an interested
shareholder, the interested stockholder may not have received the benefit,
directly or indirectly, except proportionately as a shareholder, of any loans,
advances, guarantees, pledges, or other financial assistance, or any tax
credits, or other tax advantages provided by the corporation or any of its
subsidiaries, whether in anticipation of or in connection with such business
combination or otherwise.
C.(1) Whether or not such business combinations are authorized or
consummated in whole or in part after January 1, 1985, or after the interested
shareholder became an interested stockholder, the requirements of R.S. 12:133
shall not apply to business combinations that specifically, generally, or
generally by types, as to specifically identified or unidentified existing or
future interested shareholders or their affiliates, have been approved or
exempted therefrom by resolution of the board of directors of the corporation:
(a) Prior to January 1, 1985, or such earlier date as may be
irrevocably established by resolution of the board of directors; or
(b) If involving transactions with a particular interested shareholder
or its existing or future affiliates, at any time prior to the time that the
interested shareholder first became an interested shareholder.
(2) Unless by its terms a resolution adopted under this Subsection is
made irrevocable, it may be altered or repealed by the board of directors, but
this shall not affect any business combinations that have been consummated or
are the subject of an existing agreement entered into prior to the alteration
or repeal.
D.(1) Unless the articles or bylaws of the corporation specifically
provide otherwise, the requirements of R.S. 12:133 shall not apply to business
combinations of a corporation that on January 1, 1985, had an existing
interested shareholder, whether a business combination is with the existing
shareholder or with any other person that becomes an interested shareholder
after January 1, 1985, or their present or future affiliates unless at any time
after January 1, 1985, the board of directors of the corporation elects by
resolution to be subject, in whole or in part, specifically, generally, or
generally by types as to specifically identified or unidentified interested
shareholders to the requirements of R.S. 12:133.
(2) The articles or bylaws of the corporation may provide that if the
board of directors adopts a resolution under Subsection (D)(1) of this Section,
the resolution shall be subject to approval of the shareholders in the manner
and by the vote specified in the articles or the bylaws.
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(3) An election under this Subsection may be added to but may not be
altered or repealed except by an amendment to the articles adopted by a vote of
shareholders meeting the requirements of Subsection (E)(1)(b) of this Section.
(4) If a corporation elects under this Subsection to be included
within the provisions of R.S. 12:132, R.S. 12:133, and R.S. 12:134 generally,
without qualification or limitation, it shall file with the secretary of state
articles supplementary including a copy of the resolution making the election
and a statement describing the manner in which the resolution was adopted. The
articles supplementary shall be executed in the manner required by R.S. 12:32
of the Chapter. The articles supplementary constitute articles of amendment
under R.S. 12:31 of this Chapter.
E.(1) Unless the articles of the corporation provide otherwise, the
requirements of R.S. 12:133 shall not apply to any business combination of any
of the following:
(a) A corporation having fewer than one hundred beneficial owners of
its stock.
(b) A corporation whose original articles of incorporation have a
provision, or whose shareholders adopt an amendment to its articles after
January 1, 1985, by a vote of at least eighty percent of the votes entitled to
be cast by outstanding shares of voting stock of the corporation, voting
together as a single voting group and two-thirds of the votes entitled to be
cast by persons who are not interested shareholders of the corporation, voting
together as a single voting group, expressly electing not to be governed by
R.S. 12:132, R.S. 12:133 and R.S. 12:134.
(c) An investment company registered under the Investment Company Act
of 1940.
(2) For purposes of Subparagraph (1) of this Subsection, all
shareholders of a corporation that have executed an agreement to which the
corporation is an executing party governing the purchase and sale of stock of
the corporation or a voting trust agreement governing stock of the corporation
shall be considered a single beneficial owner of the stock covered by the
agreement. F. A business combination of a corporation that has a provision in
its articles permitted by R.S. 12:112 or R.S. 12:121(B), which allows for
reduction of the vote required for the transactions described therein is
subject to the voting requirements of R.S. 12:133 unless one of the
requirements or exemptions of Subsection (B), (C), (D), or (E) of this Section
have been met.
12:135 DEFINITIONS.--As used in R.S. 12:135 through 140.2:
(1) "Control shares" means shares that, except for the provisions of
R.S. 12:135 through 140.2, would have voting power with respect to shares of an
issuing public corporation that, when added to all other shares of the issuing
public corporation owned by a person or in respect to which that person may
exercise or direct the exercise of voting power, would entitle that person,
immediately after acquisition of the shares, directly or indirectly, alone or
as a part of a group, to exercise or direct the exercise of the voting power of
the issuing public corporation in the election of directors within any of the
following ranges of voting power:
(a) One-fifth or more but less than one-third of all voting power.
(b) One-third or more but less than a majority of all voting power.
(c) A majority or more of all voting power.
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(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:
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(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
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(c) "Within Louisiana" means:
(i) In a case of corporeal property, the presence of such corporeal
property within Louisiana;
(ii) In the case of incorporeal property represented by a written
instrument, the presence of such written instrument within Louisiana; and
(iii) In the case of incorporeal property not represented by a written
instrument, the presence of the commercial domicile of the corporation within
Louisiana.
12:136 LAW APPLICABLE TO CONTROL SHARE VOTING RIGHTS.--Unless the
corporation's articles of incorporation or bylaws, as in effect before a
control share acquisition has occurred, provide that the provisions of R.S.
12:135 through 140.2 do not apply to control share acquisitions of shares of
the corporation, control shares of an issuing public corporation acquired in a
control share acquisition have only such voting rights as are conferred by R.S.
12:140.
12:137 NOTICE OF CONTROL SHARE ACQUISITION.--A. Any person who proposes
to make or has made a control share acquisition may at the person's election
deliver an acquiring person statement to the issuing public corporation at the
issuing public corporation's registered office.
B. However, if any of the shares to be acquired are being held in a
trust account or any other type of account or fund on behalf of a safeguarded
entity as defined in R.S. 12:130(2), the acquiring person statement shall be
mandatory and shall be provided to the chairman of the board of trustees of the
safeguarded entity or the administrator, or the corporate employee who is
responsible for managing the entity. The trustee, administrator, or manager
shall upon receipt of such statement distribute copies to all interested
persons as defined in R.S. 12:130(3).
C. The acquiring person statement shall set forth all of the
following:
(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.
B-13
<PAGE> 91
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:
B-14
<PAGE> 92
(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.
B-15
<PAGE> 93
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
Certificate Number
Number(s)(1) of Shares(1)
---------- -----------
---------- -----------
---------- -----------
---------- -----------
---------- -----------
(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 __________, 1997
relating to First American Investment Corporation and Citizens Insurance
Company of America, 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> 94
______________________________
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:_____________________________, 1997 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> 95
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> 96
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> 97
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 - Insurance
Investors, Inc.(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.(g)
II-1
<PAGE> 98
10.9 Plan and Agreement of Exchange - Citizens Insurance
Company of America and American Investment Network, Inc.(g)
10.11 Agreement and Plan of Merger dated October 31, 1996 -
Citizens Insurance Company of America, CICA Acquisition,
Inc., and First American Investment Corporation (see
Appendix A)(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)
23.3 Consent of Smith, Carney & Company, P.C.(c)
25 Power of Attorney (c)
- ----------
(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, 1995, 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.
(g) Filed with the Registrant's Registration Statement on Form S-4,
Registration No. 333- 16163, filed with the Commission on or about
November 14, 1996.
(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> 99
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> 100
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> 101
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment No. 1 to Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Austin, State of Texas, on January 17, 1997.
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 January 17, 1997
- ----------------------------
by Mark A. Oliver, Attorney
in Fact for Harold E. Riley
/s/ Randall H. Riley Vice Chairman, Chief Executive January 17, 1997
- ----------------------------- Officer and Director
by Mark A. Oliver, Attorney
in Fact for Randall H. Riley
/s/ T. Roby Dollar Vice Chairman, Chief Actuary January 17, 1997
- --------------------------- and Assistant Secretary
by Mark A. Oliver, Attorney
in Fact for T. Roby Dollar
/s/ Rick D. Riley President, Chief Administrative January 17, 1997
- ----------------------------- Officer and Director
by Mark A. Oliver, Attorney
in Fact for Rick D. Riley
/s/ Mark A. Oliver Executive Vice President, January 17, 1997
- ------------------------------ Secretary/Treasurer and
Mark A. Oliver Chief Financial Officer
/s/ William P. Barnhill Vice President and Controller January 17,1997
- ------------------------------
by Mark A. Oliver, Attorney
in Fact for William P. Barnhill
Director
- ------------------------------- January 17, 1997
Flay F. Baugh
/s/ Joe R. Reneau Director January 17, 1997
- -------------------------------
by Mark A. Oliver, Attorney
in Fact for Joe R. Reneau, M.D.
</TABLE>
II-5
<PAGE> 102
<TABLE>
<S> <C> <C>
- ------------------------------ Director January 17, 1997
Steven F. Shelton
/s/ Ralph M. Smith Director January 17, 1997
- -----------------------------
by Mark A. Oliver, Attorney
in Fact for Ralph M. Smith, Th.D.
/s/ Timothy T. Timmerman Director January 17, 1997
- -----------------------------
by Mark A. Oliver, Attorney
in Fact for Timothy T. Timmerman
- ----------------------------- Director January 17,1997
Charles E. Broussard
</TABLE>
<PAGE> 103
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<C> <S> <C>
5.1 Opinion and consent of Jones & Keller, P.C. as to the legality of
Citizens, Inc. Common Stock Filed herewith
10.11 Agreement and Plan of Merger dated October 31, 1996 - Citizens Insurance
Company of America, CICA Acquisition, Inc., and First American Investment
Corporation (see Appendix A)
23.1 Consent of Jones & Keller, P.C. (see Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP Filed herewith
23.3 Consent of Smith, Carney & Company, P.C. Filed herewith
25 Power of Attorney Filed herewith
</TABLE>
<PAGE> 1
EXHIBIT 5.1 AND 23.1
JONES & KELLER
ATTORNEYS AT LAW
1625 BROADWAY, SUITE 1600
DENVER, COLORADO 80202
TELEPHONE: (303) 573-1600
FACSIMILE: (303) 573-0769
January 17, 1997
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 Pre-Effective Amendment No. 1 to the Registration Statement
on Form S-4, SEC File No. 333-16163, 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 23.2
[KPMG LOGO]
The Board of Directors
Citizens, Inc.:
We consent to the use of our reports included herein or incorporated herein by
reference and to the reference to our Firm under the heading "Experts" in the
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-4, SEC
File No. 333-16163.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Dallas, Texas
January 17, 1997
<PAGE> 1
EXHIBIT 23.3
[SMITH, CARNEY & CO., P.C. LOGO]
The Board of Directors
Citizens, Inc.:
We consent to the inclusion in this Registration Statement, Pre-Effective
Amendment No. 1, on Form S-4, SEC File No. 333-16163, of our report dated
February 27, 1995 on our audit of the consolidated financial statements of
First American Investment Corporation and Subsidiaries as of December 31, 1994
and for each of the years in the two-year period ended December 31, 1994,
appearing with the Information Statement-Prospectus, which is a part of this
Registration Statement, Pre-Effective Amendment No. 1, and to the reference to
us under the heading of "Experts" in such Information Statement-Prospectus.
/s/ SMITH, CARNEY & CO., P.C.
Smith, Carney & Co., P.C.
Oklahoma City, Oklahoma
January 17, 1997
<PAGE> 1
EXHIBIT 25
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
- -----------------------------
Randall H. Riley Officer and Director
T. Roby Dollar Vice Chairman, Chief Actuary November 12, 1996
- ------------------------------
T. Roby Dollar and Assistant Secretary
Rick D. Riley President, Chief Administrative November 12, 1996
- --------------------------------
Rick D. Riley Officer and Director
/s/ Mark A. Oliver Executive Vice President, November 12, 1996
- ------------------------------
Mark A. Oliver Secretary/Treasurer and
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> 2
<TABLE>
<S> <C> <C>
/s/ Joe R. Reneau Director November 12, 1996
- -----------------------------
Joe R. Reneau, M.D.
- ----------------------------- Director November 12, 1996
Steven F. Shelton
Ralph M. Smith 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>
