<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------
CITIZENS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
COLORADO 6311 84-0755371
-------- ---- ----------
<S> <C> <C>
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
</TABLE>
400 EAST ANDERSON LANE
AUSTIN, TEXAS 78752
(512) 837-7100
-----------------------
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
----------
MARK A. OLIVER, PRESIDENT
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)
----------
COPY TO:
REID A. GODBOLT, ESQ.
JONES & KELLER, P.C.
1625 BROADWAY, SUITE 1600
DENVER, COLORADO 80202
(303) 573-1600
---------
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, 611,000(1) $6.00(2) $3,666,000 $1,019
No Par Value shares
================================================================================================================================
</TABLE>
(1) Represents the maximum number of shares of the Registrant's Class A Common
Stock to be issued in connection with the merger described herein.
(2) Estimated pursuant to Rule 457(f)(1) and (2) solely for the purpose of
calculating the registration fee based on the market value of the
securities to be received by the Registrant as determined on November 5,
1998.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE> 2
CITIZENS, INC.
Cross-Reference Sheet
For
Registration Statement on Form S-4 and Prospectus-Proxy Statement
<TABLE>
<CAPTION>
Form S-4
Item No. Item Caption Heading in Prospectus
- --------- ----------------------------------------------------------------------------------
<S> <C> <C>
1 Forepart of Registration Statement Outside Front Cover
and Outside Front Cover Page of
Prospectus
2 Inside Front and Outside Back Cover Inside Front Cover
Pages of Prospectus
3 Risk Factors, Ratio of Earnings to Summary; Risk Factors; Proposed
Fixed Charges and Other Information Merger; Management's Discussion of
Financial Condition and Results of
Operation
4 Terms of the Transaction Summary; Proposed Merger; Information
Concerning First Investors Group, Inc.
("Investors"); Comparison of Rights of
Securityholders; Certain Federal Income
Tax Consequences
5 Pro Forma Financial Information Not applicable
6 Material Contracts with the Company Summary; Proposed Merger -
Being Acquired Background and Reasons
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
</TABLE>
ii
<PAGE> 3
<TABLE>
<CAPTION>
Form S-4
Item No. Item Caption Heading in Prospectus
- --------- ----------------------------------------------------------------------------------
<S> <C> <C>
10 Information with Respect to S-3 Available Information and
Registrants Incorporation of Certain Documents
by Reference; Risk Factors
11 Incorporation of Certain Information Available Information and
by Reference Incorporation of Certain Documents
by Reference
12 Information with Respect to S-2 or Not applicable
and S-3 Registrants
13 Incorporation of Certain Information Not applicable
by Reference
14 Information with Respect to Not applicable
Registrants Other Than S-2
or S-3 Registrants
15 Information with Respect to S-3 Not applicable
Companies
16 Information with Respect to S-2 or Not applicable
S-3 Companies
17 Information with Respect to Summary; Summary Selected
Companies Other than S-2 or Financial Data; The Special Meeting;
S-3 Companies Proposed Merger; Information Concerning
Investors; Management's Discussion of
Financial Condition and Results of
Operations; Financial Statements
18 Information if Proxies, Consents Summary; The Special Meetings;
or Authorizations are to be Solicited Information Concerning Directors and
Executive Officers; Rights of
Dissenting Shareholders
19 Information if Proxies, Consents Not applicable
or Authorizations Are Not To Be
Solicited in an Exchange Offer
</TABLE>
iii
<PAGE> 4
NOTICE OF SPECIAL SHAREHOLDERS' MEETING
WHAT: Special Shareholders' Meeting
WHEN: ________, 1998
WHERE: ________, Bloomington, Illinois
We are having a Special Shareholders' Meeting of First Investors Group, Inc.
("Investors") to:
o Vote on a merger; and
o Transact any other business that may properly come before the
Meeting or any adjournment.
<TABLE>
<CAPTION>
IF THE MERGER IS APPROVED WHO CAN VOTE
<S> <C>
o Investors' shareholders will exchange their Only Investors' shareholders at the close of
shares for Citizens, Inc. ("Citizens") Class A business on _____, 1998, may vote at the Meeting.
Common Stock as described in the accompanying document.
o Investors will become a subsidiary of Citizens, Inc.
</TABLE>
RIGHT TO DISSENT
If you disagree with the Merger, you may seek payment for your
Investors shares by strictly following the procedures described in
Appendix B.
Shareholders are cordially invited to attend the Meeting. Whether or not
you plan to attend the Meeting, please fill in, date, sign, and return promptly
the enclosed proxy card in the enclosed postage-prepaid envelope. With your
proxy, your shares will be voted at the Meeting as instructed if you cannot
attend in person. Even if you send in your proxy, you may reclaim your right to
vote in person when you attend the Meeting.
By Order of the Board of Directors
H. Marie Dennis, Secretary
Springfield, Illinois
____________, 1998
iv
<PAGE> 5
FIRST INVESTORS GROUP, INC.
PROXY STATEMENT FOR SPECIAL SHAREHOLDERS' MEETING
TO BE HELD ________, 1998
[CITIZENS LOGO] CITIZENS, INC. PROSPECTUS
CLASS A COMMON STOCK, NO PAR VALUE
UP TO 611,000 SHARES
This document:
o is furnished by the Board of Directors of First Investors Group, Inc.
("Investors") to request a proxy for voting your Investors stock on the
Plan and Agreement of Merger dated September 10, 1998 (the "Merger
Agreement") between Investors, Citizens, Inc. ("Citizens") and Excalibur
Acquisition, Inc. ("Acquisition"); and
o registers the shares of Class A Common Stock of Citizens to be issued in
exchange for Investors shares if the Merger occurs.
------------------------
THE MERGER
If the Merger occurs, you will receive one share of Citizens Class A
Common Stock for each 6.6836 shares of your Investors stock (whether
Common or Preferred Stock) and cash for any fractional Citizens shares
based on a negotiated value of $6.00 per Citizens Class A share.
The Investors' Board Of Directors UNANIMOUSLY RECOMMENDS that
shareholders APPROVE the Merger Agreement.
Citizens Class A Common Stock is traded on the American Stock Exchange
under the symbol "CIA." On November 5, 1998, the closing price of
Citizens Class A Common Stock was $6.00 per share. If the Merger
occurs, we will mail you instructions for exchanging your Investors
shares for Citizens Class A Common Stock.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus-proxy statement is truthful or complete.
Any representation to the contrary is a criminal offense.
------------------------
THE SECURITIES INVOLVE SIGNIFICANT RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 10.
------------------------
The date of this Proxy Statement-Prospectus is___________________, 1998.
v
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION.....................................................................................................1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...........................................................................1
FORWARD-LOOKING STATEMENTS................................................................................................2
SUMMARY .................................................................................................................3
THE PLAN AND AGREEMENT OF MERGER..........................................................................................5
SUMMARY SELECTED FINANCIAL DATA...........................................................................................8
COMPARATIVE PER SHARE DATA................................................................................................9
RISK FACTORS.............................................................................................................10
THE SPECIAL MEETING......................................................................................................14
PROPOSED MERGER..........................................................................................................17
INVESTORS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................................................24
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................................................................................27
RIGHTS OF DISSENTING SHAREHOLDERS........................................................................................31
INFORMATION CONCERNING INVESTORS.........................................................................................34
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE..........................................................................36
COMPARISON OF RIGHTS OF SECURITYHOLDERS..................................................................................37
EXPERTS ................................................................................................................39
LEGAL MATTERS............................................................................................................40
OTHER MATTERS............................................................................................................40
FINANCIAL STATEMENTS....................................................................................................F-1
APPENDIX A -- Plan and Agreement of Merger
APPENDIX B -- Article XI, Sections 5/11.65 and 5/11.70, of
the Illinois Business Corporation Act Governing Rights of
Dissenting Shareholders of Investors
</TABLE>
vi
<PAGE> 7
AVAILABLE INFORMATION
Citizens files annual, quarterly, and special reports, proxy statements and
other information with the Securities and Exchange Commission ("SEC"). Those
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the SEC at the SEC's Public
Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549, telephone (800)
SEC-0330, and at the regional offices of the SEC at 13th Floor, 7 World Trade
Center, New York, New York 10048, and Suite 1400, Citicorp Center, 500 West
Madison Street, Chicago, Illinois 60661. Copies can be obtained at prescribed
rates from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, copies may be inspected at
the offices of the American Stock Exchange, 86 Trinity Place, New York, New York
10006-1881 and on the SEC Internet website at http://www.sec.gov.
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"), for the shares of Citizens Class A Common Stock to be issued
in connection with the transactions described herein. In accordance with SEC
rules and regulations, this Proxy Statement-Prospectus does not contain all the
information set forth in the Registration Statement. For further information,
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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by Citizens with the SEC pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act") (File
No. 0-16509) and are incorporated by reference into this Proxy
Statement-Prospectus:
(a) Citizens' Annual Report on Form 10-K filed on March 31, 1998, for the
year ended December 31, 1997;
(b) the description of Citizens' Class A Common Stock contained in its
Registration Statement on Form 8-A declared effective by the SEC on
April 14, 1994;
(c) Citizens' Quarterly Report on Form 10-Q filed on or about August 14,
1998, for the quarter ended June 30, 1998; and
(d) Citizens' Current Report on Form 8-K filed on August 21, 1998.
All documents filed by Citizens pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement-Prospectus and
prior to the Meeting are incorporated by reference into this Proxy
Statement-Prospectus as a part hereof from the date of the filing of such
documents. Any statement contained herein or in a document incorporated by
reference herein will be deemed to be modified or superseded for purposes of
this Proxy Statement-Prospectus to the extent that a statement contained herein
or in any subsequently filed document that is also incorporated by reference
herein modifies or supersedes such statement. The foregoing sentence does not
apply to Investors or any of its affiliates. Any statement so modified or
superseded shall not be deemed to constitute a part of this Proxy
Statement-Prospectus, except as so modified or superseded.
1
<PAGE> 8
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT CITIZENS THAT IS NOT INCLUDED OR DELIVERED WITH
THIS DOCUMENT. YOU MAY OBTAIN THIS INFORMATION WITHOUT CHARGE BY REQUEST TO
SECRETARY, CITIZENS, INC., P.O. BOX 149151, AUSTIN, TX 78714-9151;
TELEPHONE (512) 837-7100. TO ENSURE TIMELY DELIVERY, ANY REQUEST SHOULD BE
MADE AT LEAST FIVE BUSINESS DAYS BEFORE _____, 1998.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Proxy Statement/Prospectus are not
statements of historical fact and constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act (the "Act"),
including, without limitation, statements specifically identified as
forward-looking statements within this document. In addition, certain statements
in future filings by Citizens with the Securities and Exchange Commission, in
press releases, and in oral and written statements made by or with the approval
of Citizens or Investors which are not statements of historical fact constitute
forward-looking statements within the meaning of the Act. Examples of
forward-looking statements, include, but are not limited to: (i) projections of
revenues, income or loss, earnings or loss per share, the payment or non-payment
of dividends, capital structure, and other financial items, (ii) statements of
plans and objectives of Citizens, Investors or either of their management or
Boards of Directors including those relating to products or services, (iii)
statements of future economic performance and (iv) statements of assumptions
underlying such statements. Words such as "believes", "anticipates", "expects",
"intends", "targeted", "may", "will" and similar expressions are intended to
identify forward-looking statements but are not the exclusive means of
identifying such statements.
Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from those in such statements. Factors that
could cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to: (i) the strength of foreign and U.S.
economies in general and the strength of the local economies in which operations
are conducted; (ii) the effects of and changes in trade, monetary and fiscal
policies and laws; (iii) inflation, interest rates, market and monetary
fluctuations and volatility; (iv) the timely development of and acceptance of
new products and services and perceived overall value of these products and
services by existing and potential customers; (v) changes in consumer spending,
borrowing and saving habits; (vi) concentrations of business from persons
residing in third world countries; (vii) acquisitions; (viii) the persistency of
existing and future insurance policies sold by subsidiaries of Citizens or
Investors; (ix) the dependence of Citizens on its Chairman of the Board; (x) the
ability to control expenses; (xi) the effect of changes in laws and regulations
(including laws and regulations concerning insurance) with which Citizens,
Investors and their subsidiaries must comply, (xii) the effect of changes in
accounting policies and practices, as may be adopted by the regulatory agencies
as well as the Financial Accounting Standards Board, (xiii) changes in the
organization and compensation plans of Citizens or Investors; (xiv) the costs
and effects of litigation and of unexpected or adverse outcomes in such
litigation; and (xv) the success of Citizens and Investors at managing the risks
involved in the foregoing.
Such forward-looking statements speak only as of the date on which such
statements are made, and Citizens and Investors undertake no obligation to
update any forward-looking statement to reflect events or circumstances after
the date on which such statement is made to reflect the occurrence of
unanticipated events.
2
<PAGE> 9
SUMMARY
This is a summary. Please read the entire Proxy Statement-Prospectus before
you make an investment decision.
PARTIES TO THE MERGER
Citizens, a Colorado corporation, is a life insurance holding company.
Citizens' principal executive office is located at 400 East Anderson Lane,
Austin, Texas 78752, and its telephone number there is (512) 837-7100. Excalibur
Acquisition, Inc. ("Acquisition"), an Illinois corporation, is a wholly-owned
subsidiary of Citizens that was recently formed solely for this Merger.
Acquisition has the same principal executive office as Citizens.
Investors, an Illinois corporation, is an insurance holding company.
Investors' principal executive office is located at 1709 South Fifth Street,
Springfield, Illinois 62703-3116 and the telephone number there is (217)
528-4403. Excalibur Insurance Corporation ("Excalibur") is an Illinois-domiciled
life insurance company. Excalibur has the same principal office as Investors.
Neither Investors nor any of its officers or directors are affiliated with
Citizens, nor are any officers or directors of Citizens affiliated with
Investors. If the Merger is approved, Investors will become a subsidiary of
Citizens.
Neither class of Investors' stock is exchange-listed or traded regularly
through security brokerage firms, and there is virtually no over-the-counter
trading activity. Consequently, we are unable to determine a reliable market
value for Investors' Common or Preferred Stock. For an explanation of the manner
in which Citizens, Investors and Acquisition negotiated the share exchange
ratios for the Merger, see "Proposed Merger -- Background and Reasons for
Merger."
<TABLE>
<S> <C>
PERSONS ENTITLED TO VOTE; RECORD DATE The Record Date is the close of business on _____,
1998. Only Investors shareholders as of the Record
Date will be notified of, and entitled to vote at, the
Special Meeting of Shareholders.
DATE, TIME AND PLACE OF SPECIAL MEETING The Special Meeting of Investors shareholders will be
held on ________, 1998 at ____ a.m., Central Time, at
__________, Bloomington, Illinois.
BUSINESS TO BE TRANSACTED At the Meeting, shareholders will be asked to vote upon a
Merger Agreement under which Acquisition will merge into
Investors.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS The Investors' Board of Directors has unanimously
approved the Merger Agreement and RECOMMENDS that
the shareholders vote FOR APPROVAL of the Merger.
Two out of three directors have interests in the Merger
that are in addition to their interests as shareholders of
Investors. The other member of the Investors' Board,
</TABLE>
3
<PAGE> 10
<TABLE>
<S> <C>
who is also an officer of Investors, was aware of these
interests and considered them in approving the Merger
Agreement. The Investors' Board of Directors did not
solicit or receive an outside fairness opinion with respect
to the Merger. See "Proposed Merger -- Background
and Reasons for the Merger--Recommendation of
Investors' Board of Directors and --Interests of Certain
persons in the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER The Chief Executive Officer of Investors, Don Dennis,
and his wife, H. Marie Dennis, Secretary and Treasurer
of Investors, have interests in the Merger that are in
addition to their interests as shareholders of Investors.
Upon the closing of the Merger, Citizens will retain Mr.
Dennis as a consultant for a 36 month period at $8,333
per month, or $100,000 per year, plus insurance
commissions on certain business he obtains. H. Marie
Dennis will be the beneficiary of amounts payable under
the consulting contract in the event of the death of Mr.
Dennis. Mr. and Mrs. Dennis are two out of three
members of the Board of Directors of Investors.
PROXY REVOCABILITY Proxies are revocable at any time prior to voting at the
Meeting. See "The Special Meeting -- Revocability of
Proxies."
REQUIRED VOTE Approval of the Merger Agreement and the transactions
contemplated thereby requires the affirmative vote of a
majority of the outstanding Investors Common Stock
and Preferred Stock, voting together as a group. See
"The Special Meeting -- Voting Securities." No
shareholder vote of Citizens is required by the Merger
Agreement or applicable law.
OUTSTANDING SHARES OF INVESTORS As of the Record Date there were outstanding 2,038,820
shares of Investors Common Stock and 2,038,820 shares
of Investors Preferred Stock. As of the Record Date,
Investors' directors, executive officers and their
affiliates held 1,329,003 shares of Investors Common
Stock and 32,750 shares of Investors Preferred stock or
a total of 33.4% of the shares entitled to vote.
</TABLE>
4
<PAGE> 11
THE PLAN AND AGREEMENT OF MERGER
<TABLE>
<S> <C>
CONSIDERATION FOR YOUR SHARES Under the Merger Agreement, Investors' shareholders
will receive one share of Citizens Class A Common
Stock for each 6.6836 shares of Investors Stock
(Common or Preferred) held as of the Record Date.
Fractional shares will not be issued. Instead, fractional
share amounts will be purchased based on a cash value
of $6.00 per Citizens Class A share. Any Investors
shareholder who perfects dissenters' rights under Illinois
law will receive cash in lieu of Citizens Class A
Common Stock. See "Proposed Merger -- Receipt of
Citizens Shares" and "Rights of Dissenting
Shareholders."
CLOSING DATE The parties believe that the Closing will occur and the
Merger will become effective shortly after the conditions in
the Merger Agreement (including shareholder approval) are
satisfied.
CONDUCT OF BUSINESS PRIOR TO CLOSING Investors has agreed that it and Excalibur Insurance
Corporation ("Excalibur") will not: (1) enter into any
transactions prior to the Merger other than in the
ordinary course of business, (2) pay shareholder
dividends or increase the compensation of officers, nor
(3) enter into any agreement or transaction which will
adversely affect their respective financial conditions.
See "Proposed Merger -- Conduct of Business Pending
the Merger; the Covenants of the Parties."
DISSENTERS' RIGHTS Investors' shareholders may dissent from the Merger and
demand payment of their share values in cash. If
holders of more than 2.5% (approximately 100,000) of
the outstanding shares of Investors perfect their
dissenter's rights, Citizens may cancel the Merger. See
"Rights of Dissenting Shareholders," "Proposed Merger
-- Other Conditions to Consummation of the Merger,"
and Appendix B which contains copies of the Illinois
statutes for dissenting shareholder procedures.
CONDITIONS TO THE MERGER In addition to approval by Investors' shareholders, the
Merger is subject to satisfaction of other conditions
including: (1) the performance by each party of its
obligations; (2) the absence of any legal proceeding
relating to the transactions contemplated by the Merger
Agreement; (3) the continued material accuracy of
representations made by each party; and (4) the delivery
of legal opinions. See "Proposed Merger -- Other
Conditions."
</TABLE>
5
<PAGE> 12
<TABLE>
<S> <C>
OPERATIONS OF INVESTORS AFTER THE MERGER Following the Merger, Investors and its subsidiaries will
continue to operate in their locations under a combined
management team, with the consolidation of computer
data processing in Citizens' system. Citizens will
continue to evaluate the personnel, business practices
and opportunities for Investors and its subsidiaries and
may make such changes as it deems appropriate
following the Merger.
SUMMARY OF FEDERAL INCOME TAX CONSIDERATIONS The Merger is intended to be treated as a reorganization
within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and
that, accordingly, for federal income tax purposes: (i) no
material gain or loss will be recognized by Investors or
Citizens as a result of the Merger; (ii) no gain or loss
will generally be recognized by holders of Investors
Common Stock and Investors Preferred Stock
("Investors Stock") on the exchange of their shares of
Investors Stock for Citizens Class A Common Stock
pursuant to the Merger; and (iii) the aggregate adjusted
tax basis of Citizens Class A Common Stock received
by an Investors shareholder in exchange for his Investors
Stock will be the same as the basis of the Investors Stock
surrendered in exchange therefor. Consummation of the
Merger is conditioned upon receipt by Investors of an
opinion of counsel substantially to such effect.
However, a ruling from the Internal Revenue Service is
not being sought in connection with the Merger. The
opinion of counsel is not binding on the Internal
Revenue Service. If the Merger were not to so qualify,
the exchange of shares would be taxable. See "Certain
Federal Income Tax Consequences."
TERMINATION AND AMENDMENT OF THE MERGER The Merger Agreement may be terminated by either
AGREEMENT party if it is not effective by April 1, 1999. See
"Proposed Merger -- Other Conditions." The Merger
Agreement may also be terminated at any time prior to
becoming effective (1) by unanimous consent of the
parties; (2) by any beneficiary of a condition precedent
to the Merger if the condition has not been met or
waived; (3) by any party if a suit, action, or proceeding
threatens to prohibit the Merger; or (4) by any party
who discovers a material error in the representations of
another party.
</TABLE>
6
<PAGE> 13
<TABLE>
<S> <C>
OTHER MATTERS The Investors' Board knows of no other matters that will
come before the Meeting. If any additional matters come
before the Meeting, the proxies will be voted at the
discretion of the proxy holders.
FORWARD LOOKING STATEMENTS Certain statements contained or incorporated by
reference in this Proxy Statement/Prospectus relate to
future matters which are qualified in certain respects.
See "Available Information and Incorporation of Certain
Documents by Reference."
</TABLE>
7
<PAGE> 14
SUMMARY SELECTED FINANCIAL DATA
The tables below set forth in summary certain selected financial data of
Citizens and Investors. This data is not covered in the reports of the
independent auditors but should be read in conjunction with the consolidated
financial statements and notes which are included elsewhere herein or
incorporated by reference herein.
<TABLE>
<CAPTION>
CITIZENS, INC.
(in thousands, except per share amounts)
At or for the At or for the Year Ended
Six Months Ended June 30, December 31,
-------------------------- -------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 34,623 $ 30,059 $ 65,027 $ 63,822 $ 53,130 $ 49,212 $ 42,761
Net income 312 399 3,426 2,214 2,750 4,175 5,526
Basis and diluted earnings
per share 0.01 0.02 0.16 0.11 0.16 0.25 0.34
Total assets 250,979 229,792 249,519 218,277 209,308 149,798 134,105
Total liabilities 171,683 155,854 169,938 151,394 144,595 114,742 106,090
Total shareholders' equity 79,296 73,937 79,581 66,883 64,713 35,056 28,015
Book value per share 3.71 3.51 3.72 3.29 3.24 1.99 1.68
</TABLE>
<TABLE>
<CAPTION>
FIRST INVESTORS GROUP, INC.
At or for the At or for the Year Ended
Six Months Ended June 30, December 31,
------------------------- --------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 114,112 $ 104,713 $ 283,518 $ 201,805 $ 134,039 $ 120,872 $ 53,753
Net income (loss) (40,005) (28,504) (7,714) 53,689 43,225 41,518 7,831
Net income (loss) per
share(1) (0.02) (.01) (.00) .04 .03 .03 .01
Total assets 3,276,000 3,318,000 3,288,000 3,157,000 2,761,000 2,101,000 1,872,000
Total liabilities 44,000 54,000 16,000 43,000 73,000 57,000 69,000
Total shareholders'
equity 3,232,000 3,264,000 3,272,000 3,115,000 2,688,000 2,044,000 1,803,000
Book value per preferred
share(2) 1.59 1.60 1.60 1.59 1.53 1.47 1.49
Fully diluted book value
per share(3) .81 0.82 0.82 0.83 0.88 0.70 1.02
</TABLE>
- -----------
(1) Based on weighted average of preferred shares.
(2) Based on preferred shares outstanding at end of period.
(3) Based on total common and preferred shares outstanding at end of period.
8
<PAGE> 15
COMPARATIVE PER SHARE DATA
The following table compares the historical and pro forma per share data
for Citizens and Investors. The pro forma data reflects the proposed Merger
transaction as if it was accounted for as a purchase. The data contained in the
table is based upon the historical financial statements appearing elsewhere
herein or incorporated by reference herein.
<TABLE>
<CAPTION>
Citizens
Common Stock Investors Pro Forma
------------ --------- ---------
<S> <C> <C> <C>
Basic and diluted earnings per share:
Year ended December 31, 1997 $.16 $.00 $.16
Six months ended June 30, 1998 .01 (.02) .01
Book value per share:
December 31, 1997 3.72 .81 3.76
June 30, 1998 3.71 .82 3.75
</TABLE>
9
<PAGE> 16
RISK FACTORS
You should read the entire Proxy Statement-Prospectus carefully in
evaluating Citizens and its business. The following is a summary of risk factors
particularly applicable to Citizens:
SIGNIFICANT MARKET OVERHANG. Citizens filed in 1995 a registration
statement with the SEC permitting the public offer and sale by certain holders
of our Class A Common Stock, including Harold E. Riley, Chairman of our Board,
who owns 4,553,211 shares of Class A Common Stock or approximately 22% of our
outstanding Class A Common Stock. Sales of significant amounts of these shares
in the public market could depress the price of our Class A Common Stock.
Further, the prospect of such significant amounts of shares being offered into
the public market may depress the price of our Class A Common Stock even without
actual sales.
DEPENDENCE ON CITIZENS' CHAIRMAN. We rely heavily on the active
participation of our Chairman of the Board, Harold E. Riley. The loss of his
services would likely have a significant adverse effect on us. We do not have an
employment agreement with Mr. Riley, but we do have "key man" life insurance on
Mr. Riley totaling $1.25 million of which Citizens is the beneficiary.
CONTROL. Our outstanding Class B shares of Common Stock elects a
majority of the Board of Directors. All of the Class B Common Stock is owned
indirectly (through the Harold E. Riley Trust) by Harold E. Riley, our Chairman
of the Board. As a result, it could be more difficult and time consuming for a
third party to acquire control of us or to change our Board of Directors.
Additionally, Mr. Riley is the largest Class A shareholder. As a practical
matter, Mr. Riley has veto power over significant corporate transactions.
CONCENTRATION OF BUSINESS FROM PERSONS RESIDING IN THIRD WORLD
COUNTRIES. Approximately 83% of our total insurance premium revenue of our
primary insurance subsidiary, Citizens Insurance Company of America, for the
year ended December 31, 1997, and approximately 86% of such total insurance
premium revenue for the year ended December 31, 1996 was derived from policies
issued on the lives of Latin Americans. These policies are ordinary, whole-life
policies with an average face amount of $70,000 and are marketed by independent
marketing firms primarily to heads of households in the top 3% to 5% income
bracket of such countries. There is a risk of loss of a significant portion of
sales to Latin Americans should adverse events occur in the countries from which
we receive applications. We include various limitations in our policies to
minimize losses caused by social, economic and political conditions. We are not
aware of any adverse trends in these countries which would have a material
adverse impact on our business.
INABILITY TO ELECT DIRECTORS. Our Class A Common Stock to be issued to
Investors' shareholders if the Merger occurs represents a minority interest.
Cumulative voting of shares is not permitted by our Articles of Incorporation.
Our minority shareholders cannot elect any of our directors or otherwise control
our policies. Since Class B Common Stock elects a majority of the Board, control
of us lies outside the Class A shareholders. See "Comparison of Rights of
Securityholders."
NO DIVIDENDS. To date, we have not paid cash dividends and it is our
current policy to retain earnings for use in the operations and expansion of our
business. Hence, it is highly unlikely that cash dividends will be paid in the
near future. Also, our Class A Common Stock has a right to twice the cash
dividends of our Class B shares. Because our Class B shareholders control us,
10
<PAGE> 17
there is little economic incentive for our Class B shareholders to decide that
cash dividends should be paid when they will receive only one-half of the per
share cash dividends of our Class A Common shares, except that the beneficiaries
and trustee of the Harold E. Riley Trust, which holds our Class B Common shares,
are also the largest holders of our Class A Common shares.
PERSISTENCY. Persistency is the extent to which policies sold remain
in-force. Policy lapses over those actuarially anticipated could adversely
affect our financial performance. 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 we maintain
our lapse and surrender rate within the pricing assumptions for its insurance
policies, we believe that our lapse and surrender rates should not have a
material adverse effect on our financial results. For the years ended December
31, 1997, 1996 and 1995, our lapse ratio on ordinary business was 4.3%, 4.6% and
4.1%, respectively.
AMORTIZATION OF GOODWILL. Because of the slowdown in sales activity on
the part of the agency operations previously associated with a recently acquired
company, we are monitoring the excess of cost over net assets acquired
associated with that acquisition (i.e. "goodwill"). Should future production
levels be less than anticipated, a charge-off in the vicinity of $8,000,000
associated with such decline could be incurred. We are monitoring this situation
and believe it will be the fourth quarter of 1998 before significant levels of
production are obtained from these agents. In the event any such goodwill proves
unrecoverable, a charge in the appropriate period will be booked. Based upon
production during the first half of 1998, and assuming no further production,
which management does not expect to occur, the amount of the potential charge
would be approximately $8,000,000.
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 we have. Such companies also generally have larger sales forces.
We also face competition from companies operating in foreign countries and
marketing in person as well as with direct mail sales campaigns. Although we may
be at a competitive disadvantage to these entities, we believe that our products
are competitive in the marketplace. We experience competition in our markets
primarily from the following sources:
o Locally Operated Companies with Local Currency Policies. We compete
with companies formed and operated in the country in which the
policies are sold. Generally, these companies (1) are subject to risks
of currency fluctuations, and (2) use mortality tables based on the
experience of the local population as a whole. These mortality tables
are typically based on significantly shorter life spans than those we
use. As a result, the economic return of policies issued by locally
operated companies is more uncertain than for U.S. dollar policies,
and their statistical cost of insurance tends to be higher than ours.
o Foreign Operated Companies with Local Currency Policies. Another group
of competitors consists of foreign companies that use local
currencies. Local currency policies entail risks of uncertainty due to
local currency fluctuations as well as perceived instability and
weakness of local currencies. We have observed that local currency
policies (issued by either foreign or locally operated companies) tend
to focus on universal life insurance and annuities instead of whole
life insurance. In contrast, we sell primarily whole life insurance
policies.
11
<PAGE> 18
o Foreign Operated Companies with U.S. Dollar Policies. We face
competition from companies that operate in the same manner as we do.
We believe that our competitive advantages include a history of
performance, our sales force and our products, which have consistently
paid a cash dividend on the policies issued.
REGULATION. Insurance companies are subject to extensive regulation in
the jurisdictions where they do business. These regulations require, among other
things, prior approval of acquisitions of controlling interest in an insurance
company; certain solvency standards; licensing of insurers and their agents;
investment limitations; securities deposits for the benefit of policyholders;
approval of policy forms and premium rates; triennial examinations of insurance
companies; annual and other reports concerning financial condition and other
matters; reserves for unearned premiums, losses and other matters. We are
subject to this type of regulation in each state in the U.S. in which we are
licensed to do business. This regulation involves additional costs and restricts
operations.
We are regulated by the Colorado Division of Insurance under the
Colorado Insurance Holding Company Act. Certain "extraordinary" intercorporate
transfers of assets and dividend payments from our life insurance subsidiaries
require prior approval by the Colorado Insurance Commissioner. We also file
detailed annual reports with the Colorado Division of Insurance and all of the
states in which we are licensed. The business and accounts of our life insurance
subsidiaries are subject to examination by the Colorado Division of Insurance.
The most recent examination of our life insurance subsidiary was for the five
years ended December 31, 1996.
Our principal insurance subsidiary is chartered as an insurance company
only in the U.S. It does not have any assets or employees in foreign countries.
We only accept at our main office in the U.S. applications together with and
premiums in U.S. currency (including checks drawn on U.S. banks). We are not
currently subject to regulation in the various foreign countries from which we
receive applications by foreign citizens. Although we provide insurance to
applicants who are foreign citizens, these applications are submitted by
independent marketing firms (rather than through our employees to avoid
"conducting business" in foreign countries). However, we are unable to predict
if foreign regulation will be implemented and, if so, the effect of any such
regulation on our business.
UNINSURED CASH BALANCES. We maintain average cash balances in one bank,
Chase Bank, Texas, that is significantly in excess of Federal Deposit Insurance
Corporation coverage. If this bank were to fail, we would likely lose a
substantial amount of our cash. At December 31, 1997, we had approximately $4.4
million in Chase Bank, Texas. We monitor the solvency of this bank and we do not
believe a material risk of loss exists since this bank is currently above the
federally mandated levels of capital and liquidity. We also invest in short-term
U.S. Treasury securities and top-rated commercial paper issues to manage
temporary excess cash balances.
INTEREST RATE VOLATILITY; INVESTMENT SPREAD RISKS. Fluctuating interest
rates affect the profitability of insurance companies. An insurance company's
profitability depends, in large part, on investing premiums at a higher interest
rate than the interest rate paid to existing policies. Rapid interest rate
changes hamper an insurance company's ability to maintain this positive spread
and also increase the lapse rates of policies in-force. We do not issue
interest-sensitive or universal life insurance policies and we have only a small
amount of annuity business. We do, however, have an investment portfolio that
would likely be adversely affected in the event of material increases in
interest rates.
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<PAGE> 19
TAX CONSEQUENCES. The transactions contemplated by the Merger Agreement
are intended to be a tax-deferred exchange within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended. However, we have not obtained a
ruling from the Internal Revenue Service concerning whether the transaction will
in fact be treated as a tax-deferred exchange. We will, however, obtain an
opinion of counsel which will support the conclusions contained in this
prospectus-proxy statement regarding the material federal income tax
consequences of the Merger Agreement and transactions contemplated thereby to
Investors and its shareholders. You should understand that an opinion of counsel
is not binding on the Internal Revenue Service. Furthermore, the conditions upon
which our counsel's opinion is qualified may not continue to exist and the laws
or regulations affecting the material federal income tax consequences of this
Merger may change. In either event, the tax aspects of the Merger may be
adversely affected, and such effect may be material. As a result, there can be
no assurance that the Merger will be accorded the tax treatment intended and
that recipients of Class A Common Stock of Citizens will realize the tax
consequences described herein. See "Certain Federal Income Tax Consequences."
13
<PAGE> 20
THE SPECIAL MEETING
Date, Time and Place of Meeting
A Special Meeting of Investors' Shareholders will be held on ________,
1998 at ___ a.m., Central Time, at _______________, Bloomington, Illinois.
BUSINESS TO BE TRANSACTED AT THE SPECIAL MEETING
We mailed you this Proxy Statement-Prospectus on ________, 1998 to
solicit your proxy to vote for the Merger with Citizens. If the Merger is
approved and closes, you will receive one share of Citizens for each 6.6836
shares of Common or Preferred Investors Stock which you hold.
As of the date of this Proxy Statement-Prospectus, we know of no other
business that will come before the Meeting. Should any other matter requiring a
vote of shareholders arise, the proxies named in the enclosed form of proxy will
vote the shares in their discretion with respect to any such matter.
VOTING SECURITIES
Only Investors' shareholders of record at the close of business on
_____, 1998 will be entitled to vote at the Meeting. On that date, there were
issued and outstanding 2,038,820 shares of Common Stock and 2,038,820 shares of
Preferred Stock. Each share of stock (whether Common or Preferred Stock) is
entitled to one vote per share with respect to the Merger, and the holders of
Common Stock and Preferred Stock will vote together as a group. The affirmative
vote of a majority of the combined outstanding Investors' Common and Preferred
Stock is necessary to approve the Merger.
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
The following information is furnished with respect to each director
and executive officer.
<TABLE>
<CAPTION>
Year First
elected as director Positions with
Name of director Age of Investors Investors(1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Donald L. Dennis 63 1990 Chairman & President of Investors
since 1990
H. Marie Dennis 54 1990 Secretary & Treasurer since 1990
Winona L. Drewes 50 1990 Assistant Secretary since 1990
</TABLE>
- -----------
(1) The principal occupation of each individual for at least the last five
years has been in the positions noted above with Investors.
The full Board of Directors serves as the Audit Committee.
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<PAGE> 21
All directors and officers are elected for a term of one year or until
their successors have been duly elected and qualified.
Donald L. Dennis, Director, Chairman and President, is the husband of
H. Marie Dennis, Director and Secretary & Treasurer. There are no other family
relationships among the officers or directors listed, and there are no
arrangements or understandings pursuant to which any of them were elected as
officers or directors.
There have been no events under any bankruptcy act, no criminal
proceedings and no judgments or injunctions material to the evaluation of the
ability and integrity of any director or executive officer during the past five
years.
EXECUTIVE COMPENSATION
Current Officer's Compensation
The following table sets forth compensation of the President of
Investors and its subsidiaries. No executive officer of Investors or its
subsidiaries received compensation exceeding $100,000 for any of the last three
fiscal years. Neither Investors nor any of its subsidiaries have any restricted
stock awards, stock appreciation rights or long-term incentive plans for its
executive officers.
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Other
Annual
Name and Principal Position Year Salary Bonus Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Donald L. Dennis, 1997 $-0- -0- $46,698(1)
President (CEO) 1996 -0- -0- -0-
1995 -0- -0- -0-
====================================================================================================================================
</TABLE>
- ----------
(1) Represents commissions paid to Mr. Dennis from the sale of stock of
Investors in an intrastate offering.
Compensation Through Plans and Other Compensation
No employees are covered by a group insurance plan. No option has been
granted to any employee to purchase securities from Investors or its
subsidiaries. There are no pension or retirement benefit plans.
Compensation of Directors
For the last three years, the three Investors directors received $450
in director's fees from Investors as well as its subsidiaries.
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<PAGE> 22
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of _____, 1998, the shares of
Investors Common and Preferred Stock (i) beneficially owned by each director and
officer, (ii) for all directors and officers as a group, and (iii) each person
who is known to Investors to be the beneficial owner of more than 5% of the
Investors Common and Preferred Stock, its only classes of voting securities.
<TABLE>
<CAPTION>
Name and Address Nature and Amount Percent
of Beneficial Owner of Ownership of Class
- ------------------- ----------------- --------
<S> <C> <C>
Donald L. & H. Marie Dennis 1,359,428 shares(1) 33.3%
1709 South 5th Street
Springfield, IL 62703-3116
Winona L. Drewes(2) 2,325 shares(3) *
1709 South 5th Street
Springfield, IL 62703-3116
Directors and 1,361,753 shares 33.4%
Officers as a
Group (three persons)
</TABLE>
- -----------------------------
* Less than one percent.
(1) Consists of 32,500 shares of Preferred Stock and 1,326,928 shares of Common
Stock held as joint tenants.
(2) Held as joint tenant with David F. Drewes. Winona L. Drewes is a director
and officer of Investors.
(3) Consists of 250 shares of Preferred Stock and 2,075 shares of Common Stock.
REVOCABILITY OF PROXIES
Any proxy may be revoked before its exercise at the Meeting or any
adjournment thereof by (1) giving written notice of revocation to the Secretary
of Investors, H. Marie Dennis, prior to the Meeting; (2) giving written notice
of revocation to the Secretary at the Meeting; or (3) signing and delivering a
proxy bearing a later date. The mere presence of a shareholder at the Meeting
will not revoke his or her proxy. However, being present at the Meeting allows a
shareholder to vote in person and revoke any prior proxy.
PROXY SOLICITATION
Investors will pay the cost of soliciting proxies. Officers and
employees of Investors may solicit proxies by telephone and personally, in
addition to solicitation by mail. These persons will receive their regular
salaries but no special compensation for soliciting proxies. Investors will
reimburse brokers, custodians, nominees and other fiduciaries for their charges
and expenses in forwarding materials to beneficial owners of Investors shares,
which charges are not estimated to exceed $5,000 plus expenses.
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<PAGE> 23
PROPOSED MERGER
BACKGROUND AND REASONS
Introduced by a common business associate in March 1998, members of
management of Investors and Citizens met in Springfield, Illinois in June 1998,
after exchanging correspondence discussing the international insurance market
for dollar-denominated whole life policies. Citizens has been an active writer
of such policies for more than 30 years, and Investors' management had several
contacts who had an interest in writing such business. From this discussion, it
became apparent that the two management groups had common views of the market's
potential, as well as a strong belief in whole life insurance as a product.
Following the initial meeting, a subsequent meeting was held to further explore
common interests of the companies. After this meeting, Citizens' management
proposed to Investors' management that perhaps the best course of action would
be for each party to consider joining forces through an acquisition of Investors
by Citizens.
This was appealing to Investors' management for several reasons.
Although successful in raising more than $3 million in capital during its
initial offering, Investors had not been successful in developing a market for
its stock. Consequently, Investors shareholders had no readily available market
to liquidate their interests and this was a concern to Investors' management.
Since Citizens is listed on the American Stock Exchange, its shares offer
liquidity to the shareholders of Investors. Further, association with a
substantially larger company offered Investors opportunities to expand marketing
activities without concern about a shortage of capital.
In late June 1998, Citizens' management forwarded a proposed contract
draft to the management of Investors. Due to the illness of Investors'
President, final negotiations were delayed until the last week of July when the
parties met and Investors made a counterproposal to Citizens. After revisions to
the contract were made and after further discussions, the share exchange ratio
was finalized. Investors and Citizens executed the contract in late August
subject to various conditions including approval by Investors' shareholders.
The valuation of the companies to the proposed transaction centered on
a share exchange ratio. Management of Citizens and Investors recognized that,
due to the lack of a readily ascertainable market for Investors' shares, an
alternative valuation would be necessary. In contrast, the American Stock
Exchange market for Citizens shares permitted the parties to select a closing
price for Citizens shares prior to the contract execution date.
Management of both companies reviewed carefully the assets and
liabilities of Investors, and decided that determination of the exchange ratio
value for Investors should use a book value basis of the company, adjusted to
reflect values which are standard within the life insurance industry. Management
of both companies also reviewed the capital and surplus of Investors' insurance
subsidiary as well as its annual life insurance premium revenue valued at
multiple factors depending upon the profitability of the product and paid-up
policy reserves. State licenses, agency force, and non-admitted capital and
surplus assets of life insurance subsidiaries were reviewed. These values are
summarized in the table below, which was included in the application to the
Illinois Department of Insurance for approval of the Merger.
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<PAGE> 24
<TABLE>
<CAPTION>
Investors
-----------------
<S> <C>
Capital and surplus of subsidiaries, along with
a securities valuation reserve and investment
reserves $2,579,000
Life insurance in force as a multiple of annual
premium revenue 66,000
State licenses 50,000
Agency force 50,000
Non-admitted capital and surplus assets of 915,000
subsidiaries and other miscellaneous values
(Less outstanding obligations) (0)
----------
Total adjusted book value $3,660,000
==========
</TABLE>
For Investors, the adjusted book value per share was determined by
dividing the Investors adjusted book value of $3,660,000 by the fully diluted
number of common and preferred shares (4,077,640) for a result of $0.89772 per
share.
The resulting values were reviewed carefully by each party. Also
discussed at length were how payment would be made to Investors shareholders,
and the tax consequences of the proposed transactions.
RECOMMENDATION OF INVESTORS' BOARD OF DIRECTORS
The Investors' Board of Directors RECOMMENDS APPROVAL OF THE MERGER.
The Board believes that the exchange ratio to the Investors shareholders is fair
since the valuations were performed by the parties on a consistent and
reasonable basis. Further, the Investors' Board of Directors believes that
Citizens' goal to build a profitable, expanding life insurance holding company
is consistent with the goals of Investors and its shareholders. The management
and Board of Directors of Investors, after careful study and evaluation of the
economic, financial, legal and market factors, also believe that the Merger will
provide Citizens with increased opportunity for profitable expansion of its
business, which in turn should benefit Investors shareholders who become
shareholders of Citizens.
Another advantage of affiliation with Citizens is that significant
overhead savings are expected to be realized by Investors and Excalibur through
a Service Agreement with Citizens, which was effective on November 1, 1998.
Under the Service Agreement, Citizens will use its facilities and computer
systems to provide certain services to Excalibur, including insurance
administration, data processing, accounting, daily operating, policy
administration, marketing and management consulting. The Service Agreement has
an initial term of five years (although it can be canceled by Investors on 60
days notice) and renews thereafter on a month-to-month basis. Citizens receives
a fee equal to 12.5% of the actual cost of providing the services.
18
<PAGE> 25
The terms of the Merger Agreement were the result of arm's-length
negotiations between representatives of Investors and Excalibur, on one hand,
and Citizens on the other. Among the positive factors considered by the Boards
of Directors of Investors and Excalibur in deciding to approve and recommend the
Merger were:
1. The terms and conditions of the Merger Agreement, which the
Investors' Board and management believes results in a fair price
for the Investors shares;
2. The financial condition, business assets and liabilities and
management of Citizens;
3. The financial and business prospects of Citizens;
4. The increased liquidity to Investors shareholders including:
o the market on the American Stock Exchange for Citizens
Class A Common Stock;
o the lack of market for the Investors Common Stock;
o the demographics of Investors' shareholder base and their
expressed concerns regarding liquidity and estate settlement;
o the ability to sell Citizens Class A Common stock for cash to
satisfy obligations of a decedent's estate;
5. Economies of scale available in the event of combination of the
companies including, in particular, reduction in the total number
of regulatory filings;
6. Investors' Board of Directors familiarity with and review of the
business, operations, financial condition, earnings and prospects
of Investors;
7. The expectation that the Merger will generally be a tax-deferred
transaction to Investors and its shareholders (see "Certain
Federal Income Tax Considerations");
8. The growth and liquidity potential to Investors shareholders as
future holders of Citizens Class A Common Stock compared to the
historical growth and liquidity of the Investors Common Stock and
Preferred Stock;
9. The review by the Investors' Board of Directors of Citizens'
business, operations, earnings and financial condition on a
historical, prospective and pro forma basis, and the enhanced
opportunities for growth that the Merger makes possible;
10. The current and prospective economic environment and competitive
constraints facing small insurance companies, including
Excalibur;
11. The Investors' Board of Directors' evaluation of the risks to
consummation of the Merger, including the risk associated with
obtaining necessary regulatory approvals; and
12. The possible alternatives to the Merger, the range of possible
values to the Investors' shareholders of such alternatives, and
the timing and likelihood of actually receiving, and risks and
rewards associated with seeking to obtain, those values.
The Investors' Board did not assign any specific or relative weight to
these factors in its consideration. All of the above factors contributed in
determining the consideration received.
The Investors' Board of Directors considers the Merger particularly
advantageous to Investors shareholders in that shareholders will receive a
security which, in the opinion of the Investors Board, has the potential to
achieve a greater growth and market value and which now has significantly
greater market liquidity than the Investors' Common Stock and Preferred Stock.
19
<PAGE> 26
The exchange of Investors shares solely for Citizens shares is also intended to
be a tax-deferred exchange, thereby giving Investors' shareholders the equity
participation in Citizens without initially incurring taxes. See "Certain
Federal Income Tax Consequences."
A conceivable detriment to the Investors' shareholders is the fact that
the rate of growth in company size may be less for Citizens than for Investors
because the same increase would be a greater rate of growth for Investors due to
its smaller size. However, Investors' management believes that Citizens, under
present circumstances, has better growth prospects than Investors. Management is
unable to articulate other detriments of the Merger to Investors' shareholders.
Citizens has indicated that in connection with future operations of Excalibur,
Citizens intends to maintain capital and surplus of Excalibur above the required
minimums under Illinois law.
The Investors' Board of Directors made this determination without the
assistance or cost of a financial adviser for a so-called "fairness opinion."
The Investors' Board believes that it reviewed in sufficient depth the
respective conditions of Investors, Citizens and their subsidiaries as well as
the terms of the Merger Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of Investors' Board with respect to
the Merger Agreement, Investors shareholders should be aware that two executive
officers and directors of Investors have interests in the Merger that are in
addition to the interests of Investors shareholders generally. The other member
of the Investors' Board was aware of these interests and considered them, among
other matters, in approving the Merger Agreement and the transactions
contemplated thereby.
Don Dennis, the Chief Executive Officer of Investors, will enter into a
consulting agreement with Citizens to be effective immediately after the
effective time, which will provide compensation of $100,000 per year for three
years. Under the terms of the consulting agreement, Mr. Dennis will serve as a
consultant for 36 months at $8,333 per month, and perform services for no more
than five hours per week. Mr. Dennis will agree not to render services in a
commercial or business context, except those for certain companies relating to
payroll deduction accounts, annuity products, long term health products and life
insurance products offered by three other life insurance companies. The
designated beneficiary of Mr. Dennis, H. Marie Dennis (who is the wife of Mr.
Dennis and an officer and director of Investors), will receive the compensation
or commissions that would have otherwise been payable to Mr. Dennis under the
consulting agreement in the event of his demise.
REGULATORY REQUIREMENTS
The Merger is subject to approval of the Illinois Department of
Insurance, which was received October 13, 1998. The parties do not believe the
Merger is subject to any other insurance regulatory approval. Neither Citizens
nor Investors is aware of any other governmental or regulatory approvals
required for consummation of the Merger.
20
<PAGE> 27
SUMMARY OF THE MERGER AGREEMENT
This is a summary of the Merger Agreement, which is incorporated herein
and attached hereto as Appendix A. You should read the Merger Agreement in
addition to this Summary. See "Available Information and Incorporation of
Certain Documents by References."
Delivery of Citizens Class A Common Stock; Closing Date. If the Merger
occurs, Citizens Class A Common Stock will be available for distribution at a
closing ("Closing") on a closing date ("Closing Date") as soon as possible after
all regulatory approvals and shareholder approvals are obtained in accordance
with Illinois law. In order for the Merger to be consummated, the Merger
Agreement must be approved by majority vote of the Investors Common and
Preferred Stock, voting as a group. The Merger between Acquisition and Investors
will become effective ("Effective Date") on or as soon after the Meeting as
possible (assuming shareholder approval). It is presently anticipated that the
Effective Date will occur on or before April 1, 1999, but there can be no
assurance that the conditions to the Merger will be satisfied and that the
Merger will be consummated on that date or any other date. The parties to the
Merger Agreement have agreed to take all actions reasonably necessary to
consummate the proposed transactions.
Receipt of Citizens Shares - Procedures. If the Merger Agreement is
approved at the Meeting, Investors shareholders who do not perfect dissenters'
rights will be notified of the approval and furnished with a "Letter of
Transmittal" to send to an exchange agent ("Exchange Agent") that will be
identified in the Letter of Transmittal. DO NOT SUBMIT YOUR INVESTORS SHARES AT
THIS TIME. If the Merger is completed:
o a Letter of Transmittal will be sent to you;
o you should send in your shares with the Letter of Transmittal;
o the Exchange Agent will exchange your Investors shares for Citizens
Class A Common Stock in the ratio set forth in the Merger Agreement
after it receives your Letter of Transmittal and Investors stock
certificates.
Exchange Agent. Investors will appoint American Stock Transfer and
Trust Company, New York, New York, (Citizens' current stock transfer agent) as
Exchange Agent and may appoint one or more forwarding agents to accept delivery
of the Investors' stock certificates for forwarding to the Exchange Agent. The
instructions accompanying the Letter of Transmittal will provide details for
surrendering certificates for Investors shares and the procedure for obtaining
certificates for Citizens Class A Common Stock, including instructions for
obtaining certificates for Citizens Class A Common Stock for lost or destroyed
certificates of Investors shares.
Authorization of the Exchange Agent may be terminated by Citizens at
any time after six months following the Effective Date. If terminated, any
shares and funds held by the Exchange Agent for Investors shareholders will be
transferred to Citizens or its designee, who will thereafter serve as Exchange
Agent.
Shareholder Rights Prior to Share Exchange. The Exchange Agent will not
be entitled to vote or exercise any rights of ownership of the Investors shares
held by it prior to the issuance of Citizens Class A Common Stock to former
holders of such shares, except that it will receive any distributions paid or
distributed with respect to the Investors shares for the account of the persons
exchanging such shares. No distributions are expected with respect to Citizens
Class A Common Stock.
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<PAGE> 28
After the Effective Date, there will be no transfers on the Investors
stock transfer books of shares which were issued and outstanding immediately
prior to the Effective Date. If after the Effective Date certificates
representing Investors shares are properly presented to the Exchange Agent or
directly to Investors or Citizens, they will be canceled and exchanged for
certificates representing Citizens Class A Common Stock in the ratio set forth
in the attached Merger Agreement.
Unclaimed Shares or Cash. If outstanding certificates for Investors
shares or payment for any fractional or dissenting shares are not claimed, they
may be turned over to a governmental authority in accordance with the respective
abandoned property laws of the various jurisdictions.
In Colorado (Citizens' state of incorporation) if an owner of stock
cannot be located and does not come forward for a period of five years, and if
the last known address of the shareholder is in Colorado, then the stock must be
turned over to the state treasurer. If the last known address of the shareholder
is in another state, the stock must be turned over to the other state if that
state's laws so provide, otherwise the stock must be turned over to the state of
Colorado.
Abandoned property laws vary from state to state. However, to the
extent it might be permitted by abandoned property and other applicable law,
such unclaimed items shall become the property of Citizens (and to the extent
not in its possession shall be paid over to it) free and clear of all claims or
interest of any persons previously entitled to such items. Notwithstanding the
foregoing, neither the Exchange Agent nor any party to the Merger Agreement will
be liable to any Investors shareholder for amounts paid to any governmental
authority having jurisdiction of such unclaimed item pursuant to abandoned
property or other applicable laws of such jurisdiction.
Fractional Shares. Fractional shares of Citizens stock will not be
issued under Merger Agreement. Instead, fractional shares will be purchased
based on a negotiated value of $6.00 per share of Citizens Class A Common Stock.
Accounting. It is anticipated that the Merger will be accounted for as
a purchase in accordance with generally accepted accounting principles.
Other Conditions; Termination or Amendment of the Merger Agreement. In
addition to Investors shareholder approval of the Merger Agreement, the
obligations of Citizens, Investors, and Acquisition to complete the Merger are
subject to the satisfaction of a number of closing conditions, including:
o performance by each party to the Merger Agreement of its respective
obligations;
o approval of the Illinois Department of Insurance in accordance with
the laws of Illinois,
which approval was obtained October 13, 1998;
o absence of any proceedings instituted or threatened to restrain or
prohibit the transactions contemplated by the Merger Agreement;
o continued accuracy in all material respects of the representations
and warranties made by each party in the Merger Agreement;
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<PAGE> 29
o delivery of certain legal opinions and closing certificates; or
o the Effective Date occurring before April 1, 1999.
In addition, Citizens may decline to proceed with the Merger if
dissenters' rights are perfected by more than 2.5% of the outstanding Investors
shares (Common and Preferred Stock).
Any party may waive its unsatisfied conditions to complete the Merger,
except those which are required by law (such as shareholder and regulatory
approval).
The Merger Agreement may be terminated and abandoned at any time
(whether before or after approval by the Investors shareholders) by unanimous
consent of Citizens, Investors and Acquisition, or by any party for whose
benefit a closing condition has not been satisfied or waived. Any terms or
conditions of the Merger Agreement, except those required by law, may be waived
by the Board of Directors of the party entitled to the benefit thereof.
The Merger Agreement may be amended by mutual agreement of the Board of
Directors of each party except that the number of shares of Citizens Class A
Common Stock issuable cannot be changed without approval by the Investors
shareholders.
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.
Status Regarding Possible Waiver, Modification, or Termination of
Agreement. As of the date of this Proxy Statement-Prospectus, to the best of the
knowledge of the parties to the Merger Agreement, there are no conditions
precedent which must be waived by any party in order for the Merger to be
consummated, nor does any party intend to seek to modify or terminate the Merger
Agreement based on existing circumstances.
Conduct of Business Pending the Merger; Other Covenants of the Parties.
Investors, on behalf of itself and Excalibur, agreed that neither of them will,
prior to the Merger:
o enter into any transactions except in the ordinary course of
business;
o pay any dividends nor increase the compensation of any officer or
directors; or
o enter into any transaction which would adversely affect its
respective financial conditions.
Each party has agreed to provide the others with information as to any
significant corporate developments during the term of the Merger Agreement and
to promptly notify the other parties if it discovers that any of its
representations, warranties or covenants contained in the Merger Agreement or
any document delivered in connection therewith was not true and correct in all
material respects or became untrue or incorrect in any material respect. All of
the parties to the Merger Agreement have agreed to take all such actions as may
be reasonably necessary and appropriate in order to consummate the transactions
contemplated by the Merger Agreement.
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<PAGE> 30
The Investors' Board of Directors, subject to its fiduciary obligations
to its shareholders, has agreed to use its best efforts to obtain the requisite
approval of Investors shareholders for the Merger Agreement and the transactions
contemplated thereby.
Operations of Investors after the Merger. Following the Merger,
Investors and its subsidiaries will continue to operate in their locations under
a combined management team, with the consolidation of computer data processing
in Citizens' system. Citizens will continue to evaluate the personnel, business
practices and opportunities for Investors and its subsidiaries and may make such
changes as it deems appropriate following the Merger.
Stock Transfer Restrictions Applicable to "Affiliates" of Investors and
Excalibur. The Merger Agreement provides that any shareholder who is an
"affiliate" of Investors, as defined in the rules adopted under the Securities
Act of 1933, will enter into an agreement to not dispose of any Citizens shares
received by him or her in violation of certain transfer restrictions under SEC
Rules 144 and 145.
INVESTORS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
At or for the year ended
December 31, 1997
------------------------------------------------------------
Citizens Investors
Citizens Percent Investors Percent Combined
Amount of Total Amount of Total Total
-------- -------- --------- --------- --------
(all amounts in 000's except per share amounts)
<S> <C> <C> <C> <C> <C>
Total assets $ 249,51 98% $ 3,288 2% $252,807
Stockholders' equity 79,581 96% 3,272 4% 82,853
Retained earnings 26,856 100% 90 * 26,946
Net income (loss) 3,426 100% (8) * 3,418
Book value per share (1) 3.72 .82
</TABLE>
<TABLE>
<CAPTION>
At or for the year ended
June 30, 1998
------------------------------------------------------------
Citizens Investors
Citizens Percent Investors Percent Combined
Amount of Total Amount of Total Total
-------- -------- --------- --------- --------
(all amounts in 000's except per share amounts)
<S> <C> <C> <C> <C> <C>
Total assets $250,979 98% $ 3,276 2% $254,255
Stockholders' equity 79,296 96% 3,232 4% 82,528
Retained earnings (deficit) 27,168 100% 50 * 27,218
Net income (loss) 312 100% (40) * 272
Book value per share (1) 3.71 .81
</TABLE>
- -----------
(1) Book value per share is based on numbers of shares set forth in
Stockholders' Equity on the respective balance sheets -- for Citizens
calculations, the numbers of Class A and Class B Common shares were added,
and the total number was divided into Total Stockholders' Equity; for the
Investors calculations, the common and preferred shares were added, and the
total number was divided into Total Stockholders' Equity.
* Less than one percent.
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<PAGE> 31
The following is a discussion by management of Investors which includes
results consolidated with Excalibur Insurance Corporation ("Excalibur") and
Consolidated Marketing Services, Inc. ("CMS"). Excalibur and CMS are wholly
owned subsidiaries of Investors.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
During 1997, Investors, through Excalibur, began actively marketing and
issuing policies with the first policy being issued in April. By the end of
1997, Excalibur had $2,270,698 of individual life insurance coverage in-force
and premium income was $33,214. As a result of 1997 start up marketing expenses,
Investors reported a consolidated loss of $7,714 in 1997 compared to gains of
$53,689 in 1996 and $ 43,225 in 1995.
Investment income increased $8,752 despite a softening in interest
rates during the year. Investors has been in the process of rasing additional
capital through a stock sale which accounts for past increases in investment
income. Commission income was produced by CMS which sells life insurance
products for other companies. Commission income increased to $79,021 from
$30,031 in l996 and $12,321 in l995. As CMS shifts its marketing emphasis to
Excalibur's products, a decline in commission income from other companies is
expected.
General expenses and commission expenses were significantly increased
due to start up marketing expenses. The increase in life reserves was the result
of Excalibur's initial policy sales. The receipt of Investors' first premium
income, capitalization of deferred acquisition cost and commission income
reduced the impact of these expense increases. Also, until mid-1997 Investors
had been required to charge certain of its expenses to shareholders' equity as a
result of its stock offering. The administrative personnel associated with the
offering were reassigned to Excalibur and associated expenses became income
statement items.
LIQUIDITY AND CAPITAL RESOURCES
Funds from premium income, interest income, and sales of Investors'
stock were used to meet 1997 liquidity requirements and increase assets. The
majority of investments are in interest earning accounts and investments which
have a duration of three years or less. Investors' investments are primarily in
U. S. Government issues or insured certificates of deposit. Although there are
many factors, such as the health of the economy, the effects of regulation,
inflation, interest rates, monetary markets, consumer spending or savings
habits, and accounting changes, that affect Investors and its investments,
Investors' liquidity position is not expected to change materially during 1998.
On December 31, 1997, Investors had cash and invested assets totaling
$3,193,142. These funds were made up of $370,596 in cash, U. S. Government
Obligations of $1,602,425 and certificates of deposit of $1,220,121. The year
end percentage distribution of cash and investments was comparable with that of
year end 1996. The U. S. Government Obligations are placed with the Illinois
Department of Insurance as required by the Illinois Deposit Law for life
insurance companies. Funds placed in certificates of deposit have been limited
to $100,000 in any one bank. Investors transferred $220,000 into the surplus
account of its subsidiary, Excalibur, during the year.
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<PAGE> 32
The increase in assets reflected in the Consolidated Balance Sheet was
primarily from sales of Investors' stock. The change in cash and investments was
the result of increased investments in U. S. Government Obligations. Two new
items, deferred policy acquisition costs of $41,078 and reserves for life
policies of $13,859, were added to the balance sheet as a result of the start up
of life insurance sales. Liabilities decreased with reduction of commissions
payable.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1997
Premium income for the first six months of 1998 increased by $21,805
over premium income in the first six months of 1997. The first six months of
1997 marked the beginning of Investors' entry, through its subsidiary Excalibur,
into marketing its own life insurance products and the period ended with
$744,650 of life insurance in force on its policyholders. By the end of the
first six months of 1998, in-force life insurance was $3,462,269. Although
Investors' marketing program was achieving growing results, the adoption of a
controversial illustration regulation by the Illinois Department of Insurance
threatened to add a significant cost increase to the sales of the current
participating life insurance product. Development of a new product was completed
by the end of the current quarter and the marketing of the product requiring an
illustration was discontinued. The introduction of a new product required
reorientation of currently contracted agents and redesigning recruiting
practices, which resulted in a new start-up of Investors' marketing program.
As a result of a continuing decline in interest rates, Investors'
investment income decreased by $2,791. For the purpose of maintaining liquidity,
Investors' investments are primarily limited to maturities of three years or
less, but this does increase the sensitivity of investment income to interest
rate fluctuations. In the first six months of 1998, Investors' was actively
selling its own products which took the emphasis away from selling products for
other companies through its agency operation, CMS. The result was a change from
a commission income for the first six months of 1997 to a commission expense in
the first six months of 1998.
The beginning of the second policy year for the initial policyholders
required the start of a new reserve for future dividends payable. There is no
comparable period entry for this item. New sales and the start of the second
policy year for in-force policies resulted in an increase for future life
benefits. The provision for capitalization of deferred acquisition costs
increased for 1998 because Investors' did not begin to market products until
after the first three months of 1997. However, commission expense continued at
high levels because most policies are monthly premium based; therefore, it will
be several months before commissions on these products become lower.
The increase in general expenses is primarily a result of the new
product development that took place in 1998. This expense increase is expected
to continue during the start-up phase of the new product. Taxes, licenses and
fees remained relatively unchanged.
LIQUIDITY AND CAPITAL RESOURCES
During the past period, liquidity requirements were met by funds from
premium income, interest income and certificates of deposit maturities. The
majority of investments are in interest earning accounts and investments which
have a duration of three years or less. Investments are primarily in U.S.
Government issues or insured certificates of deposit. Although there are many
factors, such as the health of the economy, the effects of regulation,
inflation, interest rates, monetary markets, consumer spending or savings
habits, and accounting changes, that influence Investors and its investments,
its liquidity position is not expected to change materially during 1998.
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<PAGE> 33
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations relevant to the exchange of shares of Investors Common and
Preferred Stock ("Investors Common Stock") for Citizens Class A Common Stock
("Citizens Class A Common Stock") pursuant to the Merger, that are generally
applicable to holders of Investors Common Stock. This discussion is based on
currently existing provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed Treasury Regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change.
Any such change, which may or may not be retroactive, could alter the tax
consequences to Citizens, Investors, or Investors' shareholders as described
herein. There can be no assurance that such changes will not occur.
Investors shareholders should be aware that this discussion does not
deal with all federal income tax considerations that may be relevant to
particular Investors shareholders in light of their particular circumstances,
such as shareholders who are dealers in securities, who are financial
institutions, who are foreign persons, who are real estate investment trusts,
who are regulated investment companies, who are tax-exempt persons, who hold
their Investors Stock as part of a position in or "straddle" or as part of a
"hedging" or other integrated transaction, who do not hold their Investors Stock
as capital assets, or who acquired their shares in connection with stock option
or stock purchase plans or in other compensatory transactions. In addition, the
following discussion does not address the tax consequences of the Merger under
foreign, state or local tax laws, the tax consequences of transactions
effectuated prior or subsequent to or concurrently with, the Merger (whether or
not any such transactions are undertaken in connection with the Merger),
including without limitation any transaction in which shares of Investors Stock
are acquired or shares of Citizens Class A Common Stock are disposed of, or the
tax consequences of the alternative minimum tax provisions of the Code.
Accordingly, INVESTORS SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.
The Merger is intended to constitute a "reorganization" within the
meaning of Section 368(a) of the Code (a "Reorganization"). As a Reorganization,
subject to the limitations and qualifications referred to herein, the Merger
will result in the following federal income tax consequences:
(a) No gain or loss will be recognized by holders of Investors Stock
solely upon their receipt in the Merger of Citizens Class A Common Stock in
exchange therefor (except to the extent of cash received in lieu of a fractional
share of Citizens Class A Common Stock).
(b) The aggregate tax basis of Citizens Class A Common Stock received
by Investors shareholders in the Merger (including any fractional share of
Citizens Class A Common Stock not actually received) will be the same as the
aggregate tax basis of the Investors Stock surrendered in exchange therefor.
(c) The holding period of Citizens Class A Common Stock received by
each Investors shareholder in the Merger will include the period for which the
Investors Stock surrendered in exchange therefor was considered to be held,
provided that the Investors Stock so surrendered is held as a capital asset at
the time of the Merger.
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<PAGE> 34
(d) Cash payments received by holders of Investors Stock in lieu of a
fractional share will be treated as if such fractional share of Citizens Class A
Common Stock had been issued in the Merger and then redeemed by Citizens. An
Investors shareholder receiving such cash will recognize gain or loss, upon such
payment, measured by the difference (if any) between the amount of cash received
and the basis in such fractional share. Provided the fractional share was held
as a capital asset at the time of the redemption, such gain or loss will
constitute capital gain or loss. Under recently enacted legislation, an
individual Investors shareholder generally will be subject to tax on the net
amount of his capital gain realized on the redemption at a maximum rate of 20%
if the holding period for such share (taking into account the holding period of
the Investors stock surrendered) was greater than one year. Special rules (and
generally lower maximum rates) apply for individuals whose taxable income is
below certain levels. It is possible that the distribution of cash may be
treated as a dividend taxable as ordinary income if the Internal Revenue Service
(the "IRS") determines that the distribution in redemption is essentially
equivalent to a dividend.
(e) Cash received by the Investors shareholders who properly exercise
their dissenters' rights will be treated as having been received in redemption
of the shares so cashed out, and may result in taxable gain or loss, measured by
the difference (if any) between the amount of cash received and such
shareholder's basis in the Investors Stock. Provided the shares were held as a
capital asset at the time of the redemption, such gain or loss will constitute
capital gain or loss. Under recently enacted legislation, an individual
Investors shareholder generally will be subject to tax on the net amount of his
capital gain realized on the redemption at a maximum rate of 20% if the holding
period for such shares was greater than one year. Special rules (and generally
lower maximum rates) apply for individuals whose taxable income is below certain
levels. It is possible that for some shareholders, the distribution of cash may
be treated as a dividend taxable as ordinary income.
(f) Neither Citizens, Acquisition, nor Investors will recognize
material amounts of gain solely as a result of the Merger. After the Merger,
utilization of net operating losses or built-in losses, if any, of Investors,
Excalibur and Consolidated Marketing Services will be subject to certain
limitations contained in Section 382 of the Code. IRC Section 383 will similarly
limit the utilization of excess credits, net capital losses, and foreign tax
credits, if any. In addition, IRC Section 384 will limit the use of
preacquisition losses to offset built-in gains, if any.
Investors shareholders should also be aware that the IRS may examine
transactions taking place before, contemporaneously with, or after a
reorganization to determine whether reorganization treatment is appropriate, or
in some cases to determine whether shareholders will be taxed on other economic
benefits that are included as part of the overall transaction. Thus, loan
transactions between parties, compensation arrangements, noncompete agreements,
consulting arrangements and other transactions could be reviewed by the IRS and
determined to constitute taxable income to specific parties to the Merger. Gain
could also have to be recognized to the extent that an Investors shareholder was
treated as receiving (directly or indirectly) consideration other than Citizens
Class A Common Stock in exchange for the shareholder's Investors Stock.
Furthermore, if the IRS were to establish as to some Investors shareholders that
part of Citizens Class A Common Stock received in the Merger is severable from
the Merger, resulting in a proportionally increased equity interest being
received in the Merger by other Investors shareholders, the Investors
shareholders whose equity interests were deemed to be constructively increased
by the Merger may be treated as having received a taxable stock dividend. Thus,
Investors shareholders should consult with their tax advisors as to the tax
consequences to them of the Merger.
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<PAGE> 35
Under Section 3406 of the Code, Investors shareholders may be subject
to "backup withholding" at the rate of 31% on "reportable payments", if any, to
be received by them if they fail to furnish their correct taxpayer
identification numbers to Citizens or for certain other reasons. Citizens will
report to these persons and to the IRS for each calendar year the amount of any
reportable payments during that year and the amount of tax withheld, if any,
with respect to those reportable payments.
The parties are not requesting and will not request a ruling from the
IRS in connection with the Merger. Citizens and Investors, however, will receive
an opinion from counsel for Citizens to the effect that the Merger constitutes a
Reorganization (the "Tax Opinion"). Investors shareholders should be aware that
the Tax Opinion does not bind the IRS or the courts. The IRS is not precluded
from successfully asserting a contrary position. The Tax Opinion will not
address the consequences of the Merger on the Investors shareholders under
applicable foreign, state or local income tax laws. The Tax Opinion is subject
to certain assumptions and qualifications, including but not limited to the
truth and accuracy of certain representations made by Citizens and Investors,
including representations in certain certificates to be delivered to counsel by
the respective managements of Citizens and Investors.
One of the requirements for tax-free reorganization treatment is that
shareholders of the acquired corporation acquire a substantial and continuing
interest in the acquiring corporation, i.e., have "continuity of interest." To
satisfy the continuity of interest requirement, Investors shareholders must not
dispose of, transfer or be deemed to dispose of or transfer so much of either
(i) their Investors Stock in anticipation of the Merger or (ii) Citizens Class A
Common Stock to be received in the Merger, to either Investors, Citizens, or an
affiliate of either corporation (collectively, "Dispositions"), such that
Investors shareholders, as a group, would no longer have a significant equity
interest in the Investors business being conducted after the Merger. The Tax
Opinion will be based on the assumption that the Investors shareholders will not
engage in such Dispositions. No assurance can be made that the "continuity of
interest" requirement will be satisfied, and if such requirement is not
satisfied, the Merger would not be treated as a reorganization and would be
subject to taxation.
Although literal compliance with Code Section 368 is a prerequisite to
nonrecognition of gain or loss, such compliance does not guarantee the desired
result. Regulation Section 1.368-1 describes the purpose of the reorganization
provisions as being to exempt from the general rule of taxation, specifically
described exchanges incident to such readjustments of corporate structures made
in one of the particular ways specified in the Code, as are required by business
exigencies and which effect only a readjustment of continuing interests in
property under modified corporate forms.
A plan of reorganization having no business or corporate purpose will
not constitute a qualified reorganization plan. The reasons for the
reorganization set forth in "Proposed Merger--Background of and Reasons for the
Merger" contained in this Proxy Statement-Prospectus provide several corporate
business purposes. Based upon the disclosure contained in this Proxy
Statement-Prospectus and on other considerations, Investors and Citizens
management believe that valid business purposes exist for the transaction.
Considered in conjunction with the business purpose test is the
"continuity of business enterprise" requirement. Regulation Section
1.368-1(d)(1) provides the general rule that continuity of business enterprise
requires the acquiring corporation (Citizens) to either (i) continue the
acquired corporation's historic business or (ii) use a significant portion of
29
<PAGE> 36
acquired corporation's historic business assets in a business. The application
of this general rule to certain transactions, such as Mergers of holding
companies, will depend on all facts and circumstances. The policy underlying the
general rule, which is to ensure that reorganizations are limited to adjustments
of continuing interests in property under modified corporate forms, provides the
guidance necessary to make these facts and circumstances determinations.
The historic business of a holding company generally comprises the
business operations of its subsidiary. Revenue Ruling 85-197, 1985-2 C.B. 120,
states that the continuity of business enterprise requirement is satisfied when
a holding company is merged into its wholly owned operating subsidiary, because
the historic business of the holding company is the business of its operating
subsidiary. Revenue Ruling 81-247, 1981-2 C.B. 87, holds that where a
significant portion of an acquired corporation's historical business assets,
received by the acquiring corporation, remain with the acquiring corporation, or
corporations directly controlled by the acquiring corporation, the continuity of
business enterprise rules of Regulation Section 1.368-1(d) will be satisfied.
These rulings indicate that the historic business of Investors is the business
operated by its subsidiaries Excalibur and Consolidated Marketing Services.
Although subject to challenge by the IRS, the continuity of business enterprise
requirement should be satisfied because after the Merger, the historic business
of Investors will be continued by Excalibur and Consolidated Marketing Services
as second tier subsidiaries of Citizens.
Pursuant to Section 1.368-3(b) of the Regulations, the shareholders of
Investors must file with their income tax returns for the year in which the
transaction is consummated, a statement which provides details pertinent to the
nonrecognition of gain or loss on the exchange, including the cost or other
basis of stock transferred in the exchange, the amount of stock received and
liabilities, if any, assumed in the exchange.
A successful IRS challenge to the reorganization status of the Merger
(as a result of a failure of the "continuity of interest" requirement or
otherwise) would result in Investors shareholders recognizing taxable gain or
loss with respect to each share of Investors Stock surrendered equal to the
difference between the shareholder's basis in such share and the fair market
value, as of the Effective Time of the Merger, of Citizens Class A Common Stock
received in exchange therefor. In such event, a shareholder's aggregate basis in
Citizens Class A Common Stock so received would equal its fair market value, and
the shareholder's holding period for such stock would begin the day after the
Merger.
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<PAGE> 37
RIGHTS OF DISSENTING SHAREHOLDERS
The following summary of dissenters' rights available to Investors
shareholders identifies and discusses all of the material information necessary
to perfect dissenters' rights. However, this summary is not intended to be a
complete statement of applicable Illinois law and is qualified in its entirety
by reference to Article XI, Sections 5/11.65 and 5/11.70, of the Illinois
Business Corporation Act of 1983 (the "Act"), set forth in their entirety as
Appendix B.
CITIZENS HAS CONDITIONED THE MERGER ON, SUBJECT TO ITS RIGHT TO WAIVE,
AND HAS RESERVED THE RIGHT TO ABANDON THE MERGER AGREEMENT IN THE EVENT THAT
HOLDERS OF GREATER THAN 2.5% OF THE OUTSTANDING SHARES OF INVESTORS DISSENT FROM
THE MERGER AND SEEK PAYMENT FOR THEIR SHARES IN ACCORDANCE WITH THE ACT.
Right to Dissent. Shareholders of Investors are entitled to dissent and
obtain payment of the fair value of their shares. A shareholder entitled to
dissent and obtain payment for his or her shares under Article XI of the Act may
not challenge the corporate action creating his or her entitlement unless the
action is fraudulent with respect to the shareholder or the corporation or
constitutes a breach of a fiduciary duty owed to the shareholder.
Under Section 5/11.65(c) of the Act, a record owner of shares may
assert dissenters' rights as to fewer than all the shares recorded in such
person's name only if such person dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf the record owner asserts
dissenters' rights. The rights of a partial dissenter are determined as if the
shares as to which dissent is made and the other shares are recorded in the
names of different shareholders. A beneficial owner of shares who is not the
record owner may assert dissenters' rights as to shares held on such person's
behalf only if the beneficial owner submits to the corporation the record
owner's written consent to the dissent before or at the time the beneficial
owner asserts dissenters' rights.
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 XI, Sections 5/11.65 and 5/11.70 of the Act. To
briefly summarize, subject to certain other requirements, the shareholder must,
before the vote is taken at the Meeting, demand in writing payment for the
shares and must not vote in favor of the Merger. If the corporate action is
approved, the corporation must within a certain time notify the shareholder in
writing of its estimate of the fair value, and must provide other materials as
well. The shareholder then has 30 days to demand, in writing, the shareholder's
estimate of the fair value and interest due. Upon consummation of the Merger,
the respective corporation must pay each dissenter its estimate of the fair
value and interest due. If the corporation and shareholder cannot agree upon a
fair value, the corporation must, within a specified time, either pay the
difference between its estimate of fair value and the shareholder's demand, plus
interest, or file suit for a court determination of fair value. The shareholder
may also bring suit as permitted by law. FULL AND EXACT COMPLIANCE WITH THE
STATUTORY REQUIREMENTS IS ESSENTIAL FOR A SHAREHOLDER TO SUCCESSFULLY EXERCISE
DISSENTERS' RIGHTS. SHAREHOLDERS ARE URGED TO READ AND UNDERSTAND THE DISCUSSION
BELOW AND THE STATUTORY PROVISIONS ATTACHED AS APPENDIX B TO THIS PROXY
STATEMENT-PROSPECTUS.
31
<PAGE> 38
The Notices accompanying this Proxy Statement-Prospectus state that
shareholders of Investors are entitled to assert Dissenters' Rights under
Article XI, Sections 5/11.65 and 5/11.70, of the Act. A shareholder may assert
Dissenters' Rights only if the shareholder delivers to the corporation before
the vote is taken a written demand for payment for his or her shares and the
shareholder does not vote in favor of the Merger Agreement.
A SHAREHOLDER WHO DOES NOT SATISFY THE FOREGOING REQUIREMENTS SHALL NOT
BE ENTITLED TO DEMAND PAYMENT OF HIS OR HER SHARES UNDER ARTICLE XI, SECTIONS
5/11.65 AND 5/11.70, OF THE ACT.
Under Section 5/11.70 of the Act, within 10 days after the date the
corporate action giving rise to the dissent becomes effective or 30 days after
the shareholder delivers to Investors the written demand for payment, whichever
is later, Investors shall send each shareholder who has delivered a written
demand for payment a statement setting forth the opinion of Investors as to as
to the estimated fair value of the shares, the corporation's latest balance
sheet as of the last fiscal year, together with statements of income for that
year and the latest available interim financial statements, and a commitment to
pay for the shares of the dissenting shareholder at the estimated fair value
thereof upon transmittal to Investors of the certificates of the shares.
A shareholder who makes written demand for payment under this Section
retains all of the rights of a shareholder until those rights are canceled or
modified by consummation of the Merger. Upon consummation of the Merger,
Investors shall pay to each dissenter who transmits to the corporation the
certificates for the shares the amount Investors estimates to be the fair value
of the shares, plus accrued interest, accompanied by a written explanation of
how the interest was calculated.
If the dissenting shareholder does not agree with the opinion of
Investors as to the estimated fair value of the shares or the amount of interest
due, the shareholder must notify the corporation in writing, within 30 days from
the delivery of the statement of value, the shareholder's estimated fair value
and amount of interest due and demand payment for the difference between the
shareholder's estimate of fair value and interest and the amount of payment by
the Corporation. A DISSENTER WAIVES THE RIGHT TO DEMAND PAYMENT UNDER THIS
PARAGRAPH UNLESS HE OR SHE CAUSES INVESTORS TO RECEIVE THE NOTICE REQUIRED
WITHIN 30 DAYS AFTER INVESTORS MADE OR OFFERED PAYMENT FOR THE SHARES OF THE
DISSENTERS.
Judicial Appraisal of Shares. If, within 60 days from delivery to
Investors of the shareholder notification of estimated fair value of the shares
and interest due, Investors and the dissenting shareholder have not agreed in
writing upon the fair value of the shares and interest due, Investors shall
either pay the difference in value demanded by the shareholder with interest, or
file a petition in the circuit court of Sangaman County (the county in which the
registered office and the principal office of Investors is located), requesting
the court to determine the fair value of the shares and interest due. Investors
shall make all dissenters, whether or not residents of Illinois, whose demands
remain unsettled, parties to the proceeding as an action against their shares
and all parties shall be served with a copy of the petition. Nonresidents may be
served by registered or certified mail or by publication as provided by law.
Failure of Investors to commence an action pursuant to this section shall not
limit or affect the right of the dissenting shareholders to otherwise commence
an action as permitted by law.
The jurisdiction of the court in which the proceeding is commenced
under this section is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on a question
of fair value. The appraisers shall have the power described in the order
appointing them.
32
<PAGE> 39
Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by Investors.
The court shall determine all costs of the proceeding, including the
reasonable compensation and expenses of the appraisers, if any, appointed by
the court but shall exclude the fees and expenses of counsel and experts for
the respective parties. If the fair value of the shares as determined by the
court materially exceeds the amount which Investors estimated to be the fair
value of the shares, then all or any part of the costs may be assessed against
Investors. If the amount which any dissenter estimates to be the fair value of
the shares materially exceeds the fair value of the shares as determined by
the court, then all or any part of the costs may be assessed against the
dissenter. The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable, as
follows:
1. Against Investors and in favor of any and all dissenters if the
court finds that Investors did not substantially comply with the requirements of
Section 5/11.70 of the Act.
2. Against either Investors or a dissenter and in favor of any other
party if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by Section 5/11.70 of the Act.
If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and that the fees
for those services should not be assessed against Investors, the court may award
to that counsel reasonable fees to be paid out of the amount awarded to the
dissenters who are benefitted. Except as otherwise provided in this Section
5/11.70 of the act, the practice, procedure, judgment and costs are governed by
the Illinois Code of Civil Procedure.
"Fair value" is defined as the value of the shares immediately before
the consummation of the Merger, excluding any appreciation or depreciation in
anticipation of the proposed transactions, unless exclusion would be
inequitable.
"Interest" means interest from the Effective Date of the Merger until
the date of payment, at the average rate currently paid by Investors on their
principal bank loans, or if none, at a rate that is fair and equitable under all
circumstances.
33
<PAGE> 40
INFORMATION CONCERNING INVESTORS
INVESTORS AND ITS SUBSIDIARIES
Investors, incorporated in 1990, is a holding company managing and
operating Excalibur Insurance Corporation ("Excalibur"), an Illinois life
insurance company, incorporated June 27, 1996, and Consolidated marketing
Services ("CMS"), an insurance agency, incorporated November 7, 1990. CMS was
incorporated as an agency for the purpose of offering insurance products to be
sold by independent producers, thereby producing commission income. Excalibur
received a Permit from the Illinois Department of Insurance on June 27, 1996.
Excalibur was then authorized and permitted to sell 1,180,000 of its Common
Shares to Investors at a price of $2.00 per Common Share so that Excalibur would
qualify to receive a Certificate of Authority to transact an insurance business
in Illinois. A Certificate of Authority was issued by the Illinois Department of
Insurance to Excalibur on August 7, 1996.
Excalibur represents the major asset of Investors as follows:
<TABLE>
<CAPTION>
Original No. of % of Voting
Description Invested Cost Shares Securities Owned
- ---------- ------------- ------ ----------------
<S> <C> <C> <C>
Excalibur Insurance Corporation
Common Stock $2,372,507 1,180,000 100%
</TABLE>
After receiving a Certificate of Authority, and until the first
Excalibur policy was issued in April of 1997, Excalibur was principally engaged
in obtaining the regulatory approvals to sell certain insurance policies in
Illinois and preparing sales material to be used in connection with offering
such products for sale.
Other than interest income from general investments, Investors has no
source of revenue or income independent from its subsidiaries; therefore, it
must rely primarily upon its operating subsidiaries. To date, Excalibur nor CMS
have paid dividends to Investors.
Investors and its subsidiaries, as of December 31, 1997, had in its
employment three clerical personnel and two full-time salaried officers. In
addition, commissioned agents were licensed for life and health insurance sales.
The Illinois statutory deposit law requires Excalibur to maintain a
trust deposit of US Government obligations with a market value of $1,500,000. At
the end of 1997, the fair market value exceeded the required deposit. Over 95%
of these obligations have maturities of less than five years.
34
<PAGE> 41
The following tables in this section reflect information as to the life
insurance business of Excalibur as of December 31, 1997. The presentation of
Investors' consolidated operations and admitted assets is according to generally
accepted accounting principles.
As of December 31, 1997
<TABLE>
<S> <C>
New business (face amount) paid:
Ordinary whole life $2,378,398
Ordinary term life 100,000
----------
Total $2,478,398
==========
Life insurance in force:
Ordinary whole life $2,270,698
Ordinary term life 100,000
----------
Total $2,270,698
==========
Policy lapse (termination) ratio 8.38%
Premium Income:
First year $ 33,214
Single --
Renewal --
----------
Total $ 33,214
==========
Net gain $ 7,856
==========
Total assets $2,626,107
==========
</TABLE>
All business of Investors is conducted through its two subsidiaries,
Excalibur and CMS. CMS has a non-exclusive Agency contract with Excalibur to
secure, train and supervise life insurance agents to sell policies of Excalibur.
CMS' efforts to recruit agents have been curtailed in 1998 due to the adoption
of the NAIC model illustration regulation by the Illinois Department of
Insurance. Due to this regulation, it was determined that Excalibur would not
continue to offer its participating whole life insurance policy. Excalibur
developed and secured approval of a new product to market which is exempt from
the illustration regulation. Additional training of agents was necessary, in
addition to the development of sales and marketing materials.
CMS and Excalibur have no salaried personnel, but reimburse Investors
for the use of Investors' personnel through a service agreement. Investors owns
six Gateway computers, printers, two copiers and miscellaneous office equipment
which is used by Investors and its subsidiaries.
PROPERTIES
Investors and its two subsidiaries share an office building located at
1709 South Fifth Street, Springfield, Illinois. The lease for these offices is
in the name of Investors. Investors and its subsidiaries each pay a portion of
the total monthly rental of $1,875 for approximately 3,600 square feet of space.
The space occupied by Excalibur was furnished with office furniture.
35
<PAGE> 42
LEGAL PROCEEDINGS
Investors is unaware of any pending litigation to which it or any of
its subsidiaries are parties or to which any of their property is subject.
MARKET FOR INVESTORS COMMON STOCK AND RELATED SECURITYHOLDER MATTERS
Investors Preferred Stock is not listed or actively traded through
security brokerage firms, and there is no over-the-counter trading activity.
There have been no dividends paid since the inception of Investors.
Approximate Number of Equity Securityholders
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Common Stock, $.01 par value 1,830
Preferred Stock, $.50 par value 1,821
</TABLE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Investors has had no disagreements with its certified public
accountants regarding accounting and financial matters required to be disclosed
herein during the past two fiscal years.
36
<PAGE> 43
COMPARISON OF RIGHTS OF SECURITYHOLDERS
Upon consummation of the Merger, the holders of issued and outstanding
Investors Common and Preferred Stock will receive Citizens Class A Common Stock.
The rights of the holders of Citizens shares are governed by Citizens' Articles
of Incorporation, its bylaws and Colorado law, while the rights of holders of
Investors shares are governed by the Investors' Articles of Incorporation, its
bylaws and Illinois law. In most respects, the rights of holders of Citizens
Class A Common Stock and holders of Investors Common and Preferred Stock, and
Citizens Class A Common Stock.
AUTHORIZED SHARES
The aggregate number of shares which Citizens is authorized to issue is
50,000,000 shares of Class A Common Stock with no par value and 1,000,000 shares
of Class B Common Stock with no par value; of which 20,765,088 shares of such
Class A Common Stock and 621,049 shares of Class B Common Stock are issued and
outstanding, fully paid and non-assessable.
The aggregate number of shares which Investors is authorized to issue
is 40,000,000 shares of Common Stock with a par value of $.01 per share, and
40,000,000 shares of Preferred Stock with a par value of $.50 per share, of
which 2,038,820 shares of such Investors Common Stock and 2,038,820 shares of
Preferred Stock are issued and outstanding, fully paid and non-assessable.
The foregoing numbers do not include treasury shares.
DIVIDEND RIGHTS
The cash dividends paid upon each share of Citizens Class A Common
Stock is twice the cash dividends paid on each share of Citizens Class B Common
Stock.
The Investors Common shareholders are not entitled to any cash
dividends unless and until Investors Preferred shareholders have received a
total of $2.00 per share in dividends. Since the incorporation of Investors, no
dividends have been paid to Investors shareholders. At such time, if any,
Investors Preferred shareholders were to receive dividends totaling $2.00 per
share, Preferred and Common shareholders would thereafter share equally on a
share-for-share basis in any further dividends.
VOTING RIGHTS
Those who hold Investors Common and Preferred Stock on the date the
Merger becomes effective will be entitled as a group to hold approximately
611,000 shares of Citizens Class A Common Stock, or approximately 2.9% of
Citizens Class A shares that Citizens anticipates will then be outstanding.
The voting rights of Citizens Class A Common Stock and Class B Common
Stock are equal in all respects except that the holders of Class B Common Stock
have the exclusive right to elect a simple majority of the members of Citizens'
Board of Directors, and the holders of the Class A Common Stock have the
exclusive right to elect the remaining directors. The holders of Citizens Common
Stock do not have cumulative voting rights in the election of directors.
37
<PAGE> 44
Each outstanding share of Investors Stock, whether Common or Preferred,
is entitled to one vote upon each matter submitted to a vote of the
shareholders. The Investors Common and Preferred shareholders do not have
cumulative voting rights in the election of directors.
The Articles of Incorporation of Citizens provide that when, with
respect to any action to be taken by Citizens shareholders, the Colorado
corporation Code (now superseded by the Colorado Business Corporation Act)
requires the affirmative vote of the holders of two-thirds of the outstanding
shares entitled to vote thereon, or of any class or series, such action may be
taken by the affirmative vote of the holders of a majority of the outstanding
shares entitled to vote on such action. The power to amend the Articles of
Incorporation, approve mergers and approve extraordinary asset transfers are
all subject to this requirement. The Articles of Incorporation of Investors
require the affirmative vote of a majority of the outstanding preferred shares
and common shares to approve the same transactions. With respect to the Merger,
the approval of a majority of the Investors shares entitled to vote is required.
Each share of Investors Common and Preferred Stock is entitled to one vote, with
respect to the Merger.
The bylaws of Investors provide that the power to alter, amend, or
repeal its bylaws or to adopt new bylaws is vested in the shareholders or 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 Investors shareholders may be called by Investors'
President, its Board of Directors, or by the holders of not less than one-fifth
of all outstanding shares of stock. Special meetings of Citizens' shareholders
may be called by the Chairman of the Board, by the Board of Directors, or by the
holders of 10% or more of all Citizens' shares entitled to vote.
A majority of the shares of stock entitled to vote constitutes a quorum
under the bylaws of Investors. The bylaws of Citizens provide that one-third 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 both Citizens and Investors provide that the shareholders
may take action without a meeting. In Citizens' case, all shareholders entitled
to vote must consent to the action in writing; in Investors' case, the written
consent may be adopted by the shareholders having the minimum number of votes
necessary to authorize such action at a meeting.
PREEMPTIVE RIGHTS
Authorized Investors 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 Boards of Directors of the respective corporations. No holder of Citizens or
Investors shares has any pre-emptive or preferential right to purchase or to
subscribe for any shares of capital stock or other securities which may be
issued by Citizens or Investors.
38
<PAGE> 45
LIABILITY OF DIRECTORS
As authorized by Colorado law, Citizens' Articles of Incorporation
contain a provision to the effect that no director of Citizens shall be
personally liable to Citizens or any of its shareholders for damages for any
breach of duty as a director except to the extent this provision is limited by
law. There is no such provision in the Articles of Incorporation of Investors;
however, Investors' bylaws contain a provision.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of Citizens,
whether voluntary or involuntary, the holders of Citizens shares are entitled to
share, on a share-for-share basis, any of the assets or funds of Citizens which
are distributable to its shareholders upon such liquidation, dissolution or
winding up.
In the event of any voluntary or involuntary liquidation of Investors,
the holders of Common Stock are not entitled to distributions of assets until
the Preferred shareholders have received a distribution of assets valued at
$2.00 per Preferred share. Thereafter, both Preferred and Common Stock classes
are entitled to share equally and ratably on a share-for-share basis in all
further distributions of assets.
ASSESSMENT AND REDEMPTION
Citizens shares to be issued upon consummation of the Merger will be
fully paid and nonassessable. Investors shares are deemed to be fully paid and
nonassessable. Neither Citizens' nor Investors' shares of stock of any class are
subject to redemption, conversion nor further assessment.
TRANSFER AGENT
The transfer agent for Investors shares is Investors. The transfer
agent for Citizens shares is American Stock Transfer and Trust Company, New
York, New York.
EXPERTS
The consolidated financial statements included in this Proxy
Statement-Prospectus of Investors as of December 31, 1997 and 1996 and for each
of the years in the two-year period ended December 31, 1997, have been audited
by Kerber, Eck & Braeckel, LLP, independent public accountants, as stated in
their report appearing herein and have been so included in reliance upon such
report given upon the authority of that firm as experts in accounting and
auditing. The firm of Sikich Gardner & Co, LLP, independent public accountants,
audited the consolidated financial statements of Investors as of December 31,
1995 and for the fiscal year ended December 31, 1995, as stated in their report
included herein, and has been so included in reliance upon such report given
upon the authority of that firm as experts in accounting and auditing.
The consolidated financial statements of Citizens, Inc. and
subsidiaries as of December 31, 1997 and 1996, and for each of the years in the
three year period ended December 31, 1997, are incorporated herein by reference
to Citizens, Inc.'s Annual Report on Form 10-K for the Year Ended December 31,
1997 and are so included herein in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, appearing in such Annual Report
on Form 10-K and upon the authority of such firm as experts in accounting and
auditing.
39
<PAGE> 46
LEGAL MATTERS
The legality under Colorado law of Citizens Class A Common Stock to be
issued pursuant to the Merger will be passed upon by Jones & Keller, P.C.,
Denver, Colorado. Jones & Keller, P.C. has also given the tax opinion referred
to under "Certain Federal Income Tax Consequences."
OTHER MATTERS
The Investors' Board does not intend to bring any matters before the
Meeting other than those specifically set forth in the notice of the Meeting
accompanying this Proxy Statement-Prospectus and it does not know of any matters
to be brought before the Meeting by others. If any other matters properly come
before the Meeting, it is the intention of the persons named in the accompanying
proxies to vote such proxies in accordance with the judgment of the Board.
40
<PAGE> 47
FINANCIAL STATEMENTS
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-3
Consolidated Balance Sheets - December 31, 1997 and 1996 F-4
Consolidated Statements of Operations - Years ended December 31, 1997 and 1996 F-5
Consolidated Statements of Changes in Stockholders' Equity - Years ended
December 31, 1997 and 1996 F-6
Consolidated Statements of Cash Flows - Years ended December 31, 1997 and 1996 F-7
Notes to Consolidated Financial Statements F-8
Independent Auditors' Report F-13
Independent Auditors' Report F-14
Consolidated Balance Sheets - December 31, 1996 and 1995 F-15
Consolidated Statements of Earnings - Years ended December 31, 1996 and 1995,
and for the period from January 26, 1990 (date of incorporation) through
December 31, 1996 F-16
Consolidated Statements of Changes in Stockholder's Equity - Years ended
December 31, 1996 and 1995, and for the period from January 26, 1990 (date of
incorporation) through December 31, 1996 F-17
Consolidated Statements of Cash Flows - Years ended December 31, 1996 and 1995,
and for the period from January 26, 1990 (date of incorporation) through
December 31, 1996 F-18
</TABLE>
F-1
<PAGE> 48
<TABLE>
<S> <C>
Notes to Consolidated Financial Statements F-19
Financial Statements for Six Months Ended June 30, 1998 and 1997 F-23
Consolidated Balance Sheet--June 30, 1998 (unaudited) F-24
Consolidated Statements of Operations--June 30, 1998 and 1997 (unaudited)
F-25
Consolidated Statements of Cash Flows--June 30, 1998 and 1997 F-26
Notes to Consolidated Financial Statements (unaudited) F-27
</TABLE>
F-2
<PAGE> 49
[KERBER, ECK & BRAECKEL LLP LETTERHEAD]
Independent Auditors' Report
Board of Directors and Stockholders
First Investors Group, Inc.
We have audited the accompanying consolidated balance sheet of First
Investors Group, Inc. (an Illinois corporation) and subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our 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 financial position of First
Investors Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
/s/ Kerber, Eck & Braeckel LLP
Springfield, Illinois
April 14, 1998
F-3
<PAGE> 50
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
--------------------------
1997 1996
---------- ----------
ASSETS
<S> <C> <C>
Investments
Fixed maturities at amortized cost $2,724,724 $2,289,011
Short-term investments 97,822 191,428
Cash 370,596 623,505
Accounts receivable 357 --
Accrued interest receivable 30,006 33,379
Prepaid expense 8,482 947
Deferred policy acquisition costs 41,078 --
Equipment and furniture, net of accumulated
depreciation of $32,474 in 1997 and $23,522 in 1996 14,725 19,072
---------- ----------
Total assets $3,287,790 $3,157,342
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Reserves for life policies $ 13,859 $ --
Accounts payable 1,495 330
Commissions payable -- 39,542
Accrued payroll taxes -- 2,920
---------- ----------
Total liabilities 15,354 42,792
Stockholders' equity
Preferred stock - $.50 par value; authorized,
40,000,000 shares; issued and outstanding;
2,038,820 in 1997 and 1,954,320 in 1996 1,019,410 977,160
Common stock - $.01 par value; authorized,
40,000,000 shares; issued and outstanding;
1,976,352 in 1997 and 1,791,092 in 1996 19,764 17,911
Additional paid-in capital 2,142,866 2,021,369
Retained earnings 90,396 98,110
---------- ----------
Total stockholders' equity 3,272,436 3,114,550
---------- ----------
Total liabilities and stockholders' equity $3,287,790 $3,157,342
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 51
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenue
Premium income $ 33,214 $ --
Interest income 170,651 162,079
Commission income 79,021 30,031
Miscellaneous income 632 9,695
--------- ---------
Total revenue 283,518 201,805
Expenses
Increase in life reserves 13,620 --
Commission expense 66,043 14,801
Salaries expense 90,514 40,108
Increase in deferred acquisition costs (41,078) --
General and administrative 167,135 88,702
--------- ---------
Total expenses 296,234 143,611
--------- ---------
Earnings (loss) before income taxes (12,716) 58,194
Income taxes (5,002) 4,505
--------- ---------
NET EARNINGS (LOSS) $ (7,714) $ 53,689
========= =========
preferred share $ (.00406) $ .03704
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 52
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-In Retained
Stock Stock Capital Earnings
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 877,860 $ 13,023 $ 1,752,152 $ 44,421
Issue of preferred and
common stock 99,300 4,888 496,500 --
Less offering expenses -- -- (227,283) --
Net earnings -- -- -- 53,689
----------- ----------- ----------- -----------
Balance at December 31, 1996 977,160 17,911 2,021,369 98,110
Issue of preferred and
common stock 42,250 86 211,250 --
Stock sales to promoters -- 1,767 -- --
Less offering expenses -- -- (89,753) --
Net loss -- -- -- (7,714)
----------- ----------- ----------- -----------
Balance at December 31, 1997 $ 1,019,410 $ 19,764 $ 2,142,866 $ 90,396
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 53
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities
Net earnings (loss) $ (7,714) $ 53,689
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities
Depreciation 8,952 4,900
Change in assets and liabilities
(Increase) decrease in accounts and accrued
interest receivable 3,016 (7,942)
(Increase) decrease in prepaid expense (7,535) 116
(Increase) decrease in deferred policy
acquisition costs (41,078) --
Decrease in accounts payable and
accrued liabilities (27,438) (30,356)
----------- -----------
Net cash provided by (used in) operating
activities (71,797) 20,407
Cash flows from investing activities
Additions to property, plant and equipment (4,605) (14,798)
Purchase of certificates of deposit (825,122) (1,156,052)
Redemption of certificates of deposit 461,053 958,000
Investment in government obligations (628,037) (1,156,903)
Redemption of government obligations 650,000 1,155,000
----------- -----------
Net cash used in investing activities (346,711) (214,753)
Cash flows from financing activities
Proceeds from sale of common and preferred stock 253,586 600,688
Proceeds from stock sales to promoters 1,766 --
Payments on offering expenses (89,753) (227,283)
----------- -----------
Net cash provided by financing activities 165,599 373,405
----------- -----------
Net increase (decrease) in cash (252,909) 179,059
Cash at beginning of year 623,505 444,446
----------- -----------
Cash at end of year $ 370,596 $ 623,505
=========== ===========
Cash paid for income taxes $ 3,493 $ 15,021
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 54
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
1. Nature of Operations
First Investors Group, Inc. (the Company) was incorporated under the
laws of the State of Illinois on January 26, 1990. Initial stock
sales were in excess of $120,300 thus allowing for incorporation under
the terms of the pre-incorporation offering. Subsequent to
incorporation, the Company has engaged in raising additional funds
through the sale of its securities to pursue one of its desired
objectives of organizing an Illinois life insurance company. The life
insurance company was organized on June 27, 1996, and began selling
life insurance on April 2, 1997. The Company's primary revenue
sources are premiums from life insurance sales, investment income
related to the assets invested from the sale of its securities and
commission income generated through its wholly owned insurance agency.
The Company has formed and invested in two wholly-owned subsidiaries.
Consolidated Marketing Services, Inc. (CMS) was incorporated November
7, 1990, and operates as an insurance agency and Excalibur Insurance
Corporation (Excalibur). Excalibur was formed with an initial capital
contribution of $2,372,507, which represented the book value of the
assets transferred from the Company to Excalibur. Excalibur is a life
insurance company domiciled and licensed to transact business in the
State of Illinois.
2. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Consolidated Marketing
Services, Inc. and Excalibur Insurance Corporation. All material
intercompany transactions have been eliminated.
3. Basis of Presentation
The financial statements of First Investor Group, Inc.'s life
insurance subsidiary have been prepared in accordance with generally
accepted accounting principles which differ from statutory accounting
practices permitted by insurance regulatory authorities.
4. Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the 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.
5. Investments
Fixed maturities are carried at cost, adjusted for amortization of
premium or discount and other than temporary declines. The amortized
cost of such investments may differ from their market values; however,
the Company has the ability and intent to hold these investments to
maturity.
Short-term investments are carried at cost, which approximates market
value.
F-8
<PAGE> 55
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - continued
December 31, 1997 and 1996
6. Recognition of Revenues and Related Expenses
Premiums for traditional life insurance products consist principally
of whole life and yearly renewable term are recognized as revenues
when due. Benefits and related expenses associated with the premiums
earned are charged to expense proportionately over the lives of the
policies through a provision for reserves for life policies and
through deferral and amortization of deferred policy acquisition
costs.
7. Deferred Policy Acquisition Costs
Commissions and other costs of acquiring life insurance products that
vary with and are primarily related to the production of new business
have been deferred. Traditional life insurance acquisition costs are
being amortized over the premium-paying period of the related policies
using assumptions consistent with those used in computing policy
benefit reserves. Deferred acquisition costs for each product are
reviewed to determine if they are recoverable from future income,
including investment income. If such costs are determined to be
unrecoverable they are expensed at the time of determination.
The following represents the amount of policy acquisition expenses
deferred for the year ended December 31:
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Balance at beginning of year $ -- $ --
Acquisition costs deferred 41,078 --
Amortized to expense during year -- --
------- --------
Balance at end of year $41,078 $ --
======= ========
</TABLE>
8. Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the modified accelerated cost recovery method. Estimated useful
lives range from 5 to 7 years.
9. Reserves for Life Policies
Reserves for life policies account for future policy benefits for life
insurance. Such liabilities are established in amounts adequate to
meet the estimated future obligations of policies in force. The
liabilities associated with traditional life insurance products are
based upon estimates as to future investment yield, mortality and
withdrawals that include provisions for adverse deviations. Future
policy benefits for individual life insurance are computed using an
interest rate of 4.5%. Mortality, morbidity and withdrawal
assumptions for all policies are based on industry standards.
F-9
<PAGE> 56
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - continued
December 31, 1997 and 1996
10. Income Taxes
The Company accounts for income taxes on the liability method, as
provided by Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. At December 31, 1997 and 1996, the
Company has no significant temporary or permanent differences between
its basis for taxation and generally accepted accounting principles;
therefore, the consolidated statements of earnings bears a normal
relationship to pre-tax income and the provision for income taxes on
the consolidated statements of earnings consists of amounts currently
due based on reported income and expenses.
11. Earnings Per Share
Earnings per share computations are based on the weighted average
number of preferred shares outstanding during the period.
12. Offering Expenses
The expenses and direct costs of the capital stock offerings have been
recorded as a reduction of additional paid-in capital.
13. Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents. At
December 31, 1997 and 1996, the Company held no cash equivalents.
14. Certain Reclassifications
Certain reclassifications have been made to conform to the 1997
presentation. Such reclassifications had no effect on previously
reported earnings, total assets, or shareholder's equity.
NOTE B - INVESTMENTS
Investments consisted of U.S. Treasury Notes, Special Revenue Bonds, and
Certificates of Deposit. Below is a summary of the carrying value and
market value of the Company's investments.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------------- -------------------------
Carrying Market Carrying Market
Value Value Value Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed maturities (1-5 years)
U.S. Treasury Notes $1,199,913 $1,200,000 $1,624,387 $1,618,750
Special Revenue Bonds 402,512 402,512 -- --
Certificates of Deposit 1,122,300 1,122,300 664,624 664,624
---------- ---------- ---------- ----------
$2,724,725 $2,724,812 $2,289,011 $2,283,374
========== ========== ========== ==========
Short-term investments
Certificates of deposit $ 97,821 $ 97,821 $ 191,428 $ 191,428
========== ========== ========== ==========
</TABLE>
F-10
<PAGE> 57
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - continued
December 31, 1997 and 1996
NOTE C - CAPITAL STOCK
The common shares are not entitled to any dividends until such time, if
ever, as the Company has paid dividends which total $2.00 per preferred
share (in cash or property) to the holders of its initial preferred shares.
Thereafter, the common shares have the same dividend rights per share as the
holders of the preferred shares.
The common shares have no rights upon liquidation until the holders of the
preferred shares receive at least $2.00 per preferred share (cash or
property) out of assets available for distribution. Thereafter, the common
shares have the same liquidation rights per share as the holders of the
preferred shares. The preferred and common shares have no conversion
rights.
Both the preferred and common shares are entitled to vote on general matters
submitted to the vote of the shareholders and in all elections for
directors.
NOTE D - RELATED PARTY TRANSACTIONS
The following expenses have been paid directly to certain officers of the
Company.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1996
------- -------
<S> <C> <C>
Office rent paid to shareholders $22,500 $20,925
======= =======
</TABLE>
In addition, at December 31, 1997 and 1996, $ 0 and $ 39,542 was owed to
related parties for commissions.
NOTE E - REINSURANCE
In the normal course of business, the Company seeks to reduce the loss that
may arise from catastrophes or other events that cause unfavorable
underwriting results by reinsuring certain levels of risk in various areas
of exposure with other insurance enterprises or reinsurers. Reinsurance
contracts do not relieve the Company of its obligations to policyholders.
Failure of reinsurers to honor their obligations could result in losses to
the Company. The Company's maximum retention is $22,499. Policies with
face amounts $22,500 or greater are reinsured. The Company retains $17,500
and cedes the remainder.
NOTE F - SHAREHOLDER DIVIDEND RESTRICTION
The payment of cash dividends to shareholders is not legally restricted.
However, insurance company dividend payments are regulated by the state
insurance department where the company is domiciled. The Company is the
ultimate parent of Excalibur. Illinois domiciled insurance companies
require 30 days notice of the payment of dividends if the dividends exceed
the greater of (a) prior year statutory earnings or (b) 10% of the insurance
company's surplus at December 31 of the prior year. At December 31, 1997,
Excalibur had a statutory loss of $22,436 and statutory surplus of
$1,399,160.
F-11
<PAGE> 58
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - continued
December 31, 1997 and 1996
NOTE G - STATUTORY EQUITY AND GAIN FROM OPERATIONS
The Company's insurance subsidiary is domiciled in Illinois and prepares its
statutory based financial statements in accordance with accounting practices
prescribed or permitted by the Illinois Insurance Department. These principles
differ significantly from generally accepted accounting principles.
"Prescribed" statutory accounting practices include state laws, regulations,
and general administrative rules, as well as a variety of publications of the
National Association of Insurance Commissioners (NAIC). "Permitted" statutory
accounting practices encompass all accounting practices that are not
prescribed; such practices may differ from state to state, from company to
company within a state, and may change in the future. The NAIC currently is in
the process of codifying statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which has not yet been completed, will
likely change prescribed statutory accounting practices and may result in
changes to the accounting practices that insurance enterprises use to prepare
their statutory financial statements. Excalibur's total statutory
shareholders' equity was $2,579,160 and $2,381,596 at December 31, 1997 and
1996, respectively. Excalibur had a reported statutory loss of $22,436 for
1997 and a statutory gain of $21,596 in 1996.
F-12
<PAGE> 59
[KERBER, ECK & BRAECKEL LLP LETTERHEAD]
Independent Auditors' Report
Board of Directors and Stockholders
First Investors Group, Inc.
We have audited the accompanying consolidated balance sheet of First
Investors Group, Inc. (an Illinois corporation) and subsidiaries (a development
stage enterprise) as of December 31, 1996, and the related consolidated
statements of earnings, changes in stockholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The consolidated financial statements
of First Investors Group, Inc. from inception (January 20, 1990) through
December 31, 1995, were audited by other auditors whose report dated February
5, 1996, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the December 31, 1996, consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of First Investors Group, Inc. and subsidiaries as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ Kerber, Eck & Braeckel LLP
Springfield, Illinois
February 28, 1997
F-13
<PAGE> 60
[SIKICH GARDNER & CO, LLP LETTERHEAD]
Independent Auditors' Report
To the Board of Directors and Stockholders
of First Investors Group, Inc.
We have audited the accompanying consolidated balance sheet of First Investors
Group, Inc. and Subsidiary (a development stage enterprise) as of December 31,
1995, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our 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 financial position of First Investors
Group, Inc. and Subsidiary as of December 31, 1995, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Sikich Gardner & Co, LLP
Springfield, Illinois
February 5, 1996
F-14
<PAGE> 61
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
(A development stage enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Investments
Fixed maturities at amortized cost $2,289,011 $1,148,623
Short-term investments 191,428 1,131,861
Cash 623,505 444,446
Accrued interest receivable 33,379 25,437
Prepaid expense 947 1,063
Equipment and furniture, net of accumulated
depreciation of $23,522 in 1996 and $18,622 in 1995 19,072 9,174
---------- ----------
Total assets $3,157,342 $2,760,604
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 330 $ 39,860
Commissions payable 39,542 21,813
Accrued payroll taxes 2,920 1,213
Income taxes payable -- 10,262
---------- ----------
Total liabilities 42,792 73,148
Stockholders' equity
Preferred stock - $.50 par value; authorized,
40,000,000 shares; issued and outstanding;
1,954,320 in 1996 and 1,755,720 in 1995 977,160 877,860
Common stock - $.01 par value; authorized,
40,000,000 shares; issued and outstanding;
1,791,092 in 1996 and 1,302,284 in 1995 17,911 13,023
Additional paid-in capital 2,021,369 1,752,152
---------- ----------
3,016,440 2,643,035
Earnings accumulated during developmental stage 98,110 44,421
---------- ----------
Total stockholders' equity 3,114,550 2,687,456
Total liabilities and stockholders' equity $3,157,342 $2,760,604
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-15
<PAGE> 62
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
(A development stage enterprise)
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31, 1996 and 1995
and for the period from January 26, 1990 (Date of
Incorporation) through December 31, 1996
<TABLE>
<CAPTION>
January 26,
Year Ended Year Ended 1990 Through
December 31, December 31, December 31,
1996 1995 1996
------------- ------------ ------------
<S> <C> <C> <C>
Revenue
Interest income $162,079 $120,062 $457,346
Commission income 30,031 12,321 89,356
Miscellaneous income 9,695 1,656 11,971
-------- -------- --------
Total revenue 201,805 134,039 558,673
Expenses
General and administrative 143,611 80,552 445,542
-------- -------- --------
Earnings before income taxes 58,194 53,487 113,131
Income taxes
Current 4,505 10,262 15,021
-------- -------- --------
NET EARNINGS $ 53,689 $ 43,225 $ 98,110
======== ======== ========
Net earnings per
preferred share $ .03 $ .03
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-16
<PAGE> 63
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
(A development stage enterprise)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1996 and 1995
and for the period from January 26, 1990 (Date of
Incorporation) through December 31, 1996
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-In Retained
Stock Stock Capital Earnings
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ 693,760 $ 11,676 $ 1,337,369 $ 1,196
Issue of preferred and
common stock 184,100 1,347 661,801 --
Less offering expenses -- -- (247,018) --
Net earnings -- -- -- 43,225
----------- ----------- ----------- -----------
Balance at December 31, 1995 877,860 13,023 1,752,152 44,421
Issue of preferred and
common stock 99,300 4,888 496,500 --
Less offering expenses -- -- (227,283) --
Net earnings -- -- -- 53,689
----------- ----------- ----------- -----------
Balance at December 31, 1996 $ 977,160 $ 17,911 $ 2,021,369 $ 98,110
=========== =========== =========== ===========
Balance at January 26, 1990 $ -- $ -- $ -- $ --
Issue of preferred and
common stock 978,410 17,914 3,243,331 --
Less offering expenses -- -- (1,218,212) --
Purchase of common and preferred
stock for treasury (1,250) (3) (3,750) --
Net earnings -- -- -- 98,110
----------- ----------- ----------- -----------
Balance at December 31, 1996 $ 977,160 $ 17,911 $ 2,021,369 $ 98,110
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE> 64
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
(A development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, 1996 and 1995
and for the period from January 26, 1990 (Date of
Incorporation) through December 31, 1996
<TABLE>
<CAPTION>
January 26,
Year Ended Year Ended 1990 Through
December 31, December 31, December 31,
1996 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities
Net earnings (loss) $ 53,689 $ 43,225 $ 98,110
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities
Depreciation 4,900 6,476 27,922
Amortization of organization costs -- 41 999
Loss on assets -- -- 969
Change in assets and liabilities
(Increase) decrease in accounts and accrued
interest receivable (7,942) (12,347) (33,379)
(Increase) decrease in prepaid expense 116 (22) (947)
Increase (decrease) in accounts payable and
accrued liabilities (30,356) 22,903 42,792
----------- ----------- -----------
Net cash provided by operating 20,407 60,276 136,466
activities
Cash flows from investing activities
Organization costs -- -- (999)
Insurance proceeds for equipment casualty loss -- 5,400 5,400
Additions to property, plant and equipment (14,798) (8,112) (53,363)
Purchase of certificates of deposit (1,156,052) (658,000) (5,484,822)
Redemption of certificates of deposit 958,000 389,222 4,628,770
Investment in government obligations (1,156,903) (48,396) (3,254,387)
Redemption of government obligations 1,155,000 -- 1,630,000
----------- ----------- -----------
Net cash used in investing activities (214,753) (319,886) (2,529,401)
Cash flows from financing activities
Proceeds from sale of common and preferred stock 600,688 847,248 4,239,655
Payments on offering expenses (227,283) (247,018) (1,218,212)
Purchase of common and preferred stock for treasury -- -- (5,003)
----------- ----------- -----------
Net cash provided by financing activities 373,405 600,230 3,016,440
----------- ----------- -----------
Net increase in cash 179,059 340,620 623,505
Cash at beginning of year and period 444,446 103,826 --
----------- ----------- -----------
Cash at end of year and period $ 623,505 $ 444,446 $ 623,505
=========== =========== ===========
Cash paid for income taxes $ 15,021 $ -- $ 15,021
=========== =========== ===========
Cash paid for interest -- -- $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE> 65
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the period from January 26, 1990 (Date of Incorporation)
through December 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
1. Nature of Operations
First Investors Group, Inc. (the Company), a development stage
enterprise, was incorporated under the laws of the State of Illinois
on January 26, 1990. Initial stock sales were in excess of $120,300
thus allowing for incorporation under the terms of the
pre-incorporation offering. Subsequent to incorporation, the Company
has engaged in raising additional funds through the sale of its
securities to pursue one of its desired objectives of organizing an
Illinois life insurance company. The life insurance company was
organized on June 27, 1996, but has not commenced significant
operations as of December 31, 1996. During the Company's development
stage, its primary revenue sources are investment income related to
the assets invested from the sale of its securities and commission
income generated through its wholly owned insurance agency.
The Company has formed and invested in two wholly-owned subsidiaries.
Consolidated Marketing Services, Inc. was incorporated November 7,
1990, and operates as an insurance agency (CMS) and Excalibur
Insurance Corporation (Excalibur) was incorporated on June 27, 1996,
and has not commenced significant operations as of December 31, 1996.
Excalibur was formed with an initial capital contribution of
$2,372,507, which represented the book value of the assets transferred
from the Company to Excalibur. Excalibur is a life insurance company
domiciled and licensed to transact business in the State of Illinois.
2. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Consolidated Marketing
Services, Inc. and Excalibur Insurance Corporation. All material
intercompany transactions have been eliminated.
3. Organization Costs
Organization costs are capitalized and amortized over a period not to
exceed five years.
4. Income Taxes
The Company accounts for income taxes on the liability method, as
provided by Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. At December 31, 1996 and 1995, the
Company has no significant temporary or permanent differences between
its basis for taxation and generally accepted accounting principles;
therefore, the consolidated statements of earnings bears a normal
relationship to pre-tax income and the provision for income taxes on
the consolidated statements of earnings consists of amounts currently
due based on reported income and expenses.
5. Earnings Per Share
Earnings per share computations are based on the weighted average
number of preferred shares outstanding during the period.
F-19
<PAGE> 66
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
For the period from January 26, 1990 (Date of Incorporation)
through December 31, 1996
6. Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the accelerated cost recovery method. Estimated useful lives
range from 5 to 7 years.
7. Offering Expenses
The expenses and direct costs of the capital stock offerings have been
recorded as a reduction of additional paid-in capital.
8. Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents. At
December 31, 1996 and 1995, the Company held no cash equivalents.
9. Investments
Fixed maturities are carried at cost, adjusted for amortization of
premium or discount and other than temporary declines. The amortized
cost of such investments may differ from their market values; however,
the Company has the ability and intent to hold these investments to
maturity.
Short-term investments are carried at cost, which approximates market
value.
10. Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the 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.
11. Certain Reclassifications
Certain reclassifications have been made to conform to the 1996
presentation.
NOTE B - FINANCIAL STATEMENT PRESENTATION
Development stage enterprises are required to present current period and
cumulative financial information. The cumulative period represents activity
from date of incorporation through December 31, 1996. It is the opinion of
management that the financial statements reflect all adjustments necessary
for fair statement of results for the periods presented.
NOTE C- INVESTMENTS
Investments consisted of U.S. Treasury Notes, U.S. Treasury Bills and
Certificates of Deposit. Below is a summary of the carrying value and
market value of the Company's investments.
F-20
<PAGE> 67
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
For the period from January 26, 1990 (Date of Incorporation)
through December 31, 1996
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
-------------------------- --------------------------
Carrying Market Carrying Market
Value Value Value Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed maturities (1-5 years)
U.S. Treasury Notes $1,624,387 $1,618 750 $ 773,623 $ 775,178
Certificates of Deposit 664,624 664,624 375,000 375,000
---------- ---------- ---------- ----------
$2,289,011 $2,283,374 $1,148,623 $1,150,178
========== ========== ========== ==========
Short-term investments
Certificates of deposit $ 191,428 $ 191,428 $ 283,000 $ 283,000
U.S. Treasury notes -- -- 599,912 599,969
U.S. Treasury bills -- -- 248,949 249,201
---------- ---------- ---------- ----------
$ 191,428 $ 191,428 $1,131,861 $1,132,170
========== ========== ========== ==========
</TABLE>
NOTE D - CAPITAL STOCK
The common shares are not entitled to any dividends until such time, if ever,
as the Company has paid dividends which total $2.00 per preferred share (in
cash or property) to the holders of its initial preferred shares. Thereafter,
the common shares have the same dividend rights per share as the holders of the
preferred shares.
The common shares have no rights upon liquidation until the holders of the
preferred shares receive at least $2.00 per preferred share (cash or property)
out of assets available for distribution. Thereafter, the common shares have
the same liquidation rights per share as the holders of the preferred shares.
The preferred and common shares have no conversion rights.
Both the preferred and common shares are entitled to vote on general matters
submitted to the vote of the shareholders and in all elections for directors.
F-21
<PAGE> 68
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
(A development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
For the period from January 26, 1990 (Date of Incorporation)
through December 31, 1996
NOTE E - RELATED PARTY TRANSACTIONS
The following expenses have either been paid directly to certain officers of
the Company who are also shareholders of the Company or to corporations
owned by these same officers. These corporations consist of the Lincoln
Heritage Marketing Center, Inc. (Lincoln) and Pacesetter Management
Corporation (Pacesetter).
<TABLE>
<CAPTION>
Year Ended Year Ended January 26,
December 31, December 31 1990
1996 1995 December 31
------- ------- 1996
--------
<S> <C> <C> <C>
Office rent pad to Lincoln $ -- $ -- $ 3,700
Secretarial fees -- -- 22,746
Office rent paid to shareholders 20,925 10,080 58,900
------- ------- --------
Total $20,925 $10,080 $ 85,346
======= ======= ========
</TABLE>
In addition, at December 31, 1996, $ 39,542 was owed to related parties for
commissions. At December 31, 1995, $ 49,240 was owed to related parties for
commissions, travel and other expenses.
F-22
<PAGE> 69
FIRST INVESTORS GROUP, INC.
FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 and 1997
<TABLE>
<S> <C>
Unaudited Consolidated Balance Sheet F-24
Unaudited Consolidated Statements of Operations F-25
Unaudited Consolidated Statements of Cash Flows F-26
Notes to Consolidated Financial Statements F-27
</TABLE>
F-23
<PAGE> 70
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
----------
1998
----------
<S> <C>
ASSETS
Investments $2,924,426
Cash 223,562
Accrued investment income 36,993
Deferred acquisition costs 65,266
Furniture and equipment, at cost less accumulated 14,472
depreciation of $36,421 in 1988 and $32,474 in 1997
11,658
----------
Other Assets
Total Assets $3,276,377
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Future and other policy benefits, life $ 29,197
Policyholders' funds 802
Other liabilities 13,923
----------
Total liabilities 43,922
Stockholders' equity:
Capital stock:
Preferred 1,019,410
Common 19,788
Paid-In capital 2,142,866
Retained earnings 50,391
----------
Total Stockholders' equity 3,232,455
Total Liabilities and Stockholders' equity $3,276,377
==========
</TABLE>
F-24
<PAGE> 71
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
UNAUDITED - CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
Revenue 1998 1997
----------- -----------
<S> <C> <C>
Life Insurance Premiums
Net Investment Income $ 30,380 $ 8,575
Commission Income 83,792 86,583
9,555
----------- -----------
Total revenue $ 114,172 $ 104,713
----------- -----------
Benefits and Expenses:
Policy Benefits:
Dividends to policyholders 329 0
Increase (Decrease) in future life policy benefits 15,577 2,781
Provisions for deferred acquisition cost (24,188) (14,459)
General insurance expenses 147,974 125,957
Commission Expense 8,713 0
Taxes, licenses and fees 5,772 4,978
----------- -----------
Total Benefits and Expenses $ 154,177 $ 119,257
----------- -----------
Loss from operations (40,005) (14,544)
Income Taxes 0 1,400
----------- -----------
Net Loss $ (40,005) $ (15,944)
=========== ===========
Net Loss per share $ (.01962) $ (.00782)
=========== ===========
Cash dividends per share none none
Weighted average number of Preferred shares outstanding 2,038,820 2,038,820
=========== ===========
</TABLE>
F-25
<PAGE> 72
FIRST INVESTORS GROUP, INC. AND SUBSIDIARIES
UNAUDITED - CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended Six Months
June 30, Ended June 30,
--------- ---------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net Loss $ (40,005) $ (15,944)
--------- ---------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 3,947 4,016
Change in:
Accrued investment income (6,987) (6,512)
Deferred Acquisition Costs (24,188) (14,459)
Other Assets (2,819) (418)
Future life policy benefits 15,577 2,781
Policyholders' funds 695 --
Accrued commissions payable -- 9,166
Other liabilities 12,296 (587)
Total Adjustments (1,479) (6,013)
--------- ---------
Net cash used by operating activities (41,484) (21,957)
Cash flows from investing activities:
Proceeds from maturity of investments 683,069 175,000
Purchase of investments (784,949) (583,424)
Purchase of equipment (3,694) (5,402)
--------- ---------
Net cash provided from investing (105,574) (413,826)
activities
Cash flows from financing activities:
Proceeds from sale of common and preferred stock 24 253,586
Proceeds from stock sales to promoters -- 1,766
Payments on offering expenses -- (89,752)
Net cash provided by financing activities 24 165,600
Net increase (decrease) in cash (147,034) (270,183)
Cash at beginning of period 370,596 623,505
--------- ---------
Cash at end of period $ 223,562 $ 353,322
========= =========
</TABLE>
F-26
<PAGE> 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The foregoing unaudited consolidated financial statements have been
prepared in conformity with generally accepted accounting principles
and such principles were applied on a basis consistent with those
reflected in the Consolidated Financial Statements and Independent
Auditor's Report dated April 14, 1998 which are included elsewhere
herein.
The information furnished herein is unaudited and includes all
adjustments and accruals consisting only of normal recurring
adjustments which are, in the opinion of management, necessary for a
fair statement of results for the interim periods.
2. Earnings per share are computed on the basis of the number of
Preferred shares outstanding at the end of the period.
3. The accompanying financial data should be read in conjunction with the
notes contained in the Consolidated Financial Statements and
Independent Auditor's Report dated April 14, 1998 which are included
elsewhere herein.
F-27
<PAGE> 74
APPENDIX A
PLAN AND AGREEMENT OF MERGER
FIRST INVESTORS GROUP, INC.
CITIZENS, INC.
AND
EXCALIBUR ACQUISITION, INC.
This Plan and Agreement of Merger ("Agreement") is by and among
First Investors Group, Inc. ("Investors"), Citizens, Inc. ("Citizens") and
Excalibur Acquisition, Inc. ("Acquisition)".
WITNESSETH:
WHEREAS, Citizens is a corporation duly organized under the laws of
the State of Colorado and Acquisition is a corporation duly organized under the
laws of the State of Illinois;
WHEREAS, Investors is a corporation duly organized under the laws of
the State of Illinois; and
WHEREAS, Citizens desires to acquire Investors through a merger of
Acquisition into Investors under Illinois law;
NOW, THEREFORE, it is agreed among the parties as follows:
ARTICLE I
THE MERGER
1.1 Subject to approval of this Agreement by the Insurance
Commissioner of the State of Illinois, and subject to the conditions set forth
herein on the "Effective Date" (as herein defined), Investors and Acquisition
shall enter into and file Articles of Merger attached hereto as Exhibit A under
which Investors shall be the surviving corporation, and shareholders of
Investors who do not dissent to the Merger shall receive Class A common stock of
Citizens as set forth in Section 1.2. The transaction contemplated by this
Agreement shall be completed at a closing ("Closing") on a closing date
("Closing Date") which shall be as soon as possible after all regulatory
approvals and shareholder approvals are obtained in accordance with law as set
forth in this Agreement.
On the Closing Date, all of the documents to be furnished to
Investors and Citizens, including the documents to be furnished pursuant to
Article VII of this Agreement, shall be delivered to Jones & Keller, P.C.,
counsel to Citizens, to be held in escrow until the Effective Date or the date
of termination of this Agreement, whichever first occurs and thereafter shall be
promptly distributed to the parties as their interests may appear.
1.2 On the Effective Date: Investors shareholders will receive one
(1) share of Class A Common stock of Citizens, Inc. (a) for each 6.6836 shares
of Investors Common stock issued and outstanding, and (b) for each 6.6836 shares
of Investors Preferred stock issued and outstanding (collectively the "Exchange
A-1
<PAGE> 75
Rate"), said exchange based upon a market value of $6.00 per share for Citizens
Class A shares and an adjusted book value of $.89772 for each Investors Common
and Preferred share. Investors optionholders will be entitled to receive, upon
due exercise within one year after the Effective Date, shares of Class A Common
stock of Citizens, Inc. in lieu of shares of Investors, adjusted to reflect the
Exchange Rate.
1.3 If this Agreement is duly adopted by the holders of the
requisite number of shares, in accordance with the applicable laws and subject
to the other provisions hereof, such documents as may be required by law to
accomplish the Agreement shall be filed as required by law to effectuate same,
and it shall become effective. The time of filing the last document required by
law shall be the Effective Date for the Agreement. For accounting purposes, the
Agreement shall be effective as of 12:01 a.m., on the last day of the month
preceding the Effective Date.
ARTICLE II
ISSUANCE AND EXCHANGE OF SHARES
2.1 The shares of Citizens Class A common stock shall be distributed
to Investors shareholders (other than those shares as to which dissenters'
rights have been perfected in accordance with the Illinois law).
2.2 The stock transfer books of Investors shall be closed on the
Effective Date, and thereafter no transfers of the stock of Investors shall be
made. Investors shall appoint an exchange agent ("Exchange Agent"), which is
expected to be Citizens then stock transfer agent ("Stock Transfer Agent"), to
accept surrender of the certificates representing the shares of Investors, and
to deliver in exchange for such surrendered certificates, shares of Class A
common stock of Citizens. The authorization of the Exchange Agent may be
terminated by Citizens after six months following the Effective Date. Upon
termination of such authorization, any shares of Investors and funds held by the
Exchange Agent for payment to Investors shareholders pursuant to this Agreement
shall be transferred to Citizens or its designated agent who shall thereafter
perform the obligations of the Exchange Agent. If outstanding certificates for
shares of Investors are not surrendered or the payment for them is not claimed
prior to such date on which such payments would otherwise escheat to or become
the property of any governmental unit or agency, the unclaimed items shall, to
the extent permitted by abandoned property and other applicable law, become the
property of Citizens (and to the extent not in its possession shall be paid over
to it), free and clear of all claims or interest of any persons previously
entitled to such items. Notwithstanding the foregoing, neither the Exchange
Agent nor any party to this Agreement shall be liable to any holder of Investors
shares for any amount paid to any governmental unit or agency having
jurisdiction of such unclaimed item pursuant to the abandoned property or other
applicable law of such jurisdiction.
2.3 No fractional shares of Citizens stock shall be issued as a
result of the Agreement; rather, such shares shall evidence the right to receive
$6.00 per share of Citizens Class A common stock. In the event the exchange of
shares results in any shareholder being entitled to a fraction less than a whole
share of Citizens stock, such shareholder shall be given a cash payment of
fractions thereof at the rate of $6.00 per share from Citizens for one share of
Citizens Class A common stock.
2.4 At the Effective Date, each holder of a certificate or
certificates representing shares of Investors, upon presentation and surrender
of such certificate or certificates to the Exchange Agent, shall
A-2
<PAGE> 76
be entitled to receive the consideration set forth herein, except that holders
of those shares as to which dissenters' rights shall have been asserted and
perfected pursuant to Illinois law shall not be converted into shares of
Citizens Class A common stock, but shall represent only such dissenters' rights.
Upon such presentation, surrender, and exchange as provided in this Section 2.4,
certificates representing shares of Investors previously held shall be canceled.
Until so presented and surrendered, each certificate or certificates which
represented issued and outstanding shares of Investors at the Effective Date
shall be deemed for all purposes to evidence the right to receive the
consideration set forth in Section 1.2 of this Agreement. If the certificates
representing shares of Investors have been lost, stolen, mutilated or destroyed,
the Exchange Agent shall require the submission of an indemnity agreement and
may require the submission of a bond in lieu of such certificate.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF CITIZENS
No representations or warranties are made by any director, officer,
employee or shareholder of Citizens, except as and to the extent stated in this
Agreement or in a separate written statement (the "Citizens Disclosure
Statement") attached hereto as Exhibit B. Citizens hereby represents, warrants
and covenants to Investors, except as stated in Citizens Disclosure Statement,
as follows:
3.1 Citizens is a corporation duly organized, validly existing and
in good standing under the laws of the State of Colorado, and has the corporate
power and authority to own or lease its properties and to carry on its business
as it is now being conducted. The Articles of Incorporation and Bylaws of
Citizens, copies of which have been delivered to Investors, are complete and
accurate, and the minute books of Citizens contain a record, which is complete
and accurate in all material respects, of all meetings, and all corporate
actions of the shareholders and board of directors of Citizens.
3.2 The aggregate number of shares which Citizens is authorized to
issue is 50,000,000 shares of Class A common stock with no par value and
1,000,000 shares of Class B common stock with no par value; of which 20,765,488
shares of such Class A common stock (this number does not include treasury
shares) and 621,049 shares of Class B common stock are issued and outstanding,
fully paid and non-assessable as of June 15, 1998. The two (2) classes of stock
of Citizens are equal in all respects, except (a) the Class B common stock
elects a simple majority of the Board of Directors of Citizens, and the Class A
common stock elects the remaining directors, and (b) each Class A share receives
twice the cash dividends paid on a per share basis to the Class B common stock.
There are 123,490 shares of Class A common stock held as treasury stock of
Citizens.
The subsidiaries of Citizens are each an association, corporation,
or other entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or association; each has the power
and authority to lease its properties and to carry on its business as now being
conducted and is qualified to do business; and each holds or shall hold all
licenses, franchises, permits or other governmental authorizations required to
enable it to conduct its business or own its properties in every jurisdiction in
which it currently conducts business or owns property and where the failure to
do so would have a material adverse effect on the business of the subsidiary.
All outstanding shares of capital stock of each subsidiary are duly and validly
authorized and issued, fully paid and non-assessable.
A-3
<PAGE> 77
3.3 Citizens has complete and unrestricted power to enter into and,
upon the appropriate approvals as required by law, to consummate the transaction
contemplated by this Agreement.
3.4 Neither the making of nor the compliance with the terms and
provisions of this Agreement and consummation of the transactions contemplated
herein by Citizens will conflict with or result in a breach or violation of the
Articles of Incorporation or Bylaws of Citizens.
3.5 The execution, delivery and performance of this Agreement has
been duly authorized and approved by Citizens' Board of Directors.
3.6 Citizens has delivered to Investors consolidated financial
statements of Citizens and its subsidiaries, dated December 31, 1997 and March
31, 1998 (unaudited), and the annual convention statement of Citizens Insurance
Company of America for the year ended December 31, 1997 (as amended). All such
statements, herein sometimes called "Citizens Financial Statements", are
complete and correct in all material respects and, together with the notes to
these financial statements, present fairly the financial position and results of
operations of Citizens and Citizens Insurance Company of America for the periods
included. The December 31, 1997 and March 31, 1998 statements have been prepared
in accordance with generally accepted accounting principles and the December 31,
1997 statement of Citizens Insurance Company of America has been prepared in
accordance with statutory accounting principles.
3.7 Since the dates of Citizens Financial Statements there have not
been any material adverse changes in the business or condition, financial or
otherwise, of Citizens or Citizens Insurance Company of America. Citizens does
not have any material liabilities or obligations secured or unsecured (whether
accrued, absolute, contingent or otherwise).
3.8 Citizens has delivered to Investors a list and description of
all pending legal proceedings involving Citizens or Citizens Insurance Company
of American, none of which, in the opinion of management, will materially
adversely affect them, and, except for these proceedings, there are no legal
proceedings or regulatory proceedings involving material claims pending, or to
the knowledge of the officers of Citizens, threatened against Citizens or
Citizens Insurance Company of America or affecting any of their assets, or
properties and neither Citizens nor Citizens Insurance Company of America is in
any material breach or violation of or default under any contract or instrument
to which Citizens or Citizens Insurance Company of America is a party, and no
event has occurred which with the lapse of time or action by a third party could
result in a material breach or violation of or default by Citizens or Citizens
Insurance Company of America under any contract or other instrument to which
Citizens or Citizens Insurance Company of America is a party or by which they or
any of their properties may be bound or affected, or under their respective
Articles of Incorporation or Bylaws, nor is there any court or regulatory order
pending, applicable to Citizens or Citizens Insurance Company of America.
3.9 Neither Citizens nor Citizens Insurance Company of America shall
enter into or consummate any transactions prior to the Effective Date other than
in the ordinary course of business and will pay no dividend, or increase the
compensation of officers and will enter into no agreement or transaction which
would adversely affect its financial condition.
3.10 The assets of Citizens Insurance Company of America have
admissible values at least equal to the amounts attributed to them on its
December 31, 1997 annual convention statement (as amended).
A-4
<PAGE> 78
3.11 Neither Citizens Insurance Company of America nor Citizens is a
party to any contract performable in the future except insurance policies,
customary agent contracts, normal reinsurance agreements and those which will
not adversely affect it.
3.12 All policy and claim reserves of Citizens Insurance Company of
America have been properly provided for and are adequate to comply with all
regulatory requirements regarding same.
3.13 The representations and warranties of Citizens shall be true
and correct as of the date hereof and as of the Effective Date.
3.14 Citizens has delivered, or will deliver within two weeks of the
date of this Agreement, to Investors true and correct copies of Citizens Annual
Report to Shareholders for the years ended December 31, 1996 and 1997 and each
of its other reports to shareholders and filings with the Securities and
Exchange Commission ("SEC") for the years ended December 31, 1995, 1996, and for
1997. Citizens will also deliver to Investors on or before the Closing Date any
reports relating to the financial and business condition of Citizens which are
filed with the SEC after the date of this Agreement and any other reports sent
generally to its shareholders after the date of this Agreement.
Citizens has duly filed all reports required to be filed by it under
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended, (the "Federal Securities Laws"). No such reports, or any reports
sent to the shareholders of Citizens generally, contained any untrue statement
of material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements in such report, in light of the
circumstances under which they were made, not misleading.
3.15 Citizens has delivered to Investors a copy of each of the
federal income tax returns of Citizens for the year ended December 31, 1996 and
for any additional open years. The provisions for taxes paid by Citizens are
believed by Citizens to be sufficient for payment of all accrued and unpaid
federal, state, county and local taxes of Citizens (including any penalties or
interest payable) whether or not disputed for the periods then ended and for all
prior fiscal periods. All returns and reports of other information required or
requested by federal, state, county, and local tax authorities have been filed
or supplied in a timely fashion, and all such information is true and correct in
all material respects. Provision has been made for the payment of all taxes due
to date by Citizens, including taxes for the current year ending December 31,
1998. No federal income tax return of Citizens is currently under audit.
3.16 Citizens has no employee benefit plans, except as disclosed in
Citizens Financial Statements and for a group accident and health and dental
plan for employees.
3.17 No representation or warranty by Citizens in this Agreement,
Citizens Disclosure Statement or any certificate delivered pursuant hereto
contains any untrue statement of a material fact or omits to state any material
fact necessary to make such representation or warranty not misleading.
3.18 Citizens agree that all rights to indemnification now existing
in favor of the employees, agents, director or officers of Investors and its
subsidiaries, as provided in the Articles of Incorporation or Bylaws or
otherwise in effect on the date hereof shall survive the transactions
contemplated hereby in accordance with their terms and Citizens expressly
assumes such indemnification obligations of Investors.
A-5
<PAGE> 79
ARTICLE IV
REPRESENTATION, WARRANTIES AND COVENANTS OF INVESTORS
No representations or warranties are made by any director, officer,
employee or shareholder of Investors, except as and to the extent stated in this
Agreement or in a separate written statement (the "Investors Disclosure
Statement") attached hereto as Exhibit C.
Investors hereby represents, warrants and covenants to Citizens,
except as stated in the Investors Disclosure Statement, as follows:
4.1 Investors and Excalibur Insurance Corporation ("Excalibur") are
each a corporation duly organized, validly existing and in good standing under
the laws of the State of Illinois, and has the corporate power and authority to
own or lease its properties and to carry on its business as it is now being
conducted. The Articles of Incorporation and Bylaws of Investors and Excalibur,
copies of which have been delivered to Citizens, are complete and accurate, and
the minute books of Investors and Excalibur contain a record, which is complete
and accurate in all material respects, of all meetings and all corporate actions
of the shareholders and Board of Directors of Investors and Excalibur.
4.2 The aggregate number of shares which Investors is authorized to
issue is 40,000,000 shares of common stock with a par value of $.01 per share
and 40,000,000 shares of preferred stock with a par value of $0.50 per share of
which 1,978,847 shares of such common stock, and 2,038,820 shares of such
preferred stock are issued and outstanding, fully paid and non-assessable. The
preferred stock is not convertible into common stock. Investors has no
outstanding options, warrants or other rights to purchase, or subscribe to, or
securities convertible into or exchangeable for any shares of capital stock.
The subsidiaries of Investors and Excalibur are each an association,
corporation, or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or association;
each has the power and authority to lease its properties and to carry on its
business as now being conducted and is qualified to do business; and each holds
or shall hold all licenses, franchises, permits or other governmental
authorizations required to enable it to conduct its business or own its
properties in every jurisdiction in which it currently conducts business or owns
property and where the failure to do so would have a material adverse effect on
the business of the subsidiary. All outstanding shares of capital stock of each
subsidiary are duly and validly authorized and issued, fully paid and
non-assessable. Investors directly or indirectly owns all of the issued and
outstanding capital stock of such subsidiaries.
4.3 Investors and Excalibur each have complete and unrestricted
power to enter into and, upon the appropriate approvals as required by law, to
consummate the transactions contemplated by this Agreement.
4.4 Neither the making of nor the compliance with the terms and
provisions of this Agreement and consummation of the transactions contemplated
herein by Investors and Excalibur will conflict with or result in a breach or
violation of the Articles of Incorporation or Bylaws of Investors or Excalibur.
4.5 The execution of this Agreement has been duly authorized and
approved by the Investors' and Excalibur's Board of Directors.
A-6
<PAGE> 80
4.6 Investors has delivered to Citizens consolidated financial
statements of Investors and its subsidiaries, dated December 31, 1997 and March
31, 1998 (unaudited), and the annual convention statement of Excalibur as of
December 31, 1997. All such statements, herein sometimes called "Investors
Financial Statements" are (and will be) complete and correct in all material
respects and, together with the notes to the financial statements, present
fairly the financial position and results of operations of Investors and
Excalibur of the periods indicated. The December 31, 1997 and March 31, 1998
financial statements of Investors have been prepared in accordance with
generally accepted accounting principles and the December 31, 1997, annual
convention statement of Excalibur is prepared in accordance with statutory
principles.
4.7 Since the dates of the Investors Financial Statements there have
not been any material adverse changes in the business or condition, financial or
otherwise, of Investors or Excalibur. Investors and Excalibur do not have any
material liabilities or obligations, secured or unsecured (whether accrued,
absolute, contingent or otherwise).
4.8 Investors has delivered to Citizens a list and description of
all pending legal proceedings involving Investors or Excalibur, none of which
will materially adversely affect them, and, except for these proceedings, there
are no legal proceedings or regulatory proceedings involving material claims
pending, or, to the knowledge of other officers of Investors, threatened against
Investors or Excalibur or affecting any of their assets or properties, and
neither Investors nor Excalibur is in any material breach or violation of or
default under any contract or instrument to which Investors or Excalibur is a
party, and no event has occurred which with the lapse of time or action by a
third party could result in a material breach or violation of or default by
Investors or Excalibur under any contract or other instrument to which Investors
or Excalibur is a party or by which they or any of their respective properties
may be bound or affected, or under their respective Articles of Incorporation or
Bylaws, nor is there any court or regulatory order pending, applicable to
Investors or Excalibur.
4.9 Neither Investors nor Excalibur shall enter into or consummate
any transactions prior to the Effective Date other than in the ordinary course
of business and will pay no dividend, or increase the compensation of officers
and will not enter into any agreement or transaction which would adversely
affect their financial condition.
4.10 The assets of Excalibur have admissible values at least equal
to the amounts attributed to them on its March 31, 1998 statement and will have
a values at least equal to those attributed to them on its December 31, 1997
annual convention statement.
4.11 Neither Excalibur nor Investors is a party to any contract
performable in the future except insurance policies, customary agent contracts,
normal reinsurance agreements and those which will not adversely affect them.
4.12 All policy and claim services of Excalibur have been properly
provided for and are adequate to comply with all regulatory requirements
regarding same.
4.13 The representations and warranties of Investors shall be true
and correct as of the date hereof and as of the Effective Date.
4.14 Investors has delivered, or will deliver within two weeks of
the date of this Agreement, to
A-7
<PAGE> 81
Citizens true and correct copies of Investors' Annual Report to Shareholders for
the years ended December 31, 1995, 1996, and for 1997. Investors will also
deliver to Citizens on or before the Closing Date any reports relating to the
financial and business condition of Investors which are prepared after the date
of this Agreement and any other reports sent generally to its shareholders after
the date of this Agreement.
Investors has duly filed all reports required to be filed by it
under the Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended, (the "Federal Securities Laws"). No such reports, or any
reports sent to the shareholders of Investors generally, contained any untrue
statement of material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements in such report, in light of
the circumstances under which they were made, not misleading.
4.15 Investors has delivered to Citizens a copy of each of the
federal income tax returns of Investors and Excalibur for the year ended
December 31, 1997 and for any additional open years. The provisions for taxes
paid by Investors and Excalibur are believed by Investors and Excalibur to be
sufficient for payment of all accrued and unpaid federal, state, county and
local taxes of Investors and Excalibur (including any penalties or interest
payable) whether or not disputed for the periods then ended and for all prior
fiscal periods. All returns and reports or other information required or
requested by federal, state, county, and local tax authorities have been filed
or supplied in a timely fashion, and all such information is true and correct in
all material respects. Provision has been made for the payment of all taxes due
to date by Investors and Excalibur, including taxes for the current year ending
December 31, 1998. No federal income tax return of Investors or Excalibur is
currently under audit.
4.16 Investors and Excalibur have no employee benefit plans.
4.17 No representation or warranty by Investors in this Agreement,
the Investors Disclosure Statement or any certificate delivered pursuant hereto
contains any untrue statement of a material fact or omits to state any material
fact necessary to make such representation or warranty not misleading.
ARTICLE V
OBLIGATIONS OF THE PARTIES PENDING THE EFFECTIVE DATE
5.1 This Agreement shall be duly submitted to the shareholders of
Investors for the purpose of considering and acting upon this Agreement in the
manner required by law at a meeting of shareholders on a date selected by
Investors, such date to be the earliest practicable date after the proxy
statement may first be sent to Investors shareholders without objection by
applicable governmental authorities, provided that Investors will have at least
30 days to solicit proxies. Citizens will furnish to Investors the information
relating to Citizens required by the Federal Securities Laws to be included in
the proxy statement. Citizens represents and warrants that at the time of the
Investors shareholders' meeting, the proxy statement, insofar as it relates to
Citizens and contains information furnished by Citizens specifically for use in
such proxy statement, (a) will comply in all material respects with the
provisions of the Federal Securities Laws and (b) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Board of Directors
of Investors, subject to its fiduciary obligations to shareholders, shall use
its best efforts to obtain the requisite approval of Investors shareholders of
this Agreement and the transactions contemplated herein. Investors, Excalibur
and Citizens shall take all reasonable and necessary steps and actions to comply
with and to secure Investors shareholder approval of
A-8
<PAGE> 82
this Agreement and the transactions contemplated herein as may be required by
the statues, rules and regulations of such states.
5.2 At all times prior to the Effective Date, during regular
business hours each party will permit the other to examine its books and records
and the books and records of its subsidiaries and will furnish copies thereof on
request. It is recognized that, during the performance of this Agreement, each
party may provide the other parties with information which is confidential or
proprietary information. During the term of this Agreement, and for four years
following the termination of this Agreement, the recipient of such information
shall protect such information from disclosure to persons, other than members of
its own or affiliated organizations and its professional advisers, in the same
manner as it protects its own confidential or proprietary information from
unauthorized disclosure, and not use such information to the competitive
detriment of the disclosing party. In addition, if this Agreement is terminated
for any reason, each party shall promptly return or cause to be returned all
documents or other written records of such confidential or proprietary
information, together with all copies of such writings and, in addition, shall
either furnish or cause to be furnished, or shall destroy, or shall maintain
with such standard of care as is exercised with respect to its own confidential
or proprietary information. No information shall be considered confidential or
proprietary if it is (a) information already in the possession of the party to
whom disclosure is made, (b) information acquired by the party to whom the
disclosure is made from other sources, or (c) information in the public domain
or generally available to interested persons or which at a later date passes
into the public domain or becomes available to the party to whom disclosure is
made without any wrongdoing by the party or any of its affiliates to whom the
disclosure is made.
5.3 Investors and Citizens shall promptly provide each other with
information as to any significant developments in the performance of this
Agreement, and shall promptly notify the other if it discovers that any of its
representations, warranties and covenants contained in this Agreement or in any
document delivered in connection with this Agreement was not true and correct in
all material respects or became untrue or incorrect in any material respect.
5.4 All parties to this Agreement shall take all such action as may
be reasonably necessary and appropriate and shall use their best efforts in
order to consummate the transactions contemplated hereby as promptly as
practicable.
ARTICLE VI
PROCEDURE FOR MERGER
6.1 The parties shall file with the Insurance Commissioner of
Illinois within 30 days from this date, all of the documents required by the
Illinois Insurance Code.
ARTICLE VII
CONDITIONS PRECEDENT TO THE CONSUMMATION OF THE MERGER
The following are conditions precedent to the consummation of the
Agreement on or before the Effective Date:
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7.1 Citizens and Investors shall have performed and complied with
all of their respective obligations hereunder which are to be complied with or
performed on or before the Effective Date and Investors and Citizens shall
provide one another at the Closing with a certificate to the effect that such
party has performed each of the acts and undertakings required to be performed
by it on or before the Closing Date pursuant to the terms of this Agreement.
7.2 This Agreement, the transactions contemplated herein and the
dissolution of Investors shall have been duly and validly authorized, approved
and adopted, at a meeting of the shareholders of Investors duly and properly
called for such purpose in accordance with the applicable laws.
7.3 This Agreement is in all things subject to the provisions of
applicable insurance laws and the regulations promulgated thereunder, and shall
not become effective until approval is obtained from the Commissioner of
Insurance of the State of Illinois in accordance with the provisions of the laws
of said state. Citizens and Investors, as soon as practical after the execution
and delivery of this Agreement, agree to file and to use their best efforts to
obtain such approval of the transactions contemplated by this Agreement. Neither
Citizens, Investors nor any of their subsidiaries shall be obligated to file a
suit or to appeal from any Commissioner's adverse ruling, nor shall Citizens,
Investors nor any of their subsidiaries be obligated to make any material
changes in any lawful, good faith management policy in order to gain such
approval. In the event approval is denied, this Agreement shall terminate.
7.4 No action, suit or proceeding shall have been instituted or
shall have been threatened before any court or other governmental body or by any
public authority to restrain, enjoin or prohibit the transactions contemplated
herein, or which might subject any of the parties hereto or their directors or
officers to any material liability, fine, forfeiture or penalty on the grounds
that the transactions contemplated hereby, the regulation, or have otherwise
acted improperly in connection with the transaction contemplated hereby, and the
parties hereto have been advised by counsel that, in the opinion of such
counsel, such action, suit or proceeding raises substantial questions of law or
fact which could reasonably be decided adversely to any party hereto or its
directors or officers.
7.5 All actions, proceedings, instruments and documents required to
carry out this Agreement and the transactions contemplated hereby and the form
and substance of all legal proceedings and related matters shall have been
approved by counsel for Citizens and Investors.
7.6 The representations and warranties made by Citizens and
Investors in this Agreement shall be true as though such representations and
warranties had been made or given on and as of the Effective Date, except to the
extent that such representations and warranties may be untrue on and as of the
Effective date because of (1) changes caused by transactions suggested or
approved in writing by Citizens or (2) events or changes (which shall not, in
the aggregate, have materially and adversely affected the business, assets, or
financial condition of Investors, Excalibur or Citizens) during or arising after
the date of this Agreement.
7.7 (1) The Merger will constitute a reorganization within the
meaning of IRC Section 368(a)(2)(E) and Citizens and Investors will each be a
"party to a reorganization" within the meaning of IRC Section 368(b). No gain or
loss will be recognized by the Investors shareholders upon the exchange of their
shares for shares of Citizens Class A Common Stock (except for cash received in
lieu of a fractional share of Citizens Class A Common Stock).
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(2) The tax basis of the shares of Citizens Class A Common Stock
received by a Investors shareholder (including any fractional share of Citizens
Class A Common Stock not actually received) will be the same as the basis of the
Investors shares surrendered by that shareholder in the Exchange.
(3) The holding period for tax purposes of the shares of
Citizens Class A Common Stock received by a Investors shareholder will include
the period during which such shareholder held the Investors shares as a capital
asset on the date of the consummation of the Exchange.
(4) Cash received by Investors shareholders who properly
exercise their dissenters' rights will be treated as having been received in
redemption of the shares so cashed out, and may result in taxable gain or loss,
measured by the difference (if any) between the amount of cash received and such
shareholder's basis in the Investors stock. Provided the shares were held as
capital assets at the time of the redemption, such gain or loss will constitute
capital gain or loss, and such gain or loss will be taxed at varying federal tax
rates depending upon the holding period for such shares. It is possible, that
for some shareholders, the distribution of cash may be treated as a dividend
taxable as ordinary income.
(5) Cash payments received by Investors shareholders in lieu of
fractional shares of Citizens Class A Common Stock will be treated as if such
fractional share of Citizens Class A Common Stock has been issued in the Merger
and then redeemed by Citizens. An Investors shareholder receiving such cash will
recognize gain or loss, upon such payment, measured by the difference (if any)
between the amount of cash received and the basis in such fractional share.
Provided the fractional share was held as a capital asset at the time of the
redemption, such gain or loss will constitute capital gain or loss, and such
gain or loss will be taxed at varying federal tax rates depending upon the
holding period for such share (taking into account the holding period of the
Investors stock outstanding as described in (3) above). It is possible that the
distribution of cash may be treated as a dividend taxable as ordinary income if
the IRS determines that the distribution in redemption is essentially equivalent
to a dividend.
(6) No material gain or loss will be recognized by Citizens,
Excalibur or Investors as a result of the Merger.
7.8 Investors shall have furnished Citizens with:
(1) a certified copy of a resolution or resolutions duly adopted
by the Board of Directors of Investors approving this Agreement and the
transaction contemplated by it and directing the submission thereof to a vote of
the shareholder of Investors;
(2) a certified copy of a resolution or resolutions duly adopted
by the requisite number and classes of outstanding shares of Investors capital
stock approving this Agreement and the transactions contemplated by it in
accordance with applicable law;
(3) an opinion of Robert E. Wagner & Associates, P.C. dated as
of the Closing Date as set forth in Exhibit D attached hereto;
(4) an agreement from each "affiliate" of Investors as defined
in the rules adopted under the Securities Act of 1933, as amended, to the effect
that (a) the affiliate is familiar with SEC Rules 144 and
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145; and (b) none of the shares of Citizens Class A common stock will be
transferred by or through the affiliate in violation of the Federal Securities
Laws; and (c) the affiliate acknowledges that sales, transfers or dispositions
of Citizens Class A common stock may only be made pursuant to Rules 144 and 145
during the two-year period following the Closing Date.
(5) Investors will deliver to Citizens all of its assets,
including but not limited to, all shares of stock of Excalibur, together with
all assignments of such assets as Citizens may reasonably require.
7.9 Citizens shall furnish Investors with:
(1) a certified copy of a resolution or resolutions duly adopted
by the Board of Directors of Citizens, approving this Agreement and the
transaction contemplated by it, and
(2) an opinion dated the Effective Date of Jones & Keller, P.C.,
counsel for Citizens, as set forth in Exhibit E attached hereto.
7.10 Investors and Acquisition shall approve and file the Articles
of Merger, consistent with this Agreement, for this transaction with the
requisite governmental authorities.
ARTICLE VIII
TERMINATION AND ABANDONMENT
8.1 Anything contained in this Agreement to the contrary
notwithstanding, the Agreement may be terminated and abandoned at any time
(whether before or after the approval and adoption thereof by the shareholders
of Investors) prior to the Effective Date:
(a) By mutual consent of Citizens, Excalibur and Investors;
(b) By Citizens or Investors, if any condition set forth in Article
VII relating to the other party has not been met or has not been waived;
(c) By Citizens or Investors, if any suit, action or other
proceeding shall be pending or threatened by the federal or a state government
before any court or governmental agency, in which it is sought to restrain,
prohibit or otherwise affect the consummation of the transactions contemplated
hereby:
(d) By any party, if there is discovered any material error,
misstatement or omission in the representations and warranties of another party;
or
(e) by Citizens, if dissenters' rights are perfected in accordance
with Illinois law for more than 2.5% of the outstanding shares of Investors; or
(f) By any party if the Effective Date is not within 180 days from
the date hereof.
8.2 Any of the terms or conditions of this Agreement may be waived
at any time by the party
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which is entitled to the benefit thereof, by action taken by its Board of
Directors provided; however, that such action shall be taken only if, in the
judgment of the Board of Directors taking the action, such waiver will not have
a materially adverse effect on the benefits intended under this Agreement to the
party waiving such term or condition.
ARTICLE IX
TERMINATION OF REPRESENTATION AND WARRANTIES AND CERTAIN AGREEMENTS
9.1 The respective representations and warranties of the parties
hereto, shall expire with, and be terminated and extinguished by consummation of
the Agreement; provided, however, that the covenants and agreements of the
parties hereto shall survive in accordance with their terms.
ARTICLE X
MISCELLANEOUS
10.1 This Agreement embodies the entire agreement between the
parties, and supersedes all prior agreements, representations or warranties
among the parties other than those set forth herein or those provided for
herein.
10.2 To facilitate the execution of this Agreement, any number of
counterparts hereof may be executed, and each such counterpart shall be deemed
to be an original instrument, but all such counterparts together shall
constitute but one instrument.
10.3 Each of the parties hereto will pay its own fees and expenses
incurred in connection with the transactions contemplated by this Agreement.
Citizens and Investors each represent to the other that it has not employed any
investment bankers, brokers, finders, or intermediaries in connection with the
transaction contemplated hereby who might be entitled to any fee or other
payment from Investors, Excalibur or Citizens or any subsidiary of any of them
upon consummation of the transactions contemplated by this Agreement.
10.4 All parties to the Agreement agree that if it becomes necessary
or desirable to execute further instruments or to make such other assurances as
are deemed necessary, the party requested to do so will use its best efforts to
provide such executed instruments or do all things necessary or proper to carry
out the purpose of this Agreement.
10.5 This Agreement may be amended upon approval of the Board of
Directors of each party provided that the shares issuable hereunder shall not be
amended without approval of the requisite shareholders of Investors.
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10.6 Any notices, requests, or other communications required or
permitted hereunder shall be delivered personally or sent by overnight courier
service, fees prepaid, addressed as follows:
To Citizens, Inc.: To Investors:
Citizens, Inc. First Investors Group, Inc.
P.O. Box 149151 1709 South Fifth Street
Austin, Texas 78714 Springfield, Illinois 62703-3116
ATTN: Mark A. Oliver ATTN: Don Dennis
President Chairman and President
with copies to: with copies to:
Jones & Keller, P.C. Robert E. Wagner & Associates, P.C.
Suite 1600 133 S. 4th Street, Suite 306
1625 Broadway Springfield, Illinois 62701
Denver, Colorado 80202 ATTN: Robert E. Wagner
ATTN: Reid Godbolt
or such other addresses as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
received.
10.7 No press release or public statement will be issued relating to
the transaction contemplated by this Agreement without prior approval of
Citizens and Investors. However, either Citizens or Investors may issue at any
time any press release or other public statement it believes on the advice of
its counsel it is obligated to issue to avoid liability under the law relating
to disclosures, but the party issuing such press release or public statement
shall make a reasonable effort to give the other party prior notice of and
opportunity to participate in such release or statement.
IN WITNESS WHEREOF, the parties have set their hands and seals as of
September 10, 1998.
CITIZENS, INC.
By: /s/ Mark A. Oliver
-------------------------
Mark A. Oliver, President
FIRST INVESTORS GROUP, INC.
By: /s/ Don Dennis
-------------------------
Don Dennis, President
EXCALIBUR ACQUISITION, INC.
By: /s/ Mark A. Oliver
-------------------------
Mark A. Oliver, President
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EXHIBIT A
ARTICLES AND PLAN OF MERGER
CITIZENS, INC.
EXCALIBUR ACQUISITION, INC., AND
FIRST INVESTORS GROUP, INC.
THESE ARTICLES AND PLAN OF MERGER, dated this day ____ of _______,
199_, pursuant to Sections 5/11.05 and 5/11.25 of the Illinois Business
Corporation Act (hereinafter referred to as the "Act"), is entered into, by and
among Citizens, Inc. ("Citizens"), a Colorado corporation; Excalibur
Acquisition, Inc. ("Acquisition"), an Illinois corporation wholly-owned by
Citizens; and First Investors Group, Inc. ("Investors") or the "Surviving
Corporation"), an Illinois corporation, with Investors and Acquisition sometimes
being referred to herein as the "Constituent Corporation."
WITNESSETH:
WHEREAS, the respective Boards of Directors of the parties hereto
deem it advisable that Acquisition be merged into Investors hereinafter
specified;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter contained, and in order to prescribe the terms and
conditions of the Merger, the mode of carrying the same into effect, the manner
of converting the shares of each of the Constituent Corporations and such other
details and provisions as are deemed desirable, the parties hereto agree as
follows:
FIRST: The Constituent Corporations have agreed to merge, and that
the terms and conditions of said merger, the mode of carrying the same into
effect and the manner and basis of converting or exchanging the shares of issued
stock of each of the Constituent Corporations into different stock or other
consideration, and the manner of dealing with any issued stock of the
Constituent Corporations not to be so converted or exchanged, are and shall be
as set forth herein. In connection with the merger described below, Citizens is
agreeing, among other things, to furnish a sufficient number of shares of its
authorized but unissued Class A Common Stock, no par value, to carry out the
terms of the merger contemplated hereby.
SECOND: The parties to these Articles and Plan of Merger are
Acquisition, Investors and Citizens.
THIRD: Investors shall be the surviving corporation of the merger
between the Constituent Corporations.
FOURTH: The principal office of Acquisition and Citizens, Inc. is
400 East Anderson Lane, Austin, Texas 78752. The principal office of Investors
is 1709 South Fifth Street, Springfield, Illinois 62703-3116.
FIFTH: The Boards of Directors of Acquisition and Citizens, on
_____________, 1998, declared that a merger upon the terms and conditions set
forth in these Articles and Plan of Merger was advised, authorized and approved,
and the Board of Acquisition directed their submission to Citizens, the sole
stockholder of Acquisition.
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EXHIBIT A
The Board of Directors of Investors, on ________, 199__, by a duly
adopted resolution, declared that a merger upon the terms and conditions set
forth in these Articles and Plan of Merger was advised, authorized and approved,
and directed their submission to the shareholders of Investors.
These Articles and Plan of Merger were duly submitted to and
approved by the affirmative vote of one hundred percent (100%) of all of the
votes entitled to be cast thereon pursuant to an action by unanimous written
consent of the sole shareholder of Acquisition, as permitted by the Articles of
Incorporation of Acquisition and the laws of the State of Illinois.
These Articles and Plan of Merger were duly submitted to and
approved by the affirmative vote of ______ percent (____%) of all of the votes
entitled to be cast thereon at a meeting of the shareholders of Investors held
on ______ __, 199_, as permitted by the Articles of Incorporation of Investors
and the laws of the State of Illinois.
SIXTH: The Articles of Incorporation of Investors shall constitute
the Articles of Incorporation of the Survivor.
SEVENTH: Acquisition has authority to issue shares of one class of
capital stock, namely ten thousand (10,000) shares of common stock, $.01 par
value per share ("Acquisition Common Stock"). Citizens, Inc. has authority to
issue shares of two classes of capital stock, namely 50,000,000 shares of Class
A Common Stock, no par value per share ("Citizens Class A Common Stock"), and
1,000,000 shares of Class B Common stock, no par value per share.
EIGHTH: Investors has authority to issue shares of two classes of
capital stock, namely, 40,000,000 shares of Common stock, $.01 par value per
share and 40,000,000 shares of Preferred stock, $.50 par value per share.
NINTH: The manner and basis of converting or exchanging the issued
and outstanding stock of each of the Constituent Corporations into different
stock or other consideration and the treatment of any issued stock of the
Constituent Corporations not to be so converted or exchanged on the Effective
Date (as defined in Article Tenth below) of the merger contemplated hereby shall
be as follows:
(a) Except to the extent qualified in subparagraphs (b) and (c)
immediately below
On the Effective Date: Investors shareholders will
receive one (1) share of Class A Common stock of Citizens, Inc. (a)
for each 6.6836 shares of Investors Common stock issued and
outstanding; and (b) for each 6.6836 shares of Investors Preferred
stock issued and outstanding.
(b) No script or fractional share certificates of Citizens Class A
Common stock shall be issued as a result of the merger contemplated hereby, but
in lieu of each fractional share, the shareholder of Investors entitled to a
fractional share shall be paid by Citizens a cash payment at a rate of $6.00 per
one share of Citizens Class A Common stock.
(c) After the merger contemplated hereby shall have become
effective, except as otherwise provided by the Act with respect to dissenting
shareholders, each holder of an outstanding certificate or certificates
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EXHIBIT A
theretofore representing Investors Common Stock or Preferred stock shall
surrender the same to the Surviving Corporation and each such holder thereupon
shall been entitled to receive in exchange therefor a certificate or
certificates representing the number of shares of Citizens Common stock into
which the Investors Common stock or Preferred stock represented by the
certificate or certificates so surrendered shall have been converted or
exchanged by the provisions hereof. Until such surrender, Investors Common stock
or Preferred stock shall be deemed for all corporate purposes, other than the
payment of dividends, to evidence ownership of the number of full shares of
Citizens Class A Common stock to be delivered with respect to such shares.
Unless and until any such outstanding certificates shall be so surrendered, no
dividend payable to the holders of record of Investors Common stock or Preferred
stock as of any date subsequent to the Effective Date shall be paid to the
holders of such outstanding certificates, but upon surrender of any such
certificate or certificates, there shall be paid to the record holder of the
certificate or certificates of Investors Common or Preferred stock delivered
with respect to the shares represented by the surrendered certificate or
certificates, without interest, the amount of such dividends which shall have
theretofore become payable to them with respect to such shares of Investors
Common or Preferred stock.
(d) Each share of Acquisition Common Stock, if any, which remains
unissued and all Treasury shares of Acquisition on the Effective Date of the
merger contemplated hereby shall be canceled.
(e) Each share of Acquisition Common stock which is issued and
outstanding on the Effective Date shall be converted into one share of Investors
Common stock and shall not be deemed to be converted into shares of Class A
Common stock of Citizens.
TENTH: Upon the Effective Date:
(a) the assets and liabilities of Acquisition shall be taken up on
the books of the Surviving Corporation at the amount at which they shall at that
time be carried on the books of Acquisition, and
(b) all of the rights, privileges, immunities, powers, purposes, and
franchises of Acquisition, and all property, real, personal and mixed, and all
debts due to Acquisition on whichever account shall be vested in the Surviving
Corporation, and all property rights, privileges, immunities, powers, purposes
and franchises, and all and every other interest shall be thereafter as
effectually the property of the Surviving Corporation as they were of
Acquisition, and all debts, liabilities, obligations and duties of Acquisition
shall thenceforth attach to the Surviving Corporation and may be enforced
against it to the same extent as if said debts, liabilities, obligations and
duties had been incurred or contracted by it.
The merger provided for by these Articles and Plan of Merger shall
become effective at __:__ p.m., Central Time, on _____ __, 199_, (the "Effective
Date"), and the separate existence of Acquisition except insofar as continued by
statute, shall cease on the date that these Articles and Plan of Merger, duly
advised, approved, signed, acknowledged, sealed and verified by Citizens,
Acquisition and Surviving Corporation, as required by the laws of the State of
Illinois, are filed for record with the Secretary of State.
ELEVENTH: The merger contemplated hereby may be terminated at any
time prior to the time these Articles and Plan of Merger are filed in the office
of the Secretary of State of Illinois (a) by consent of Citizens and the
Constituent Corporations expressed by action of their respective Boards of
Directors and
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EXHIBIT A
without further shareholder action, whether or not theretofore adopted by the
shareholders of the Constituent Corporations, but the filing of these Articles
and Plan of Merger in the office of the Secretary of State of Illinois shall
conclusively evidence that any such termination has not occurred and that any
right of termination has not been exercised and has been waived.
TWELFTH: The parties hereto may, by written agreement among them
authorized by their respective Boards of Directors, amend these Articles and
Plan of Merger at any time prior to the Effective Time, provided that, after the
meeting of shareholders of Investors, no amendment shall be made which changes
the terms of these Articles and Plan of Merger in a way which is materially
adverse to the shareholders of Investors, unless such amendment is approved by
the shareholders of Investors.
Any condition to the performance of Citizens, Acquisition or
Investors which may legally be waived at or prior to the Effective Time may be
waived at any time by the party entitled to the benefit thereof by action taken
or authorized by the Board of Directors of the waiving party.
IN WITNESS WHEREOF, Citizens and each of the Constituent
Corporations, pursuant to the approval and authority duly given by resolutions
or unanimous written consents adopted by their respective Boards of Directors,
have caused these Articles and Plan of Merger to be signed in their respective
corporation names and their behalf by the respective Presidents and witnessed or
attested by their respective Secretaries as of the ____ day of ________, 199_,
each of whom affirms, under penalties of perjury, that the facts stated herein
are true.
FIRST INVESTORS GROUP, INC.
ATTEST:
By:
- ----------------------------------- -----------------------------------
Secretary Don Dennis, Chairman and
President
EXCALIBUR ACQUISITION, INC.
ATTEST:
By:
- ----------------------------------- -----------------------------------
John K. Drisdale, Jr., Secretary Mark A. Oliver, President
CITIZENS, INC.
ATTEST:
By:
- ----------------------------------- -----------------------------------
John K. Drisdale, Jr., Secretary Mark A. Oliver, President
THE UNDERSIGNED, President of First Investors Group, Inc. who
executed on behalf of said corporation the foregoing Articles and Plan of
Merger, of which this Certificate is made a part, hereby acknowledges, in the
name and on behalf of said corporation, the foregoing Articles and Plan of
Merger to be the corporate act of said corporation and further certifies that,
to the best of his knowledge, information
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EXHIBIT A
and belief, the matters and facts set forth therein with respect to the approval
thereof are true in all material respects, under the penalties of perjury.
------------------------------------
Don Dennis, Chairman and President
THE UNDERSIGNED, President of Excalibur Acquisition, Inc., who
executed on behalf of said corporation the foregoing Articles and Plan of
Merger, of which this Certificate is made a part, hereby acknowledges, in the
name and on behalf of said corporation, the foregoing Articles and Plan of
Merger to be the corporate act of said corporation and further certifies that,
to the best of his knowledge, information and belief, the matters and facts set
forth therein with respect to the approval thereof are true in all material
respects, under the penalties of perjury.
--------------------------------
Mark A. Oliver, President
THE UNDERSIGNED, President of Citizens, Inc., who executed on behalf
of said corporation the foregoing Articles and Plan of Merger, of which this
Certificate is made a part, hereby acknowledges, in the name and on behalf of
said corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
--------------------------------
Mark A. Oliver, President
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EXHIBIT B
CITIZENS' DISCLOSURE STATEMENT
Pursuant to the provisions of Article III of the Plan and Agreement of
Merger ("Merger Agreement") by and among Investors, Citizens, and Acquisition,
Citizens hereby makes the following disclosures respecting the similarly
numbered sections in the Merger Agreement:
3.7 Citizens has the liabilities disclosed in Citizens Financial
Statements and those incurred thereafter in the ordinary course
of business.
3.8 A description of certain legal proceedings involving Citizens and
Citizens Insurance Company of America is contained in Item 3 -
Legal Proceedings of Citizens' Form 10-K Annual Report and in the
list of pending legal proceedings involving Citizens and its
affiliates delivered to Investors on August 25, 1998.
3.11 (a) Computer Maintenance Agreement between Computing Technology,
Inc. and Wang Laboratories, effective 7/1/91 and amended 8/26/91.
(b) Marketing Consultant Agreement dated April 1, 1997 with
Worldwide Professional Associates, Inc.
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EXHIBIT C
INVESTORS' DISCLOSURE STATEMENT
Pursuant to the provisions of Article IV of the Plan and Agreement of
Merger ("Merger Agreement") by and among Investors, Citizens, and Acquisition,
Investors hereby makes the following disclosures respecting the similarly
numbered sections in the Merger Agreement:
4.7 Investors and Excalibur have the liabilities disclosed in the
consolidated Investors Financial Statements and those incurred
thereafter in the ordinary course of business.
4.8 A description of all pending legal proceedings involving
Investors or Excalibur is described below:
NONE
4.11 Excluding insurance policies, customary agent contracts, normal
reinsurance agreements and those contracts which will not
adversely affect either of them, Investors and Excalibur are
parties to the following contracts performable in the future:
NONE
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EXHIBIT E
Citizens, Inc.
First Investors Group, Inc.
______________, 1998
_____________, 1998
Citizens, Inc.
Excalibur Acquisition, Inc.
400 East Anderson Lane
Austin, Texas 78752
Re: Plan and Agreement of Merger among First Investors Group, Inc.,
Citizens, Inc. and Excalibur Acquisition, Inc.
Ladies and Gentlemen:
We have acted as counsel to First Investors Group, Inc.
("Investors") in connection with the above referenced agreement. This letter is
provided to you pursuant to Paragraph 7.8(3) of the Plan and Agreement of
Merger, dated as of September 10, 1998 (the "Agreement"), among Investors,
Citizens, Inc. and Excalibur Acquisition, Inc. Except as otherwise indicated
herein, capitalized terms used in this letter are defined as set forth in the
Agreement or the Accord (see below).
This letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this letter should be read in
conjunction therewith.
In giving the opinion expressed below, insofar as such opinion
relates to other than Federal law or the laws of jurisdiction other than the
State of Illinois, we advise that our opinion is with respect to Federal law and
the laws of the State of Illinois only and that, to the extent such opinion is
derived from laws of other jurisdictions, the statements are based on
examinations of relevant authorities and are believed to be correct, but we have
obtained no legal opinions as to such matters from attorneys licensed to
practice in such other jurisdictions. Accordingly, the law covered by the
opinion expressed herein is limited to the Federal law of the United States and
the law of the State of Illinois.
We have relied upon factual representations made by Investors in
Article IV of the Agreement and we have reviewed such documents and given
consideration to such matters of law and fact as we have deemed appropriate to
render this opinion.
Based upon and subject to the foregoing, we are of the opinion that:
1. The execution, delivery and performance of the Agreement by
Investors shall not result in a breach of, or constitute a default (or an event
which, with or without notice or lapse of time or both, would constitute a
default) under any contract, commitment, agreement, indenture, mortgage, pledge
agreement, note, bond, license, or other instrument or obligation to which
Investors or Excalibur Insurance Corporation
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EXHIBIT E
Citizens, Inc.
First Investors Group, Inc.
______________, 1998
("Excalibur") is a party or by which Investors or Excalibur is bound or the
charter or bylaws of Investors or Excalibur or other governing instruments of
Investors or Excalibur.
2. The Agreement has been duly authorized, executed and delivered by
Investors and is a legal, valid and binding obligation of Investors enforceable
against Investors in accordance with its terms (subject to the applicability of
equitable principles or the effect of bankruptcy or creditors' rights laws on
the enforceability of the Agreement);
3. Investors and Excalibur are Illinois corporations duly organized,
validly existing and in good standing under the laws of the State of Illinois;
4. Investors has full corporate power and authority to enter into
the Agreement and to carry out the transactions contemplated by the Agreement;
5. To our knowledge, after due inquiry, there are no civil or
criminal actions, suits, arbitrations, administrative or other proceedings or
governmental investigations pending or threatened against Investors which will
constitute a breach of the representations, warranties or covenants under the
Agreement or will prevent Investors from consummating the transactions
contemplated by the Agreement;
6. The authorized and outstanding capital stock of Investors is as
stated in Section 4.2 of the Agreement;
7. To our knowledge, after due inquiry, except as set forth in the
Agreement or Investors' Disclosure Statement, there are no outstanding
subscriptions, options, warrants, rights, convertible securities, calls,
commitments, privileges or other arrangements, preemptive or contractual,
calling for or requiring the acquisition of, or the issuance, transfer, sale or
other disposition of any shares of the capital stock of Investors or Excalibur,
or calling for or requiring the issuance of any securities or rights convertible
into or exchangeable for shares of capital stock of Investors or Excalibur; and
8. The execution, delivery, and performance of the Agreement, and
the performance by Investors of its obligations thereunder, are not in
contravention of any law, ordinance, rule or regulation of any State or
political subdivision of the United States or of any applicable foreign
jurisdiction, or contravene any order, writ, judgment, injunction, decree,
determination, or award of any court or other authority having jurisdiction, and
will not cause the suspension or revocation of any authorization, consent,
approval, or license presently in effect, which affects or binds Investors or
any of its subsidiaries or any of their material properties, and will not have a
material adverse effect on the validity of the Agreement or on the validity of
the consummation of the transactions contemplated by the Agreement or constitute
grounds for the loss or suspension of any permits, licenses, or other
authorizations used in the business of Investors or Excalibur.
Very truly yours,
ROBERT E. WAGNER & ASSOCIATES, P.C.
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EXHIBIT E
Citizens, Inc.
First Investors Group, Inc.
______________, 1998
_____________, 1998
First Investors Group, Inc.
1709 South Fifth St.
Springfield, Illinois 62703
Re: Plan and Agreement of Merger among First Investors Group, Inc.,
Citizens, Inc. and Excalibur Acquisition, Inc.
Ladies and Gentlemen:
We have acted as counsel to Citizens, Inc. ("Citizens") in
connection with the above referenced agreement. This letter is provided to you
pursuant to Paragraph 7.9(2) of the Plan and Agreement of Merger, dated as of
September 10, 1998 (the "Agreement"), among First Investors Group, Inc.,
Citizens and Excalibur Acquisition, Inc. Except as otherwise indicated herein,
capitalized terms used in this letter are defined as set forth in the Agreement
or the Accord (see below).
This letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this letter should be read in
conjunction therewith.
In giving the opinion expressed below, insofar as such opinion
relates to other than Federal law or the laws of jurisdiction other than the
State of Colorado, we advise that our opinion is with respect to Federal law and
the laws of the State of Colorado only and that, to the extent such opinion is
derived from laws of other jurisdictions, the statements are based on
examinations of relevant authorities and are believed to be correct, but we have
obtained no legal opinions as to such matters from attorneys licensed to
practice in such other jurisdictions. Accordingly, the law covered by the
opinion expressed herein is limited to the Federal law of the United States and
the law of the State of Colorado.
We have relied upon factual representations made by Citizens in
Article III of the Agreement and we have reviewed such documents and given
consideration to such matters of law and fact as we have deemed appropriate to
render this opinion.
Based upon and subject to the foregoing, we are of the opinion that:
1. The execution, delivery and performance of the Agreement by
Citizens shall not result in a breach of, or constitute a default (or an event
which, with or without notice or lapse of time or both, would constitute a
default) under any contract, commitment, agreement, indenture, mortgage, pledge
agreement, note, bond, license, or other instrument or obligation to which
Citizens is a party or by which Citizens is bound or the charter or bylaws of
Citizens or other governing instruments of Citizens.
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EXHIBIT E
Citizens, Inc.
First Investors Group, Inc.
______________, 1998
2. The Agreement has been duly authorized, executed and delivered by
Citizens and is a legal, valid and binding obligation of Citizens enforceable
against Citizens in accordance with its terms (subject to the applicability of
equitable principles or the effect of bankruptcy or creditors' rights laws on
the enforceability of the Agreement);
3. Citizens is a Colorado corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado;
4. Citizens has full corporate power and authority to enter into the
Agreement and to carry out the transactions contemplated by the Agreement;
5. To our knowledge, after due inquiry, there are no civil or
criminal actions, suits, arbitrations, administrative or other proceedings or
governmental investigations pending or threatened against Citizens which will
constitute a breach of the representations, warranties or covenants under the
Agreement or will prevent Citizens from consummating the transactions
contemplated by the Agreement;
6. The authorized and outstanding capital stock of Citizens is as
stated in Section 3.2 of the Agreement, and each of the shares of Citizens Class
A common stock to be issued pursuant to the Agreement has been duly authorized
and when issued pursuant to the terms of the Agreement shall be validly issued
and fully paid and non-assessable and not issued in violation of the preemptive
rights of any party;
7. To our knowledge, after due inquiry, except as set forth in the
Agreement or Citizens' Disclosure Statement, there are no outstanding
subscriptions, options, warrants, rights, convertible securities, calls,
commitments, privileges or other arrangements, preemptive or contractual,
calling for or requiring the acquisition of, or the issuance, transfer, sale or
other disposition of any shares of the capital stock of Citizens, or calling for
or requiring the issuance of any securities or rights convertible into or
exchangeable for shares of capital stock of Citizens; and
8. The execution, delivery, and performance of the Agreement, and
the performance by Citizens of its obligations thereunder, are not in
contravention of any law, ordinance, rule or regulation of any State or
political subdivision of the United States or of any applicable foreign
jurisdiction, or contravene any order, writ, judgment, injunction, decree,
determination, or award of any court or other authority having jurisdiction, and
will not cause the suspension or revocation of any authorization, consent,
approval, or license presently in effect, which affects or binds Citizens or any
of its subsidiaries or any of their material properties, and will not have a
material adverse effect on the validity of the Agreement or on the validity of
the consummation of the transactions contemplated by the Agreement or constitute
grounds for the loss or suspension of any permits, licenses, or other
authorizations used in the business of Citizens.
Very truly yours,
JONES & KELLER, P.C.
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<PAGE> 99
EXHIBIT E
Citizens, Inc.
First Investors Group, Inc.
______________, 1998
AMENDMENT TO PLAN AND AGREEMENT OF MERGER
This Amendment to Plan and Agreement of Merger ("Amendment") is
entered into by and among First Investors Group, Inc. ("Investors"), Citizens,
Inc. ("Citizens") and Excalibur Acquisition, Inc. ("Acquisition").
WITNESSETH:
WHEREAS, Investors, Citizens and Acquisition have heretofore entered
into a Plan and Agreement of Merger dated September 10, 1998 ("Agreement"), to
effect a merger between them under Illinois law, as provided in the Plan; and
WHEREAS, Article X of the Agreement permits Investors, Citizens and
Acquisition to amend the terms and conditions of the Agreement and the exhibits
thereto;
NOW THEREFORE, Investors, Citizens and Acquisition hereby agree that
the Agreement should be and hereby is, amended as follows:
1. AMENDMENT OF SECTION 7.2. Section 7.2 is amended in its entirety
to read as follows:
"7.2 This Agreement and the transactions contemplated herein shall
have been duly and validly authorized, approved and adopted, as a
meeting of the shareholders of Investors duly and properly called
for such purpose in accordance with the applicable laws."
2. DELETION OF SECTION 7.8(5). Section 7.8(5) is deleted.
3. SCOPE OF AMENDMENT. This Amendment embodies all of the changes to
the Agreement as of the date hereof. Except as modified hereby, the Agreement
remains in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
October 30, 1998.
CITIZENS, INC.
By: /s/ Mark A. Oliver
-------------------------
Mark A. Oliver, President
FIRST INVESTORS GROUP, INC.
By: /s/ Don Dennis
-------------------------
Don Dennis, President
EXCALIBUR ACQUISITION, INC.
By: /s/ Mark A. Oliver
-------------------------
Mark A. Oliver, President
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APPENDIX B
ILLINOIS BUSINESS CORPORATION ACT OF 1983
ARTICLE 11. MERGER AND CONSOLIDATION -- DISSENTERS' RIGHTS
5/11.65 RIGHT TO DISSENT. -- (a) A shareholder of a corporation is
entitled to dissent from, and obtain payment for his or her shares in the event
of any of the following corporate actions:
(1) consummation of a plan of merger or consolidation or a plan of
share exchange to which the corporation is a party if (i) shareholder
authorization is required for the merger or consolidation or the share exchange
by Section 11.20 or the articles of incorporation or (ii) the corporation is a
subsidiary that is merged with its parent or another subsidiary under Section
11.30;
(2) consummation of a sale, lease or exchange of all, or
substantially all, of the property and assets of the corporation other than in
the usual and regular course of business;
(3) an amendment of the articles of incorporation that materially
and adversely affects rights in respect of dissenter's shares because it:
(i) alters or abolishes a preferential right of such shares;
(ii) alters or abolishes a right in respect of redemption, including
a provision respecting a sinking fund for the redemption or repurchase, of such
shares;
(iii) in the case of a corporation incorporated prior to January 1,
1982, limits or eliminates cumulative voting rights with respect to such shares;
or
(4) any other corporate action taken pursuant to a shareholder vote
if the articles of incorporation, by-laws, or a resolution of the board of
directors provide that shareholders are entitled to dissent and obtain payment
for their shares in accordance with the procedures set forth in Section 11.70 or
as may be otherwise provided in the articles, by-laws or resolution.
(b) A shareholder entitled to dissent and obtain payment for his or
her shares under this Section may not challenge the corporate action creating
his or her entitlement unless the action is fraudulent with respect to the
shareholder or the corporation or constitutes a breach of a fiduciary duty owed
to the shareholder.
(c) A record owner of shares may assert dissenters' rights as to
fewer than all the shares recorded in such person's name only if such person
dissents with respect to all shares beneficially owned by any one person and
notifies the corporation in writing of the name and address of each person on
whose behalf the record owner asserts dissenters' rights. The rights of a
partial dissenter are determined as if the shares as to which dissent is made
and the other shares were recorded in the names of different shareholders. A
beneficial owner of shares who is not the record owner may assert dissenters'
rights as to shares held on such person's behalf only if the beneficial owner
submits to the corporation the record owner's written consent to the dissent
before or at the same time the beneficial owner asserts dissenters' rights.
5/11.70 PROCEDURE TO DISSENT. -- (a) If the corporate action giving
rise to the right to dissent is to be approved at a meeting of shareholders, the
notice of meeting shall inform the shareholders of their right to dissent and
the procedure to dissent. If, prior to the meeting, the corporation furnishes to
the shareholders material information with respect to the transaction that will
objectively enable a shareholder to vote on the transaction and to determine
whether or not to exercise dissenters' rights, a shareholder may assert
dissenters' rights only if the shareholder delivers to the corporation before
the vote
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is taken a written demand for payment for his or her shares if the proposed
action is consummated, and the shareholder does not vote in favor of the
proposed action.
(b) If the corporate action giving rise to the right to dissent is
not to be approved at a meeting of shareholders, the notice to shareholders
describing the action taken under Section 11.30 or Section 7.10 shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to or concurrently with the notice, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to determine whether or not to exercise
dissenters' rights, a shareholder may assert dissenter's rights only if he or
she delivers to the corporation within 30 days from the date of mailing the
notice a written demand for payment for his or her shares.
(c) Within 10 days after the date on which the corporate action
giving rise to the right to dissent is effective or 30 days after the
shareholder delivers to the corporation the written demand for payment,
whichever is later, the corporation shall send each shareholder who has
delivered a written demand for payment a statement setting forth the opinion of
the corporation as to the estimated fair value of the shares, the corporation's
latest balance sheet as of the end of a fiscal year ending not earlier than 16
months before the delivery of the statement, together with the statement of
income for that year and the latest available interim financial statements, and
either a commitment to pay for the shares of the dissenting shareholder at the
estimated fair value thereof upon transmittal to the corporation of the
certificate or certificates, or other evidence of ownership, with respect to the
shares, or instructions to the dissenting shareholder to sell his or her shares
within 10 days after delivery of the corporation's statement to the shareholder.
The corporation may instruct the shareholder to sell only if there is a public
market for the shares at which the shares may be readily sold. If the
shareholder does not sell within that 10 day period after being so instructed by
the corporation, for purposes of this Section the shareholder shall be deemed to
have sold his or her shares at the average closing price of the shares, if
listed on a national exchange, or the average of the bid and asked price with
respect to the shares quoted by a principal market maker, if not listed on a
national exchange, during that 10 day period.
(d) A shareholder who makes written demand for payment under this
Section retains all other rights of a shareholder until those rights are
canceled or modified by the consummation of the proposed corporate action. Upon
consummation of that action, the corporation shall pay to each dissenter who
transmits to the corporation the certificate or other evidence of ownership of
the shares the amount the corporation estimates to be the fair value of the
shares, plus accrued interest, accompanied by a written explanation of how the
interest was calculated.
(e) If the shareholder does not agree with the opinion of the
corporation as to the estimated fair value of the shares or the amount of
interest due, the shareholder, within 30 days from the delivery of the
corporation's statement of value, shall notify the corporation in writing of the
shareholder's estimated fair value and amount of interest due and demand payment
for the difference between the shareholder's estimate of fair value and interest
due and the amount of the payment by the corporation or the proceeds of sale by
the shareholder, whichever is applicable because of the procedure for which the
corporation opted pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the
shareholder notification of estimate of fair value of the shares and interest
due, the corporation and the dissenting shareholder have not agreed in writing
upon the fair value of the shares and interest due, the corporation shall either
pay the difference in value demanded by the shareholder, with interest, or file
a petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose demands remain unsettled parties to the proceeding as an action against
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their shares and all parties shall be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication as
provided by law. Failure of the corporation to commence an action pursuant to
this Section shall not limit or affect the right of the dissenting shareholders
to otherwise commence an action as permitted by law.
(g) The jurisdiction of the court in which the proceeding is
commenced under subsection (f) by a corporation is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have the power
described in the order appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds that the fair value of
his or her shares, plus interest, exceeds the amount paid by the corporation or
the proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of the appraisers, if any, appointed by the court under subsection (g),
but shall exclude the fees and expenses of counsel and experts for the
respective parties. If the fair value of the shares as determined by the court
materially exceeds the amount which the corporation estimated to be the fair
value of the shares or if no estimate was made in accordance with subsection
(c), then all or any part of the costs may be assessed against the corporation.
If the amount which any dissenter estimated to be the fair value of the shares
materially exceeds the fair value of the shares as determined by the court, then
all or any part of the costs may be assessed against that dissenter. The court
may also assess the fees and expenses of counsel and experts for the respective
parties, in amounts the court finds equitable, as follows:
(1) Against the corporation and in favor of any or all dissenters if
the court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and in favor of
any other party if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this Section.
If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated and that the
fees for those services should not be assessed against the corporation, the
court may award to that counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who are benefitted. Except as otherwise provided in
this Section, the practice, procedure, judgment and costs shall be governed by
the Code of Civil Procedure.
(j) As used in this Section:
(1) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the consummation of the corporate action
to which the dissenter objects excluding any appreciation or depreciation in
anticipation of the corporate action, unless exclusion would be inequitable.
(2) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate currently paid
by the corporation on its principal bank loans or, if none, at a rate that is
fair and equitable under all the circumstances.
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PROXY
FIRST INVESTORS GROUP, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder of First Investors Group, Inc.
("Investors") acknowledges receipt of the Notice of Special Meeting of
Shareholders, to be held on ________, 1998, at ___________________________,
Bloomington, Illinois, at ____ a.m., Central Time, and hereby appoints Donald L.
Dennis and H. Marie Dennis, each of them with the power of substitution, as
attorneys and proxies to vote all the shares of the undersigned at said Special
Meeting and at all adjournments thereof, hereby ratifying and confirming all
that said attorneys and proxies may do or cause to be done by virtue hereof. The
above-named attorneys and proxies are instructed to vote all of the
undersigned's shares as follows:
THE DIRECTORS RECOMMEND A VOTE FOR THE ITEMS INDICATED BELOW:
1. A proposal to approve and adopt the Plan and Agreement of Merger dated
September 10, 1998 under which Excalibur Acquisition, Inc., a wholly-owned
subsidiary of Citizens, Inc., will merge with and into Investors, with
Investors being the survivor, and shareholders of Investors will receive
shares of Citizens, Inc. Class A Common Stock for their Investors Common
and Preferred shares as described in the accompanying Proxy
Statement-Prospectus.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1.
Dated this ______ day of ________________, 199____.
Number of Shares Voted*
Common
------------------- -------------------------------
Signature
Preferred
---------------- -------------------------------
Signature
*If the number of shares voted is
not indicated, all shares in your
name on Investors' stock register
will be voted for the Merger.
Please sign your name exactly as it appears
on your stock certificate(s). If shares are
held jointly, each holder should sign.
Executors, trustees, and other fiduciaries
should so indicate when signing.
Please sign, date and return this proxy
immediately.
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 109 of Title Seven of the Colorado Revised Statutes enables
a Colorado corporation to indemnify its officers, directors, employees and
agents against liabilities, damages, costs and expenses for which they are
liable if: (i) in their Official Capacities (as defined by this statute) if they
acted in good faith and had no reasonable basis to believe their conduct was not
in the best interest of the Registrant; (ii) in all other cases, that their
conduct was at least not opposed to the Registrant's best interests; and (iii)
in the case of any criminal proceeding, they had no reasonable cause to believe
their conduct was unlawful.
The Registrant's Articles of Incorporation 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 - See Appendix A
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)
8.1 Opinion and Consent of Jones & Keller, P.C. re: tax matters(c)
10.12 Summary of Coinsurance Agreement between Citizens Insurance Company
of America and Alabama Reassurance Company dated December 31,
1985(b)
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10.13 Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement
between Citizens Insurance Company of America and The Centennial
Life Insurance Company dated March 1, 1982(c)
10.14 Self-Administered Automatic Reinsurance Agreement between Citizens
Insurance Company of America and Business Men's Assurance Company
dated July 1, 1993(c)
11 Statement re: Computation of per share earnings(d)
22 Subsidiaries of the Registrant(d)
23.1 Consent of Jones & Keller, P.C.(c)
23.2 Consent of Jones & Keller, P.C.(c)
23.3 Consent of KPMG Peat Marwick LLP(c)
23.4 Consent of Kerber, Eck & Braeckel, LLP(c)
23.5 Consent of Sikich Gardner & Co, LLP (c)
25 Power of Attorney (see signature page)
- ----------
(a) Filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993 and incorporated by reference.
(b) Filed with the Registrant's Amendment No. 1 to Registration
Statement on Form S-4, Registration No. 33-4753, filed with the
Commission on or about June 19, 1992.
(c) Filed herewith.
(d) Filed with the Registrant's Annual Report on Form 10-K for the Year
Ended December 31, 1997, 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.
(B) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
See "Financial Statements."
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<PAGE> 106
ITEM 22. UNDERTAKINGS
The Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, as amended (the "1933 Act"),
each filing of The Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as amended (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934, as amended), that is
incorporated by reference in the Registration Statement shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
The Registrant hereby undertakes that every prospectus (i) that is
filed pursuant to the paragraph immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the 1933 Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
part of an amendment to the Registration Statement and will not be used until
such amendment is effective; and that, for purposes of determining any liability
under the 1933 Act, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
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
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<PAGE> 107
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.
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.
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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 10, 1998.
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 10, 1998
- -------------------------------------
Harold E. Riley
/s/ Mark A. Oliver President, Chief November 10, 1998
- ------------------------------------- Administrative Officer and
Mark A. Oliver Director
/s/ T. Roby Dollar Vice Chairman, Chief Actuary, November 10, 1998
- ------------------------------------- Assistant Secretary and Director
T. Roby Dollar
/s/ Rick D. Riley Vice Chairman - Administration November 10, 1998
- ------------------------------------- and Director
Rick D. Riley
/s/ James C. Mott Director November 10, 1998
- -------------------------------------
James C. Mott
/s/ Joe R. Reneau Director November 10, 1998
- -------------------------------------
Joe R. Reneau, M.D.
Director November 10, 1998
- -------------------------------------
Steven F. Shelton
Director November 10, 1998
- -------------------------------------
Ralph M. Smith. Th.D.
Director November 10, 1998
- -------------------------------------
Timothy T. Timmerman
</TABLE>
<PAGE> 109
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.21 Plan and Agreement of Merger (see Appendix A)
5.1 Opinion and consent of Jones & Keller, P.C. as to the legality of
Citizens, Inc. Common Stock
8.1 Opinion and consent of Jones & Keller, P.C. re: tax matters
10.13 Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement
between Citizens Insurance Company of America and The Centennial
Life Insurance Company dated March 1, 1982
10.14 Self-Administered Automatic Reinsurance Agreement between Citizens
Insurance Company of America and Business Men's Assurance Company
dated July 1, 1993
11 Statement re: Computation of per share earnings (see "Financial
Statements")
23.1 Consent of Jones & Keller, P.C. (see Exhibit 5.1)
23.2 Consent of Jones & Keller, P.C. (see Exhibit 8.1)
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of Kerber, Eck & Braeckel LLP
23.5 Consent of Sikich Gardner & Co, LLP
25 Power of Attorney (see Signature Pages)
</TABLE>
<PAGE> 1
EXHIBITS 5.1 AND 23.1
JONES & KELLER
a Professional Corporation
1625 Broadway, Suite 1600
Denver, Colorado 80202
Phone: (303) 573-1600
Facsimile: (303) 573-0769
November 10, 1998
Citizens, Inc.
400 East Anderson Lane
Austin, Texas 78714-9151
Gentlemen:
We have acted as special counsel for Citizens, Inc. in connection with
a Registration Statement on Form S-4, to be filed by the Company under the
Securities Act of 1933 with the Securities and Exchange Commission. The
Registration Statement relates to the proposed issuance of up to 611,000 shares
of Class A Common Stock, no par value, to be issued in connection with the Plan
and Agreement of Merger dated as of September 10, 1998 by and between First
Investors Group, Inc., Citizens, Inc. (the "Company"), and Excalibur
Acquisition, Inc. The Registration Statement and exhibits thereto to be filed
with the Securities and Exchange Commission under such Act are referred to
herein as the "Registration Statement".
This letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this letter should be read in
conjunction therewith.
We have examined the Articles of Incorporation of the Company as filed
with the Colorado Secretary of State, the Bylaws of the Company, and the
minutes of the meetings and records of proceedings of the Board of Directors of
the Company, the applicable laws of the State of Colorado and a copy of the
Registration Statement.
Based upon the foregoing, and having regard for such legal
considerations as we deemed relevant, we are of the opinion that when issued
pursuant to the Registration Statement, the above-referenced 611,000 shares of
Class A Common Stock of the Company shall have been legally issued, fully paid
and non-assessable.
We hereby consent to the use of this opinion as part of the
Registration Statement and to the reference to our name under the heading
"Legal Matters" in the Proxy Statement-Prospectus constituting a part of the
Registration Statement.
Very truly yours,
/s/ Jones & Keller, P.C.
Jones & Keller, P.C.
<PAGE> 1
EXHIBIT 8.1 AND 23.2
JONES & KELLER
a Professional Corporation
1625 Broadway, Suite 1600
Denver, Colorado 80202
Phone: (303) 573-1600
Facsimile: (303) 573-0769
November 10, 1998
Citizens, Inc.
P.O. Box 149151
Austin, Texas 78714-9151
Excalibur Acquisition, Inc.
P.O. Box 149151
Austin, Texas 78714-9151
First Investors Group, Inc.
Excalibur Investors Life Insurance Company
1709 South Fifth Street
Springfield, Illinois 62703-3116
Gentlemen:
Our opinions as expressed below are based solely upon: (1) the
information contained in the Registration Statement on Form S-4 as filed with
the Securities and Exchange Commission on November 10, 1998 (hereafter
"Registration Statement"); (2) relevant information provided by the principals
and disclosed under the facts section of this letter; (3) the Internal Revenue
Code of 1986, as amended (hereinafter "IRC"), the regulations promulgated
thereunder, and the current administrative positions of the Internal Revenue
Service ("IRS") contained in published Revenue Rulings and Revenue Procedures;
and (4) existing judicial decisions. Any or all of the above are subject to
change or modification by subsequent legislative, regulatory, administrative or
judicial decisions which could adversely affect our opinions.
This letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business
Law (1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this letter should be read in
conjunction therewith.
"Merger" refers to the transactions set forth in the Plan and
Agreement of Merger ("Merger Agreement") dated September 10, 1998 between
Citizens, Inc. ("Citizens"), Excalibur Acquisition, Inc. ("Acquisition") and
First Investors Group, Inc. ("Investors"). Capitalized terms herein have the
same meaning as in the Merger Agreement. Excalibur is a subsidiary of
Investors. Acquisition is a subsidiary
8.1-1
<PAGE> 2
of Citizens. The Common Stock of Investors is herein referred to as "Investors
Common Stock"; the Preferred Stock of Investors is herein referred to as
"Investors Preferred Stock"; and both are sometimes herein referred to as
"Investors Stock".
Shareholders residing or conducting business in foreign countries,
states or municipalities having tax laws could be required to pay tax with
respect to transactions in that country, state or municipality. We do not
express any opinion as to foreign, state or local tax consequence. We do not
express any opinion regarding alternative minimum tax consequences to any
shareholder.
The consequences described in this summary are not applicable to
nonresident aliens, to foreign corporations, to debtors under the jurisdiction
of a court in a case under Title 11 of the United States Code or in a
receivership, foreclosure, or similar proceeding, to shareholders that are real
estate investment trusts, to shareholders that are regulated investment
companies, to shareholders that are tax exempt persons, to shareholders that
are persons that hold their Investors Stock as part of a position in a
"straddle" or as part of a "hedging" or other integrated transaction, to
shareholders that are investment companies within the meaning of IRC Section
351(e), to shareholders who are dealers in securities, to shareholders who do
not hold their common stock as capital assets, to shareholders who are
financial institutions, or to shareholders who acquired their shares in
connection with stock option or stock purchase plans or in other compensatory
transactions.
The principal reasons for the Merger can be summarized as follows:
(1) to create a combined entity with greater financial strength
and an enhanced competitive position as compared to the separate entities;
(2) to achieve improved capitalization and economies of scale;
(3) to consolidate the ownership and operation of the assets of
the separate entities into an affiliated group of corporations having greater
and more diversified reserves, properties and products; and
(4) to provide greater liquidity and diversity to Investors
shareholders.
This letter is conditioned on the accuracy of the factual information,
assumptions and representations contained in the Registration Statement and
provided by Citizens, Acquisition and Investors, including the following:
(1) that Citizens and Investors, in arriving at the method used to
determine the number of shares of Citizens Common Stock to be received by each
Investors shareholder, attempted in good faith to value the Investors Common
Stock and Investors Preferred Stock to be transferred and to value Citizens
Common Stock to be exchanged for such Investors Common Stock and Investors
Preferred Stock in an effort to ensure that each shareholder receiving Citizens
Common Stock pursuant to the Merger received a number of shares of such stock
approximately equal in value to the Investors Common Stock and Investors
Preferred Stock exchanged therefor;
(2) that following the Merger, Investors will hold at least 90
percent of the Fair Market Value
8.1-2
<PAGE> 3
of its Net Assets and at least 70 percent of the Fair Market Value of its Gross
Assets and at least 90 percent of the Fair Market Value of Acquisition's Net
Assets and at least 70 percent of the Fair Market Value of Acquisition's Gross
Assets held immediately prior to the Merger. Amounts paid by Investors or
Acquisition to dissenters, amounts paid by Investors or Acquisition to
shareholders who receive cash or other property, amounts used by Investors or
Acquisition to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by Investors will be
included as assets of Investors or Acquisition, respectively, immediately prior
to the Merger;
(3) that prior to the Merger, Citizens will be in control of
Acquisition within the meaning of IRC Section 368(c);
(4) that Investors has no plan or intention to issue additional
shares of its stock that would result in Citizens losing control of Investors
within the meaning of IRC Section 368(c);
(5) that Excalibur has no plan or intention to issue additional
shares of its stock that would result in Investors losing control of Excalibur
within the meaning of IRC Section 368(c);
(6) that neither Citizens nor any affiliate of Citizens will
redeem or otherwise reacquire, either directly or indirectly, any Citizens
Class A Common Stock to be issued to Investors shareholders in the Merger;
(7) that Citizens has no plan or intention to liquidate Investors;
to merge Investors with or into another corporation; to sell or otherwise
dispose of the stock of Investors except for transfers of stock to corporations
controlled by Citizens; or to cause Investors to sell or otherwise dispose of
any of its assets or any of the assets acquired from Acquisition, except for
dispositions made in the ordinary course of business or transfers of assets to
a corporation controlled by Investors;
(8) that Investors and Citizens have no plan or intention to
liquidate Excalibur; to merge Excalibur into another corporation; to cause
Excalibur to sell or otherwise dispose of any of its assets, except for
dispositions made in the ordinary course of business;
(9) that Acquisition will have no liabilities assumed by
Investors, and it will not transfer to Investors any assets subject to
liabilities, in the Merger;
(10) that neither Investors, Citizens nor any affiliate of either
corporation will redeem or otherwise acquire, either directly or indirectly,
any Investors Stock prior to the Merger;
(11) that following the Merger, Investors will continue the
historic business of Excalibur or use a significant portion of Excalibur's
historic business assets in a business;
(12) that Citizens, Acquisition and Investors will assume and pay
their respective reorganization expenses, if any, incurred in connection with
the Merger;
(13) that there is no corporate indebtedness between Citizens or
Investors or between Acquisition and Investors that was issued, acquired or
will be settled at a discount;
8.1-3
<PAGE> 4
(14) that in the Merger and on the effective date of the Merger,
shares of Investors Stock representing control of Investors, as defined in IRC
Section 368(c), will be exchanged solely for newly issued Citizens voting Class
A Common Stock. Shares of Investors Stock exchanged for cash or other property
originating with Citizens will be treated as outstanding Investors Stock on the
effective date of the Merger;
(15) that on the effective date of the Merger, Investors and
Excalibur will not have outstanding any warrants, options, convertible
securities, or any other type of right pursuant to which any person could
acquire stock in Investors or Excalibur that, if exercised or converted, would
affect retention of control of Investors or Investors retention of control of
Excalibur, as defined in IRC Section 368(c);
(16) that Citizens does not own, nor has it owned during the past
five years, any shares of Investors or Excalibur Stock;
(17) that neither Citizens, Acquisition, Investors nor Excalibur
are investment companies as defined in IRC Section 368(a)(2)(F)(iii) and (iv);
(18) that on the effective date of the Merger, the fair market
value of the assets of Investors will equal or exceed the sum of its
liabilities, plus the amount of liabilities, if any, to which the assets are
subject;
(19) that on the effective date of the Merger, the fair market value
of the assets of Excalibur will equal or exceed the sum of its liabilities, plus
the amount of liabilities, if any, to which the assets are subject;
(20) that neither Citizens, Acquisition, Investors nor Excalibur
are under the jurisdiction of a court in a Title 11 or similar case within the
meaning of IRC Section 368(a)(3) (A);
(21) that the Merger will be consummated in full compliance with
Illinois law;
(22) that the Investors Stock to be surrendered by each Investors
shareholder will not be subject to any liability and neither Investors nor
Citizens will assume liabilities with respect to the surrendered Investors
Stock;
(23) that the Merger will not be consummated in the event more than
2.5 percent of the shareholders of Investors dissent to the Merger;
(24) that cash payments in lieu of fractional shares are simply a
mathematical rounding-off for the purpose of simplifying corporate and
accounting problems which would have been caused by the actual issuance of
fractional shares, and such payments are not separately bargained for
consideration;
(25) that none of the shares of Citizens Class A Common Stock
received by any shareholder will be separate consideration for, or allocable to,
any employment agreement; and the compensation paid to any shareholder will be
for services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services.
In rendering an opinion on the federal income tax consequences of such
transactions, reasonable steps have been taken to assure that all material tax
issues are considered in light of the facts, and that all of such issues
involving a reasonable possibility of challenge by the IRS are fully and fairly
addressed. A
8.1-4
<PAGE> 5
"material tax issue" includes any tax issue that could have a significant
impact (either beneficial or adverse) on any Investors shareholder
participating in the Merger under any reasonably foreseeable circumstances.
The opinions expressed below are rendered only with respect to the
specific matters described herein, and we express no opinion with respect to
any other federal income tax aspects of the Merger. Should any of the facts,
circumstances, or assumptions specified herein be subsequently determined
incorrect or inaccurate, our conclusions may vary from those set forth below
and such variance could be material. In addition, we do not opine as to the
taxable or nontaxable status of any previous transactions not considered to be
part of the Merger transaction.
The tax issues that are material to the Merger concern tax
consequences to Investors and its shareholders upon the merger of Acquisition
into and with Investors in exchange for Citizens Class A Common Stock.
The Merger of Acquisition into Investors will constitute a
reorganization within the meaning of IRC Section 368(a)(1)(A) and IRC Section
368(a)(2)(E) and Citizens and Investors will each be a "party to a
reorganization" within the meaning of IRC Section 368(b), provided that the
Merger, as proposed in the Merger Agreement, qualifies as a statutory merger
under the laws of the State of Illinois.
Accordingly, in our opinion, the material tax consequences of the
Merger are as follows:
(1) No gain or loss will be recognized by the shareholders of
Investors upon the exchange of their shares of Investors Common Stock and
Investors Preferred Stock for shares of Citizens Class A Common Stock (except
for cash received in lieu of a fractional share of Citizens Class A Common
Stock). IRC Section 354(a).
(2) The tax basis of the shares of Citizens Class A Common Stock
received by a shareholder of Investors (including any fractional share of
Citizens Common Stock not actually received) will be the same as the basis of
the Investors Stock surrendered by that shareholder in the Merger. IRC Section
358(a), IRC Regulation Section 1.358-1(a).
(3) The holding period of the shares of Citizens Class A Common
Stock received by a shareholder of Investors will include the period during
which such shareholder held the Investors Stock exchanged therefor, to the
extent that the Investors Stock was held by the shareholder as a capital asset
on the date of the consummation of the Merger. IRC Section 1223(1).
(4) Cash received by the Investors shareholders who properly
exercise their dissenters' rights will be treated as having been received in
redemption of the shares so cashed out, and may result in taxable gain or loss,
measured by the difference (if any) between the amount of cash received and
such shareholder's basis in the Investors Stock. Provided the shares were held
as capital assets at the time of the redemption, such gain or loss will
constitute capital gain or loss. Under recently enacted legislation, an
individual Investors shareholder generally will be subject to tax on the net
amount of his capital gain realized on the redemption at a maximum rate of 20%
if the holding period for such shares was greater than one year. Special rules
(and generally lower maximum rates) apply for individuals whose taxable income
is below certain levels. It is possible, that for some shareholders, the
distribution of cash may be treated as a dividend taxable as ordinary income.
See IRC Sections 302, 301.
8.1-5
<PAGE> 6
(5) Cash payments received by Investors shareholders in lieu of
fractional shares of Citizens Class A Common Stock will be treated as if such
fractional share of Citizens Class A Common Stock has been issued in the Merger
and then redeemed by Citizens. An Investors shareholder receiving such cash
will recognize gain or loss, upon such payment, measured by the difference (if
any) between the amount of cash received and the basis in such fractional share.
Provided the fractional share was held as a capital asset at the time of the
redemption, such gain or loss will constitute capital gain or loss. Under
recently enacted legislation, an individual Investors shareholder generally will
be subject to tax on the net amount of his capital gain realized on the
redemption at a maximum rate of 20% if the holding period for such share (taking
into account the holding period of the Investors Stock surrendered, as described
in (3) above) was greater than one year. Special rules (and generally lower
maximum rates) apply for individuals whose taxable income is below certain
levels. It is possible that the distribution of cash may be treated as a
dividend taxable as ordinary income if the IRS determines that the distribution
in redemption is essentially equivalent to a dividend. See IRC Sections 356,
302.
(6) No material gain or loss will be recognized by Investors,
Citizens or Acquisition as a result of the Merger. IRC Sections 361 and 1032.
The adjusted tax basis of Acquisition properties will carryover to Investors.
IRC Section 362.
(7) Section 382 limits the Net Operating Loss carryover of a
company following an ownership change. Investors and Excalibur, as a group,
will be deemed to have an ownership change. After an ownership change, the
amount of income that a group may offset each year by Net Operating Losses that
occurred before the change is generally limited to an amount determined by
multiplying the value of the equity of the group immediately prior to this
change by the federal long-term tax exempt rate in effect on the date of the
change. Any unused limitation may be carried forward and added to the next
year's limitation. To the extent Investors and Excalibur also have built-in
losses as defined in IRC Section 382(h) as of the date of the Merger, IRC
Section 382 limits the utilization of such losses after the ownership change.
IRC Section 383 will similarly limit the utilization of excess credits, net
capital losses, and foreign tax credits, if any, after the ownership change.
In addition, IRC Section 384 limits the use of preacquisition losses to offset
built-in gains, if any, after the ownership change.
(8) Each shareholder of Investors must file pursuant to IRS
Regulation 1.368-3(b), with his or her income tax return for the year in which
the Merger is consummated, a statement which provides details relating to the
property transferred, securities received and liabilities, if any, assumed in
the exchange.
The preceding discussion and opinions are based on our interpretations
of the facts and assumptions. The discussion and opinions are also based on the
IRC, the regulations thereunder and judicial and administrative interpretations
thereof in effect on the date hereof, which are subject to change by subsequent
regulatory, administrative, legislative, or judicial actions which could have an
adverse effect on the validity of our opinions. Our opinions are effective as
of the Effective Time for the Merger as described in the Merger Agreement.
We do not express an opinion on the valuations of Investors or
Citizens assets or stock or the ratio of exchange of Investors Stock for
Citizens Class A Common Stock.
We believe we have addressed all material tax issues in regards to the
Merger. If the Merger is transacted as outlined in the facts given, the
material tax issues addressed singularly and in the aggregate will more likely
than not be upheld under challenge by the IRS.
8.1-6
<PAGE> 7
Each Investors shareholder should consult his own qualified tax
advisor to evaluate the tax effects of this exchange based on his personal
facts and circumstances.
We hereby consent to the use of this opinion as part of the
Registration Statement and to the reference to our name under the heading
"Legal Matters" in the Registration Statement constituting a part of the
Registration Statement.
Very truly yours,
/s/ Jones & Keller, P.C.
JONES & KELLER, P.C.
8.1-7
<PAGE> 1
EXHIBIT 10.13
AUTOMATIC
YEARLY RENEWABLE TERM (NR)
LIFE REINSURANCE AGREEMENT #116A
between
CITIZENS INSURANCE COMPANY OF AMERICA
of Austin, Texas
(herein called the CEDING COMPANY)
EFFECTIVE:
March 1, 1982
and
THE CENTENNIAL LIFE INSURANCE COMPANY
Overland Park, Kansas
(herein called the REINSURER)
Changed to Puritan 6/1/86
Changed to ERC 1/1/87
10.13-1
<PAGE> 2
TABLE OF CONTENTS
(Auto-YRT Agreement)
TITLE PAGE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PARAGRAPH TITLE
- ------- ---------------
<S> <C> <C>
- -- 0 Agreement Clause
I AUTOMATIC REINSURANCE
1 Application of Agreement
2 Automatic Acceptance
3 Jumbo Risk Defined
4 Waiver of Premium Benefit
5 Accidental Death Benefit
6 Payor Benefit
7 Other Benefits
8 Multiple Policies on One Risk
9 Changes to Retention
10 Notification and Cession Procedures
II FACULTATIVE REINSURANCE
11 Facultative Submission
12 Facultative Option
13 Submission Procedure
14 Cession Procedure
III DURATION OF REINSURER'S LIABILITY
15 Initiation and Termination of Liability
IV PLAN OF REINSURANCE
16 Basis of Agreement
17 Description of Business Reinsured - Policy Modifications
18 Plan Terms and Conditions
19 Policy Loans and Administration
V CONSIDERATION
20 Life Reinsurance
20 a. Premiums Other Than Flat Extras
20 b. Permanent Flat Extras
20 c. Temporary Flat Extras
21 Waiver of Premium Coinsured
</TABLE>
10.13-2
<PAGE> 3
TABLE OF CONTENTS
(Auto-YRT Agreement)
<TABLE>
<CAPTION>
ARTICLE PARAGRAPH TITLE
- ------- ---------------
<S> <C> <C>
22 Other Benefits
22 a. Accidental Death Benefit
22 b. Payor Benefits Coinsured
22 c. Interim Insurance
23 Mode of Premium Payment
VI TAX CREDITS
24 Premium Taxes
VII CONVERSIONS
25 Reinsurance of Converted Policies
26 Premium Calculation for Conversions
VIII REINSURANCE PREMIUM DUE DATES
27 Billing Statement
28 Due Dates and Defaults
29 Refund of Unearned Premium
IX ERRORS AND OMISSIONS
30 Unintentional Errors and Omissions
X EXPENSE OF ORIGINAL POLICY
31 Policy Expenses
XI RECAPTURE PRIVILEGE
32 Recapture Option
33 Proportional Reinsurance Reduction
34 "All or Nothing" and Timing
XII CLAIMS
35 Reinsurer's Claim Liabilities
36 Lump Sum Reinsurance Settlement
37 Contested Claims
</TABLE>
10.13-3
<PAGE> 4
TABLE OF CONTENTS
(Auto-YRT Agreement)
TITLE PAGE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PARAGRAPH TITLE
- ------- ---------------
<S> <C> <C>
38 Claims Notification and Authorization
39 Misstatement of Age and Sex
40 Waiver of Premium Claims
41 Conditional Receipt Claims
42 Other Claim
XIII REINSTATEMENT
43 Automatic Reinsurance Reinstatement
XIV INSOLVENCY
44 Insolvency Clause
XV ARBITRATION
45 Interpretation of Reinsurance Agreement
46 Appointment of Arbitrators
47 Qualification of Arbitrators
48 Binding Arbitration
XVI EXAMINATION OF RECORDS
49 Reinsurer's Examination of Records
XVII PARTIES TO THE AGREEMENT
50 Exclusivity of the Relationship
XVIII TERMINATION OF AGREEMENT
51 Effective Date of Termination
52 Reinsurance of In Force Business
</TABLE>
EXECUTION PAGE
INSOLVENCY CLAUSE
<TABLE>
<S> <C>
EXHIBIT I RETENTION
EXHIBIT II YRT RATES
</TABLE>
10.13-4
<PAGE> 5
TABLE OF CONTENTS
(Auto-YRT Agreement)
<TABLE>
<CAPTION>
ARTICLE PARAGRAPH TITLE
- ------- ---------------
<S> <C>
EXHIBIT III CESSION FORMS
EXHIBIT IV COINSURANCE COMMISSION
EXHIBIT V DESCRIPTION OF BUSINESS REINSURED
EXHIBIT VI ACCIDENTAL DEATH BENEFITS
ADDENDUM #1 GUARANTEED INSURABILITY BENEFITS AND CONDITIONAL RECEIPT COVERAGE
</TABLE>
10.13-5
<PAGE> 6
The Centennial Life Insurance Company of Overland Park, Kansas (hereinafter
called the REINSURER), in consideration of the mutual covenants contained
herein agrees with Citizens Insurance Company of America of Austin, Texas
(hereinafter called the CEDING COMPANY), as follows:
ARTICLE I
AUTOMATIC REINSURANCE
1. Application of Agreement
This Agreement applies to international business written on risks whose
surnames begin with the letters "A" through "L" and on all risks who are
citizens of Argentina, Columbia, Honduras, and Nicaragua and which is reinsured
by the CEDING COMPANY on or after the effective date of this Agreement for
issue amounts in excess of the amounts shown at Exhibit I.
2. Automatic Acceptance
Whenever, the CEDING COMPANY requires reinsurance for the excess over its
retention of life insurance on a policy which is underwritten with the CEDING
COMPANY's usual underwriting standards for individually selected risks and is
not a group conversion or classified as a jumbo risk, the CEDING COMPANY will
cede and the REINSURER will accept such reinsurance up to four times the
retention of the CEDING COMPANY on any one risk whenever the CEDING COMPANY
retains its maximum retention as indicated at Exhibit I. The initial minimum
amount of life reinsurance under each cession shall be $1,000 unless otherwise
mutually agreed to in writing.
3. Jumbo Risk Defined
For the purpose of this Agreement, a jumbo risk is defined as one where the
papers of the CEDING COMPANY indicate that the proposed insured I s total life
insurance in force and applied for in all companies exceeds the following:
<TABLE>
<CAPTION>
Insurance Age Total Line
------------- ----------
<S> <C>
0-14 $1,500,000
15-65 5,000,000
66-75 1,500,000
</TABLE>
4. Waiver of Premium Benefit
Waiver of premium reinsurance my be ceded automatically to the REINSURER in an
amount equal to but not exceeding the life reinsurance.
5. Accidental Death Benefit
Accidental Death coverage (Double Indemnity) my be ceded automatically
concurrent with the base life coverage for amounts up to $250,000 on any one
risk provided that the total amount of such benefits in force and applied for
in all companies does not exceed $250,000. Amounts in excess of $250,000 may
be submitted facultatively.
6. Payor Benefit
The payor benefit my be ceded automatically on a coinsurance basis as a benefit
on a child's contract reinsured.
10.13-6
<PAGE> 7
7. Other Benefits
Any other benefits not specifically described in this Article my be reinsured
with the REINSURER subject to written agreement between both parties.
8. Multiple Policies on One Risk
Whenever the CEDING COMPANY is already on the risk for its maximum retention
under policies previously issued, the REINSURER will accept automatically
additional amounts for reinsurance within the limits outlined above provided
there has been no change affecting the insurability of the risk. Otherwise,
the reinsurance shall be submitted on a facultative basis.
9. Changes to Retention
The CEDING COMPANY will have the right to modify its limits affecting
reinsurance by giving the REINSURER 14 days notice in writing. The amount of
reinsurance to be ceded automatically to the REINSURER on any life after such
new limits take effect will be determined by mutual agreement between the two
companies.
10. Automatic Reinsurance Notification and Cession Procedures
Whenever the CEDING COMPANY issues a policy on which automatic life reinsurance
is to be ceded to the REINSURER, it will forward a preliminary notification
form in substantial accord with Part A of Exhibit III. When a policy on which
reinsurance is ceded automatically hereunder to the REINSURER is paid for, the
CEDING COMPANY will forward a reinsurance cession form in substantial accord
with Part B of Exhibit III together with, in the case of substandard
reinsurance, copies of the original application, medical examiners' reports,
inspection reports and all other papers bearing on the INSURABILITY of the
risk.
ARTICLE II
FACULTATIVE REINSURANCE
11. Facultative Submission
Whenever the CEDING COMPANY desires reinsurance on a risk not eligible for
automatic cession under the provisions of Article I, the CEDING COMPANY may
apply to the REINSURER for facultative reinsurance.
12. Facultative Option
Other provisions of this Agreement not withstanding, the CEDING COMPANY may
submit any risk facultatively to the REINSURER with or without retaining all or
any part of its usual retention.
13. Facultative Submission Procedure
Whenever the CEDING COMPANY applies to the REINSURER for facultative
reinsurance, it will forward to the REINSURER an application form in
substantial accord with Part A of Exhibit III together with copies of the
original application, radical examiners' reports, inspection reports and all
other papers bearing on the INSURABILITY of the risk. The REINSURER will
examine the papers immediately upon receipt of such application and, as soon as
possible, notify the CEDING COMPANY of its decision.
10.13-7
<PAGE> 8
14. Facultative Cession Procedure
When a policy on which facultative reinsurance has been obtained from the
REINSURER is paid for, the CEDING COMPANY will forward to the REINSURER a
reinsurance cessions form in substantial accord with Part B of Exhibit III.
ARTICLE III
DURATION OF REINSURER'S LIABILITY
15. Initiation and Termination of Liability
The liability of the REINSURER shall begin and end simultaneously with that of
the CEDING COMPANY provided that, in the case of a facultative submission, the
REINSURER has notified the CEDING COMPANY of its acceptance of the risk and the
CEDING COMPANY has mailed a reinsurance cession form in accordance with Part B
of Exhibit III.
ARTICLE IV
PLAN OF REINSURANCE
16. Basis of Agreement
Life reinsurance shall be ceded on the Yearly Renewable Term (YRT) rates at
Exhibit II for the net amount at risk determined as the difference between the
face amount and terminal reserves of the amount reinsured on the original
policy issued by the CEDING COMPANY, unless another determination is mutually
agreed upon in writing. For technical reasons relating to deficiency reserves,
the YRT rates at Exhibit II are not guaranteed. However, any adjustment in
those rates will not exceed CSO 58 3% YRT rates which are guaranteed.
17. Description of Business Reinsured - Policy Modifications
Specimen copies of application, policy and rider forms, and any tables of rates
and reserves which may be required for the proper administration of business
reinsured under this Agreement shall be attached to this Agreement at Exhibit
V. The CEDING COMPANY shall keep the REINSURER informed of any introduction of
new rates or of any modification or new form which the CEDING COMPANY may adopt
from time to time and under which reinsurance may be desired. New reinsurance
terms and conditions shall be agreed upon whenever new premium rates are
introduced or whenever any modification of the policy conditions, etc. entails
an alteration of the risk for the REINSURER.
18. Reinsuring Plan Terms and Conditions
Except as my be elsewhere stipulated by this Agreement, reinsurance shall be
provided by the REINSURER to the CEDING COMPANY in accord with terms and
conditions that are identical to the terms and conditions of insurance
contained in the CEDING COMPANY'S policy or policies reinsured.
19. Policy Loans and Administration
The REINSURER shall not participate in any policy loan or otherwise administer
any of the other terms and conditions of the original policies reinsured under
this Agreement.
10.13-8
<PAGE> 9
ARTICLE V
CONSIDERATION
20. Life Reinsurance
The reinsurance consideration to be paid by the CEDING COMPANY to the REINSURER
for the first year and each renewal year of life reinsurance shall be as
follows:
a. Standard and Substandard Premiums Other Than Flat Extras
Reinsurance premiums for standard risks and for substandard risks charged a
percentage extra reinsurance premium shall be based on the YRT rates shown at
Exhibit II.
b. Permanent Flat Extra Premiums Coinsured
Reinsurance premiums for substandard risks charged a flat extra premium per
$1,000 reinsured for more than five years (permanent flat extras) shall be the
gross extra premium charged the insured for the initial face amount reinsured
in. the first year less the following allowances:
<TABLE>
<CAPTION>
Allowances Net Reinsurance Premium
---------- -----------------------
<S> <C> <C>
First Year 90% 10% of the First Year Permanent Flat Extra
Renewal Years 25% 75% of the First Year Permanent Flat Extra
</TABLE>
c. Temporary Flat Extra Premiums Coinsured
Reinsurance premiums for substandard risks charged a f lat extra premium per
$1, 000 reinsured for five years or less (temporary flat extras) shall be the
gross extra premium charged the insured for the initial face amount reinsured
in the first year less the following allowances:
<TABLE>
<CAPTION>
Allowances Net Reinsurance Premium
---------- -----------------------
<S> <C> <C>
All Years 10% 90% of the First Year Temporary Flat Extra
</TABLE>
21. Waiver of Premium Benefits Coinsured
When ceded with life reinsurance, the waiver of premium benefits will be
coinsured with the first year net reinsurance premium being zero. Renewal net
reinsurance premiums shall equal 80% of the gross premium charged the insured
on the original amount ceded.
22. Other Benefits
a. Accidental Death Benefit
Standard reinsurance premiums for this benefit shall be as stipulated in
EXHIBIT VI. Substandard premiums are multiples of the standard reinsurance
premiums and are based on the occupational classifications of the CEDING
COMPANY as approved by the REINSURER.
b. Payor Benefits Coinsured
The reinsurance premium shall be the gross payor premiums charged the insured
on the amount coinsured with a first year ceding commission of 75% and renewal
ceding commissions of 10%.
c. Interim Insurance - Preliminary Term
10.13-9
<PAGE> 10
Whenever the CEDING COMPANY reinsures an interim or preliminary term life
policy prior to the issue effective date of a policy reinsured under this
Agreement, the reinsurance premium for such period shall be the pro rata YRT
premium at the insured's current attained age found in the table at Exhibit II
for the second policy year but without policy fee or other adjustments.
23. Mode of Reinsurance Premium Payment
All reinsurance premiums payable by the CEDING COMPANY to the REINSURER under
this Agreement shall be paid on an annual basis in advance regardless of the
mode of premium payment of the particular policies reinsured. Should any
reinsurance be reduced or lapsed in any policy year, the corresponding part of
the reinsurance premium paid shall be refunded with adjustment for commission.
ARTICLE VI
TAX CREDITS
24. Premium Taxes
When the REINSURER is not required to pay state premium taxes on reinsurance
premiums received from the CEDING COMPANY, it shall reimburse the CEDING
COMPANY for any such taxes the latter may be required to pay with respect to
that part of the premium received under the CEDING COMPANY's original policies
which is remitted to the REINSURER as reinsurance premium in accordance with
Article V.
ARTICLE VII
CONVERSIONS
25. Reinsurance of Converted Policies
If at any time a policy reinsured under this Agreement is converted at another
plan of life insurance, the REINSURER shall receive the same proportion of
reinsurance on this new policy that it has reinsured on the original policy
before conversion provided that the minimum amount of converted reinsurance to
be ceded shall be $2,000.
26. Reinsurance Premium Calculation for Converted Policies
The reinsurance of the nod policy shall be upon a risk premium basis at
attained age YRT rates, policy years for entering the premium table at Exhibit
II to be counted starting with the year of the last check of INSURABILITY.
ARTICLE VIII
REINSURANCE PREMIUM DUE DATES
27. Billing Statement
The REINSURER shall send to the CEDING COMPANY each month a statement in
duplicate of all reinsurance premium falling due within the previous month.
28. Initial and Renewal Premium Due Dates and Defaults
The initial reinsurance premiums shall be paid to the REINSURER not later than
75 days after the date when reinsurance first becomes effective. The renewal
premiums shall be paid to the REINSURER not later than 60 days after the first
day of the month following that in which reinsurance is renewed. If any
premium is not paid as herein provided, the liability of the REINSURER shall
cease as of the date when the reinsurance premium was due.
10.13-10
<PAGE> 11
29. Refund of Unearned Premium
In event of termination by the CEDING COMPANY of any reinsurance on which a
premium has been paid to the REINSURER covering the risk beyond the date of
such termination, the REINSURER shall return the unearned premium (not the
policy fee, if any) to the CEDING COMPANY.
ARTICLE X
ERRORS AND OMISSIONS
30. Unintentional Errors and Omissions
The REINSURER shall be bound as the CEDING COMPANY is bound, and it is
expressly understood and agreed that, if non- payment of premium within the
time specified or failure to comply with any terms of this Agreement is shown
to be unintentional or the result of misunderstanding or oversight on the part
of either the CEDING COMPANY or the REINSURER, both the CEDING COMPANY and the
REINSURER shall be restored to the positions they would have occupied had no
such error or overnight occurred.
ARTICLE X
EXPENSE OF ORIGINAL POLICY
31. Policy Expenses
The CEDING COMPANY shall bear the expense of all medical examination and
inspection fees and of all other charges incurred in connection with the
original policy.
ARTICLE XI
RECAPTURE PRIVILEGE
32. Recapture Option
If the CEDING COMPANY shall increase its maximum limit of retention for new
business, a corresponding reduction may be made, at the option of the CEDING
COMPANY, in the reinsurance in force under this Agreement provided that the
reduction is not made before the end of the fifth policy year. The reinsurance
in force shall be reduced pursuant to this Article only on those lives on which
the CEDING COMPANY has maintained its maximum limit of retention for the plan,
age and mortality classification of the risk as shown in Exhibit I at the time
of issue. Special reduced limits for specific underwriting hazards or
impairments shall not be considered to be maximum limits of retention.
33. Proportional Reinsurance Reduction
The reduction in reinsurance on each risk shall be of such an amount as will
increase the share of the CEDING COMPANY in the risk up to its new maximum
retention limit. If there is reinsurance in other companies on any such life,
the reduction of the reinsurance in the REINSURER shall not exceed that
proportion of the total reduction which is equal to the proportion carried by
the REINSURER of the total reinsurance on that life.
34. "All or Nothing" Provision and Recapture Timing
If a reduction as provided by this Article is elected by the CEDING COMPANY,
all reinsurance eligible for such reduction shall be similarly reduced. The
CEDING COMPANY shall give written notice to the REINSURER within
10.13-11
<PAGE> 12
90 days from the effective date of its increase in retention for new issues and
the reinsurance in force shall then be reduced as provided herein upon the
anniversary date next following or at the end of the fifth policy year.
ARTICLE XII
CLAIMS
35. Reinsurer's Claims Liabilities
Upon the sending by the CEDING COMPANY of an automatic binding notice to the
REINSURER for automatic cases or upon the written acceptance of the risk by the
REINSURER for facultative cases, the REINSURER shall be liable to the CEDING
COMPANY for the benefits covered by reinsurance hereunder to the same extent as
the CEDING COMPANY is liable to the insured for such benefits; and, except as
may be stipulated elsewhere in this Agreement, all reinsurance shall be subject
to the terms and conditions of the particular form of policy under which the
CEDING COMPANY is liable.
36. Lump Sum Reinsurance Claim Settlement
Whenever a claim is made under a pol icy of the CEDING COMPANY which has been
reinsured hereunder, it shall be taken and considered by the REINSURER to be a
claim for the amount of reinsurance on such risk. Upon settlement, the
REINSURER shall pay the full amount stipulated by the policy of reinsurance in
one lump sum to the CEDING COMPANY regardless of the mode of settlement under
the policy of the CEDING COMPANY.
37. Contested Claims - Settlement and Expenses
Any suit or claim involving policies reinsured under this Agreement may be
contested or compromised on the part of the CEDING COMPANY. In such event, the
CEDING COMPANY shall promptly and fully disclose to the REINSURER all matters
relating to the contest or compromise and the REINSURER at that time may either
decline or agree to participate in such action.
a. If the REINSURER declines participation, it shall settle with the
CEDING COMPANY for the full amount of reinsurance on the contested or
compromised policy and terminate reinsurance thereon.
b. If the REINSURER agrees to participate in a contest or compromise and
there is a reduction of the claim made upon the CEDING COMPANY, the
REINSURER and the CEDING COMPANY shall participate in such reduction
in proportion to their respective net liabilities. Any expense
incurred by the CEDING COMPANY in defending or investigating any claim
or taking up or rescinding any policy reinsured hereunder shall be
shared in the same proportion. Compensation of salaried officers and
employees of the CEDING COMPANY shall not be deemed a claim expense.
38. Claims Notification and Authorization
The CEDING COMPANY shall promptly notify the REINSURER of all claims pending on
policies reinsured hereunder. In every case of loss, copies of proofs obtained
by the CEDING COMPANY shall likewise be taken as sufficient by the REINSURER
and copies thereof together with a statement showing the amount paid on such
claim by the CEDING COMPANY shall be furnished to the REINSURER before payment
shall be demanded of it. It is agreed, however, that, if at least 90% of the
life risk on any particular case is carried by the REINSURER or if the amount
of disability or additional accidental death indemnity benefits carried by the
REINSURER in connection with any claim for such benefits under a policy
reinsured hereunder is in excess of the amount of such benefits retained by the
CEDING COMPANY, all papers in connection with such claim shall be submitted to
the REINSURER for its authorization before payment is made.
10.13-12
<PAGE> 13
39. Misstatement of Age and Sex
In the event of an increase or reduction in the amount of the CEDING COMPANY's
insurance provided by any policy or policies reinsured hereunder because of a
misstatement of age or sex being established after the death of the insured,
the CEDING COMPANY and the REINSURER shall share in such increase or reduction
in the ratio that each company's net liability bore to the total net liability
under such policy or policies prior to the increase or reduction. The
reinsurance policy or policies of the REINSURER shall be rewritten from
commencement on the basis of the adjusted amounts using premiums and reserves
at the correct age and sex and the proper adjustment for the difference in
reinsurance premiums, without interest, shall be made.
40. Waiver of Premium Benefit Claims
If a claim is approved under the waiver of premium benefits on a policy
reinsured on the Yearly Renewable Term plan, the CEDING COMPANY shall continue
to pay the premiums for the life insurance and the REINSURER shall pay its pro
rata portion of the premium waived on the original policy.
41. Conditional Receipt Claims
If, before having an opportunity to arrange the necessary reinsurance, the
CEDING COMPANY shall become liable under a conditional receipt for a death
claim on a standard risk for an amount which, together with the amount retained
by the CEDING COMPANY under previously issued policies if any, exceeds its
limits of retention as shown in Exhibit I, the REINSURER shall automatically
accept a share of such liability not to exceed $150,000 less the retention of
the CEDING COMPANY.
42. Other Claims
Claims for other benefits on policies reinsured hereunder but not specifically
described in Article I or reinsured under Article II and VII with amendments
shall be subject to separate written agreements between the parties hereto.
ARTICLE XIII
REINSTATEMENT
43. Automatic Reinsurance Reinstatement
If a policy reinsured hereunder lapses or is continued on the Paid-Up or
Extended Term Insurance basis and is later approved for reinstatement by the
CEDING COMPANY in accordance with its underwriting standards, reinsurance of
the excess over the original retention of the CEDING COMPANY resulting from
said reinstatement shall be automatically reinstated by the REINSURER for an
amount not exceeding that part of said policy originally reinsured in the
REINSURER. Notice of such reinstatement shall be given promptly to the
REINSURER. THE CEDING COMPANY shall pay to the REINSURER the proportionate
part of the reinsurance premium, based on the premium payable for the policy
year of reinstatement, applicable to the period from the date of reinstatement
to the policy anniversary date next following. Thereafter, reinsurance
premiums shall be payable in accordance with the regular attained age and
duration.
10.13-13
<PAGE> 14
ARTICLE XIV
INSOLVENCY
44. Insolvency Clause
The attached Insolvency Clause is hereby made a part of this Agreement.
ARTICLE XV
ARBITRATION
45. Interpretation of Reinsurance Agreement
Both the CEDING COMPANY and the REINSURER shall consider this contract from the
standpoint of a "gentlemen's agreement" and not a legal document. The
terminology used in this Agreement as well as any procedure either expressed or
implied under its terms and conditions shall be construed according to the
custom and usage of the business.
46. Appointment of Arbitrators
Any disagreement between the CEDING COMPANY and the REINSURER shall be settled
by arbitration. Each party shall appoint one arbitrator with a third to be
selected by these two representatives. Should the two arbitrators not be able
to agree on the choice of the third, then the appointment shall be left to the
President of the American Council of Life Insurance.
47. Qualification of Arbitrators
It is agreed that all three arbitrators must be officers of life insurance
companies other than the two parties to this Agreement.
48. Binding Arbitration
The written decision of the three arbitrators shall be binding on both the
CEDING COMPANY and the REINSURER. The cost of arbitration shall be borne by
the losing party unless the arbitrators decide otherwise.
ARTICLE XVI
EXAMINATION OF RECORDS
49. Reinsurer's Examination of Records
At its own discretion, the REINSURER shall have the right, in the Home Office
of the CEDING COMPANY or such place where the CEDING COMPANY's original records
and files pertaining to the business reinsured hereunder are kept, to examine
the original applications, reports, examinations and other such documents that
pertain to the risks reinsured hereunder.
10.13-14
<PAGE> 15
ARTICLE XVII
PARTIES TO THE AGREEMENT
50. Exclusivity of the Relationship
This is an agreement solely between the CEDING COMPANY and the REINSURER and
reinsurance hereunder shall in no way create any right or legal relation
whatever between the REINSURER and the original insured, the beneficiary or any
other person.
ARTICLE XVIII
TERMINATION OF AGREEMENT
51. Effective Date of Termination
This Agreement may be terminated at any time by either party giving 90 days I
notice by registered mail, stating the termination date. The CEDING COMPANY
shall continue to submit and the REINSURER shall continue to accept cases for
reinsurance for the 90 day period following the date of written notice of
termination.
52. Reinsurance of In Force Business
For business previously reinsured and in force on the date of termination, the
provisions of this Agreement shall continue to apply.
10.13-15
<PAGE> 16
INSOLVENCY
In the event of the insolvency of the CEDING COMPANY, all reinsurance shall be
payable directly to the liquidator, receiver or statutory successor of the
CEDING COMPANY without diminution because of the insolvency of the CEDING
COMPANY.
In the event of the insolvency of the CEDING COMPANY, the liquidator, receiver
or statutory successor shall give the REINSURER written notice of the pendency
of a claim on the policy reinsured within a reasonable tire after such claim is
filed in the insolvency proceeding. During the pendency of any such claim, the
REINSURER my investigate such claim and interpose in the name of the CEDING
COMPANY (its liquidator, receiver or statutory successor) but at its own
expense, in the proceeding where such claim is to be adjudicated, any defense
or defenses which REINSURER may deem available to the CEDING COMPANY.
The expense thus incurred by the REINSURER shall be chargeable, subject to
court approval, against the CEDING COMPANY as part of the expense of
liquidation to the extent of a proportionate share of the which may accrue to
the CEDING COMPANY solely as a result of the defense undertaken by the
REINSURER. Where two or more reinsurers are participating in the same claim
and a majority in interest elect to interpose a defense or defenses to any such
claim, the expense shall be apportioned in accordance with the term of the
reinsurance Agreement as if such expense has been incurred by the CEDING
COMPANY.
10.13-16
<PAGE> 17
IN WITNESS WHEREOF, this Agreement shall be effective as of March 1, 1982, and
is hereby executed in good faith between CITIZENS INSURANCE COMPANY OF AMERICA
of Austin, Texas, referred to as the CEDING COMPANY, and THE CENTENNIAL LIFE
INSURANCE COMPANY of Overland Park, Kansas, referred to as the REINSURER, and
duly signed by both parties' respective officers as follows:
CEDING COMPANY
/s/ Alice M. Hill
---------------------------------------------
Signature
Vice President - Chief Underwriter
---------------------------------------------
Title
Dallo
---------------------------------------------
Signature
President
---------------------------------------------
Title
9/7/82
------------------------
Date of Signature
REINSURER
J Donduty
- ----------------------------------
Signature
Vice President - Reinsurance
- ----------------------------------
Title
Albert E. Joens
- ----------------------------------
Signature
Asst. Vice President - Reinsurance
- ----------------------------------
6/16/82
- ------------------------
Date of Signatures
10.13-17
<PAGE> 18
EXHIBIT I
CEDING COMPANY'S MAXIMUM LIMITS OF RETENTION - MALE AND FEMALE
CEDING COMPANY: Citizens Ins. Co. of America
EFFECTIVE WITH POLICIES DATED: March 1, 1982
LIFE
Show the limit of retention for all ages and all rate classifications. Show
"NONE" in all categories where there will be no retention.
<TABLE>
<CAPTION>
ISSUE SUBSTANDARD SUBSTANDARD SUBSTANDARD
AGE STANDARD TABLE FLAT EXTRA TABLE FLAT EXTRA TABLE FLAT EXTRA
- ------ -------- ----- ---------- ----- ---------- ----- ----------
1 - 4 (See Am. 12)
<S> <C> <C> <C> <C> <C> <C> <C>
a. Domestic Business:
ALL $50,000 $50,000 None
b. International Business:
ALL $75,000 $75,000 None
</TABLE>
- --------------------------------------------------------------------------------
DISABILITY
Is Disability (Waiver of Premium) retention the same as Life? Yes. If not,
please explain.
ACCIDENTAL DEATH (D.I.)
$-0-
Does D.I. retention apply to any D.I. rate classification assigned? N/A. Is
D.I. retention in addition to Life amount above? N/A
10.13-18
<PAGE> 19
EXHIBIT VI
Reinsurance Premiums
The annual reinsurance premiums payable hereunder in respect of any calendar
year shall be calculated as follows:
a. $.91 per $1,000 of reinsured ADB in force on January 1 of such year,
plus (minus)
b. $.455 per $1,000 of increase (decrease) of reinsured ADB in force from
January 1 to December 31 of such year.
In force January 1 of any year may be taken as in force December 31 of the
preceding year.
Premiums in a. and b. above include, respectively, $.08 and $.04 per $1,000 for
Common Carrier benefits and $.08 and $.04 per $1,000 for Dismemberment
benefits.
For substandard ADB risks, increase total rate above by 35% for 1.5 times
standard and by 70% for 2.0 times standard.
10.13-19
<PAGE> 20
ADDENDUM #1
YEARLY RENEWABLE TERM (NR)
LIFE REINSURANCE AGREEMENT
between
CITIZENS INSURANCE COMPANY OF AMERICA
of Austin, Texas
(herein called the CEDING COMPANY)
EFFECTIVE:
March 1, 1982
ADDENDUM EFFECTIVE:
March 1, 1982
and
THE CENTENNIAL LIFE INSURANCE COMPANY
Overland Park, Kansas
(herein called the REINSURER)
<PAGE> 21
It is hereby agreed and understood between The Centennial Life Insurance
Company of Overland Park, Kansas (hereinafter called the REINSURER) , and
Citizens Insurance Company of America of Austin, Texas (hereinafter called the
CEDING COMPANY), that this Addendum applies only to the reinsurance agreement.
AUTOMATIC
YEARLY RENEWABLE TERM (NR)
LIFE REINSURANCE AGREEMENT
Effective: March 1, 1982
as follows:
1. Application of Addendum
This Addendum applies to so much of ARTICLES I, V and XI and ARTICLE XII,
paragraph 41, as may be changed hereby. All other terms of the Agreement and
any prior addenda remain in force and in effect.
PART I
GUARANTEED INSURABILITY BENEFITS
2. Application of Agreement
Effective March 1, 1982, Guaranteed INSURABILITY Benefits issued by the Ceding
Company to civilian U.S. risks only, under Form No. IN2563, shall be reinsured
in accordance with the following provisions:
ARTICLE A
BASIS OF REINSURANCE
3. Automatic Acceptance
The CEDING COMPANY shall automatically cede to the REINSURER the excess over
its then applicable retention for standard risks whenever an insured purchases
additional insurance in specified amounts and at specified times without being
required to produce evidence of INSURABILITY under a Guaranteed INSURABILITY
Rider attached to a life insurance policy issued as a standard risk and subject
to automatic reinsurance under the Automatic Reinsurance Agreement between the
CEDING COMPANY and the REINSURER. The REINSURER shall automatically accept
such additional amounts up to $10,000.00.
4. Facultative Acceptance
In case of Guaranteed INSURABILITY Riders attached to life insurance policies
not subject to automatic reinsurance under the Automatic Reinsurance Agreement,
the CEDING COMPANY my apply to the REINSURER for reinsurance which the CEDING
COMPANY may require in the future for the excess over its then applicable
retention for standard risks whenever an insured purchases additional insurance
in specified amounts and at specified times without being required to produce
evidence of INSURABILITY under a Guaranteed INSURABILITY Rider attached to a
life insurance policy reinsured facultatively with the REINSURER under the
Reinsurance Agreement to which this Addendum applies. As soon as possible
after review of such application, the REINSURER shall notify the CEDING COMPANY
of its underwriting decision. The CEDING COMPANY shall cede and the REINSURER
shall automatically accept the excess resulting from issuance of all insurances
whenever the insured exercises any option available to him on a policy accepted
by the REINSURER in accordance with the aforesaid. Reinsurance resulting from
an exercised option under a guaranteed INSURABILITY rider will, however, be
accepted by the REINSURER automatically only if a portion of the original
policy containing such rider had also been reinsured with the
10.13-2
<PAGE> 22
REINSURER and provided that such reinsurance continues to be in full force.
The reinsurance cession to the REINSURER on the original policy shall amount to
at least $2,000.
5. Proportional Acceptance
If the excess of the original policy containing such Rider over the CEDING
COMPANY's retention has been divided amongst several reinsurers, the REINSURER
shall accept automatically only such proportion of the excess arising out of an
exercised option that corresponds to its proportion in the reinsurance of the
original policy.
ARTICLE B
OTHER AGREEMENTS
6. Reinsuring Terms and Conditions
Reinsurance of Guaranteed INSURABILITY Benefits shall be subject to all the
provisions of this Addendum and terms of the Reinsurance Agreement to which
this Addendum is attached, except as otherwise stated herein.
ARTICLE C
MODE OF NOTIFICATION AND CESSION
7. Procedures
Reinsurance ceded and accepted under the terms of this Addendum shall be
completed in the same manner as provided for cessions of other reinsurance
under the Reinsurance Agreement to which this Addendum is attached. The
reinsurance cession form shall be marked "GIR" to show that the reinsurance
ceded is based on insurance issued pursuant to an election of a guaranteed
INSURABILITY option by the insured.
ARTICLE D
REINSURANCE PREMIUMS
8. Consideration
The consideration to be paid the REINSURER by the CEDING COMPANY for
reinsurance of coverage issued under the exercise of an option provided by the
Guaranteed INSURABILITY Rider shall be the "standard" annual premiums required
by the Reinsurance Agreement to which this Addendum is attached, plus a single
premium based on the rates in the schedule attached hereto and marked Exhibit
A. No commission shall be granted on these single premiums and they shall not
be subject to an experience refund nor to any other refund because the option
policy is terminated or reduced after issue.
ARTICLE E
RIDER FORMS AND UNDERWRITING REGULATIONS
9. Preapproval
The CEDING COMPANY shall furnish the REINSURER for review a copy of its
Guaranteed INSURABILITY Rider along with a copy of its underwriting and issue
rules. No liability for future risk under a Guaranteed INSURABILITY Rider is
assumed by the REINSURER unless it has given its written approval of such Rider
and rules.
10.13-3
<PAGE> 23
ARTICLE F
INCREASE IN RETENTION LIMITS
10. "All or Nothing" Provision
In the event the CEDING COMPANY increases its regular limit of retention and
elects to apply such increased limit of retention to reinsurance then in force
pursuant to the provisions of the Reinsurance Agreement to which this Addendum
is attached, the CEDING COMPANY shall also apply such election to the
reinsurance then in force as a result of the exercise by an insured of an
option available to him under the Guaranteed INSURABILITY Rider, even when the
CEDING COMPANY has not retained its regular retention limit at issue on the
original policy containing such rider in order to meet the minimum cession
requirement of Article A, paragraph 4, of this Addendum.
ARTICLE G
TERMINATION
11. Addendum Termination
Either the CEDING COMPANY or the REINSURER may, upon thirty (30) days' written
notice to the other stating the effective date of termination, terminate this
Addendum with respect to any Guaranteed INSURABILITY Rider issued thereafter.
However, unless the Reinsurance Agreement has been terminated in accordance
with Article XVIII, Paragraph 51, of that Agreement, such termination shall in
no way affect the CEDING COMPANY's obligation to cede or the REINSURER's
obligation to accept automatically the reinsurance in accordance with this
Addendum of any risk resulting from exercised options under a Guaranteed
INSURABILITY Rider that became reinsured under this Addendum on or before the
effective date of such termination.
PART II
CONDITIONAL RECEIPT COVERAGE
12. Reinsurer's Liability
The REINSURER shall be automatically bound under any claim for which the CEDING
COMPANY is liable under a conditional receipt issued in respect of business
reinsured automatically or submitted exclusively to the REINSURER under ARTICLE
II of the Agreement. The REINSURER's liability in such case shall be for the
amount of the conditional receipt claim less the CEDING COMPANY's standard
retention on the policy applied for. In no event, however, shall the
REINSURER's liability on any one life, including previous reinsurances ceded to
the REINSURER by the CEDING COMPANY, exceed the automatic acceptance limits
provided by the Agreement to which this Addendum is attached.
13. Description of Benefit
The CEDING COMPANY's conditional receipt is attached hereto and the CEDING
COMPANY shall be obligated to advise the REINSURER of any changes or
modifications of such receipt.
10.13-4
<PAGE> 24
IN WITNESS WHEREOF, this Agreement shall be effective as of March 1, 1982, and
is hereby executed in good faith between CITIZENS INSURANCE COMPANY OF AMERICA
of Austin, Texas, referred to as the CEDING COMPANY, and THE CENTENNIAL LIFE
INSURANCE COMPANY of Overland Park, Kansas referred to as the REINSURER, and
duly signed by both parties' respective officers as follows:
REINSURER
/s/ Ja D. M
- ------------------------------
Signature
Sr. VP/Actuary
- ------------------------------
Title
/s/ Carl J. Strunk
- ------------------------------
Title
Assistant Actuary
- ------------------------------
Title
8/19/82
- ------------------------------
Date of Signatures
10.13-5
<PAGE> 25
Exhibit A
Single Premiums Per $1,000 Of Reinsurance Based
On Coverage Issued Under A Guaranteed
INSURABILITY Rider
The single premiums shown in the attached table shall be payable per $1,000 of
reinsurance on the opted policy issued under a guaranteed INSURABILITY rider.
In case such rider provides, in addition to the basic life coverage, any of the
features listed below, the respective single premium shall be increased as
follows:
<TABLE>
<CAPTION>
Increased of Single
Premium in Percent
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Inclusion of Accidental Death Benefit in the opted
policy without current evidence of INSURABILITY. 5%
2. Inclusion of Waiver of Premium Disability Benefit in
the opted policy without current evidence of INSURABILITY. 10%
3. Inclusion of Waiver of Premium Disability Benefit in the
opted policy without current evidence of INSURABILITY
and simultaneous waiver of premiums at issue because of
existing disability on the option date. 50%
4. Free term coverage for up to 90 days:
(a) if coverage is limited to period following insured's
marriage or birth or adoption of a child. 2%
(b) if coverage is granted for period following all option
dates, but exercise of an option available at marriage
or birth or adoption of a child cancels the next scheduled
option date. 10%
(c) if coverage is granted for a period following all scheduled
option dates as all options available at marriage or
birth or adoption of a child. 12%
</TABLE>
10.13-6
<PAGE> 26
PURITAN LIFE
INSURANCE
COMPANY
P.O. Box 2981
Overland Park, KS 66201
913-676-5950
June 30, 1986
CITIZENS INSURANCE COMPANY
P.O. BOX 1547
AUSTIN, TEXAS
78767
You will notice that this billing has a PURITAN LIFE label and we want to let
you know the reasons why.
Employers Reinsurance Corporation is in the process of selling The Centennial
Life Insurance Company, but the Life Reinsurance operations have moved
virtually intact to PURITAN LIFE, a member of the General Electric Financial
Services Group which also owns ERC. The billings, cession forms and other
supplies are being changed as rapidly as possible.
Please address your correspondence to and make all checks payable to PURITAN
LIFE INSURANCE COMPANY. New reinsurance agreements and amendments will be
issued in the name of PURITAN LIFE. Existing treaties are changed to PURITAN
LIFE by your attaching a copy of this letter to each one.
PURITAN LIFE has an A rating from A. M. Best Company and has over $180,000,000
in Surplus. While there may be further steps in more closely identifying us as
a member of the ERC Group, this gives us even more financial strength while
maintaining the same dedicated team to serve your total reinsurance needs.
Enclosed also is a Directory of key PURITAN LIFE personnel along with telephone
numbers and other communication links. Please circulate this mailing to all
pertinent individuals in your company.
TREATY ENDORSEMENT
As respects policies in force on and issued to become effective on or after
June 1, 1986, THE CENTENNIAL LIFE INSURANCE COMPANY is hereby elected from the
reinsurance agreements in effect between Centennial and the company to which
the foregoing letter is addressed and the PURITAN LIFE INSURANCE COMPANY is
hereby substituted therefor.
THE CENTENNIAL LIFE INSURANCE COMPANY PURITAN LIFE INSURANCE COMPANY
/s/ Eugene P. Zaihuian /s/ Robert Cross
- -------------------------------------- ------------------------------
President President
10.13-7
<PAGE> 27
EMPLOYERS REASSURANCE CORPORATION
AMENDMENT NO. 1
The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement of November
1, 1983, between THE CENTENNIAL LIFE INSURANCE COMPANY of Overland Park, Kansas
and INSURANCE COMPANY OF AMERICA of Austin, Texas, is hereby amended as
follows:
I. As respects policies in force on and issued to become effective on or
after July 1, 1986, THE CENTENNIAL LIFE INSURANCE COMPANY is hereby
deleted from this agreement and PURITAN LIFE INSURANCE COMPANY is
hereby substituted therefor.
II. In order to acknowledge the December 31, 1986 merger of PURITAN LIFE
INSURANCE COMPANY into EMPLOYERS REASSURANCE CORPORATION, a life
insurance company formed and existing under the laws of the State of
Kansas, this agreement is hereby amended effective as of December 31,
1986 to reflect the substitution of EMPLOYERS REASSURANCE CORPORATION
for PURITAN LIFE INSURANCE COMPANY.
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in duplicate.
INSURANCE COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION
for itself and on behalf of its predecessor,
Puritan Life Insurance Company
By: /s/ Alice M. Ellis By: /s/ Miles B. Mamula J
- ------------------------- ----------------------------------------
Title: Vice President Title: Vice President
------------------- -------------------------------------
Date: 2/10/88 Date: 3/16/87
-------------------- --------------------------------------
THE CENTENNIAL LIFE INSURANCE
COMPANY
By: Eugene P. Zaihuian
----------------------
Title: President
-------------------
Date: 3/23/87
--------------------
10.13-8
<PAGE> 28
CITIZEN'S
INTERNATIONAL GUIDELINES
APPENDIX 1
1. Must be in U.S. Currency.
2. Minimum issue amount is $50,000.
3. Amount over S2,000,000 will be sent facultative to Puritan and they
will consider on an individual basis.
4 . Application and Medical Papers must be written in English or Spanish.
5. Foreign residence extra premium is charged where applicable. (see
attached listing)
6. Supplemental benefits will be offered only on rider forms that contain
special protective exceptions. (see attached examples)
7. We will not consider applications on:
A. Political or Military figures or their families.
B. Private pilots or crew members without an extra rate or an
aviation exclusion.
C. Children under the age of 14 for an amount exceeding 150,000.
(includes in force and applied for)
D. Children age 15-20 for an amount exceeding 250,000. (includes
in force and applied for)
E. Applicant over age 65, except on individual basis to age 70.
(Ages 66-70 will be ceded facultative)
F. Applicants with coronary artery disease or insulin dependent
diabetic.
G. Will not issue with rating over Table Four.
8. Medical examinations by an M.D. required on all applications. (See
other medical requirements attached)
9. We will use appointed examiners or, when available, Embassy Affiliated
doctors.
10. Inspection Requirements:
Inspection reports are made by Equifax where available. All other
investigative firms used only with H.O. approval of firm.
On amounts 50,001 to 300,000 require a confidential letter from Bank.
(Except in Colombia where we require inspection report on all amounts)
Amounts 300,000 and up we require Inspection Report.
11. We will keep our full retention on each risk. (In force coverage and
current application combined)
10.13-9
<PAGE> 29
L91-1985
agreement shall remain unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in triplicate.
CITIZENS INSURANCE COMPANY EMPLOYERS REASSURANCE
OF AMERICA CORPORATION
By: /s/ Ph Dolb By: /s/ Robert J. Wutant
-------------------------- -------------------------
Title: Exec. V.P. Title: Vice Pres.
----------------------- ----------------------
Date: 10/18/91 Date: 10/1/91
------------------------ -----------------------
By: /s/ Jorge Hernand By: /s/ Jan D M
-------------------------- -------------------------
Title: Ast. VP & Underwriter Title: SVP & Actuary
----------------------- ----------------------
Date: 10/18/91 Date: 10/7/91
------------------------ -----------------------
10.13-10
<PAGE> 30
EMPLOYERS REASSURANCE COMPANY
Appendix 3-A
Foreign National Business
FOREIGN STANDARD RATE
<TABLE>
<S> <C> <C> <C>
Australia Germany Mexico *Samoa
Austria Greenland Netherlands Antilles Singapore
Bahamas Grenada Netherlands Spain
Barbados *Guam New Zealand Sweden
Belgium Hong Kong Norway Switzerland
Bermuda Iceland Panama Taiwan
Costa Rica Ireland Portugal Tobago
Denmark Italy *Puerto Rico Trinidad
Dominican Republic Japan St. Vincent United
Finland Lichtenstein & the Grenadines Kingdom
France Luxembourg Saint Lucia Venezuela
*Virgin Islands
</TABLE>
115% FOREIGN STD. RATE
Argentina, Brazil, Chile, Ecuador, Jamaica, Paraguay, Uruguay
130% FOREIGN STD. RATE
Belize, Bolivia, Colombia, Guatemala, Guiana (Pr, Br, Dutch)
Honduras, Peru, Philippines.
160% FOREIGN STD. RATE
El Salvador (San Salvador only)
Changes in political and military climates occur constantly; therefore these
classifications are subject to immediate change. Any country not listed will
generally not be considered.
*These countries are covered under this Foreign Agreement unless a Domestic
Reinsurance Agreement is in effect with Employers Reassurance in which case
these countries would be covered under the Domestic Agreement.
6/1/87
10.13-11
<PAGE> 31
EMPL0YERS REASSURANCE E CORPORATION
AMENDMENT NO. 3
The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A)
of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park,
Kansas and CITIZENS INSURANCE COMPANY OF AMERICA of Austin, Texas, is hereby
amended as follows:
As respects policies issued by the CEDING COMPANY to become effective on or
after August 1, 1987, Appendix 3 (attached to Amendment No. 2) is hereby
deleted from this agreement and the attached Appendix 3-A is hereby substituted
therefor.
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in duplicate.
By By:
Title:
Date:
By:
CITIZENS INSURANCE EMPLOYERS
COMPANY OF AMERICA REASSURANCE CORPORATION
5200 Metcalf o P.O. Box 2981 o Overland Park, KS 66201 o
(913) 676-5950 o Telex 437024
10.13-12
<PAGE> 32
EMPL0YERS REASSURANCE CORPORATION
5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201
A General Electric Financial Services Company
AMENDMENT NO. 4
The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A)
of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park,
Kansas and CITIZENS INSURANCE COMPANY OF AMERICA of Austin, Texas, is hereby
amended as follows:
As respects policies issued by the CEDING COMPANY to become effective on or
after April 1, 1988, this agreement shall not apply to any policy written
without Endorsement form number B04871E (2/88) [Death Benefit Reduction for
Certain Causes].
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in duplicate.
CITIZENS INSURANCE COMPANY EMPLOYERS
OF AMERICA REASSURANCE CORPORATION
By: /s/ Alice M. Ellis By: /s/ Donna M. Owens
--------------------------- -------------------------
Title: Vice President Title: Assistant Secretary
------------------------ ----------------------
Date: 4/18/89 Date: APR 25 1989
------------------------ -----------------------
By: /s/ RF Dollar By: Ja D M h
-------------------------- ------------------------
Title: Exec. VP Title: SVP & Actuary
------------------------ ---------------------
Date: 4/18/89 Date: April 25, 1989
------------------------- ----------------------
10.13-13
<PAGE> 33
EMPL0YERS REASSURANCE CORPORATION
ENDORSEMENT
Re: Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement of
March 1, 1982 between Puritan Life Insurance Company and Citizens
Insurance Company of America
In order to acknowledge the December 31, 1986 merger of Puritan Life Insurance
Company into Employers Reassurance Corporation, a life insurance company formed
and existing under the laws of the State of Kansas, the captioned agreement is
hereby amended effective as of December 31, 1986 to reflect the substitution of
Employers Reassurance Corporation for Puritan Life Insurance Company.
IN WITNESS WHEREOF, Employers Reassurance Corporation has caused this
endorsement to be signed by an officer of the company.
EMPLOYERS REASSURANCE CORPORATION
By: Robert P. Cross
-----------------------------
Title: President
---------------------------
Date: 2/4/87
----------------------------
5200 Metcalf o P.O. Box 2981 o Overland Park, KS 66201 o
(913) 676-5950 o Telex 437024
10.13-14
<PAGE> 34
EMPL0YERS REASSURANCE CORPORATION
5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201
A General Electric Financial Services Company
AMENDMENT NO. 5
The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A)
of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park,
Kansas and CITIZENS INSURANCE COMPANY OF AMERICA of Austin, Texas, is hereby
amended as follows:
Effective: January 1, 1988:
A. CITIZENS INSURANCE COMPANY OF AMERICA of Austin, Texas is hereby
deleted and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado
corporation with offices in Austin, Texas is hereby substituted
therefor.
B. Article XVIII is hereby deleted and the following Article XVIII is
hereby substituted therefor:
ARTICLE XVIII
TERMINATION. Either party may terminate this agreement by giving the
other party and the Colorado Insurance Department not less than 90
days advance notice by registered mail stating the termination date.
This agreement does not apply with respect to policies issued by the
CEDING COMPANY to become effective on or after the termination date.
The reinsurance afforded by this agreement applicable to each policy
issued by the CEDING COMPANY to become effective prior to the
termination date shall continue to apply thereto until the policy
naturally expires.
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed in triplicate.
CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION
By: Alice M. Ellis By: /s/ D Michael
------------------------ --------------------------
Title: Vice President Title: Vice President
---------------------- -----------------------
Date: 6/27/90 Date: 6/1/90
----------------------- ------------------------
By: /s/ R Doll By: Robert J. Wutant
------------------------- -------------------------
Title: Exec. Vice Pres Title: Vice Pres
---------------------- -----------------------
Date: 6/27/90 Date: 6/1/90
---------------------- ------------------------
10.13-15
<PAGE> 35
EMPL0YERS REASSURANCE CORPORATION
5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201
A General Electric Financial Services Company
AMENDMENT NO. 6
The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A)
of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park,
Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with
offices in Austin, Texas, is hereby amended as follows:
I. Effective March 1, 1982, Numbered Paragraph 5 is hereby deleted from
Article I and the following paragraph is hereby substituted therefor:
5. Accidental Death Benefits Excluded. The REINSURER and CEDING
COMPANY do hereby agree that accidental death benefits shall
not be reinsured under this agreement.
II. As respects policies issued by the CEDING COMPANY to become effective
on or after January 1, 1983, this agreement shall apply to all
individual life insurance policies written by the CEDING COMPANY
(surnames commencing with any letter of the alphabet).
III. For purposes of Part V of Amendment No. 2, the reporting procedures
and rates specified in the Self- Administered Automatic Reinsurance
Agreement of January 1, 1982 between the CEDING COMPANY and Munich
American Reinsurance Company shall include, but are not limited to,
the following items:
A. The premium refund for policies reduced or terminated during
the second calendar year after issue shall not exceed 50% of
the reinsurance premium paid.
B. Substandard reinsurance premium for the second calendar year
only shall be 150% of the premiums calculated.
C. The CEDING COMPANY shall pay to the REINSURER the following
percentages of the flat extras applicable to the life
insurance reinsured hereunder:
<TABLE>
<CAPTION>
Net Premium By Year
-------------------
Duration of Flat-Extra 1st 2nd Thereafter
- ---------------------- --- --- ----------
<S> <C> <C> <C>
More than 5 Years 0% 102.5% 90%
5 Years or Less 0% 135% 90%
</TABLE>
D. The CEDING COMPANY shall pay to the REINSURER the following
percentages of the waiver of premium charges applicable to the
life insurance reinsured hereunder:
10.13-16
<PAGE> 36
<TABLE>
<CAPTION>
Net Reinsurance
Policy Year Premium
----------- -------
<S> <C>
1st 0%
Thereafter 90%
</TABLE>
E. The REINSURER shall allow to the CEDING COMPANY the following
commission on the payor benefit premium ceded hereunder:
<TABLE>
<CAPTION>
Policy Year Commission
----------- ----------
<S> <C>
1st 100%
Thereafter 10%
</TABLE>
F. The life reinsurance premiums for reinsurance of joint whole
life policies at standard or substandard rates shall for each
insured be 85% of the premium applicable for an individual
life as shown in Appendix 2 attached to Amendment No. 2 of
this agreement. Such rate shall be applied to the Net Amount
at risk for each individual.
In case of reinsurance under a joint whole life policy where
the joint insureds die simultaneously or within 60 days of
each other, thus requiring the CEDING COMPANY to pay twice the
amount of life insurance insured under the joint whole life
policy, the REINSURER shall for each of the joint lives
reinsured pay the net amount at risk plus 50% of the terminal
reserve used in calculating the net amount at risk in
accordance with Article IV, Paragraph 1 of the above-described
Munich treaty, relating to the amount reinsured on the
respective life.
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in triplicate.
CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION
By: Alice M. Ellis By: /s/ Robert J. Wutant
----------------------- -------------------------
Title: Vice President Title: Vice President
-------------------- ---------------------
Date: 6/27/90 Date: 7/16/90
--------------------- -----------------------
By: /s/ R Doll By: Jan D M gh
----------------------- -------------------------
Title: Exec. Vice Pres Title: SVP & Actuary
-------------------- ----------------------
Date: 6/27/90 Date: July 16, 1990
--------------------- -----------------------
10.13-17
<PAGE> 37
EMPL0YERS REASSURANCE CORPORATION
5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201
A General Electric Financial Services Company
AMENDMENT NO. 7
The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A)
of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park,
Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with
offices in Austin, Texas, is hereby amended as follows:
As respects claims incurred on or after July 1, 1990, this agreement shall
apply with respect to the following policies, even though such policies were
issued to become effective prior to the effective date of this agreement:
<TABLE>
<CAPTION>
Insured Policy Number Policy Date Policy Face
- ------- ------------- ----------- -----------
<S> <C> <C> <C>
Barbara Vonfeldt 7200301404 November 19, 1980 $100,000
David Meyring 7200301946 October 12, 1981 $100,000
James Koti 7200301515 February 10, 1981 $100,000
James Domenico 7200301692 August 15, 1981 $150,000
7200301403 November 19, 1980 $250,000
Daniel Vonfeldt 7200301446 December 15, 1980 $100,000
</TABLE>
The reinsurance premium pertaining to the foregoing policies shall be computed
using the rates contained in Exhibit II on a point in scale basis. It is
further agreed that Mr. Vonfelt's policies are rated at Table 4 and the other
policies described in this amendment are standard ratings.
Promptly after the execution of this amendment, the CEDING COMPANY shall pay to
the REINSURER the unearned reinsurance premium hereunder as of July 1, 1990
applicable to the policies added to this agreement by this amendment.
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in triplicate.
CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION
By: Alice M. Ellis By: /s/ Robert J. Wutant
------------------------ ----------------------------
Title: Vice President Title: Vice President
--------------------- -------------------------
Date: 6/27/90 Date: 7/16/90
---------------------- --------------------------
By: /s/ R Doll By: Jan D M gh
------------------------ ----------------------------
Title: Exec. Vice Pres Title: SVP & Actuary
--------------------- -------------------------
Date: 6/27/90 Date: July 16, 1990
---------------------- --------------------------
10.13-18
<PAGE> 38
EMPL0YERS REASSURANCE CORPORATION
5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201
A General Electric Financial Services Company
AMENDMENT NO. 8
The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A)
of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park,
Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with
offices in Austin, Texas, is hereby amended as follows:
I. As respects insurance becoming effective on and after June 1, 1991,
the reinsurance afforded by this agreement shall apply to Single
Premium Adjustable Life Insurance Policies written by the CEDING
COMPANY on form number B04372S (9/90) in accordance with its Option to
Discontinue Premium Payments rider form number B02771E (12/86),
provided that, as respects such policies:
A. The reinsurance premium for each policy shall be payable to
the REINSURER on an annual basis at the beginning of each
calendar year, except as respects the calendar year during
which the policy is issued to become effective, the premium
for which shall be due the REINSURER as of the policy
effective date.
B . The net amount at risk shall be calculated as of each policy's
effective date and as of each January 1st thereafter and shall
remain unchanged until the following January 1st.
C. International business shall be reinsured at the rates
specified in Appendix 2 and shall be subject to the additional
rating indicated by Appendix 3-A.
D. Each policy shall be reinsured beginning at and continuing
from the point-in-scale rate reached by the plan being
discontinued.
II. As respects policies newly issued by the CEDING COMPANY to become
effective on or after June 1, 1991:
A. The countries of Czechoslovakia and Poland are added to
Appendix 3-A at 100% of the foreign standard rate.
B. The Republic of South Africa and the republic of Israel are
added to Appendix 3-A at 115% of the foreign standard rate.
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in triplicate.
CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION
By: Alice M. Ellis By: /s/ Robert J. Wutant
-------------------- ------------------------
Title: Vice President Title: Vice President
------------------- -----------------------
Date: 6/27/90 Date: 7/16/90
-------------------- ------------------------
By: /s/ R Doll By: Jan D M gh
--------------------- -------------------------
Title: Exec. Vice Pres Title: SVP & Actuary
------------------- -----------------------
Date: 6/27/90 Date: July 16, 1990
-------------------- ------------------------
10.13-19
<PAGE> 39
EMPL0YERS REASSURANCE CORPORATION
5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201
(913) 676 5950 - Facsimile (913) 676-5221
A General Electric Financial Services Company
AMENDMENT NO. 9
The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A)
of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park,
Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with
offices in Austin, Texas, is hereby amended as follows:
As respects policies newly issued by the CEDING COMPANY to become effective on
or after September 1, 1991, the country of Nicaragua is added to Appendix 3-A
at 130% of the foreign standard rate.
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in triplicate.
CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION
By: F Dollar By: /s/ Robert J. Wutant
-------------------------- -------------------------
Title: Exec. VP Title: Vice President
----------------------- ----------------------
Date: 2/3/92 Date: 1/22/92
------------------------ -----------------------
By: /s/ R Doll By: Jan D M gh
-------------------------- ------------------------
Title: Exec. Vice Pres Title: VP
----------------------- ----------------------
Date: 2/3/92 Date: 1/29/92
------------------------ -----------------------
10.13-20
<PAGE> 40
L93-3625
EMPL0YERS REASSURANCE CORPORATION
5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201
(913) 676 5950 - Facsimile (913) 676-5221
A General Electric Financial Services Company
AMENDMENT NO. 10
The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A)
of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park,
Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with
offices in Austin, Texas, is hereby amended as follows:
As respects policies issued by the CEDING COMPANY to become effective on or
after July 1, 1993, the life retentions are deleted from Exhibit I, as amended
by Amendment No. 2, and the following life retentions are substituted therefor:
<TABLE>
<CAPTION>
Business
Classification Life Retention
-------------- --------------
<S> <C>
Domestic $75,000 plus 30% of remainder
International $75,000 plus 30% of remainder
</TABLE>
The REINSURER acknowledges that the above specified 30% retention is being
reinsured elsewhere.
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in triplicate.
CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION
By: F Dollar By:/s/ Pamela J. Bennett
------------------------- -------------------------
Title: President Title: AVP
---------------------- ----------------------
Date: 9/6/93 Date: 8/25/93
----------------------- -----------------------
By: /s/ Mark Oliver By: Cross
------------------------- -------------------------
Title: VP & Treas Title: Pres.
---------------------- ----------------------
Date: 9/6/93 Date: 8/27/93
----------------------- -----------------------
10.13-21
<PAGE> 41
L93-4913
EMPL0YERS REASSURANCE CORPORATION
5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201
(913) 676 5950 - Facsimile (913) 676-5221
A General Electric Financial Services Company
AMENDMENT NO. 11
The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A)
of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park,
Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with
executive offices in Austin, Texas, is hereby amended as follows:
Effective November 10, 1993:
A. All provisions of this reinsurance agreement other than the
arbitration provisions are subject to the laws of the State of
Colorado.
B. In the event of the insolvency of the CEDING COMPANY, the arbitration
provisions of this agreement shall also be subject to the laws of the
State of Colorado.
C. The Insolvency Clause is deleted and the Insolvency Clause attached to
this amendment is substituted therefor.
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in triplicate.
CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION
By: F Dollar By: /s/ Pamela J. Bennett
--------------------- -----------------------
Title: President Title: AVP
------------------ --------------------
Date: 9/6/93 Date: 8/25/93
------------------- ---------------------
By: /s/ Mark Oliver By: Cross
--------------------- -----------------------
Title: VP & Treas Title: Pres.
------------------ --------------------
Date: 9/6/93 Date: 8/27/93
------------------- ---------------------
10.13-22
<PAGE> 42
INSOLVENCY CLAUSE
The ceding insurer and the reinsurer agree that, in the event of the
insolvency of the ceding insurer, as to all reinsurance made, ceded, renewed or
otherwise becoming effective after the effective date of this agreement, the
reinsurance shall be payable by the reinsurer on the basis of the amount of
liability of the ceding insurer under the contract or contracts reinsured,
without diminution because of the insolvency of the ceding insurer;
furthermore, that such amount shall be paid directly to the ceding insurer or
its liquidator, receiver or other statutory successor.
It is understood and agreed, however, that the obligations of the
ceding company as set forth in the reinsurance contract, including, among
others, the duty to investigate, settle and defend all claims arising under
policies with respect to which reinsurance is afforded by this agreement, shall
remain unimpaired and unaffected by the insolvency of the ceding insurer and
shall be assumed by the liquidator, receiver or statutory successor of the
ceding insurer in the liquidation or receivership proceeding and that such
liquidator, receiver or statutory successor shall give written notice to the
reinsurer of the pendency of a claim against the ceding insurer on the policy
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding and that during the pendency of such claim the reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses which it may
deem available to the ceding insurer, its liquidator, receiver or statutory
successor. The expense thus incurred by the reinsurer shall be chargeable,
subject to court approval, against the insolvent ceding insurer as part of the
expense of liquidation to the extent of a proportionate share of the benefit
which may accrue to the ceding insurer solely as the result of the defense
undertaken or asserted by the reinsurers
Where two or more reinsurers are involved in the same claim and a
majority in interest elect to interpose a defense to such claim, the expense
shall be apportioned in accordance with the terms of this reinsurance agreement
as though such expense had been incurred by the ceding insurer.
Nothing herein above set forth in this insolvency clause shall in any
way change the relationship or status of the parties hereto, to wit, that of
ceding insurer and reinsurers nor enlarge the obligations of either party to
each other, except as specifically herein above provided, to wit, to pay the
statutory successor on the basis of the amount of liability of the ceding
insurer under the contract or contracts reinsured, rather than on the basis of
the actual amount of loss (dividends) paid by the liquidator, receiver or
statutory successor to allowed claimants, nor shall anything in this insolvency
clause in any manner create any obligations or establish any rights against the
reinsurer in favor of any third parties or any persons not parties to this
reinsurance contract.
LIFE (8/88)
10.13-23
<PAGE> 43
Agreement No. 007
Amendment No. 012
AMENDMENT OF REINSURANCE AGREEMENT BETWEEN:
CITIZENS INSURANCE COMPANY OF AMERICA
(Ceding Company)
and
EMPLOYERS REASSURANCE CORPORATION
(Assuming Company)
Agreement Number 007
Amendment Number 12
Effective Date: 03/01/82
Date of Execution: 09/07/82
Effective Date of Amendment: 09/01/94
Date of Amendment Execution: 10/1 7/94
Type of Amendment: To change Table ratings acceptable as shown in Exhibit I
Agreement Type: Self-Administered Reinsurance
Underlying Risk: Ordinary Life
Statement of whether or not a Reinsurance Intermediary is involved in this
transaction: There is no Reinsurance Intermediary involved in this transaction.
Statement of whether agreement meets the conditions of Section
10-3-805(4)(a)(III), C.R.S.: This amendment does not meet the conditions of
Section 10-3-805(4)(a)(III), C.R.S.
Statement as to whether agreement transfers existing in-force business: This
amendment does not transfer in-force business.
10.13-24
<PAGE> 44
L94-3467
EMPL0YERS REASSURANCE CORPORATION
5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201
(913) 676 5950 - Facsimile (913) 676-5221
A General Electric Financial Services Company
AMENDMENT NO. 12
The Automatic Yearly Renewable Tenn (NR) Life Reinsurance Agreement (No. 116A)
of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park,
Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with
executive offices in Austin, Texas, is hereby amended as follows:
As respects policies issued by the CEDING COMPANY to become effective on or
after September 1, 1994, the Table ratings applicable to both domestic and
international business which the REINSURER will accept automatically are
changed from "1 - 4", as specified in Exhibit I, to "1 - 6".
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in triplicate.
CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION
By: F Dollar By: /s/ Robert J. Wutant
---------------------- -------------------------
Title: President Title: Vice Pres
------------------- ----------------------
Date: 10/17/94 Date: 9/28/94
-------------------- -----------------------
By: /s/ Mark Oliver By: Pamela J. Bennett
---------------------- -------------------------
Title: VP & Treas Title: Asst VP
------------------- ----------------------
Date: 10/17/94 Date: 10/11/94
-------------------- -----------------------
10.13-25
<PAGE> 45
L94-4225
EMPL0YERS REASSURANCE CORPORATION
5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201
(913) 676 5950 - Facsimile (913) 676-5221
A General Electric Financial Services Company
AMENDMENT NO. 13
The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A)
of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park,
Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with
executive offices in Austin, Texas, is hereby amended as follows:
I. As respects policies newly issued by the CEDING COMPANY to become
effective on or after January 1, 1995:
A. The following countries are deleted from the 100% foreign
standard classification contained in Appendix 3-A, as amended:
Czechoslovakia
Poland
Taiwan
B. The following countries are deleted from the 115% foreign
standard classification contained in Appendix 3-A, as amended:
Israel
Paraguay
Uruguay
C. The following countries are deleted from the 130% foreign
standard classification contained in Appendix 3-A, as amended:
Bolivia
Colombia
Honduras
Guatemala
Guiana (Fr, Br, Dutch)
Nicaragua
Peru
Philippines
Malaysia
D. El Salvador is deleted from the 160% foreign standard
classification contained in Appendix 3-A, as amended.
10.13-26
<PAGE> 46
II. In order to restate it as of January 1, 1995, Exhibit 3-A, as amended
by Part I hereof, is deleted and the Exhibit 3-B attached to this
amendment is substituted therefor.
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in triplicate.
CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION
By: F Dollar By: /s/ Pamela J. Bennett
----------------------- -------------------------
Title: Vice Chairman Title: AVP
-------------------- ----------------------
Date: 3/8/95 Date: 2/27/95
--------------------- -----------------------
By: /s/ Mark Oliver By: CJ Schneider
----------------------- -------------------------
Title: EVP Title: VP
-------------------- ----------------------
Date: 3/8/95 Date: 3/1/95
--------------------- -----------------------
10.13-27
<PAGE> 47
L95-0780
EMPL0YERS REASSURANCE CORPORATION
5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201
(913) 676 5950 - Facsimile (913) 676-5221
A General Electric Financial Services Company
AMENDMENT NO. 14
The Automatic Yearly Renewable Tenn (NR) Life Reinsurance Agreement (No. 116A)
of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park,
Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with
executive offices in Austin, Texas, is hereby amended as follows:
Effective January 1, 1995:
A. The following sentence is added to numbered paragraph 38:
The REINSURER agrees to reimburse the CEDING COMPANY for each claim
with respect to which this agreement affords indemnity within 45 days
after the REINSURER receives proof which is satisfactory to the
REINSURER that the CEDING COMPANY has paid the claim.
B. The following paragraph is added as Article XIX:
ARTICLE XIX
ENTIRE AGREEMENT. This agreement shall constitute the entire
agreement between the parties with respect to the business
being reinsured hereunder. There are no other understandings
between the parties other than as expressed in this agreement.
Any change or modification to this agreement shall be null and
void unless made by amendment to this agreement and signed by
both parties.
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in triplicate.
CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION
By: F Dollar By: /s/ CJ Schnied
-------------------- --------------------------
Title: Vice Chairman Title: VP
----------------- -----------------------
Date: 4/12/95 Date: 3/29/95
------------------ ------------------------
By: /s/ Charles E. Melgar By: Pamela J. Bennett
-------------------- --------------------------
Title: VP & Chief Title: AVP
----------------- -----------------------
Date: 4/12/95 Date: 4/1/95
------------------ ------------------------
10.13-28
<PAGE> 48
L96-1835
EMPL0YERS REASSURANCE CORPORATION
5200 Metcalf o P. 0. Box 2981 o 0verland Park, KS 66201
(913) 676 5950 - Facsimile (913) 676-5221
A General Electric Financial Services Company
AMENDMENT NO. 15
The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A)
of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park,
Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado Corporation with
executive offices in Austin, Texas, is hereby amended as follows:
As respects policies newly issued by the CEDING COMPANY to become effective on
or after April 1, 1996, Appendix I (attached to Amendment No. 2) is deleted and
Appendix I -A attached to this amendment is substituted therefor.
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in triplicate.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in triplicate.
CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION
By: F Dollar By: /s/ Peter R
----------------------- -----------------------------
Title: Vice Chairman Title: Asst. VP
-------------------- ---------------------------
Date: 5/13/96 Date: 4/25/96
--------------------- ----------------------------
By: /s/ Mark Oliver By: John T Kirway
----------------------- -----------------------------
Title: Exec VP Title: VP
-------------------- ---------------------------
Date: 5/3/96 Date: 4/25/96
--------------------- ----------------------------
10.13-29
<PAGE> 49
L98-0283
AMENDMENT NO. 16
The Automatic Yearly Renewable Term (NR) Life Reinsurance Agreement (No. 116A)
of March 1, 1982, between EMPLOYERS REASSURANCE CORPORATION of Overland Park,
Kansas and CITIZENS INSURANCE COMPANY OF AMERICA a Colorado corporation with
executive offices in Austin, Texas, is hereby amended as follows:
As respects policies newly issued by the CEDING COMPANY to become effective on
or after January 1, 1998:
A. The following countries are added to Exhibit 3 -B at II 5 % of the
foreign standard rate:
Bahrain
Egypt
Jordan
Kuwait
Oman
Qatar
United Arab Emirates
B. The automatic reinsurance limit applicable to each person is increased
from $300,000, as indicated in Item 4 of Appendix I -A (attached to
Amendment No. 15), to $500,000.
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in triplicate.
CITIZENS COMPANY OF AMERICA EMPLOYERS REASSURANCE CORPORATION
By: F Dollar By: /s/ Pamela J. Bennett
-------------------------- -----------------------------
Title: Vice Chairman Title: AVP
----------------------- --------------------------
Date: 1/26/98 Date: 22 January 1998
------------------------ ---------------------------
By: /s/ Mark A. Oliver By: A.W. Bordon
-------------------------- ------------------------------
Title: President Title: Assistant Vice President
----------------------- --------------------------
Date: 1/26/98 Date: January 15, 1998
------------------------ ---------------------------
10.13-30
<PAGE> 1
EXHIBIT 10.14
Colorado ID #045
Self-Administered
Automatic Reinsurance Agreement
Effective: July 1, 1993
between
Citizens Insurance Company of America
Denver, Colorado
(hereinafter referred to as the "Ceding
Company") and
Business Men's Assurance Company
Kansas City, Missouri
(hereinafter referred to as the "Reinsurer")
10.14-1
<PAGE> 2
Table of Contents
Article I
Article II
Article III
Article IV
Article V
Article VI
Article VII
Article VIII
Article IX
Article X
Article XI
Article XII
Article XIII
Article XIV
Article XV
Article XVI
Article XVII
Article XVIII
Article XIX
Exhibit I
Exhibit II
Exhibit III
Exhibit IV
Exhibit V
Exhibit VI
Exhibit VII
Exhibit VIII
Addendum #1
Addendum #2
10.14-2
<PAGE> 3
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Article I 1. On and after the effective date of this Agreement, the Ceding
Basis of Reinsurance Company shall cede to Reinsurer, subject to the limitations outlined in Exhibit III,
30% of its First Excess, i.e., the amount of new direct agency Standard and
Substandard individual issues of Life Insurance policies and Waiver of Premium
Disability benefits in excess of the Ceding Company's regular retention for such
benefits as shown in Exhibit III. Reinsurer shall automatically accept such First
Excess within the limits indicated in Exhibit 111, provided that the Ceding Company
has applied its normal underwriting rules and retains its regular retention.
2. The term "new direct agency issues" as used in this Article shall include issues on
the lives of U.S. Citizens and non-U.S. Citizens as stipulated in Appendix I-A. It
shall not include brokerage business, reinsurance business, or except as provided
herein, issues of conversions.
3. If the Ceding Company is already on the risk for its regular retention under policies
previously issued, reinsurance up to the limits indicated in Exhibit III will be
accepted automatically in accordance with Paragraph 1 above, provided the Ceding
Company has assessed the risk under the new application by applying the same
underwriting rules it would have applied had the new policy fallen completely within
regular retention.
4. Any risk which falls within the automatic coverage granted by this Agreement may
nevertheless be submitted to Reinsurer for its underwriting opinion. If such risk is
acceptable for coverage, it shall automatically be reinsured under this Agreement.
Any other risk ineligible for automatic coverage hereunder, or which the Ceding
Company desires to reinsure facultatively, may be submitted to Reinsurer for
facultative underwriting by forwarding to Reinsurer copies of the original
applications, all medical examinations or reports, inspection reports and all other
information which the Ceding Company may have pertaining to the insurability of the
risk. Any such risk shall, upon acceptance by the Ceding Company of Reinsurers
underwriting decision, be reinsured under this agreement.
5. The reinsurance under this Agreement shall be maintained in force as long as the
original policy carried by the Ceding Company remains in force, except as provided in
Articles V-H Automatic Reinsurance Coverage after Policy Change, IX Recapture, and
XVIII Duration of Agreement; Termination.
Article II 1. If (a) the First Excess as defined in Exhibit III herein is greater than
Mode of Notification $425,000 of life Insurance and (b) the Ceding Company automatically
and Cession to Reinsurer as herein provided and the total amount ceded to Reinsurer on the same
life, including previous cessions, exceeds either of the foregoing specified amounts,
then the Ceding Company shall notify Reinsurer:
a. within forty-eight (48) hours after underwriting approval of the risk by
mailing a Preliminary Surplus Advice (Exhibit VII), and either
b. within five (5) working days after the policy issued on such application has
been delivered and paid for, by mailing a copy of the Preliminary Surplus
Advice indicating the actual amount ceded hereunder, or
</TABLE>
10.14-3
<PAGE> 4
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c. within sixty (60) working days after underwriting approval of the risk if the
policy issued on such application was refused or remains undelivered, by
mailing a copy of the Preliminary Surplus Advice marked "Canceled" and
indicating date of cancellation.
2. For risks automatically ceded and not subject to the notification requirements of
Paragraph 1. The first notice to Reinsurer regarding any such automatic cession will
be sent to Reinsurer on the first of each month following the Issue Month. The
notification will be a copy of Citizens's Underwriter Worksheet (see Exhibit VIII).
3. For risks to be reinsured facultatively hereunder in accordance with Article I,
Paragraph 4, the Ceding Company shall forward to Reinsurer a Preliminary Surplus
Advice marked "Facultative" within five (5) working days after the original policy has
been reported delivered and paid for.
Article III 1. The liability of Reinsurer shall begin and terminate simultaneously
Liability of Reinsure with that of the Ceding Company, provided that, in the case of a
facultative submission, Reinsurer has notified the Ceding Company of its acceptance of
the risk and the Ceding Company has mailed a Preliminary Surplus Advice in accordance
with Paragraph 3 of Article II Mode of Notification and Cession.
2. Reinsurer has no liability under this Agreement for any policy amount or benefit not
expressly referred to in Article I Basis of Reinsurance, or in any Addendum to this
Agreement relating to reinsurance of other benefits.
3. The Ceding Company will provide Reinsurer with copies of its policy and other forms,
rate schedules and underwriting rules for the business eligible for reinsurance under
this Agreement and shall keep Reinsurer informed of any changes therein.
Article IV 1. Life reinsurance shall be ceded on the Risk Premium basis for the
Plan of Reinsurance Net Amount at Risk reinsured. For the purpose of this Agreement,
the Net Amount at Risk reinsured during any calendar year is defined as the difference
between the First Excess (as defined in Article I and Exhibit 111) and the reserve
thereon at the end of the prior calendar year. Such reserve shall be determined as
the statutory mean reserve based on the Ceding Company's reserve standard unless an
approximate method of determination is applicable as shown in Exhibit IV. In either
case, reserves shall be rounded to the nearer dollar.
2. For original policies issued on a level term plan for twenty (20) years or less or on
a reducing ten-n plan for any period of years, the Net Amount at Risk reinsured during
all years shall be for the amount of the First Excess reinsured and reserves shall be
disregarded.
3. Except as otherwise provided in Exhibit IV hereof, or by Addendum to this Agreement,
the Net Amount at Risk reinsured will be level during any calendar year.
</TABLE>
10.14-4
<PAGE> 5
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4. Reinsurance of Waiver of Premium Disability benefits shall be in accordance with the
original policy terms of the Ceding Company subject to the limitations in Exhibit III.
Article V 1. The reinsurance premiums for Life reinsurance shall consist of a basic rate per
thousand of Net Amount at Risk reinsured in accordance with the schedule of rates
attached hereto (Exhibit 1). Rate for females at ages 15 and higher are equal to the
rates for a male four years younger. For females aged 11-14, males age 10 rates are
used. Male and female rates for ages 0-10 are identical.
2. For purposes of premium calculation, based on the table of rates contained in Exhibit
1, the attained age shall be taken as the issue age (nearest or last birthday as
appropriate), plus the difference between the respective calendar year and the
calendar year at issue.
3. The reinsurance premiums for Waiver of Premium Disability benefits shall be as shown
in Exhibit 1.
4. Except as otherwise provided in Exhibit III, for all new reinsurance originating
without current evidence of insurability (conversions, options, etc.) calendars years
for entering the premium table, Exhibit I will be counted starting with the calendar
year of the last check of insurability.
5. All reinsurance premiums payable by the Ceding Company to Reinsurer under this
Agreement shall be paid on the calendar year basis in advance regardless of the mode
of premium payment of the policies reinsured. Reinsurance premiums shall be payable
as long as the reinsurance remains in force. Should any reinsurance be reduced or
terminated within any calendar year, the proportionate part of the reinsurance premium
paid shall be refunded at the beginning of the calendar year next following the
reduction or termination provided, however, that for policies reduced or terminated
during the second calendar year after issue the refund shall not exceed 50% of the
reinsurance premium paid.
6. For those premiums less than ones based on the 1980 CSO Table at 4 1/2% interest, only
the latter premiums can be guaranteed for renewal. Should BMA increase the
reinsurance premium to the 1980 CSO table at 4 1/2% interest, then Citizens shall have
the right to immediately recapture any business affected by such change.
Article VI 1. When Reinsurer is not required to pay state premium taxes on reinsurance premiums
Premium Taxes and received from the Ceding Company, it shall reimburse the Ceding Company for any such
Policy Expenses taxes the latter may be required to pay with respect to the part of the premium
received under the Ceding Company's original policies which is remitted to
Reinsurer as reinsurance premium.
2. The Ceding Company shall bear the expense of all medical examinations, inspection
fees, and other charges incurred in connection with issuance of any policy reinsured
hereunder.
3. The Ceding Company will take responsibility for paying all foreign or excise taxes.
The Reinsurer will not be responsible to reimburse these taxes.
</TABLE>
10.14-5
<PAGE> 6
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Article VII 1. Reinsurer will continue to grant automatic reinsurance coverage in accordance with the
Automatic Reinsurance provisions of this Agreement after renewal, conversion or amendment of any
Coverage after Policy policy reinsured hereunder provided that the amounts and benefits to be
Change reinsured following the change do not exceed the amounts and benefits initially
reinsured hereunder in respect of such policy. The following rules will apply for
the recalculation of the amounts reinsured with Reinsurer after a policy change.
2. If an original policy is reduced, the Ceding Company will retain the same Net Amount
at Risk and the same other benefits on that life that it had before the reduction.
The reduction shall be applied first to the reinsurance based on the original policy
or policies reduced or terminated. If further reduction in reinsurance is required,
the policies for which reinsurance is to be terminated or reduced shall be determined
by the chronological order in which they were issued, the first issued being the first
terminated or reduced, and so on. If the reinsurance required to be reduced under
this Article is shared among Reinsurer and other reinsurers, the reduction shall be
pro-rated among all reinsurers in proportion to the amount of reinsurance carried by
each. if the amount of reinsurance remaining is less that the amount of the minimum
cession specified in Exhibit 11, such reinsurance shall be canceled.
3. If any policy reinsured hereunder is changed to extended term insurance, Reinsurer's
proportion of the amount of insurance under such policy shall remain unchanged.
4. Should any change or conversion of any policy reinsured hereunder increase the Net
Amount at Risk or other benefits insured, Reinsurer's proportion of the amount of
insurance and benefits under such policy shall remain unchanged unless the limits
provided under Paragraph I are exceeded. In the event that the limits under Paragraph
I are exceeded.
Reinsurer will accept both the excess and any additional amounts required to be
reinsured in order to keep the Ceding Company's retention within the limits stated in
Exhibit 11, provided that the total Net Amount at Risk reinsured after the increase
does not exceed the limitations of Automatic Coverage (Exhibit III), and provided
further that such increase is underwritten in accordance with Article I Basis of
Reinsurance, Paragraph 3. Premiums for the amended cessions will be calculated in
accordance with Article V Reinsurance Premiums, Paragraph 4.
5. If any reinsured policy has been terminated, changed to reduced paid-up insurance or
changed to extended term insurance, such policy is reinstated according to the general
reinstatement rules of the Ceding Company, the reinsurance hereunder shall be restored
with the same Net Amount at Risk and other benefits reinsured as if no change had
occurred.
6. Policies issued because of options exercised under provisions of Guaranteed
Insurability benefits are not included under this Agreement, and shall be added by
Addendum if such benefits are to be reinsured.
</TABLE>
10.14-6
<PAGE> 7
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Article VIII 1. All amendments and terminations of reinsurance under this Agreement occurring
Information to Reinsurer during any calendar year will be shown after Policy Change in the List of Amendments
prepared for such calendar year in accordance with Article XI List of Risks Reinsured
and List of Amendments.
2. If any policy change increases the Net Amount at Risk or other benefits reinsured
hereunder by more than 10%, the Ceding Company will notify Reinsurer within two (2)
weeks after such change becomes effective by submitting a Preliminary Surplus Advice
(Exhibit VII) marked "Amended".
Article IX 1. At intervals of five (5) years, the Ceding Company is entitled to
Recapture recapture reinsurance on all cessions which have been in force under
this Agreement for a least five (5) years. The first recapture date is the end of
the seventh (7th) full calendar year following the effective date of this Agreement.
Subsequent recapture dates will follow at intervals of five (5) full calendar years.
2. In order to effect recapture, the Ceding Company will reduce each cession eligible
under this Agreement by an amount which will increase the Net Amount at Risk for life
insurance or other benefit retained by the Ceding Company to its then regular
retention. Any recapture reducing the Net Amount at Risk reinsured below the amount
of the minimum cession according to Exhibit II will result in complete recapture of
the reinsurance on that life.
3. Before recapturing on a cession according to this provision, the Ceding Company will
proceed with all recaptures allowed for policies previously issued on the same life
and for all other reinsurance cessions on the same policy, whoever the reinsurer may
be.
4. The Ceding Company may waive recapture on any recapture date, but only if such waiver
applies to all reinsurance then eligible for recapture hereunder.
5. The Ceding Company shall notify Reinsurer at least sixty (60) days prior to each
recapture date of its intended recapture action. Any questions of recapture
eligibility or procedure will then be resolved during such sixty (60) day period.
6. If recapture is effected, the List of Risks Reinsured for the calendar year following
recapture will identify the risks involved and show the new reinsurance amounts
applicable. In the event recapture results in cancellation of any cession, such
cancellation will be shown on the List of Amendments for the calendar year of
recapture.
7. It is hereby agreed and understood that risks of which no part is retained by the
Ceding Company or where the Ceding Company does not retain its regular retention limit
at issue, shall be considered not subject to recapture.
Article X 1. In the event any policy is terminated by death while reinsured under
Claims this Agreement, Reinsurer shall pay to the Ceding Company the Net Amount at Risk
reinsured with respect to such policy during the calendar year of death.
2. In the event Waiver of Premium Disability benefits are validly claimed under any
policy reinsured for such benefits hereunder, Reinsurer shall pay the Ceding
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10.14-7
<PAGE> 8
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Company annually during the continuance of disability the yearly gross premium
(exclusive of the premiums for the Waiver benefit itself due under such policy for the
reinsured portion of the Waiver benefit. In suitable cases, the Ceding Company and
Reinsurer may agree to replace the annual payments of Reinsurer by the payment of a
lump sum. If disability terminates, a refund, if appropriate, will be made by the
Ceding Company to Reinsurer. The payment of reinsurance premiums in accordance with
Article V Reinsurance Premiums for the other benefits still reinsured will continue
during the disability claim period.
3. In the event any policy reinsured hereunder becomes a claim before such policy has
appeared on any List of Risks Reinsured, the Ceding Company will calculate the amount
payable by Reinsurer in accordance with this Agreement and will submit to Reinsurer
all papers necessary to demonstrate that the risk involved was covered automatically
hereunder. In addition, the Ceding Company will inform Reinsurer of all other
reinsurance, if any, ceded on the same policy.
4. For any claim incurred after the policy affected has appeared on a List of Risks
Reinsured, Reinsurer will pay the Net Amount at Risk or other benefits reinsured, as
appropriate, shown in the List of Risks Reinsured applicable to the calendar year of
incurral, unless the benefits reinsured were amended according to Article VII
Automatic Reinsurance Coverage after Policy Change, but not reflected in such List.
In such case, Reinsurer will pay the Net Amount at Risk or other benefits reinsured
which would appear in the List of Amendments for the calendar year of incurral, and
the Ceding Company shall furnish proof that the amended Net Amount at Risk and other
benefits reinsured are in accordance with the provisions of this Agreement.
5. In the event less than the full amount insured is paid as a claim or if any special
expenses are incurred in the settlement of a claim (such as attorney's fees, court and
arbitration costs, special investigations, etc., but excluding salaries of employees),
Reinsurer and the Ceding Company shall share in the amount of such reduction of
special expenses in proportion to their respective Net Amounts at Risk under the
policy affected.
6. Reinsurer and Ceding Company shall share in any increase or reduction resulting from
the Insured's misstatement of his age in proportion to their respective Net Amounts at
Risk under the policy affected.
7. In every case of loss, proofs acceptable to the Ceding Company shall likewise be taken
as sufficient by Reinsurer. The Ceding Company shall furnish Reinsurer with copies of
proof of loss. It is agreed, however, that the Ceding Company shall give Reinsurer
advance notice of any claim which is contestable in accordance with the policy
provisions if at least 50% of the Life risk or Waiver of Premium Disability benefit
claimed is reinsured by Reinsurer hereunder. On request by Reinsurer, all papers in
connection with such claim shall be submitted to Reinsurer for its opinion before
commitment or payment is made to the claimant.
Article XI 1. Before January 15 of each calendar year following the date of this
List of Risks Agreement, the Ceding Company will provide Reinsurer with the List
Reinsured and List of Risks Reinsured for the current calendar year. This List will include
</TABLE>
10.14-8
<PAGE> 9
<TABLE>
<S> <C> <C>
of Amendments all reinsurance in force under this Agreement at the beginning of the calendar year
and contain information as outlined in Exhibit V.
2. Before January 15 of each calendar year, beginning with the second year following the
date of this Agreement, the Ceding Company will provide Reinsurer, for adjustment of
coverage and premium, with the List of Amendments for the preceding calendar year.
This List will include all cessions amended during the preceding calendar year in
accordance with Article VII Automatic Reinsurance Coverage after Policy Change,
exclusive of (a) amendments occurring during the calendar year of issue of any policy,
and (b) certain corrections referred to in Article MH Errors and Omissions. In
detail, the List will contain information as outlined in Exhibit VI.
Article XII 1. The Ceding Company shall remit the total of the reinsurance
Accounting premiums shown in the List of Risks Reinsured simultaneously with the List.
2. Should the balance of changes in reinsurance premiums for the preceding calendar year
shown in the List of Amendments be in favor of Reinsurer, the Ceding Company shall
remit said balance, increased by 2% for interest, simultaneously with the List.
Should this balance be in favor of the Ceding Company, Reinsurer shall remit said
balance, increased by 2% for interest, within ten (IO) working days of receipt of the
List.
3. Reinsurer is entitled to ask for correction of any of the Lists within ninety (90)
days after their receipt. The amount of any correction in reinsurance premiums is due
immediately after agreement between the Ceding Company and Reinsurer.
4. Failure of the Ceding Company to pay any of the reinsurance premiums shown in the List
of Risks Reinsured by March 31 of the calendar year covered by such List shall
automatically terminate the liability of Reinsurer under this Agreement as of midnight
on that date. Payment of only a portion of this premium by said March 31 shall reduce
the liability of Reinsurer under this Agreement as of midnight on that date. The
reduced liability will be determined by the ratio of the reinsurance premiums paid to
the total of the reinsurance premiums due. Payment of a portion or of the total of
the outstanding premiums and interest, if any, after said March 31 shall reinstate a
proportionate part of the total liability of Reinsurer effective on and after the date
of receipt of the payment at Reinsurer's home office.
5. All amounts due under Paragraphs 1, 2, and 3 preceding and not paid by March 31 of the
respective calendar year, are subject to 0.5% additional interest for each full month
after March 31.
6. Since reinsurance coverage and premium payments are on the calendar year basis,
Reinsurer, will not hold any reserves, other than claims reserves, for the reinsurance
covered by this Agreement at the end of the calendar year.
Article XIII 1. The List of Risks Reinsured is the basis for the reinsurance coverage
Errors and Omissions provided by Reinsurer for the respective calendar year on the
reinsurance in force at the beginning of that year. Any unintentional clerical error
or omission in the amounts reinsured shall not be corrected during the current
</TABLE>
10.14-9
<PAGE> 10
<TABLE>
<S> <C>
calendar year but will be reflected in the List of Risks Reinsured for the subsequent
calendar year, unless by such error or omission.
a. any risk not eligible for reinsurance under this Agreement is shown as
reinsured, or
b. the amount retained by the Ceding Company exceeds its retention at issue
(Exhibit II) by more than $5,000 or
c. the benefits reinsured by Reinsurer and other reinsurers exceed the benefits
insured under the policy less the Ceding Company's retention thereon, if any,
or
d. the amount of any benefit reinsured by Reinsurer exceeds 125% of the
corresponding amount during the preceding calendar year, or
e. amount of any benefit reinsured by Reinsurer exceeds the Automatic Coverage
(Exhibit III).
2. In those cases described in Paragraph 1, Reinsurer shall be notified in writing and
the reinsurance shall be corrected retroactively. Correction of the reinsurance
premium will be accounted for in the List of Amendments applicable to the calendar
year in which the error was discovered. The Ceding Company shall also check its
entire reinsured portfolio for similar discrepancies.
3. Any other failure of either party to comply with any provision of this Agreement, if
shown to be unintentional and the result of misunderstanding or oversight, shall be
corrected by restoring both parties to the position they would have occupied had no
such error or oversight occurred.
Article XIV Reinsurer shall have the right, at any reasonable time to inspect, at
Inspection of the office of the Ceding Company, all books, records and documents relating
Records to the reinsurance under this Agreement.
Article XV 1. In the event of insolvency of the Ceding Company, all reinsurance
Insolvency shall be payable directly to the liquidator, receiver or statutory successor of said
Ceding Company, without diminution because of the insolvency of the Ceding Company.
2. In the event of insolvency of the Ceding Company, the liquidator, receiver or
statutory successor shall give Reinsurer written notice of the pendency of a claim on
a policy reinsured hereunder within a reasonable time after such claim is filed in the
insolvency proceeding. During the pendency of any such claim, Reinsurer may
investigate such claim and interpose in the name of the Ceding Company (its
liquidator, receiver or statutory successor), but at its own expense, in the
proceeding where such claim is to be adjudicated, any defense or defenses which
Reinsurer may deem available to the Ceding Company or its liquidator, receiver or
statutory successor.
</TABLE>
10.14-10
<PAGE> 11
<TABLE>
<S> <C> <C>
3. The expense thus incurred by Reinsurer shall be chargeable, subject to court approval,
against the Ceding Company as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the Ceding Company solely as a
result of the defense undertaken by Reinsurer. Where two or more reinsurers are
participating in the same claim and a majority in interest elect to interpose a
defense or defenses to any such claim, the expense shall be apportioned in accordance
with the terms of the respective reinsurance agreements though such expense had been
incurred by the Ceding Company.
Article XVI 1. All disputes and differences between the two contracting parties
Arbitration upon which an amicable understanding cannot be reached are to be decided by
arbitration. The arbitrators shall regard this Agreement rather from the standpoint
of practical business and equity than from that of the strict law, for the purpose of
carrying out its evident intent.
2. The court of arbitration, which is to be held in the city where the home office of the
Ceding Company is domiciled, shall consist of three arbitrators who must be executive
officers of life insurance companies, other than the two parties to this Agreement,
familiar with the reinsurance business. One of the arbitrators is to be appointed by
the Ceding Company, the second by Reinsurer, and the third is to be selected by these
two representatives before the beginning of the arbitration. Should the two
arbitrators be unable to agree upon the choice of a third, the appointment shall be
left to the American Arbitration Association. Arbitration will be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association which are in effect on the date of delivery of demand for arbitration.
3. The arbitrators shall decide by a majority of votes and from their written decision
there can be no appeal. The cost of arbitration including the fees of the
arbitrators, shall be borne by the losing party unless the arbitrators shall decide
otherwise.
Article XVII 1. This is an agreement solely between the Ceding Company and
Parties to Reinsurer. The acceptance of reinsurance hereunder shall not create
Agreement any right or legal relation whatever between Reinsurer and the insured or the
beneficiary under any policy of the Ceding Company which may be reinsured hereunder.
Article XVIII 1 . This Agreement shall be unlimited as to its duration, but may be
Duration of Agreement terminated at any time, for new reinsurances only, by either party
giving not less than ninety (90) days notice of termination in writing to the other
party and the Colorado Insurance Department by registered mail stating the Termination
Date. Reinsurer shall continue to accept reinsurance during the ninety (90) days
aforesaid and shall remain liable on all reinsurance already placed in force under the
terms of this Agreement until such contracts are terminated between the original
insured and the Ceding Company.
2. In the event of non-payment of any amounts due hereunder by either party within three
(3) months of the respective due dates, except as provided by Article XIII Errors and
Omissions, Paragraph 2, the other party shall have the right to cancel the
</TABLE>
10.14-11
<PAGE> 12
<TABLE>
<S> <C>
reinsurance in force under this Agreement by giving thirty (30) days written notice.
Payment of the amounts due, with interest according to Article MI Accounting,
Paragraph 5, during such thirty (30) days will nullify the cancellation.
Article XIX The said Citizens Insurance Company of America, Denver, Colorado, Effective Date;
Execution and the said Reinsurer, declare that this Agreement and all its terms shall be
effective as of July 1, 1993, and shall apply to eligible policies applied for on and after
such date, notwithstanding that such policies may have been backdated for up to six (6) months
to save age. In witness whereof they have by their respective officers executed and delivered
this Agreement in duplicate.
</TABLE>
Citizens Insurance Company of America
By: /s/ Th Dollar
-------------------------
Title: President
----------------------
Attest: /s/ Mark A. Oliver, VP Date: 7/21/93
-------------------------- ----------------------
Business Men's Assurance Company
By: /s/ John M
-------------------------
Title: Mrg Dir
----------------------
Attest: /s/ W.M. Crouch Date: 8/4/93
-------------------------- -----------------------
10.14-12
<PAGE> 13
Page 1
Exhibit I
SAR Reinsurance Premiums
1. Reinsurance premiums under this Agreement for the first calendar year
(from the effective date of the policy to the next December 3 1) are,
with certain exceptions noted below, zero.
2. Life reinsurance premiums for standard risks shall be calculated by
multiplying the Net Amount at Risk reinsured during the calendar year
by the appropriate premium rate for such year from the appropriate
schedule shown in this Exhibit:
<TABLE>
<S> <C>
Age Nearest Birthday SAR NR ANB
Age Last Birthday SAR NR ALB
</TABLE>
Rates for females shall be in accordance with the respective rate
schedule applicable.
3. Life reinsurance premiums for substandard risks accepted subject to a
Table Rating shall be calculated by multiplying the corresponding
standard risk life reinsurance premiums by the appropriate Mortality
Factor from the table:
<TABLE>
<CAPTION>
Table Rating Mortality Factor**
------------ ------------------
<S> <C> <C>
A (1) 1.25
AA (1 1/2) 1.375
B (2) 1.50
BB (2 1/2) 1.625
C (3) 1.75
D (4) 2.00
E (5) 2.25
F (6) 2.50
G (7) 2.75
H (8) 3.00
I (9) 3.25
J (10) 3.50
L (12) 4.00
P (16) 5.00
</TABLE>
** Substandard reinsurance premiums for the second calendar year only
shall be 150% of the premiums calculated from the table.
10.14-13
<PAGE> 14
Page 2
Exhibit I
(Continued)
4. Life reinsurance premiums for substandard risks accepted subject to a
flat extra premium shall be the sum of
a. The applicable standard or substandard reinsurance premiums,
calculated from Paragraphs 2 and 3 above, and
b. The following percentages of the policy annual flat extra
premiums applicable to the initial amount of reinsurance
hereunder on such risks:
<TABLE>
<CAPTION>
Term of Flat Second Subsequent
Extra Premium Calendar Year Calendar Years
------------- ------------- --------------
<S> <C> <C>
More than five years 102.5% 90%
Five years or less 135.0% 90%
</TABLE>
5. Reinsurance premiums for Waiver of Premium Disability benefits payable
for the second and later calendar years shall be equal to 90% of the
policy annual premiums for such benefits applicable to the amount of
such benefits reinsured hereunder. If premiums for the Waiver of
Premium Disability benefit are automatically included in the gross
Life Insurance premiums under any policy reinsurance hereunder, then
reinsurance premiums for the Waiver of Premium Disability benefit, for
second and later calendar years, shall be 100% of the Ceding Company's
net annual premiums for the reinsured amount of such benefit.
6. For standard risks only, the reinsurance premium for the excess over
$1,500,000 on any one life reinsured under this Agreement for the
first calendar year (from the effective date of the policy to the next
December 3 1) shall be based on the second calendar year rate for the
issue age. Such first year premium shall be prorated over the year of
issue as follows:
First year prorated premium = n/360 (tabular rate), where n is the
number of days from the issue date to December 31, assuming 30-day
months, and the tabular rate is the second calendar-year rate for the
age at issue.
7. The Life reinsurance premiums for reinsurance of Joint Whole Life
policies at Standard or Substandard rates shall for each insured be
85% of the premium applicable for an individual life shown in Exhibit
I of the Agreement. Such rate shall be applied to the Net Amount at
Risk for each individual.
In case of reinsurance under a Joint Whole Life Policy where the Joint
Insureds die simultaneously or within 60 days of each other, thus
requiring the Ceding Company to pay twice the amount of Life Insurance
insured under the Joint Whole Life Policy, Reinsurer shall for each of
the joint lives reinsured pay the net amount at risk plus 50% of the
terminal reserve used in calculating the net amount at risk in
accordance with Article IV. Paragraph 1, relating to the amount
reinsured on the respective life.
10.14-14
<PAGE> 15
ADDENDUM
to the Automatic YRT Agreement
dated July 1, 1993
between
CITIZENS LIFE INSURANCE COMPANY OF AMERICA
Denver, Colorado
(hereinafter called the CEDING COMPANY)
and
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
Kansas City, Missouri
(hereinafter called the BMA)
Purpose: To include the attached revised retention schedule for this
agreement.
1. The attached retention schedule marked Exhibit II
will replace the previous Exhibit II in the
agreement.
2. THE EFFECTIVE DATE shall be September 1, 1994.
Except as herein amended, the provisions of the said Reinsurance Agreement
shall remain unchanged.
IN WITNESS WHEREOF, this addendum is hereby executed in duplicate between the
parties concerned, and is duly signed by both parties respective officers as
follows:
CEDING COMPANY
/s/ R Dollar Pres
-------------------- --------------
signature title
/s/ Mark Oliver VP & Treas.
-------------------- --------------
signature title
10/24/94
--------------
date
BMA
/s/ John Walker Managing Director Reinsurance
- --------------- -----------------------------------------
signature title
/s/ Bill Crouch Reinsurance Administrative Vice President
- --------------- -----------------------------------------
signature title
November 2, 1994
-----------------------------------------
10.14-15
<PAGE> 16
Exhibit II
Retention Limits of the Ceding Company
The retention limits of the Ceding Company on any one life for the benefits
reinsured hereunder are as follows:
Life Insurance
<TABLE>
<CAPTION>
Issue
Ages Standard Substandard
- ---- -------- -----------
Tables 1 Tables 7
through 6 through 16
--------- ----------
<S> <C> <C> <C>
All
Ages $75,000 $75,000 -0-
- ----
</TABLE>
Minimum Cession: $1,000
Waiver of Premium Disability Benefits
Same as for Life Insurance
Accidental Death Benefits
None
10.14-16
<PAGE> 17
Exhibit II
Retention Limits of the Ceding Company
The retention limits of the Ceding Company on any one life for the benefits
reinsured hereunder are as follows:
Life Insurance
<TABLE>
<CAPTION>
Issue
Ages Standard Substandard
- ---- -------- -----------
Tables 1 Tables 5
through 4 through 16
--------- ----------
<S> <C> <C> <C>
All
Ages $75,000 $75,000 -0-
- ----
Minimum Cession: $1,000
</TABLE>
Waiver of Premium Disability Benefits
Same as for Life Insurance
Accidental Death Benefits
None
10.14-17
<PAGE> 18
Page 1
Exhibit III
Limits and Special Conditions
for the First Excess
1. Overall Limits
Automatic coverage of any risk for Life Insurance with or without Waiver of
Premium Disability benefits shall be granted under this Agreement only if,
according to the Ceding Company's papers, the overall sum in force and applied
for on the same life with all insurance companies does not exceed $3,000,000 of
Life Insurance with or without Waiver of Premium -- Disability benefits.
2. First Excess
The First Excess of the Ceding Company to be automatically covered under this
Agreement, including previous reinsurance ceded to Reinsurer by the Ceding
Company on the same life, is defined as follows:
a. Life Insurance
1. Issue ages up to 70 years.
2. Standard and Substandard risks rated up to and
including Table 4 (200% total mortality) written by
the Ceding Company on any U.S. citizen through duly
licensed agents contracted with the Ceding Company.
Issues also include non-U.S. Citizens in countries
stipulated in Appendix I-A.
3. Domestic Risks: 30% of $425,000 in excess of the
Ceding Company's $75,000 retention.
International Risks: 30% of $425,000 in excess of the
Ceding Company's $75,000 retention.
The minimum cession will be $5,000. If the total First Excess
is less than such minimum, the Ceding Company will increase
its retention to the full amount insured on that life.
b. Waiver of Premium Disability benefits
Same as for Life insurance, subject to age and substandard
issue limits imposed by the Ceding Company on such risks.
10.14-18
<PAGE> 19
Page 2
Exhibit III
(Continued)
3. Supplementary Benefit Forms
Supplementary benefits to be covered automatically under this Agreement shall
be those provided in the following policy forms issued by the Ceding Company:
a. Waiver of Premium Disability benefits, Form Nos.B11172S,
B11372S, B I 1472S, B I 1572S, B I 1972E, B 12172E, B 12272E.
10.14-19
<PAGE> 20
Exhibit IV
Calculation of the Net Amount at Risk Reinsured
For calculating the Net Amount at Risk according to Article IV Plan of
Reinsurance, Paragraph 1, the Ceding Company will use the following approximate
procedure:
The calculation of the Net Amount At Risk at Issue Age x and year t is done as
follows:
t (NAAR)X = Face Amount At Issue - Decreases since issue on decreasing
benefit coverage
+ Increases since issue on increasing benefit coverage
- Mean Reserve
10.14-20
<PAGE> 21
Exhibit V
List of Risks Reinsured
The List of Risks Reinsured will be prepared at the beginning of each calendar
year in accordance with Article XI and will include, for each cession in force
at that time, the following information for the applicable reinsurance, in
policy number order:
1. Basic
a. Policy Number
b. Name of Insured (last name first)
c. Plan code
d. Sex
e. Date of birth (month, day, year)
f. Effective date of issue (month, day, year)
g. Age at issue
h. Business code (new, new with issue effective before preceding
calendar year, converted, reinstated, unchanged, amended by
change of direct policy, amended by recapture).
2. Life Insurance
a. Rating (Table and/or Flat Extra)
b. Total Gross Life Amount Insured on this policy
c. Amount of First Excess reinsured
d. Attained age for the current calendar year
e. Life Net Amount at Risk reinsured for the current calendar
year
f. Life reinsurance premium for the current calendar year.
3. Waiver of Premium Disability Benefits
a. Rating
b. Insured Code (Insured, Payor)
c. Benefit Code
d. Life Amount reinsured for YVTD
e. WPD reinsurance premium for the current calendar year.
A policy count and subtotals for new issues and renewals along with grand
totals should be provided for items in Sub- paragraphs 2d, 2e, 2f, 3d, and 3e.
10.14-21
<PAGE> 22
Exhibit VI
List of Amendments
The List of Amendments will be prepared as of the end of each calendar year in
accordance with Article XI, and will include, for each cession which is amended
during that calendar year because of policy change (Article VII) or because of
certain errors and omissions (Article XIII), the following information for the
applicable reinsurance:
1. Basic
a. Policy Number
b. Name of insured (last name first)
c. Sex
d. Date of birth (month, day, year)
e. Attained age for the calendar year
f. Amendment Code
g. Effective date of amendment (month, day, year)
h. Number of days from date of amendment through December 31 of
the calendar year (for business amended in the second calendar
year not more than 183 days).
2. Life Insurance
a. Rating (Table and/or Flat Extra)
b. Life Net Amount at Risk reinsured last List of Risks Reinsured
or prior to amendment
c. New Life Net Amount at Risk reinsured
d. Adjustment to life reinsurance premium for the calendar year.
3. Waiver of Premium Disability benefits
a. Rating
b. Life amount reinsured for WPD on last List of Risks Reinsured
or prior to amendment
c. New Life amount reinsured for WPD
d. Adjustment to WPD reinsurance premium for the calendar year.
A policy count and subtotals by Amendment Code along with a grand total should
be provided for items in Sub-paragraphs 2b, 2c, 2d, 3b, 3c, and 3d.
The List of Amendments will also include policies with issue dates in the
previous calendar year which failed to appear on the List of Risks Reinsured
applicable to the current calendar year.
10.14-22
<PAGE> 23
Page 1
Addendum #1
to the
Self-Administered
Automatic Reinsurance Agreement
between
Citizens Insurance Company of America
Denver, Colorado
(hereinafter referred to as the "Ceding Company")
and
Business Men's Assurance Company
Kansas City, Missouri
(hereinafter referred to as the "Reinsurer")
Conditional Receipt Coverage
Notwithstanding any provision to the contrary in Article I Basis of Reinsurance
of said Agreement, Reinsurer shall be automatically bound under any claim for
which the Ceding Company is liable under a conditional receipt issued in
respect of business reinsured automatically or submitted exclusively to
Reinsurer under said Article I. Reinsurer's liability in such case shall be for
the amount of the conditional receipt claim less the Ceding Company's standard
retention on the policy applied for. In no event, however, shall Reinsurer's
liability on any one life, including previous reinsurances ceded to Reinsurer,
by the Ceding Company, exceed the automatic acceptance limits provided by the
Agreement to which this Addendum is attached.
The Ceding Company's conditional receipt is attached hereto and the Ceding
Company shall be obligated to advise Reinsurer of any changes or modifications
of such receipt.
This Addendum is attached to and made a part of the Self-Administered Automatic
Reinsurance Agreement between the Ceding Company and Reinsurer effective July
1, 1993.
10.14-23
<PAGE> 24
Page 2
In Witness Whereof, the said Citizens Insurance Company of America, Denver,
Colorado, and the said Business Men's Assurance Company have by their
respective officers executed and delivered this Addendum in duplicate.
Citizens Insurance Company of America
By: /s/ T Dollar
------------------------------
Title: President
---------------------------
Attest: /s/ Mark A. Oliver, VP Date: 7/21/92
---------------------- ----------------------------
Business Men's Assurance Company
By: /s/ John Walker
------------------------------
Title: Mgr Director
---------------------------
Attest: /s/ W.M. Crouch Date: 8/6/93
---------------------------- ----------------------------
10.14-24
<PAGE> 25
Addendum #2
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
During the course of business necessary under this agreement, CICA may reveal
to BMA certain confidential or proprietary information which includes but is
not limited to the following: various trade secrets, data processing methods,
marketing concepts, programs, formulas, patterns, devices, inventions,
processes, policy forms and identities of customers, sales agents, managing
agents, associates and employees of CICA. BMA shall not disclose, directly or
indirectly, to others, including corporate subsidiaries and affiliates, any
confidential or proprietary information of CICA except as may be specifically
authorized in writing by an officer of CICA. BNIA will also do all things
necessary to prevent any of its employees, representatives and agents from
disclosing any such information. BMA further agrees to use any confidential or
proprietary information of CICA solely for the purpose of reinsurance under
this agreement.
This Addendum is attached to and made a part of the Self-Administered Automatic
Reinsurance Agreement between the Ceding Company and Reinsurer effective July
1, 1993.
In Witness Whereof, the said Citizens Insurance Company of America, Denver,
Colorado, and the said Business Men's Assurance Company have by their
respective officers executed and delivered this Addendum in duplicate.
Citizens Insurance Company of America
By: /s/ T Dollar
------------------------------
Title: President
---------------------------
Attest: /s/ Mark A. Oliver, VP Date: 7/21/93
------------------------- ----------------------------
Business Men's Assurance Company
By: /s/ John Walker
------------------------------
Title: Mgr Director
---------------------------
Attest: /s/ W.M. Crouch Date: 8/6/93
------------------------- ----------------------------
10.14-25
<PAGE> 26
AMENDMENT OF REINSURANCE AGREEMENT BETWEEN:
CITIZENS INSURANCE COMPANY OF AMERICA
(Ceding Company)
and
BUSINESS MEN'S ASSURANCE
(Assuming Company)
Agreement Number 045
Amendment Number 003
Effective Date: 07/01/93
Date of Execution: 08/06/93
Effective Date of Amendment: 12/31/93
Date of Amendment Execution: 02/22/94
Type of Amendment: To update treaty to comply with regulation 3-3-2.
Agreement Type: SAR
Underlying Risk: Ordinary Life
Statement of whether or not a Reinsurance Intermediary is involved in this
transaction: There is no Reinsurance Intermediary involved in this transaction.
Statement of whether agreement meets the conditions of Section
10-3-805(4)(a)(111), C.R.S.: This amendment does not meet the conditions of
Section 10-3-805(4)(a)(111), C.R.S.
Statement as to whether agreement transfers existing in-force business: This
amendment does not transfer in-force business.
10.14-26
<PAGE> 27
Agreement No. 045
Agreement No. 003
ADDENDUM
to the Automatic Yearly Renewable Term Agreement
dated July 1, 1993
between
CITIZENS INSURANCE COMPANY OF AMERICA
Denver, Colorado
(hereinafter called the CEDING COMPANY)
and
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
Kansas City, Missouri
(hereinafter. called the BMA)
Purpose: To add verbiage to comply with Colorado State requirements.
1. All provisions of this reinsurance agreement other
than the arbitration provisions are subject to the
laws of the State of Colorado.
2. In the event of the insolvency of the CEDING COMPANY,
the arbitration provisions of this agreement shall
also be subject to the laws of the State of Colorado.
3. THE EFFECTIVE DATE shall be December 31, 1993.
Except as herein amended, the provisions of the said Reinsurance Agreement
shall remain unchanged.
IN WITNESS WHEREOF, this addendum is hereby executed in duplicate between the
parties concerned, and is duly signed by both parties respective officers as
follows:
CEDING COMPANY
/s/ R Dollar Pres.
----------------------- ---------
signature title
/s/ Mark Oliver VP
----------------------- ---------
signature title
10.14-27
<PAGE> 28
BMA
/s/ John Walker Managing Director Reinsurance
- --------------- -----------------------------
signature title
Reinsurance
/s/ WM Crouch Administration Vice President
- ------------- -----------------------------
signature title
2/17/94
-----------------------------
date
10.14-28
<PAGE> 29
AMENDMENT OF REINSURANCE AGREEMENT BETWEEN:
CITIZENS INSURANCE COMPANY OF AMERICA
(Ceding Company)
and
BUSINESS MEN'S ASSURANCE
(Assuming Company)
Agreement Number 045
Amendment Number 004
Effective Date: 07/01/93
Date of Execution: 08/06/93
Effective Date of Amendment: 1/l/95
Date of Amendment Execution: 2/9/95
Type of Amendment: Revision of Retention Schedule
Agreement Type: SAR
Underlying Risk: Ordinary Life
Statement of whether or not a Reinsurance Intermediary is involved in this
transaction: There is no Reinsurance Intermediary involved in this transaction.
Statement of whether agreement meets the conditions of Section
10-3-805(4)(a)(111), C.R.S.: This amendment does not meet the conditions of
Section 10-3-805(4)(a)(111), C.R.S.
Statement as to whether agreement transfers existing in-force business: This
amendment does not transfer in-force business.
10.14-29
<PAGE> 30
CEDING COMPANY
/s/ R Dollar Vice Chairman
------------------ -------------
signature title
/s/ Mark A. Oliver Executive VP
------------------ -------------
signature title
2/9/95
------
date
BMA
/s/ John Walker Managing Director Reinsurance
- --------------- -----------------------------
signature title
Reinsurance
/s/ Bill Crouch Administration Vice President
- --------------- -----------------------------
signature title
February 3, 1995
-----------------------------
date
10.14-30
<PAGE> 31
Amendment 5
ADDENDUM
to the Automatic Yearly Renewable Term Agreement
dated July 1, 1993
between
CITIZENS INSURANCE COMPANY OF AMERICA
Denver, Colorado
(hereinafter called the CEDING COMPANY)
and
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
Kansas City, Missouri
(hereinafter. called the BMA)
Purpose: To transfer reinsurance coverage on Harold E. Riley, and
Harold L. Hays to the July 1, 1993 reinsurance agreement on a
point-in-scale basis.
1. BMA shall continue reinsurance of the in-force
policies on Harold E. Riley, BMA #324-46-33, CEDING
COMPANY's #7202250248; and Harold L. Hays, BMA
#255-34-19, CEDING COMPANY'S #6301765401 under this
agreement on a point-in-scale basis.
2. THE EFFECTIVE DATE shall be January 1, 1995.
Except as herein amended, the provisions of the said Reinsurance Agreement
shall remain unchanged.
IN WITNESS WHEREOF, this addendum is hereby executed in duplicate between the
parties concerned, and is duly signed by both parties respective officers as
follows:
CEDING COMPANY
/s/ R Dollar Vice Chairman
----------------------- ---------------
signature title
/s/ Mark A. Oliver EVP
----------------------- ---------------
signature title
Oct. 5, 1995
---------------
date
/s/ Albert F. Rodriguez Senior Vice President/Reinsurance
- ----------------------- ---------------------------------
signature title
Vice President
/s/ James N. Reinsurance Actuary
- ----------------------- ---------------------------------
signature title
September 28, 1995
---------------------------------
date
10.14-31
<PAGE> 32
ADDENDUM
to the Automatic YRT Agreement
dated July 1, 1993
between
CITIZENS INSURANCE COMPANY OF AMERICA
Denver, Colorado
(hereinafter called the CEDING COMPANY)
and
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
Kansas City, Missouri
(hereinafter. called the BMA)
Purpose: To include the Entire Contract provision.
1. The Agreement, Amendments, and Addenda to the
Agreement shall constitute the entire agreement
between the parties with respect to business being
reinsured there under and that there are no
understandings between the parties other than as
expressed in this Agreement, Amendments, or Addenda
to the Agreement.
2. Any change or modification of this Agreement shall be
null and void unless made by addendum to the
Agreement and signed by both parties.
3. THE EFFECTIVE DATE shall be May 17, 1995.
Except as herein amended, the provisions of the said Reinsurance Agreement
shall remain unchanged.
IN WITNESS WHEREOF, this addendum is hereby executed in duplicate between the
parties concerned, and is duly signed by both parties respective officers as
follows:
CEDING COMPANY
/s/ R Dollar Vice Chairman
-------------------- -----------------
signature title
/s/ Mark Oliver EVP
-------------------- -----------------
signature title
12/20/95
-----------------
date
BMA
/s/ Albert F. Rodriguez Senior Vice President/Reinsurance
- ----------------------- ---------------------------------
signature title
Vice President
/s/ James N. Reinsurance Actuary
- ----------------------- ---------------------------------
signature title
12/13/95
---------------------------------
date
10.14-32
<PAGE> 33
ADDENDUM
to the Automatic YRT Agreement
dated July 1, 1993
between
CITIZENS INSURANCE COMPANY OF AMERICA
Denver, Colorado
(hereinafter called the CEDING COMPANY)
and
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
Kansas City, Missouri
(hereinafter. called the BMA)
Purpose: To up-date the International Underwriting Guidelines for this
agreement.
1. The attached underwriting guidelines shall replace
the current guidelines marked APPENDIX I.
2. THE EFFECTIVE DATE shall be April 1, 1996.
Except as herein amended, the provisions of the said Reinsurance Agreement
shall remain unchanged.
IN WITNESS WHEREOF, this addendum is hereby executed in duplicate between the
parties concerned, and is duly signed by both parties respective officers as
follows:
CEDING COMPANY
/s/ R Dollar Vice Chairman
-------------------- -----------------
signature title
/s/ Mark Oliver Exec VP
-------------------- -----------------
signature title
6/5/96
-----------------
date
BMA
/s/ Albert F. Rodriguez Senior Vice President/Reinsurance
- ----------------------- ---------------------------------
signature title
Vice President
/s/ James N. Reinsurance Actuary
- ----------------------- ---------------------------------
signature title
5/29/96
---------------------------------
date
10.14-33
<PAGE> 34
ADDENDUM
to the Automatic YRT Agreement
dated July 1, 1993
between
CITIZENS LIFE INSURANCE COMPANY OF AMERICA
Denver, Colorado
(hereinafter called the CEDING COMPANY)
and
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
Kansas City, Missouri
(hereinafter called the BMA)
Purpose: To include a list of foreign countries from which business
will be reinsured under this agreement.
1. BMA will reinsure business from the following list:
Foreign National Business
FOREIGN STANDARD RATE
<TABLE>
<S> <C> <C> <C>
Australia Greenland Netherlands Spain
Austria Grenada New Zealand Sweden
Bahamas Guam Norway Switzerland
Barbados Hong Kong Panama Tobago
Belgium Iceland Poland Trinidad
Bermuda Ireland Portugal United Kingdom
Costa Rica Italy Puerto Rico Venezuela
Denmark Japan St. Vincent & Virgin Islands
Dominican Republic Lichtenstein the Grenadines
Finland Luxembourg Saint Lucia
France Mexico Samoa
Germany Netherlands Antilles Singapore
115% FOREIGN STD. RATE
-----------------------
Argentina Chile Jamaica
Brazil Ecuado
</TABLE>
2. THE EFFECTIVE DATE Shall be January 1, 1995
Except as herein amended, the provisions of the said Reinsurance Agreement
shall remain unchanged.
IN WITNESS WHEREOF, this addendum is hereby executed in duplicate between the
parties concerned, and is duly signed by both parties respective officers as
follows:
10.14-34
<PAGE> 35
APPENDIX I
(Approved 3/15/96 by H.E.R.) Effective 4/1/96
CITIZENS'
INTERNATIONAL GUIDELINES
1. Must be in U.S. Currency, and checks from U.S. banks only.
2. Minimum issue amount is $50,000, except ages 66 to 75 where minimum
issue is $10,000 and the maximum is $25,000.
3. We will keep our full retention on each risk. (In force coverage and
current application combined.)
4. Amounts over 4 times our retention (including prior coverage) will be
sent to Reinsurer on a Facultative basis.
5. Application and Medical Papers must be written in English or Spanish.
6. Supplemental benefits will be offered only on rider forms that contain
special protective exceptions.
7. We will not consider applications on:
a) Political or Military figures or their families.
b) Private pilots or crew members without an extra rate or an
aviation exclusion.
c) Children. under the age of 18 for an amount exceeding $150,000
(includes in force and applied for).
d) Applicant over age 65, except for special plans offered to age
75 with S25,000 maximum.
e) Applicants with coronary artery disease or insulin dependent
diabetic.
f) Will not issue with rating over Table Six.
8. We will use appointed examiners or, when available, Embassy Affiliated
doctors for all medical examinations. (See attached Medical
Requirements per age and amount.)
9. Consumer Reports required on face amounts of $150,000 or more, except
in Colombia, where it is required for all amounts.
10. Require APS on all children under the age of 5.
11. All questions on Part I and Part II of application must be answered,
even if medical exam (Part III) has same question.
10.14-35
<PAGE> 36
(Approved 3/15/96 by H.E.R.)
INTERNATIONAL REQUIREMENTS
1. Inspection Report. Only Home Office approved commercial investigative
firms are to be used. Required on face amount of $150,000 or more
including prior coverage still in force with this Company.
2. Medical Requirements:
A. Medical History Application Only
<TABLE>
<S> <C>
ISSUE AGES AMOUNT APPLIED FOR
---------- ------------------
0 through 39 Up to $150,000
</TABLE>
B. Medical Examination, Urinalysis, Dried Blood Spot Profile
<TABLE>
<CAPTION>
ISSUE AGES AMOUNT APPLIED FOR
---------- ------------------
<S> <C>
18 through 34 US $150,001 to US $500,000
35 through 40 US $150,001 to US $250,000
41 through 60 US $50,000 to US $100,000
61 through 65 Up to US $50,000
</TABLE>
C. Medical Examination, Urinalysis, Dried Blood Spot Profile, 12
Lead ECG
<TABLE>
<CAPTION>
ISSUE AGES AMOUNT APPLIED FOR
---------- ------------------
<S> <C>
18 through 34 $500,001 and over
35 through 40 $250,001 and over
41 through 60 $100,001 and over
61 through 65 $50,001 and over
66 through 75 Any Amount
</TABLE>
3. Attending Physicians Statements: Required on all children Age
5 and under. Other APS's may be required by Underwriting.
10.14-36
<PAGE> 37
ADDITIONAL REQUIREMENTS
FOR
ESTATE PLANNING - BUSINESS INSURANCE
ALL AGES - $250,001 and UP:
1. Applicant must have annual income of at least $50,000.
2. Inspection Report required on all applicants of a business regardless
of their position in the Company.
3. Inspection Report and Financial Statement required on sole proprietor
and partnerships.
4. Key Men Insurance, where the owner is the business, a Financial
Statement of the business or company is required.
NOTICE TO UNDERWRITER
We do not limit our Agents on submitting over $250,001, and we do not
advise Agents of this. We just want to carefully underwrite those
cases, and unless the above information is provided, we would offer
only $250,000 or less. This is a decision made by Harold Riley, as
most cases over $250,000 have been problem cases at claim time. If a
problem occurs in future on these procedures, refer to Harold Riley.
10.14-37
<PAGE> 38
GUIDELINES ON VARIOUS LIMITS
EFFECTIVE 4/l/96
(WPPDOCF #1)
I. NON-MEDICAL LIMITS
INTERNATIONAL MARKET
<TABLE>
<CAPTION>
Issue Ages Amounts
---------- -------
<S> <C>
0 through 39 Up to $150,000
</TABLE>
II. BASIC LIFE COVERAGE LIMITS
<TABLE>
<CAPTION>
Age Minimum Maximum
--- ------- -------
<S> <C> <C>
0-1 50,000 150,000
18-75 250,000 500,000
</TABLE>
See Special Requirements on amounts $250,001 & Up
III. WAIVER OF PREMIUM LIMITS
INTERNATIONAL MARKET
Same as Basic Life Coverage
Limit for each plan.
IV. ACCIDENTAL DEATH LIMITS
INTERNATIONAL MARKET
Equal to face amount of Basic
Life Benefit not to exceed
150,000 on each person for all
policies with all companies.
V. RETURN OF PREMIUM LIMITS
INTERNATIONAL MARKET
Same as Basic Benefit limit.
VI. SUBSTANDARD LIMITS
INTERNATIONAL MARKET
Table Ratings-Table 6 (250%)
or less
Flat Extra Ratings-No limit.
10.14-38
<PAGE> 39
INTERNATIONAL AVIATION COVERAGE
1. For pilots or crew members of regularly scheduled airlines, the extra
rate will be $2.40 per thousand.
2. For private pilots - non-commercial not for hire - the rate will be as
follows:
<TABLE>
<S> <C> <C> <C>
Annual at Flying Time: 150/hrs/less 150 to 250 hrs More than 250 hrs.
------------ -------------- ------------------
Age of Pilot Any age 27/hr 27/more 27/less 27/more
--------------- ------------------
Rate/Thousand: $3.50 $3.50 $2.40 $3.50 $3.00
</TABLE>
3. For commercial pilots who transport cargo, there is no fixed rate.
These will be considered on an individual basil The rate will be
determined by the cargo.
If any aviation activity does not meet above rules then issue with in
Aviation Exclusion Rider Attached to policy.
4. Supplemental Benefits:
Waiver of Premium - NOT allowed
Accidental Death - Allowed - ADB Riders
Contain language excluding aviation coverage.
5. Pilots participating in crop dusting will be declined coverage.
6. Helicopter pilots will be granted coverage, with Aviation Exclusion
attached to policy.
10.14-39
<PAGE> 40
ADDENDUM
to the Automatic Yearly Renewable Term Agreement
dated July 1, 1993
between
CITIZENS INSURANCE COMPANY OF AMERICA
Denver, Colorado
(hereinafter called the CEDING COMPANY)
and
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
Kansas City, Missouri
(hereinafter. called the BMA)
Purpose: To increase the automatic binding limit.
1. The automatic binding limit shown in Exhibit III,
Paragraph 2, Item #a.3., shall be amended to read as
follows:
Domestic Risks: 30% of 500,000 in excess of
the company's 75,000 retention.
International Risks: 30% of 500,000 in excess
of the company's 75,000 retention.
2. THE EFFECTIVE DATE shall be May 1, 1998.
Except as herein amended, the provisions of the said Reinsurance Agreement
shall remain unchanged.
IN WITNESS WHEREOF, this addendum is hereby executed in duplicate between the
parties concerned, and is duly signed by both parties respective officers as
follows:
CEDING COMPANY
/s/ M Bul VP New Business
-------------------- -------------------
signature title
/s/ R Dollar Vice Chair
-------------------- -------------------
signature title
7/22/98
-------------------
date
BMA
/s/ Albert F. Rodriguez Senior Vice President/Reinsurance
- ----------------------- ---------------------------------
signature title
Vice President
/s/ James N. Reinsurance Actuary
- ----------------------- ---------------------------------
signature title
July 6, 1998
---------------------------------
date
10.14-40
<PAGE> 1
EXHIBIT 23.3
[KPMG LOGO]
The Board of Directors
Citizens, Inc.:
We consent to the use of our report on Citizens, Inc. incorporated herein by
reference and to the reference to our Firm under the heading "Experts" in the
Form S-4.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Dallas, Texas
November 10, 1998
<PAGE> 1
EXHIBIT 23.4
[Kerber, Eck & Braeckel LLP LOGO]
Board of Directors
First Investors Group, Inc.
We hereby consent to the use of our reports dated April 14, 1998 and February
28, 1997 appearing in the Registration Statement on Form S-4 filed by Citizens,
Inc. and to the reference to our firm under the section "Experts" therein.
/s/ Kerber, Eck & Braeckel LLP
Kerber, Eck & Braeckel LLP
November 10, 1998
<PAGE> 1
EXHIBIT 23.5
[Sikich Gardner & Co, LLP LOGO]
Board of Directors
First Investors Group, Inc.
We hereby consent to the use of in this Registration Statement of Citizens,
Inc. on Form S-4 of our report on the consolidated balance sheet of December
31, 1995 of First Investors Group, Inc. and Subsidiaries (a development stage
enterprise), dated February 5, 1996, as appearing in the prospectus, which is a
part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
prospectus.
/s/ Sikich Gardner & Co., LLP
Sikich Gardner & Co., LLP
November 10, 1998
