<PAGE> 1
Filed Pursuant to Rule 424(B)(1)
Registration No. 333-07209
2,000,000 Shares
[ABIG LOGO]
$3.125 Series B Cumulative Convertible Preferred Stock
(liquidation preference $50 per share)
Dividends payable February 1, May 1, August 1, and November 1
------------------
The annual dividend for each share of $3.125 Series B Cumulative Convertible
Preferred Stock (the "Convertible Preferred Stock") of American Bankers
Insurance Group, Inc. ("American Bankers" or the "Company") offered hereby
is $3.125. The Convertible Preferred Stock is convertible at the option of
the holder, unless previously redeemed, into shares of Common Stock,
par value $1.00 per share (the "Common Stock"), of the Company at a
rate (subject to adjustment in certain events) of 0.9987 shares of
Common Stock for each share of Convertible Preferred Stock,
equivalent to a conversion price of $50.065 for each share of
Common Stock. On July 23, 1996, the last reported sale price of
the Common Stock on the Nasdaq Stock Market's National Market
(the "Nasdaq National Market") (symbol "ABIG") was $40 3/8
per share.
The Convertible Preferred Stock is not redeemable prior to August 7, 2000. On or
after such date, the Company may redeem the Convertible Preferred Stock, in
whole or in part, at $51.88 per share for the period ending August 6,
2001, and declining ratably annually to $50 per share on or after
August 7, 2006, plus, in each case, accrued and unpaid dividends.
Dividends on the Convertible Preferred Stock are cumulative from
the date of issuance and are payable quarterly in arrears
commencing November 1, 1996. See "Description of Capital
Stock -- Convertible Preferred Stock." The Convertible
Preferred Stock has been approved for listing on the
Nasdaq National Market under the symbol "ABIGP."
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions Company(1)(2)
------------- ------------- -------------
<S> <C> <C> <C>
Per Share.................................... $50.00 $1.38 $48.62
Total(3)..................................... $100,000,000 $2,760,000 $97,240,000
</TABLE>
(1) Plus accrued dividends, if any, from July 29, 1996.
(2) Before deducting expenses payable by the Company estimated at $477,155.
(3) American Bankers has granted the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase a maximum of 300,000
additional shares of Convertible Preferred Stock to cover over-allotments
of Convertible Preferred Stock. If the option is exercised in full, the
total Price to Public will be $115,000,000, Underwriting Discounts and
Commissions will be $3,174,000 and Proceeds to Company will be
$111,826,000. See "Underwriting."
------------------
The shares of the Convertible Preferred Stock are offered by the several
Underwriters when, as and if issued by the Company, delivered to and accepted by
the Underwriters, and subject to their right to reject orders in whole or in
part. It is expected that delivery of the Convertible Preferred Stock will be
made on or about July 29, 1996.
CS First Boston
Donaldson, Lufkin & Jenrette
Securities Corporation
Furman Selz
McDonald & Company
Securities, Inc.
The date of this Prospectus is July 23, 1996
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CONVERTIBLE
PREFERRED STOCK OR THE COMMON STOCK OF THE COMPANY AT LEVELS ABOVE THOSE WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON
THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) AND THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNT OR FOR THE
ACCOUNTS OF OTHERS IN THE CONVERTIBLE PREFERRED STOCK OR THE COMMON STOCK
PURSUANT TO EXEMPTIONS FROM RULES 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES
EXCHANGE ACT OF 1934.
THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA HAS NOT
APPROVED OR DISAPPROVED OF THIS OFFERING NOR HAS THE COMMISSIONER PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
THE LAWS OF THE STATE OF FLORIDA PROHIBIT ANY PERSON FROM DIRECTLY OR
INDIRECTLY ACQUIRING CONTROL OF THE COMPANY WITHOUT THE PRIOR APPROVAL OF THE
FLORIDA INSURANCE COMMISSIONER. ANY HOLDER OF 5% OR MORE OF THE OUTSTANDING
VOTING STOCK OF THE COMPANY IS PRESUMED TO HAVE ACQUIRED CONTROL OF THE COMPANY
AND ITS SUBSIDIARIES UNLESS THE FLORIDA INSURANCE COMMISSIONER, UPON
APPLICATION, DETERMINES OTHERWISE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, (the "Exchange Act") and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company, may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices at 500 West Madison Street,
Chicago, Illinois 60604 and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material may also be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates and at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits referred to as the
"Registration Statement") of which this Prospectus is a part, under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
shares of Convertible Preferred Stock offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement. The Registration Statement may be inspected and copied
at the public reference facilities maintained by the Commission at the addresses
set forth in the preceding paragraph and may be obtained upon payment of the fee
prescribed by the Commission.
Statements contained herein concerning the provisions of any documents are
not necessarily complete and, in each instance, reference is made to the copy of
such documents filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
2
<PAGE> 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
under the Exchange Act are incorporated herein by reference:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1995, dated March 29, 1996.
2. Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1996, dated May 10, 1996.
3. Proxy Statement for the Annual Meeting of Shareholders held May 22,
1996, dated April 19, 1996.
4. The description of Common Stock contained in the Company's
registration statement filed pursuant to the Exchange Act on Form 8-A,
filed on April 20, 1981.
All documents filed by the Company after the date of this Prospectus
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the termination of the offering are incorporated by reference and such documents
shall be deemed to be a part hereof from the date of filing such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated by reference in this Prospectus, other than exhibits to
such documents. Requests for such copies should be directed to Bruce Camacho,
Investor Relations, 11222 Quail Roost Drive, Miami, Florida 33157-6596, (305)
252-7060.
3
<PAGE> 4
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere in this
Prospectus or incorporated herein by reference. Except as otherwise noted, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option. Except as otherwise indicated, all financial information
regarding the Company and its insurance subsidiaries has been prepared in
accordance with generally accepted accounting principles ("GAAP") rather than
statutory accounting principles ("SAP").
THE COMPANY
American Bankers Insurance Group, Inc. ("American Bankers" or the
"Company") is a specialty insurer providing primarily credit-related insurance
products and extended service contracts in the U.S. and Canada as well as in
Latin America, the Caribbean and the United Kingdom. During 1995, the Company
incorporated a wholly owned insurance subsidiary in Mexico, and opened branch
operations in Jamaica and Bahrain. The majority of the Company's gross collected
premiums are derived from credit-related insurance products sold through
financial institutions and other entities which provide consumer financing as a
regular part of their businesses. The Company had gross collected premiums of
$2.3 billion in 1995, and had total assets and stockholders' equity of $3.1
billion and $524.7 million, respectively, at March 31, 1996.
The Company's credit-related insurance products consist primarily of life,
accidental death and dismemberment ("AD&D"), unemployment, disability and
property insurance products issued in connection with the financing of consumer
purchases. Credit-related insurance products generally offer a consumer a
convenient option to insure a credit card or loan balance so that the amount of
coverage purchased equals the amount of outstanding debt. Coverage is generally
available to all consumers with few of the underwriting conditions that apply to
ordinary term insurance, such as medical examinations and medical history
reports. The Company's life and AD&D insurance products generally provide
payment in full of the outstanding debt balance in the event of the insured's
death. The unemployment and disability products satisfy the minimum monthly loan
payment for a specified duration in the event of unemployment or disability. The
Company's property insurance products pay the loan balance or the cost of
repairing or replacing the insured's merchandise in the event of a loss due to a
covered event. The Company's extended service contract products pay the cost of
repairing or replacing the insured's merchandise in the event of damages due to
a covered event. The Company avoids lines of insurance characterized by long
loss payout periods, such as workers' compensation and most general liability
coverages.
The Company markets its credit-related insurance products and extended
service contracts on a wholesale basis through a network of clients that consist
primarily of major financial institutions, retailers and other entities which
provide consumer financing as a regular part of their businesses. American
Bankers enters into contracts, typically with terms of three to five years, with
its corporate clients pursuant to which such clients market the Company's
insurance products to their customers. In return, these clients receive expense
reimbursements or commissions and are thus able to recover costs associated with
the marketing of the insurance and generate incremental revenues.
The majority of the Company's business utilizes contracts which afford the
Company's clients the opportunity to participate in the underwriting results of
policies they market to their customers. For example, the "Retro Plan" contract
links a client's overall commission to the claims experience on policies
marketed to its customers, so that low loss ratios result in higher commissions
for the client and high loss ratios result in lower commissions. Another form of
participation is a profit sharing contract under which the client participates
in up to 50% of the profits generated from its insurance business. The Company
also cedes premiums generated by clients to the clients' own captive insurance
companies or to reinsurance subsidiaries in which clients have an equity
interest.
American Bankers also writes non-credit-related insurance products in
markets where it believes it has less competition from other insurers. For
example, the Company sells group life and disability products through Blue Cross
and Blue Shield plans and HMOs. In addition, the Company acts as an
administrator for
4
<PAGE> 5
the National Flood Insurance Program, for which it earns a fee for collecting
premiums and processing claims. The Company does not assume any underwriting
risk with respect to this program.
The Company's business strategy is to continue developing distribution
channels which provide access to large numbers of potential insureds in markets
not traditionally served by other insurance companies. In pursuing this
strategy, the Company emphasizes long-term relationships and the development of
insurance programs designed to meet individual client needs. An essential part
of the Company's strategy is to invest in technology which enables American
Bankers to accommodate a large group of clients and their customers while
simultaneously offering customized insurance programs.
American Bankers has been able to develop a diverse client base. The
Company's largest clients include Chase, First Card, Norwest, The Associates,
The Bank of New York, Tandy Corporation and Spiegel, Inc. The Company
distributes its products through nine markets or distribution channels involving
over one thousand clients. Its business is generally not concentrated and the
ten largest unrelated clients represented 26% of the Company's gross collected
premiums in 1995. During this period, no single client accounted for more than
6% of the Company's total premiums.
American Bankers' life and property insurance subsidiaries jointly market
products and programs within each distribution channel, and the Company believes
that such cross-marketing achieves economies of scale, thus lowering
administrative costs. By combining its service and marketing activities, the
Company centralizes the processing of its products and avoids duplication of
administrative functions.
The Company also provides management services and marketing support to its
clients. Management services include administration of captive insurance
companies and other participating programs for clients. American Bankers
provides comprehensive administrative support in claims, accounting, tax, data
processing and actuarial matters. In addition, the Company develops and packages
credit-related insurance programs to meet a client's particular needs and
provides the marketing assistance to implement these programs. Marketing support
includes a full range of marketing materials, direct mail and telemarketing
services and personnel training programs.
At March 31, 1996, 82% of the Company's investment portfolio consisted of
fixed income securities, of which 86% was rated "A" or higher by Standard &
Poor's Corporation ("S&P") and 54% was represented by obligations of the U.S.
government or its agencies. Direct mortgage loans and real estate investments
constituted less than 1% of the investment portfolio.
The Company has experienced strong growth in recent years. Gross collected
premiums have increased from $960.8 million in 1991 to $2.3 billion in 1995, a
compound annual growth rate of 24.2%. Total revenues have increased from $768.4
million in 1991 to $1.4 billion in 1995, a compound annual growth rate of 15.4%.
Net operating income (net income excluding cumulative effect of change in
accounting; gain on insurance settlement, net of tax; and realized investment
gains (losses), net of tax) has increased from $38.0 million in 1991 to $71.8
million in 1995, a compound annual growth rate of 17.2%.
5
<PAGE> 6
SUMMARY FINANCIAL INFORMATION
The following summary consolidated financial data have been derived from
the Consolidated Financial Statements of the Company and should be read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto incorporated by reference herein, and "Management's Discussion and
Analysis of Results of Operations and Financial Condition" appearing elsewhere
in this Prospectus. The balance sheet data as of March 31, 1996 and 1995 and the
income statement data for the three months ended March 31, 1996 and 1995 are
derived from unaudited financial statements of the Company. In the opinion of
management, the unaudited information includes all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for such periods. Operating results
for the three months ended March 31, 1996 are not necessarily indicative of
operating results to be expected for the fiscal year ending December 31, 1996.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- -----------------------------------------------------------
1996 1995 1995 1994 1993(1) 1992 1991
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gross Collected Premiums.... $ 604.6 $ 469.1 $2,286.6 $1,761.1 $1,427.2 $1,120.4 $ 960.8
Net Premiums Earned......... 341.9 284.6 1,240.7 1,094.3 882.0 733.0 691.4
Net Investment Income....... 27.4 21.8 99.4 74.4 70.4 67.5 68.9
Total Revenues.............. 375.7 309.8 1,360.9 1,186.8 973.3 812.1 768.4
Net Income.................. 20.6 14.9 72.3 56.5 52.3 42.3 37.4
Net Operating Income(2)..... 20.0 15.7 71.8 54.8 46.2 40.4 38.0
BALANCE SHEET DATA (PERIOD
END):
Investments................. $1,775.9 $1,390.4 $1,688.4 $1,264.9 $1,110.9 $ 982.1 $ 912.6
Total Assets................ 3,121.9 2,501.9 2,987.7 2,432.5 2,160.5 1,404.3 1,297.4
Notes Payable............... 256.5 202.3 236.0 197.8 158.9 139.6 177.0
Stockholders' Equity(3)..... 524.7 433.4 513.0 405.9 399.3 268.4 216.1
PER SHARE DATA:
Primary Net Income.......... $ 0.99 $ 0.72 $ 3.48 $ 2.74 $ 2.80 $ 2.57 $ 2.55
Fully Diluted Net Income.... 0.99 0.72 3.48 2.74 2.73 2.39 2.22
Fully Diluted Net Operating
Income Per Share(2)....... 0.95 0.76 3.45 2.66 2.39 2.19 2.04
Cash Dividends.............. 0.19 0.18 0.75 0.71 0.68 0.60 0.60
Book Value -- Period
End(3).................... 25.74 21.50 25.34 20.15 19.87 16.38 14.50
OTHER DATA:
Ratio of Earnings to Fixed
Charges(4)................ 7.4 x 6.2 x 6.7 x 6.9 x 8.5 x 6.3 x 5.2 x
Return on Equity(5)......... 16.1% 15.4% 15.7 % 14.0 % 15.7 %(6) 17.4 % 19.0 %
Property/Casualty
Subsidiaries Combined
Ratio(7).................. 97.1% 95.8% 93.8 % 96.0 % 94.1 % 95.7 % 99.9 %
Property/Casualty Industry
Composite Combined
Ratio(8).................. 106.7% 103.8% 106.4 % 108.4 % 106.9 % 115.7 % 108.8 %
Insurance Subsidiaries
Statutory Policyholders'
Capital and Surplus....... $ 490.3 $ 419.9 $ 460.4 $ 399.0 $ 391.8 $ 272.6 $ 261.8
</TABLE>
- ---------------
(1) During the first quarter of 1993, the Company adopted, on a prospective
basis, Statement of Financial Accounting Standards ("SFAS") 109 "Accounting
for Income Taxes" and SFAS 113 "Accounting and Reporting of Reinsurance for
Short-Duration and Long-Duration Insurance Contracts." Accordingly, certain
amounts presented for prior periods may not be comparable.
(2) Net operating income is computed as net income excluding cumulative effect
of change in accounting; gain on insurance settlement, net of tax; and
realized investment gains (losses), net of tax.
(3) During the first quarter of 1994, the Company adopted, on a prospective
basis, SFAS 115 "Accounting for Certain Investments in Debt and Equity
Securities." At March 31, 1996, stockholders' equity and book value per
share excluding the effect of SFAS 115 were $523.1 million and $25.66,
respectively.
6
<PAGE> 7
(4) For purposes of computing the ratio of earnings to fixed charges, earnings
include pre-tax earnings before interest expense and the interest portion
of rent expense, which the Company estimates is equivalent to one-third of
total rent expense. Fixed charges include interest expense and the interest
portion of rent expense.
(5) Return on equity is calculated for each period based on aggregate net income
for the four quarters in the 12 months then ended divided by average
stockholders' equity during the period.
(6) Before the effect of adopting SFAS 109.
(7) The sum of the ratio of losses incurred to earned premium and the ratio of
commissions and underwriting expenses incurred to net premium written
determined in accordance with SAP and expressed as a percentage. A combined
ratio below 100% generally indicates profitable underwriting prior to the
consideration of investment income.
(8) As reported by A.M. Best Company, an independent insurance rating
organization ("A.M. Best"), except for the three months ended March 31,
1996 and 1995, which is as reported by the Insurance Services Organization
("I.S.O."), an independent organization providing various advisory services
to the insurance industry.
THE OFFERING
Securities Offered............ 2,000,000 shares of $3.125 Series B Cumulative
Convertible Preferred Stock.
Dividends..................... Annual cumulative dividends of $3.125 per share
of Convertible Preferred Stock are payable
quarterly out of funds legally available
therefor on each February 1, May 1, August 1
and November 1, when, as and if declared by the
Board of Directors.
Liquidation Preference........ $50 per share of Convertible Preferred Stock,
plus accrued and unpaid dividends.
Conversion Rights............. Each share of Convertible Preferred Stock will
be convertible at any time at the option of the
holders thereof into 0.9987 shares of Common
Stock of the Company, subject to adjustment in
certain events, including a Fundamental Change
(as defined herein). See "Description of
Capital Stock -- Convertible Preferred Stock --
Conversion Rights."
Optional Redemption........... The Convertible Preferred Stock will not be
redeemable prior to August 7, 2000. On and
after such date, the Convertible Preferred
Stock will be redeemable, in whole or in part,
at the option of the Company, at $51.88 per
share of Convertible Preferred Stock during the
period from August 7, 2000 to August 6, 2001
and declining ratably annually to $50 per share
of Convertible Preferred Stock on or after
August 7, 2006, plus in each case accrued and
unpaid dividends to the redemption date.
Voting Rights................. The holders of Convertible Preferred Stock will
not have any voting rights, except as provided
by applicable law and except that, among other
things, holders will be entitled to vote as a
separate class (with the holders of shares of
any other series of preferred stock of the
Company having similar rights) to elect two
directors of the Company if the equivalent of
six quarterly dividends payable on the
Convertible Preferred Stock are in arrears. In
addition, so long as any Convertible Preferred
Stock is outstanding the Company will not,
without the affirmative vote or consent of the
holders of at least 66 2/3% of all outstanding
shares of Convertible Preferred Stock and
outstanding Parity Dividend Stock (as defined
herein)
7
<PAGE> 8
(voting as a single class), take certain
actions so as adversely to affect the relative
rights, preferences, qualifications,
limitations, or restrictions of the Convertible
Preferred Stock or effect any reclassification
of the Convertible Preferred Stock.
Each share of Convertible Preferred Stock will
be entitled to one vote on matters on which
holders of such shares are entitled to vote.
Shares of Common Stock
Outstanding(1).............. 20,942,028
Use of Proceeds............... American Bankers will use the net proceeds from
the offering for the funding of investments in
insurance subsidiaries of the Company
(including the repayment of $80 million of
short-term indebtedness from borrowings after
March 31, 1996, under the Company's short-term
credit facility, which were previously used for
such purposes) and for general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market
Symbols:
Convertible Preferred
Stock.................. ABIGP
Common Stock............. ABIG
- ---------------
(1) Unless otherwise indicated herein to the contrary, all share and per share
information does not give effect to: (i) shares issuable upon conversion of
the 2,300,000 shares of Convertible Preferred Stock offered hereby
(including the over-allotment option for 300,000 shares of Convertible
Preferred Stock) to shares of Common Stock; and (ii) 1,007,535 shares of
Common Stock reserved for issuance under the Company's various option and
debenture plans (except for shares acquirable upon the exercise of options
which are exercisable within 60 days). See Note 9 to the Consolidated
Financial Statements incorporated by reference herein.
8
<PAGE> 9
THE COMPANY
American Bankers is a specialty insurer providing primarily credit-related
insurance products and extended service contracts in the U.S. and Canada as well
as in Latin America, the Caribbean and the United Kingdom. During 1995, the
Company incorporated a wholly owned insurance subsidiary in Mexico, and opened
branch operations in Jamaica and Bahrain. The majority of the Company's gross
collected premiums are derived from credit-related insurance products sold. The
Company had gross collected premiums of $2.3 billion in 1995, and had total
assets and stockholders' equity of $3.1 billion and $524.7 million,
respectively, at March 31, 1996.
The Company's credit-related insurance products consist primarily of life,
AD&D, unemployment, disability and property insurance products issued in
connection with the financing of consumer purchases. Credit-related insurance
products generally offer a consumer a convenient option to insure a credit card
or loan balance so that the amount of coverage purchased equals the amount of
outstanding debt. Coverage is generally available to all consumers with few of
the underwriting conditions that apply to ordinary term insurance, such as
medical examinations and medical history reports. The Company's life and AD&D
insurance products generally provide payment in full of the outstanding debt
balance in the event of the insured's death. The unemployment and disability
products satisfy the minimum monthly loan payment for a specified duration in
the event of unemployment or disability. The Company's property insurance
products pay the loan balance or the cost of repairing or replacing the
insured's merchandise in the event of a loss due to a covered event. The
Company's extended service contract products pay the cost of repairing or
replacing the insured's merchandise in the event of damages due to a covered
event. The Company avoids lines of insurance characterized by long loss payout
periods, such as workers' compensation and most general liability coverages.
The Company markets its credit-related insurance products and extended
service contracts on a wholesale basis through a network of clients that consist
primarily of major financial institutions, retailers and other entities which
provide consumer financing as a regular part of their businesses. American
Bankers enters into contracts, typically with terms of three to five years, with
its corporate clients pursuant to which such clients market the Company's
insurance products to their customers. In return, these clients receive expense
reimbursements or commissions and are thus able to recover costs associated with
the marketing of the insurance and generate incremental revenues.
The majority of the Company's business utilizes contracts which afford the
Company's clients the opportunity to participate in the underwriting results of
policies they market to their customers. For example, the "Retro Plan" contract
links a client's overall commission to the claims experience on policies
marketed to its customers, so that low loss ratios result in higher commissions
for the client and high loss ratios result in lower commissions. Another form of
participation is a profit sharing contract under which the client participates
in up to 50% of the profits generated from its insurance business. The Company
also cedes premiums generated by clients to the clients' own captive insurance
companies or to reinsurance subsidiaries in which clients have an equity
interest.
American Bankers also writes non-credit-related insurance products in
markets where it believes it has less competition from other insurers. For
example, the Company sells group life and disability products through Blue Cross
and Blue Shield plans and HMOs. In addition, the Company acts as an
administrator for the National Flood Insurance Program, for which it earns a fee
for collecting premiums and processing claims. The Company does not assume any
underwriting risk with respect to this program.
The Company's business strategy is to continue developing distribution
channels which provide access to large numbers of potential insureds in markets
not traditionally served by other insurance companies. In pursuing this
strategy, the Company emphasizes long-term relationships and the development of
insurance programs designed to meet individual client needs. An essential part
of the Company's strategy is to invest in technology which enables American
Bankers to accommodate a large group of clients and their customers while
simultaneously offering customized insurance programs.
9
<PAGE> 10
American Bankers has been able to develop a diverse client base. The
Company's largest clients include Chase, First Card, Norwest, The Associates,
The Bank of New York, Tandy Corporation and Speigel, Inc. The Company
distributes its products through nine markets or distribution channels involving
over one thousand clients. Its business is generally not concentrated and the
ten largest unrelated clients represented 26% of the Company's gross collected
premiums in 1995. During this period, no single client accounted for more than
6% of the Company's total premiums.
American Bankers' life and property insurance subsidiaries jointly market
products and programs within each distribution channel, and the Company believes
that such cross-marketing achieves economies of scale, thus lowering
administrative costs. By combining its service and marketing activities, the
Company centralizes the processing of its products and avoids duplication of
administrative functions.
The Company also provides management services and marketing support to its
clients. Management services include administration of captive insurance
companies and other participating programs for clients. American Bankers
provides comprehensive administrative support in claims, accounting, tax, data
processing and actuarial matters. In addition, the Company develops and packages
credit-related insurance programs to meet a client's particular needs and
provides the marketing assistance to implement these programs. Marketing support
includes a full range of marketing materials, direct mail and telemarketing
services and personnel training programs.
At March 31, 1996, 82% of the Company's investment portfolio consisted of
fixed income securities, of which 86% was rated "A" or higher by S&P and 54% was
represented by obligations of the U.S. government or its agencies. Direct
mortgage loans and real estate investments constituted less than 1% of the
investment portfolio.
The Company has experienced strong growth in recent years. Gross collected
premiums have increased from $960.8 million in 1991 to $2.3 billion in 1995, a
compound annual growth rate of 24.2%. Total revenues have increased from $768.4
million in 1991 to $1.4 billion in 1995, a compound annual growth rate of 15.4%.
Net operating income (net income excluding cumulative effect of change in
accounting; gain on insurance settlement, net of tax; and realized investment
gains (losses), net of tax) has increased from $38.0 million in 1991 to $71.8
million in 1995, a compound annual growth rate of 17.2%.
The Company's insurance subsidiaries with ratings from A.M. Best include:
<TABLE>
<CAPTION>
LIFE INSURANCE PROPERTY AND CASUALTY INSURANCE
- ------------------------------------ ------------------------------------
<S> <C> <C> <C>
American Bankers Life Assurance American Bankers Insurance Company
Company of Florida (ABLAC)........ "A (Excellent)" of Florida (ABIC)................. "A- (Excellent)"
Caribbean American Life Assurance American Reliable Insurance Company
Company (CALAC)................... "A (Excellent)" (ARIC).............................. "A- (Excellent)"
Voyager Life Insurance Company Voyager Indemnity Insurance Company
(VLIC)............................ "B+ (Very Good)" (VIIC).............................. "A- (Excellent)"
Voyager Life and Health Insurance Voyager Property and Casualty
Company (VLHIC)................... "B+ (Very Good)" Insurance Company (VPCIC)......... "A- (Excellent)"
</TABLE>
In evaluating a company's financial and operating performance, A.M. Best reviews
the company's profitability, leverage and liquidity as well as the value of its
assets, the adequacy of its reserves and the experience and competency of its
management. A.M. Best's ratings are based upon factors relevant to
policyholders, agents, insurance brokers, and intermediaries and are not
directed to the protection of investors.
The Company's executive offices are located at 11222 Quail Roost Drive,
Miami, Florida 33157-6596. Its telephone number is (305) 253-2244.
10
<PAGE> 11
USE OF PROCEEDS
American Bankers will use the net proceeds from the offering of
approximately $96.8 million (approximately $111.3 million if the Underwriters'
over-allotment option is exercised in full) for the funding of investments in
insurance subsidiaries of the Company (including the repayment of $80 million of
short-term indebtedness from borrowings after March 31, 1996 under the Company's
short-term credit facility, which were previously used for such purposes) and
for general corporate purposes. See Note 7 to the Consolidated Financial
Statements incorporated by reference herein.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is listed on the Nasdaq National Market under the symbol
"ABIG." The following table sets forth the price range of the Common Stock and
the cash dividends declared per share for the periods shown. The Common Stock
prices are the last sale price as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
PRICE RANGE
--------------- CASH
HIGH LOW DIVIDENDS
------ ------ ---------
<S> <C> <C> <C>
1994
First Quarter....................................................... $26 3/4 $22 1/4 $0.17
Second Quarter...................................................... 23 3/4 21 1/8 0.18
Third Quarter....................................................... 24 1/2 20 3/8 0.18
Fourth Quarter...................................................... 25 3/8 19 0.18
1995
First Quarter....................................................... 30 5/8 23 1/2 0.18
Second Quarter...................................................... 32 1/4 26 5/8 0.19
Third Quarter....................................................... 37 1/4 30 7/8 0.19
Fourth Quarter...................................................... 39 34 7/8 0.19
1996
First Quarter....................................................... 39 5/8 33 1/2 0.19
Second Quarter...................................................... 43 7/8 32 7/8 0.20
Third Quarter (through July 23, 1996)............................... 43 3/4 40 3/8 *
</TABLE>
- ---------------
* Not yet declared.
The last sale price per share of the Common Stock on July 23, 1996, as
reported by Nasdaq National Market, was $40 3/8.
The Company's Board of Directors currently intends to continue to declare a
quarterly cash dividend on each share of the Common Stock. The amount of such
dividends is intended to be based on the Company's net income and cash flow. The
Company currently intends that the quarterly dividends will continue at the rate
of $.20 per share. Each declaration of dividends will be reviewed by the Board
of Directors quarterly and will be determined, at the discretion of the Board of
Directors, in light of the Company's results of operations, financial condition,
capital requirements, contractual restrictions and other factors deemed relevant
at that time by the Company's Board of Directors.
As an insurance holding company, the Company depends on dividends and other
permitted payments from its subsidiaries to pay cash dividends to stockholders.
The payment of dividends and such other payments by the insurance subsidiaries
are restricted by the laws of each insurance subsidiary's state of domicile.
State insurance regulators have authority in certain circumstances to block
payments of dividends and other amounts by the insurance subsidiaries that would
otherwise be permitted without regulatory approval. The Company is also subject
to restrictions on dividend payments (including dividend payments on the
Convertible Preferred Stock) pursuant to the terms of certain of its financing
arrangements. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition -- Liquidity and Capital Resources" and
"Business -- Government Regulation -- Dividend Regulation."
11
<PAGE> 12
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996, and as adjusted to reflect the Company's borrowings under its
short-term credit facility after March 31, 1996, and as further adjusted to
reflect the net proceeds from the sale by the Company of 2,000,000 shares of
Convertible Preferred Stock at an offering price of $50 per share (assuming the
Underwriters' over-allotment option is not exercised) and the repayment of such
borrowings.
<TABLE>
<CAPTION>
AT MARCH 31, 1996
--------------------------------------
AS AS FURTHER
ACTUAL ADJUSTED(1) ADJUSTED(2)
-------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA
AND PERCENTAGES)
<S> <C> <C> <C>
Indebtedness:
Commercial Paper......................................... $108,000 $ 188,000 $ 108,000(3)
Global Fixed Rate Note Due May 3, 1999................... 75,000 75,000 75,000
Global Floating Rate Note Due April 12, 2000............. 50,000 50,000 50,000
Other Indebtedness....................................... 23,450 23,450 23,450
-------- ----------- -----------
Total Indebtedness............................... 256,450 336,450 256,450
-------- ----------- -----------
Stockholders' Equity:
Preferred Stock; 3,500 shares authorized:
Series A Participating Preferred Stock; 350 reserved
for issuance; none outstanding...................... -- -- --
Convertible Preferred Stock........................... -- -- 100,000
Common Stock, $1.00 par value; 35,000 shares authorized;
20,476 issued and outstanding; 1,473 reserved for
issuance.............................................. 20,476 20,476 20,476
Additional Paid-in-Capital............................... 216,283 216,283 213,056
Net Unrealized Investment and Foreign Exchange
(Losses).............................................. (891) (891) (891)
Retained Earnings........................................ 299,557 299,557 299,557
Treasury Stock at Cost -- 93 shares...................... (1,426) (1,426) (1,426)
Unamortized Restricted Stock............................. (3,406) (3,406) (3,406)
Collateralization of Loan to LESOP(4).................... (5,844) (5,844) (5,844)
-------- ----------- -----------
Total Stockholders' Equity....................... 524,749 524,749 621,522
-------- ----------- -----------
Total Capitalization............................. $781,199 $ 861,199 $ 877,972
======== ========= =========
Debt as a Percentage of Total Capitalization............. 32.8% 29.2%
======== =========
Book Value per share of Common Stock..................... $ 25.74 $ 25.59
======== =========
</TABLE>
- ---------------
(1) Reflects the Company's borrowing under its short-term credit facility,
incurred subsequent to March 31, 1996.
(2) Reflects the application of the net proceeds from the offering.
(3) Reflects repayment of the borrowings under the Company's short-term credit
facility.
(4) Leveraged Employee Stock Ownership Plan.
12
<PAGE> 13
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following summary data should be read in conjunction with the Company's
Consolidated Financial Statements and "Management's Discussion and Analysis of
Results of Operations and Financial Condition." The annual income statement and
balance sheet data set forth below for the years 1991 through 1995 have been
derived from the Consolidated Financial Statements audited by Price Waterhouse
LLP, independent accountants. The unaudited financial information as of and for
the three months ended March 31, 1996 and 1995 has been derived from unaudited
financial statements which include, in the Company's opinion, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair statement
of the interim results. Interim results are not necessarily indicative of the
results to be expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- -----------------------------------------------------------
1996 1995 1995 1994 1993(1) 1992 1991
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gross Collected Premiums.... $ 604.6 $ 469.1 $2,286.6 $1,761.1 $1,427.2 $1,120.4 $ 960.8
Net Premiums Earned......... 341.9 284.6 1,240.7 1,094.3 882.0 733.0 691.4
Net Investment Income....... 27.4 21.8 99.4 74.4 70.4 67.5 68.9
Total Revenues.............. 375.7 309.8 1,360.9 1,186.8 973.3 812.1 768.4
Net Income.................. 20.6 14.9 72.3 56.5 52.3 42.3 37.4
Net Operating Income(2)..... 20.0 15.7 71.8 54.8 46.2 40.4 38.0
BALANCE SHEET DATA (PERIOD END):
Investments................. $1,775.9 $1,390.4 $1,688.4 $1,264.9 $1,110.9 $ 982.1 $ 912.6
Total Assets................ 3,121.9 2,501.9 2,987.7 2,432.5 2,160.5 1,404.3 1,297.4
Notes Payable............... 256.5 202.3 236.0 197.8 158.9 139.6 177.0
Stockholders' Equity(3)..... 524.7 433.4 513.0 405.9 399.3 268.4 216.1
PER SHARE DATA:
Primary Net Income.......... $ 0.99 $ 0.72 $ 3.48 $ 2.74 $ 2.80 $ 2.57 $ 2.55
Fully Diluted Net Income.... 0.99 0.72 3.48 2.74 2.73 2.39 2.22
Fully Diluted Net Operating
Income Per Share(2)....... 0.95 0.76 3.45 2.66 2.39 2.19 2.04
Cash Dividends.............. 0.19 0.18 0.75 0.71 0.68 0.60 0.60
Book Value -- Period
End(3).................... 25.74 21.50 25.34 20.15 19.87 16.38 14.50
OTHER DATA:
Ratio of Earnings to Fixed
Charges(4)................ 7.4 x 6.2 x 6.7 x 6.9 x 8.5 x 6.3 x 5.2 x
Return on Equity(5)......... 16.1% 15.4% 15.7 % 14.0 % 15.7 %(6) 17.4 % 19.0 %
Property/Casualty
Subsidiaries Combined
Ratio(7).................. 97.1% 95.8% 93.8 % 96.0 % 94.1 % 95.7 % 99.9 %
Property/Casualty Industry
Composite Combined
Ratio(8).................. 106.7% 103.8% 106.4 % 108.4 % 106.9 % 115.7 % 108.8 %
Insurance Subsidiaries
Statutory Policyholders'
Capital and Surplus....... $ 490.3 $ 419.9 $ 460.4 $ 399.0 $ 391.8 $ 272.6 $ 261.8
</TABLE>
- ---------------
(1) During the first quarter of 1993, the Company adopted, on a prospective
basis, SFAS 109 and SFAS 113. Accordingly, certain amounts presented for
prior periods may not be comparable.
(2) Net operating income is computed as net income excluding cumulative effect
of change in accounting; gain on insurance settlement, net of tax; and
realized investment gains (losses), net of tax.
(3) During the first quarter of 1994, the Company adopted, on a prospective
basis, SFAS 115. At March 31, 1996, stockholders' equity and book value per
share, excluding the effect of SFAS 115 were $523.1 million and $25.66,
respectively.
(4) For purposes of computing the ratio of earnings to fixed charges, earnings
include pre-tax earnings before interest expense and the interest portion
of rent expense, which the Company estimates is equivalent to one-third of
total rent expense. Fixed charges include interest expense and the interest
portion of rent expense.
(5) Return on equity is calculated for each period based on aggregate net income
for the four quarters in the 12 months then ended divided by average
stockholders' equity during the period.
(6) Before the effect of adopting SFAS 109.
13
<PAGE> 14
(7) The sum of the ratio of losses incurred to earned premium and the ratio of
commissions and underwriting expenses incurred to net premium written
determined in accordance with SAP and expressed as a percentage. A combined
ratio below 100% generally indicates profitable underwriting prior to the
consideration of investment income.
(8) As reported by A.M. Best except for the three months ended March 31, 1996
and 1995, which is as reported by the I.S.O.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
The property and casualty industry experienced higher earnings in 1995, as
a result of fewer major catastrophes, reductions in loss costs and an increase
in investment income. Also, the reinsurance market has witnessed some softening
in prices, so during 1995 insurance companies generally renewed their coverages
at prior year levels without incurring additional cost.
Unprecedented catastrophe losses in recent years have prompted insurers to
more aggressively limit their exposures to catastrophes. Such actions have in
turn created insurance availability problems in certain areas. In response to
this environment, some activity at the state level has occurred. During 1995,
the California legislature authorized the establishment of the California
Earthquake Authority, which will provide an alternative facility to California
consumers for obtaining insurance to cover the earthquake peril. A similar
situation exists in Florida where a state-sponsored insurance facility has
accepted a significant number of insureds as insurance companies have continued
to limit the amount of their Florida business.
Litigation continues to be a major industry concern. In Alabama, the
insurance industry has been targeted in litigation. The legal environment in
Alabama has received national news coverage and the Alabama legislature is
considering tort reform. Changes, if any, in the current environment cannot be
predicted. In the meantime, Alabama litigation represents a significant issue to
the industry.
The federal government, commercial companies and the insurance industry
continue to work together toward Superfund reform and dealing with the cleanup
of pollution sites. Among issues pending are the determinations of retroactive
liability and a proposed insurer-specific tax.
Recently national banks were found to have the authority to sell life
insurance. While this highly publicized development may adversely impact
traditional life insurance companies, the Company believes that this should not
adversely impact the Company in that its major products do not include
traditional life insurance and its major products are typically sold through
financial institutions including banks. Accordingly, this development may result
in additional products or services being sold through the Company's bank
distribution channel. In other recent developments, the Company has become aware
that some financial institutions have, in connection with a loan, begun to issue
debt cancellation agreements. These agreements provide that upon the death of
the borrower, the lender will deem the loan paid-in-full and provide protection
to the borrower that is similar to the Company's credit life and credit
disability products. Various state insurance and financial institutions
regulators are examining these agreements to determine whether they should be
regulated as insurance.
RESULTS OF OPERATIONS -- QUARTERS ENDED MARCH 31, 1995 AND MARCH 31, 1996
Gross collected premiums increased $135.5 million or 29% to $604.6 million
for the three months ended March 31, 1996, from $469.1 million for the same
period of 1995. The Company's unemployment products continued to perform well,
contributing 22% or $30.3 million of the increase in gross collected premium.
Also contributing to the increase was the Company's extended service contract
products that accounted for $50.2 million, representing 8% of the Company's
gross collected premium for the three months.
During the three months ended March 31, 1996, total premiums and other
revenues were $375.7 million, an increase of $65.9 million over total premiums
and other revenues of $309.8 million for the same period in 1995. The increase
included a $57.3 million increase in net premiums earned resulting generally
from the premium growth experienced by the Company's existing clients. Despite
the lower interest rate environment, the increase also included $5.6 million of
additional investment income during the first quarter of 1996 as compared to the
same period of 1995, due to the overall growth in invested assets.
The benefits and claims ratio increased to 43% for the three months ended
March 31, 1996, compared to the ratio of 37% for the same period of 1995.
However, this adverse movement was offset by a reduction in the commissions
ratio from 42% for the three months ended March 31, 1995, to 37% for the same
period of 1996.
15
<PAGE> 16
The effective tax rate increased from 31.3% for the three months ended
March 31, 1995, compared to 33.2% for the same period of 1996. The increased
rate was primarily attributable to the increased proportion of profits derived
from the Company's U.S. business, which is taxed at the statutory rate of 35%.
The increase in interest expense from $3.5 million to $4.1 million
reflected the effects of higher debt levels ($256.5 million at March 31, 1996,
versus $202.3 million at March 31, 1995).
RESULTS OF OPERATIONS -- 1993 THROUGH 1995
Net income for 1995 increased to $72.3 million from $56.5 million in 1994,
representing an increase of 28%. The Company's largest financial distribution
channels continue to produce strong overall premium growth contributing to the
increase in net income. The 1995 results included, on an after-tax basis, an
increase of $16.2 million in net investment income, net investment gains of $.5
million and a $3.8 million charge on the settlement of the final portion of the
credit bond litigation described below. The 1994 results included, on an
after-tax basis, $1.7 million in net investment gains and a $2.9 million charge
on the final settlement of the credit bond litigation initiated by bondholders.
The 1993 results included, on an after-tax basis, $4.6 million in net losses
attributable to adverse development of claims from Hurricane Andrew and losses
incurred from a March winter storm which affected the Northeastern United
States.
Pre-tax operating income before realized gains (losses) by industry segment
was as follows:
<TABLE>
<CAPTION>
INCOME REALIZED INCOME
EXCLUDING GAINS BEFORE
LIFE GAINS (LOSSES) (LOSSES) TAXES
-------------- -------- -------
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
1995.................................................. $ 43,469 $ 1,262 $44,731
1994.................................................. 30,434 1,586 32,020
1993.................................................. 21,767 6,397 28,164
PROPERTY AND CASUALTY
1995.................................................. $ 83,971 $ 3,386 $87,357
1994.................................................. 66,023 670 66,693
1993.................................................. 60,531 (1,839) 58,692
</TABLE>
These segment results exclude interest and other corporate activity. The
1993 winter storm and credit bond losses are included in the property and
casualty segment. See Note 12 to the Consolidated Financial Statements
incorporated by reference herein.
Revenues
The Company's total revenues in 1995 increased by 15%, primarily due to the
increases in net earned premiums of $146.4 million and investment income of
$25.0 million. The Company continued to show its biggest growth in the property
and casualty segment where revenues increased by $158.9 million compared to the
life segment increase of $23.0 million. A significant portion of the increase in
the property and casualty segment was from net earned premiums on the Company's
unemployment products. The Company's total revenues in 1994 increased by 22%
over that of 1993 primarily due to increase in net earned premiums. The majority
of the growth in the Company's business came from its Credit A&H and Credit
Unemployment products.
Gross collected premiums increased more than $500 million or approximately
30% from $1.8 billion in 1994 to $2.3 billion in 1995. The majority of the
increase was generated from three of the Company's products.
16
<PAGE> 17
Gross collected premiums for the selected three products were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
PRODUCT 1995 1994 INCREASE
------------------------------------------------------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Credit Unemployment.................................... $410,800 $269,800 $141,000
Credit A&H............................................. 349,000 244,500 104,500
Extended Service Contracts............................. 129,500 19,300 110,200
-------- -------- --------
Total........................................ $889,300 $533,600 $355,700
======== ======== ========
</TABLE>
The Company expects its premium growth to continue at recent historic rates
depending on the acquisition of new clients, introduction of new products to its
existing accounts and pursuit of opportunities as other insurance companies
withdraw from the credit insurance market.
The cost of reinsurance to cover catastrophe losses increased by $3.1
million to $9.5 million in 1995. The Company continuously reviews its exposure
to catastrophe losses and, in 1995, increased its coverage which accounted for
the majority of the increase in cost. The cost had remained relatively flat from
1993 to 1994 at $6.7 million and $6.4 million, respectively. The unusually large
number of major catastrophe losses recently experienced by the industry had
caused the reinsurance market capacity to be limited and more costly; however,
the reinsurance market showed signs of stabilizing in 1995, and, consequently,
costs for similar coverages are expected to remain at current levels in the
foreseeable future.
Investment income increased significantly to $99.4 million in 1995 from
$74.4 million in 1994, representing a 34% increase. The increase was mainly due
to the higher interest rate environment experienced during the early part of
1995 and the overall increase in invested assets of $423.5 million due primarily
to premium growth. The increase in 1994 from 1993 was 6%. The Company's
investment yield was 6.7% in 1995, 6.3% in 1994 and 6.7% in 1993. The Company's
tax strategy of investing in tax-favored investments, such as low-income housing
tax credit investments, also affected the overall pre-tax investment returns.
Gross collected premiums increased 23% in 1994 and 27% in 1993. Net earned
premiums increased 24% in 1994 and 20% in 1993.
Total net premiums earned by industry segment were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
INDUSTRY SEGMENT 1995 1994 1993
---------------------------------------------------------- -------- -------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Life...................................................... $ 377.1 $ 360.1 $305.1
Property and Casualty..................................... 863.6 734.2 576.9
-------- -------- ------
Total........................................... $1,240.7 $1,094.3 $882.0
======= ======= ======
</TABLE>
Claims and Commissions
The Company enjoyed continuing improvement of its underwriting results in
1995. Through the Company's extensive use of adjustable commission arrangements
based on claims experience, it has been able to generate business with improved
underwriting results. The overall loss ratio for the Company (excluding credit
bond losses) was 36.7% in 1995 compared to 39.7% in 1994 and 39.6% in 1993. The
commission expense ratios for the same periods were 42.4% for 1995, 40.0% for
1994 and 40.6% for 1993, resulting in combined claims and commissions ratio of
79.1%, 79.7% and 80.2% for 1995, 1994 and 1993, respectively.
The net retained underwriting profit (premiums less benefits, claims
including credit bond and commissions) was 20% in 1995, 19.7% in 1994 and 19.5%
in 1993.
A few of the Company's products such as Mobilehome Physical Damage and
Homeowners are affected by seasonal changes during the year, causing the
profitability in those lines and for the Company to fluctuate throughout the
year.
17
<PAGE> 18
The Company's experience in the property and casualty segment has been
better than industry experience, according to A.M. Best, for the last three
years, as demonstrated by the following combined statutory ratios:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
COMBINED STATUTORY RATIOS 1995 1994 1993
---------------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
American Bankers................................................ 94 % 96 % 94 %
Industry........................................................ 106 108 107
</TABLE>
In 1995, the Company completed a settlement of the only remaining lawsuit
related to its discontinued credit bond insurance product line which resulted in
an after-tax charge of $3.8 million. Credit bond pre-tax losses and expenses
amounted to $11.5, $6.6 and $3.0 million in 1995, 1994 and 1993, respectively.
The losses included reserves and partial litigation settlements of $5.8 million
in 1995 and $4.5 million in 1994. There were no credit bond settlements in 1993.
The Company anticipates no significant future expenses or losses associated with
the remaining policies in force.
The Company's adverse loss reserve development includes the effects from
losses experienced from excess casualty reinsurance pools in which the Company
discontinued participation effective in or prior to 1981. The Company reported
pre-tax losses from these pools of $7.3 million in 1995, $4.2 million in 1994
and $3.0 million in 1993. The 1995 results included reserve additions of $3.0
million, made throughout the year to existing claims. The business is long-tail
in nature and losses continue to exceed both Company and industry expectations.
Most of these losses result from asbestos related and environmental pollution
claims. The Company's exposure is only through participation in excess casualty
pools. These pools typically involve high layer coverages that are applicable
only after primary insurance coverage and, in many cases, reinsurance coverages
have been exhausted. The Company's experience can differ significantly from that
of other insurers which wrote the primary coverages directly. The Company
establishes loss reserves on known claims as recommended by the various pool
managers. Additional reserves to compensate for those claims that have not yet
been reported are established which, when added to reported claim reserves,
produce a total survival ratio of approximately 8.5 years.
Management expects that reinsurance pool losses will continue in the
current environment but will not have a material adverse effect on the Company's
operations. It is difficult, however, to make a reasonable estimate of the
Company's ultimate liability due to a general absence of reliable predictive
data and of a generally accepted actuarial methodology for these exposures,
significant unresolved legal issues including coverage issues, policy
definitions and evolving theories and arguments. Additionally, the determination
of ultimate damages and the final allocation of such damages to financially
responsible parties is complex and uncertain.
Operating and Interest Expenses
Operating expenses (excluding interest expense) were $248.4 million in
1995, $217.2 million in 1994 and $179.2 million in 1993. Operating expenses as a
percentage of net earned premiums have remained constant at 20%. Included in the
expense is the cost of a new processing system being implemented for the
property and casualty segment, which totaled $4.9 million in 1995 and $3.6
million in 1994. Similar expense levels are expected to continue through 1997.
New processing systems are also being implemented for certain products in the
life segment; however, the costs are not significant.
Interest expense was $15.6 million, $11.2 million and $8.1 million in 1995,
1994 and 1993, respectively. The increase in interest expense was due in part to
an increase in interest rates and increases in debt ($38.2 million in 1995 and
$38.9 million in 1994). The increase in the interest rate environment, which
benefits the Company in additional investment income, was partly offset by the
increase in interest expense. Debt financing was utilized principally to support
the continued growth of the Company's insurance subsidiaries. Interest expense
in 1993 included $.6 million for the 5 3/4% convertible subordinated debentures,
which were converted into Common Stock during the year.
18
<PAGE> 19
Taxes and Other
The effective tax rate was 31% in 1995, 29% in 1994 and 31% in 1993. The
majority of the increase in 1995 from 1994 was caused by operating losses from
the Company's United Kingdom insurance subsidiary, which did not provide any
current tax benefit to the Company. In 1993, adoption of SFAS 109 "Accounting
for Income Taxes" resulted in an additional tax charge of $1 million. The
Company continues to take advantage of investing in tax exempt securities and
tax credit investments to minimize its income tax expense.
The Company is subject to various consumer initiatives including
Proposition 103, passed in California in 1988, which are directed toward
companies writing certain insurance coverages in that state. Proposition 103
required the Company to refund or roll back premiums to California policyholders
if favorable underwriting experience exceeded certain guidelines. In 1995, the
Company reached an agreement with the California Insurance Department whereby
the Company rebated $4.1 million to affected policyholders. Previously
established reserves satisfied this settlement. The Company is not aware of any
other consumer initiatives which will have a material effect on results.
FINANCIAL CONDITION
Total assets at March 31, 1996, and December 31, 1995, were $3.1 billion
and $3.0 billion, respectively. Invested assets at the same date were $1.8
billion and $1.7 billion, respectively. As of March 31, 1996, mortgage loans and
investment in real estate pertaining to Florida properties were $8.8 million
(excluding the home office complex), which represents 67% of the total mortgage
loans and real estate portfolio.
Liabilities were $2.6 billion and $2.5 billion at March 31, 1996 and at
December 31, 1995, respectively, and were primarily comprised of insurance
liabilities of $1.9 billion.
Stockholders' equity increased $11.7 million from $513.0 million at
December 31, 1995, to $524.7 million at March 31, 1996. The contribution of net
income after dividends of $16.8 million was the primary cause for the increase.
This was offset partially by a decrease in the unrealized investment gains
recorded by the Company. This decrease was a result of the impact of the
increasing interest rate environment on the market values of the Company's
investment portfolio.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1996, $1.8 billion of securities, short-term investments and
cash comprised 57% of the Company's total assets. The securities were
principally readily marketable and did not include any significant concentration
in private placements.
The Company does not hold significant investments in equity securities;
consequently, market changes in the equity securities markets do not
significantly affect the investment portfolio.
The Company expects to continue its policy of paying regular cash
dividends; however, future dividends are dependent on the Company's future
earnings, capital requirements and financial condition. In addition, the payment
of dividends is subject to the restrictions described in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995. Further, if there is a
default under the Company's short-term credit facility, the Company will be
prohibited from paying any dividends or making any distributions on account of
any of its shares of capital stock.
The increase in notes payable of $20.5 million for the three months ended
March 31, 1996, was mostly attributable to the use of the Company's $250 million
short-term credit facility. At March 31, 1996, the Company had $108 million
outstanding related to this agreement.
Capital expenditures planned for 1996 are not expected to be significant
compared to the Company's overall liquidity and cash flow. The headquarters will
be expanded at a cost of approximately $4.5 million. The one million share stock
buy back program is not expected to significantly impact the Company's liquidity
or cash flow in any one financial reporting period.
19
<PAGE> 20
The Company does not concentrate in policy coverages under which
policyholders may control, on a discretionary basis, access to cash benefits
through policy surrender and withdrawals.
Payment of dividends to the Company by its insurance subsidiaries is
dependent on regulations dictated by statutory authorities in each state in
which they are domiciled. The National Association of Insurance Commissioners
("NAIC") has introduced standards which would treat dividends in excess of the
lesser of 10% of surplus or net income as extraordinary dividends requiring
insurance department approval. While some states have adopted the standards,
others have not. See "Business -- Government Regulation -- Dividend Regulation"
and Note 8 to the Consolidated Financial Statements incorporated by reference
herein.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 -- SAFE HARBOR CAUTIONARY
STATEMENT
Except for historical information provided in this Prospectus, statements
made throughout this document, including in this Management's Discussion and
Analysis, are forward-looking and, as such, actual results could differ
materially from those expected by the Company. The actual results of the Company
may be affected by (i) adverse catastrophe experience in certain of the
Company's property and casualty products; (ii) significant changes in interest
rates; (iii) increased competition causing reduction in product margin or loss
of a significant client; (iv) adverse loss development on property and casualty
prior years' claims or the excess casualty reinsurance pools; (v) premium growth
expectation not met because of the loss of a significant client; (vi) outcome of
litigation and other state regulatory issues; and (vii) general economic
conditions. In addition, the actual results of forward-looking statements are
also subject to the specific factors which may be included with a particular
forward-looking statement.
20
<PAGE> 21
BUSINESS
GENERAL
American Bankers Insurance Group, Inc. is a specialty insurer providing
primarily credit-related insurance products and extended service contracts in
the U.S. and Canada as well as in Latin America, the Caribbean and the United
Kingdom. During 1995, the Company incorporated a wholly owned insurance
subsidiary in Mexico, and opened branch operations in Jamaica and Bahrain. The
majority of the Company's gross collected premiums are derived from
credit-related insurance products sold through financial institutions and other
entities which provide consumer financing as a regular part of their businesses.
The Company had gross collected premiums of $2.3 billion in 1995, and had total
assets and stockholders' equity of $3.1 billion and $524.7 million,
respectively, at March 31, 1996.
The Company's credit-related insurance products consist primarily of life,
AD&D, unemployment, disability and property insurance issued in connection with
the financing of consumer purchases. Credit-related insurance products generally
offer a consumer a convenient option to insure a credit card or loan balance so
that the amount of coverage purchased equals the amount of outstanding debt.
Coverage is generally available to all consumers with few of the underwriting
conditions that apply to ordinary term insurance, such as medical examinations
and medical history reports. The Company's life and AD&D insurance products
generally provide payment in full of the outstanding debt balance in the event
of the insured's death. The unemployment and disability products satisfy the
minimum monthly loan payment for a specified duration in the event of
unemployment or disability. The Company's property insurance products pay the
loan balance or the cost of repairing or replacing the insured's merchandise in
the event of a loss due to a covered event. The Company's extended service
contract products pay the cost of repairing or replacing the insured's
merchandise in the event of damages due to a covered event. The Company avoids
lines of insurance characterized by long loss payout periods, such as workers'
compensation and most general liability coverages.
The Company markets its products on a wholesale basis through a network of
clients that consist primarily of major financial institutions, retailers and
other entities which provide consumer financing as a regular part of their
businesses. American Bankers enters into contracts, typically with terms of
three to five years, with its corporate clients pursuant to which such clients
market the Company's insurance products to their customers. In return, these
clients receive expense reimbursements or commissions and are thus able to
recover costs associated with the marketing of the insurance and generate
incremental revenues. The Company's clients typically share in the profitability
of business written through them.
American Bankers also writes non-credit-related insurance in markets where
it believes it has less competition from other insurers. For example, the
Company sells group life and disability products through Blue Cross and Blue
Shield plans and HMOs. In addition, the Company acts as an administrator for the
National Flood Insurance Program, for which it earns a fee for collecting
premiums and processing claims. The Company does not assume any underwriting
risk with respect to this program.
The Company's business strategy is to continue developing distribution
channels which provide access to large numbers of potential insureds in markets
not traditionally served by other insurance companies. In pursuing this
strategy, the Company emphasizes long-term relationships and the development of
insurance programs designed to meet individual client needs. An essential part
of the Company's strategy is to invest in technology which enables American
Bankers to accommodate a large group of clients and their customers while
simultaneously offering customized insurance programs.
American Bankers has been able to develop a diverse client base. The
Company's largest clients include Chase, First Card, Norwest, The Associates,
The Bank of New York, Tandy Corporation and Spiegel, Inc. The Company
distributes its products through nine markets or distribution channels involving
over one thousand clients. Its business is generally not concentrated and the
ten largest unrelated clients represented 26% of the Company's gross collected
premiums in 1995. During this period, no single client accounted for more than
6% of the Company's total premiums.
American Bankers' life and property insurance subsidiaries jointly market
products and programs within each distribution channel, and the Company believes
that such cross-marketing achieves economies of scale,
21
<PAGE> 22
thus lowering administrative costs. By combining its service and marketing
activities, the Company centralizes the processing of its products and avoids
duplication of administrative functions.
The Company also provides management services and marketing support to its
clients. Management services include administration of captive insurance
companies and other participating programs for clients. American Bankers
provides comprehensive administrative support in claims, accounting, tax, data
processing and actuarial matters. In addition, the Company develops and packages
credit-related insurance programs to meet a client's particular needs and
provides the marketing assistance to implement these programs. Marketing support
includes a full range of marketing materials, direct mail and telemarketing
services and personnel training programs.
The majority of the Company's business utilizes contracts which afford the
Company's clients the opportunity to participate in the underwriting results of
policies they market to their customers. For example, the "Retro Plan" contract
links a client's overall commission to the claims experience on policies
marketed to its customers, so that low loss ratios result in higher commissions
for the client and high loss ratios result in lower commissions. Another form of
participation is a profit sharing contract under which the client participates
in up to 50% of the profits generated from its insurance business. The Company
also cedes premiums generated by clients to the clients' own captive insurance
companies or to reinsurance subsidiaries in which clients have an equity
interest. The inter-relationship between the ratio of the Company's benefits,
claims, losses and settlement expenses to net premiums earned and the ratio of
commissions to net premiums earned is illustrated in the table below, with a
higher level of benefits, claims, losses and settlement expenses generally
resulting in lower commissions and generally stable profit margins.
OPERATING RATIOS
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------- ----------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of Net Premiums Earned:
Benefits, Claims, Losses, and
Settlement Expenses................. 43.1% 37.0% 37.6% 40.3% 40.0% 41.4% 41.8%
Commissions............................ 37.4 42.0 42.4 40.0 40.6 39.5 40.3
---- ---- ---- ---- ---- ---- ----
Total.......................... 80.5% 79.0% 80.0% 80.3% 80.6% 80.9% 82.1%
==== ==== ==== ==== ==== ==== ====
Net Income as a Percentage of Total
Revenues (Profit Margin)............... 5.5% 4.8% 5.3% 4.8% 5.4% 5.2% 4.9%
==== ==== ==== ==== ==== ==== ====
</TABLE>
22
<PAGE> 23
PRODUCTS
The following table sets forth the gross collected premiums of the
Company's major insurance products:
GROSS COLLECTED PREMIUMS
MAJOR INSURANCE PRODUCTS
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------- --------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ -------- -------- -------- -------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Credit Unemployment.............. $114.1 $ 83.8 $ 410.8 $ 269.8 $ 172.9 $ 127.9 $110.3
Credit Property.................. 87.2 89.6 367.7 354.2 268.6 187.2 174.2
Credit A&H....................... 91.9 65.3 349.0 244.5 182.8 174.0 116.6
Credit Life...................... 76.1 50.0 287.2 211.7 165.5 152.1 113.6
Mobilehome Physical Damage....... 33.0 28.4 137.3 121.4 100.1 41.6 47.5
Extended Service Contracts....... 50.2 5.4 129.5 19.3 12.0 10.7 10.9
Homeowners....................... 20.2 23.8 101.1 87.0 85.6 91.5 91.8
Mortgage Disability.............. 15.5 13.5 53.3 49.1 44.3 37.4 36.6
Livestock Mortality.............. 11.3 10.6 40.8 48.6 51.9 29.6 22.9
Group A&H........................ 13.2 12.4 39.6 26.4 27.7 22.4 22.7
All Other(1)..................... 91.9 86.3 370.3 329.1 315.8 246.0 213.7
------ ------ -------- -------- -------- -------- ------
Total.................. $604.6 $469.1 $2,286.6 $1,761.1 $1,427.2 $1,120.4 $960.8
====== ====== ======= ======= ======= ======= ======
</TABLE>
- ---------------
(1) "All Other" represents a large number of products, approximately 50 to 60
each year. The most significant in 1995 and 1994 were the Flood and Surety
products.
The Company's business can be divided into two principal types of products:
(1) Financial Market Products, consisting primarily of credit-related insurance,
and (2) Personal Insurance Lines, consisting of non-credit-related products and
services.
Financial Market Products
Property Insurance. The Company writes a variety of property insurance
which includes homeowners' and coverages for comprehensive physical damage of
mobilehomes, automobiles, furniture, fixtures and other consumer goods. In the
event of a loss due to a covered event, the Company will either pay off the loan
balance or replace or repair the merchandise.
The terms of the Company's property policies range from 30 days to multiple
years. Multiple year policies generally coincide with the term of the financing
for the insured property. For example, a consumer purchasing an automobile and
financing the purchase over a three-year period can purchase a three-year
physical damage policy at the inception of the loan for a single premium. An
increasing proportion of gross collected premiums are monthly premiums received
in connection with credit card purchases. Such premiums are based on the average
outstanding credit card balance.
Life and Disability Insurance. The Company writes life, AD&D and
disability insurance primarily on consumer loans, mortgages and credit card
balances. This life insurance and AD&D forms of decreasing term life insurance
written generally without medical examination of the borrower. Premiums are
received either in a single payment at the time the policy is written or monthly
along with the borrower's regular payment. It is normally written for the term
of the installment debt and retires all or a portion of the indebtedness in the
event of the insured's death. Disability insurance covers a borrower for
payments coming due on an installment loan, mortgage loan or revolving charge
account while the borrower is disabled.
Credit Unemployment Insurance. The Company writes unemployment insurance
on credit card balances in conjunction with life, disability and property
coverages. This unemployment insurance provides for
23
<PAGE> 24
the payment of the minimum monthly loan payment for a specified duration while
the insured is involuntarily out of work. Premiums for this coverage are based
on the average outstanding credit card balance.
Extended Service Contracts. Extended service contract business is
currently being built through the Company's retail distribution channel,
targeting electronic and appliance retailers. It is one of the Company's high
growth products. To augment the Company's position in the extended warranty
market, American Bankers acquired Federal Warranty Service Corporation, a
warranty administrator, in late 1993. The Company will continue the expansion of
this product line not only to retailers, but also through other emerging
distribution channels such as utilities.
Of the Company's top ten products by premiums, as depicted on the chart
above, eight are associated with the Financial Market Products.
Personal Insurance Lines
The Company also derives revenues from non-credit-related insurance
products and services. These products and services principally consist of: (i)
group life and group disability sold through Blue Cross and Blue Shield plans
and HMOs, (ii) individual life and disability products sold through
employer-sponsored payroll deduction programs, (iii) administration fees earned
in connection with the National Flood Insurance Program, (iv) livestock
mortality insurance, (v) individual life insurance and annuity products sold
principally in Latin America and the Caribbean, and (vi) surety coverages.
UNDERWRITING
The Company has over 40 years of experience in providing credit life and
credit property insurance and therefore maintains an extensive actuarial
database for its major lines of business. This database enables the Company to
better identify and quantify the expected loss experience and is employed in the
design of coverage and the establishment of premium rates. American Bankers uses
this information in monitoring the loss experience of individual clients.
A distinct characteristic of the Company's credit-related insurance
products is that the majority of these products represent relatively low policy
values since policy size is equal to the size of the installment purchase or
credit card balance. Thus, loss severity for most of the Company's business is
low relative to other insurance companies writing more traditional lines of
business. For those product lines where exposure to catastrophe loss is higher
(Homeowners and Mobilehome Physical Damage) the Company closely monitors and
manages its aggregate risk by geographic area and has entered into reinsurance
treaties to control its exposure to catastrophe losses.
With respect to the Company's non-credit-related products, the Company
utilizes traditional underwriting techniques. The Company seeks to ensure the
quality of its business by maintaining strict underwriting standards. In
underwriting individual life policies, the Company employs medical
questionnaires, medical examinations, and current reports from the Medical
Information Bureau. To the extent allowed by law, group underwriting takes into
account demographic factors such as age, gender and occupation of members of the
groups. The Company also seeks to reduce its risk exposure by avoiding lines of
insurance characterized by long loss payout periods, such as workers'
compensation and most general liability coverages.
MARKETING
American Bankers markets its credit-related insurance programs as a
wholesale distributor through several defined distribution channels: Commercial
Banks, Retailers, Consumer Finance Companies, Mortgage Bankers and Savings
Institutions, and Manufactured Housing, Travel Trailer and Equipment
Manufacturers, Dealers and Lenders. These distribution channels constitute the
Company's Financial Market distribution channel. The distribution channels for
the Company's Personal Insurance Lines include Blue Cross and Blue Shield plans,
HMOs and Independent Agents. The Company continually seeks to develop new
distribution channels for its products. It has recently established
relationships with several utility clients, and continues to pursue
opportunities with electric, gas and telephone utilities.
24
<PAGE> 25
At March 31, 1996, the Company had 51 salaried sales representatives and 6
sales managers located in 15 regional sales centers throughout the U.S., Canada,
Puerto Rico and the United Kingdom. Employees in the regional sales offices
solicit potential new clients and service existing clients. These sales
personnel typically have work experience in the client's industry and have
received extensive sales and product training from the Company. The Company's
sales personnel provide ongoing service and advice to clients to assist them in
marketing the Company's insurance products and attempt to gain new clients by
illustrating how the client can provide a value-added service to its customers
and at the same time enhance the client's profitability by marketing the
Company's products. Specifically, the Company's sales personnel approach each
potential client with a structured four-call process: (i) initial contact, (ii)
gathering information and analyzing the prospect's needs, (iii) presenting a
program tailored to those needs, and (iv) agreeing to and implementing a program
that is satisfactory to both the client and the Company.
Products are individual programs underwritten by the insurance subsidiaries
or "packages" which are a combination of products from various subsidiaries.
These products can also be sold through more than one distribution channel.
Product cross-over is commonplace within the Company's system, which facilitates
streamlined administration and processing, as well as product development. For
example, the Company's "Chargegard" product is a combination of life,
disability, unemployment and property insurance coverage and is marketed through
the Commercial Banks, Retailers, Consumer Finance Companies, and Mortgage
Bankers and Savings Institutions distribution channels.
DISTRIBUTION CHANNELS
The following is a discussion of the distribution channels for the
Financial Market Products:
Commercial Banks
The Company markets its installment loan and credit card related insurance
products through commercial banks, bank holding companies and their non-bank
subsidiaries and other issuers of general purpose credit cards. Increases in
gross collected premiums have resulted primarily from the marketing of insurance
programs in connection with credit cards. American Bankers tries to expand the
business written by its clients in this area by assisting them in implementing
direct mail and telemarketing programs.
Retailers
The Company is a major provider of credit-related insurance products and
extended service contracts to the retail industry. This client base includes
department and specialty stores, home furnishings and home improvement stores,
appliance and electronic stores, general merchandise and automotive chains,
jewelry stores, catalogs and rental companies. To further enhance its market
position in this area, the Company develops customized direct mail and
telemarketing programs for these clients. Premiums are generated from mailings
included in monthly credit card statements or are generated at the point of
sale.
Consumer Finance Companies
The client base consists of consumer and commercial finance companies,
leasing and second mortgage institutions, and mortgage brokers. Because many
major consumer finance companies have their own captive insurance companies,
approximately half of the premiums written historically have been ceded to these
captive insurance companies. Therefore, a substantial portion of the income in
this area is derived from the management fees paid by clients' captive companies
for processing and servicing this insurance.
Mortgage Bankers and Savings Institutions
The client base consists of mortgage bankers, savings institutions and home
builders. Through these clients, the Company markets life, AD&D, disability and
property insurance products to residential and consumer borrowers as well as to
depositors.
25
<PAGE> 26
Manufactured Housing and Travel Trailer Manufacturers, Dealers and Lenders
The Company provides property insurance to purchasers of mobilehomes and
travel trailers. The Company's policy is to deal exclusively with large dealers
and manufacturers. These products are distributed primarily through manufactured
housing, motor home and travel trailer manufacturers, dealers and lenders.
Equipment Manufacturers and Dealers
Manufacturers and dealers revenues are derived from credit life,
disability, physical damage and warranty insurance products sold through
agricultural and other equipment manufacturers.
The following is a discussion of the distribution channels for the Personal
Insurance Lines:
Blue Cross and Blue Shield Plans and HMOs
The Company utilizes the sales representatives of these organizations to
offer its group life, AD&D, short-term and long-term disability, and dependent
life coverages to employers that are providing group health benefits to their
employees. These organizations share in the profitability of these product sales
with the Company.
Independent Agents
The Company markets individual life insurance and annuity policies to the
public through a network of independent agents. In the agency market, the
Company competes with many large nationwide companies. As a result, the Company
has made the decision to control the growth of this segment by de-emphasizing
the U.S. market and focusing on the Caribbean and Latin American markets where
loss experience has been favorable and the competition is less vigorous.
Another product sold through agents is livestock insurance which primarily
covers animal mortality.
Agents also produce the flood premium that the Company administers on
behalf of the National Flood Insurance Program. The Company acts as
administrator and does not assume any underwriting risk with respect to this
program.
INVESTMENTS
The functions of the investment department are an integral part of any
insurance company's operations. The Company's investment department is guided by
strategic objectives established by the Finance Committee of the Board of
Directors. The major investment objectives are: (i) to ensure adequate safety of
investments and to protect and enhance capital; (ii) to maximize risk-adjusted,
after-tax return on investments; (iii) to make prudent investment decisions
based on the current market environment; and (iv) to provide sufficient
liquidity to meet cash requirements with minimum sacrifice of investment
returns.
In seeking to achieve these objectives, the Company invests predominantly
in fixed income securities of the U.S. Government or its agencies,
collateralized mortgage obligations ("CMOs") and investment grade corporate
bonds. Protection against default risk is a primary consideration. The CMOs are
tested for volatility prior to purchase.
Interest rate risk is controlled by matching the average duration of
invested assets with the average duration of the policy liabilities. Investment
department personnel work closely with the Company's actuaries to ensure that
this balance is maintained.
Private investments are made selectively to support the insurance business.
These investments comprise about 3% of the fixed maturities portfolio. While
these Company underwritten investments are non-rated, a careful evaluation of
creditworthiness is performed before an investment is made. This analysis helps
to ensure that prudent investment standards are maintained, even in the
non-rated portfolio holdings.
26
<PAGE> 27
The Company's equity portfolio is managed by outside investment advisors
who are monitored on a regular basis against established performance benchmarks.
It is the Company's practice to purchase fixed maturity investment grade
securities. The following sets forth the consolidated carrying value of the
Company's bond portfolio at March 31, 1996 by quality ratings:
<TABLE>
<CAPTION>
AT MARCH 31, 1996
---------------------------
CARRYING
QUALITY OF FIXED MATURITIES VALUE PERCENTAGE
- ------------------------------------------------------------------ ---------- ----------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
AAA............................................................... $ 940,734 64.7%
AA................................................................ 82,366 5.7
A................................................................. 224,267 15.4
BBB............................................................... 143,113 9.8
BB/NR............................................................. 16,150 1.1
Private Placement................................................. 47,919 3.3
---------- ----------
Total................................................... $1,454,549 100.0%
========= =========
</TABLE>
- ---------------
(1) Bonds are classified according to the rating assigned by S&P. Bonds not
rated by S&P are classified according to the rating assigned to them by the
NAIC as follows: for the purposes of the table, NAIC Class 1 is included in
the "A" rating; Class 2, "BBB-;" Class 3, "BB-;" and Classes 4-6, "B and
below."
The scheduled maturities of the Company's consolidated fixed maturity
investments as of March 31, 1996 were as follows:
<TABLE>
<CAPTION>
AT MARCH 31, 1996
---------------------------
CARRYING
MATURITY OF FIXED MATURITIES VALUE PERCENTAGE
- ------------------------------------------------------------------ ---------- ----------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
0-1 Years......................................................... $ 128,958 8.9%
1-5 Years......................................................... 1,045,994 71.9
5-10 Years........................................................ 230,011 15.8
10-20 Years....................................................... 38,592 2.6
Over 20 Years..................................................... 10,994 0.8
---------- ----------
Total................................................... $1,454,549 100.0%
========= =========
</TABLE>
27
<PAGE> 28
The consolidated GAAP carrying value of the investments held by the Company
at March 31, 1996 and December 31, 1995 was as follows:
<TABLE>
<CAPTION>
AT MARCH 31, 1996 AT DECEMBER 31, 1995
----------------------- -----------------------
CARRYING CARRYING
VALUE(1) PERCENTAGE VALUE PERCENTAGE
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Fixed Maturities
Corporate -- Fixed Rate.......................... $ 425,300 23.9% $ 346,000 20.5%
Corporate -- Adjustable Rate..................... 16,300 0.9 15,000 0.9
Corporate -- Convertible......................... 5,000 0.3 6,000 0.4
State and Municipal.............................. 128,300 7.2 123,500 7.3
U.S. Government.................................. 787,500 44.4 817,900 48.4
Foreign Government and Jurisdiction.............. 75,900 4.3 61,900 3.7
Installment Loans................................ 16,300 0.9 17,300 1.0
---------- ---------- ---------- ----------
1,454,600 81.9 1,387,600 82.2
---------- ---------- ---------- ----------
Equity Securities
Preferred -- Fixed Rate.......................... 33,200 1.9 38,400 2.3
Preferred -- Convertible......................... 800 0.1 700 0.0
Common........................................... 80,700 4.5 73,900 4.4
---------- ---------- ---------- ----------
114,700 6.5 113,000 6.7
---------- ---------- ---------- ----------
Mortgage Loans..................................... 11,600 0.7 11,800 0.7
Policy Loans....................................... 7,900 0.4 7,800 0.4
Real Estate........................................ 3,100 0.2 3,100 0.2
Short-Term and Other Investments (principally
invested cash)................................... 184,000 10.3 165,100 9.8
---------- ---------- ---------- ----------
206,600 11.6 187,800 11.1
---------- ---------- ---------- ----------
Total Investments........................... $1,775,900 100.0% $1,688,400 100.0%
========= ======== ========= ========
</TABLE>
REINSURANCE
The Company's insurance subsidiaries reinsure that portion of risk in
excess of $250,000 under an ordinary life policy, $150,000 on a group life
policy and $500,000 under a property policy. In addition, excess of loss
coverage is obtained for the Company's property business as protection against
catastrophic losses. This coverage is mainly related to the Company's homeowner,
Mobilehome Physical Damage and credit property products. Following Hurricane
Andrew in 1992, there has been a significant increase in the cost of catastrophe
reinsurance. As a result, the Company restructured its catastrophe coverage into
three parts. First, the Company reinsures 50% of its homeowners coverage on a
proportional basis. In addition, the Company has excess of loss catastrophe
reinsurance providing coverage per catastrophe on property losses of $20 million
excess of a $20 million retention exclusive of any recoveries from the
proportional reinsurance described above. Finally, additional coverage is
provided through excess of loss coverage if the net loss ratio (after deducting
all other reinsurance) exceeds 36.1% in any one year. The Company believes that
its catastrophe reinsurance coverage continues to be adequate. The reinsurance
market showed signs of stabilization in 1995 and 1996.
The Company's reinsurance receivable and prepaid reinsurance premiums at
March 31, 1996 totaled $667.3 million. The Company's reinsurance was placed with
numerous reinsurers including the following significant reinsurers: (i) American
Re-Insurance Company, (ii) Transatlantic Reinsurance Company, (iii) Constitution
Reinsurance Company, and (iv) Munich Reinsurance Company. The Company
historically has not experienced any material losses in collection of
reinsurance receivables.
As part of the Company's reinsurance purchasing process, it routinely
measures and analyzes its catastrophe exposures. In addition to the use of
reinsurance, the Company will modify products, coverages and marketing practices
to address excessive exposures. The Company's stated goal is to contain the net
cost of any one catastrophe within the retention on its reinsurance program.
28
<PAGE> 29
GOVERNMENT REGULATION
The Company and its insurance subsidiaries are subject to regulation and
supervision by the states in which the Company's insurance subsidiaries transact
business. The laws of the various states establish regulatory agencies with
broad administrative powers to grant and revoke licenses to transact business,
regulate trade practices, establish guaranty associations, license agents,
require approval of policy forms and premium rates on certain business prior to
use, establish reserve requirements, determine the form and content of required
financial statements, determine reasonableness and adequacy of capital and
surplus and prescribe the types of permitted investments and the maximum
concentrations of certain classes of investments. As part of their routine
regulatory oversight process, approximately once every three to five years state
insurance departments conduct periodic detailed examinations of the books,
records and accounts of insurance companies domiciled in their states. This
state regulation and supervision is designed primarily to ensure the financial
stability of insurance companies and to protect policyholders, rather than
stockholders or creditors.
A substantial portion of the business written by the Company's insurance
subsidiaries is credit-related insurance. Most states have enacted laws which
regulate credit-related insurance to a greater extent than they regulate other
forms of insurance including maximum premiums which may be charged and
commissions which may be paid. In addition, certain states have enacted or are
considering regulations which similarly attempt to limit profitability based
upon underwriting experience. The NAIC has proposed a model law and regulation
relating to creditor placed property insurance which is insurance purchased by a
creditor in the event that a borrower fails to provide the insurance required
under the loan agreement. The Company believes that the adoption of the proposal
will not adversely affect its business operations. The Company issues creditor
placed insurance coverage on mobilehomes and residential real property.
The NAIC also took action in 1995 on credit life insurance by adopting an
alternative approach to strict loss ratio based rate making which allows state
regulators to take into account factors other than losses in determining the
reasonableness of credit insurance rates.
The investments of the insurance subsidiaries are limited as to type and
amount by the insurance laws of the state of domicile; however, the NAIC is
developing a Model Investment Law which would standardize these limitations.
Additionally, investment policies are reviewed by the Board of Directors.
In the property insurance industry, large catastrophe losses in recent
years have led to federal initiatives that could affect purchasers of
catastrophe insurance and reinsurance, such as the Company. The federal
government, commercial companies, and the insurance industry continue to work
together toward Superfund reform and dealing with the cleanup of pollution
sites. Among issues pending are the determination of retroactive liability and a
proposed insurer specific tax. Other federal initiatives may also affect various
segments of the insurance industry. No prediction can be made as to whether any
such initiatives will ultimately result in legislation, or the form that any
such legislation might take.
Insurance companies are required to file detailed annual and quarterly
statements with the state insurance regulators in each of the states in which
they do business, and their business and accounts are subject to examination by
such agencies at any time. Applicable state insurance laws, rather than federal
bankruptcy laws, apply to the liquidation or the reorganization of insurance
companies.
Financial Regulation
The Company's insurance subsidiaries are required to comply with a minimum
risk-based capital (RBC Standards), developed by the NAIC. Under the RBC
standards -- risk specific for each company -- areas such as asset risk,
insurance risk, interest risk, and business risk are evaluated and compared to
the Company's capital and surplus to determine relative solvency margins.
Standards for the RBC formula were approved by regulators and effective for 1993
statutory financial statements for life companies and in 1994 for property and
casualty companies. The industry is still gaining experience in the use of the
RBC standards, which have experienced formula adjustments each year since
adoption. All of the Company's insurance subsidiaries meet the minimum
risk-based capital requirements and no action is required based on the criteria
described above.
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Dividend Regulation
The Company is a legal entity separate and distinct from its subsidiaries.
As a holding company with no other business operations, its primary sources of
cash needed to meet its obligations are dividends and other payments from its
insurance subsidiaries.
The Company's insurance subsidiaries are subject to various regulatory
restrictions on the maximum amount of payments, including loans or cash
advances, that they may make to the Company without obtaining prior regulatory
approval. As Florida domiciled insurance companies, ABIC and ABLAC are subject
to Florida requirements that insurance company dividends must receive prior
regulatory approval unless, either (i) such dividends do not exceed the larger
of: (a) the lesser of 10% of surplus or net gain from operations (ABLAC) or net
income (ABIC), not including realized capital gains, plus a 2-year carry forward
for ABIC; (b) 10% of surplus, with dividends payable constrained to unassigned
funds minus 25% of unrealized capital gains; or (c) the lesser of 10% of surplus
or net investment income (net gain before capital gains for ABLAC) plus a 3-year
carryforward (2-year carryforward for ABLAC) with dividends payable constrained
to unassigned funds minus 25% of unrealized capital gains; or (ii) the dividend
is equal to or less than the greater of: (a) 10% of the insurer's surplus as to
policyholders derived from realized net operating profits on its business and
net realized capital gains; or the insurer's entire net operating profits and
realized net capital gains derived during the immediately preceding calendar
year; and (b) the insurer will have surplus as to policyholders equal to or
exceeding 115% of the minimum required statutory surplus as to policyholders
after the dividend is made. As an Arizona domiciled insurance company, ARIC must
receive prior regulatory approval unless such dividends do not exceed the lesser
of either 10% of surplus as regards policyholders or the net investment income.
The Puerto Rico domiciled companies, including CALAC, shall not pay any cash
dividend to stockholders except out of that part of its unassigned surplus funds
which is derived from any realized net profits on its business. The Company's
New York domiciled company is required to provide notice of its intention to
declare dividends and file with the superintendent the amount of the proposed
dividend. The Voyager insurance companies are domiciled in Georgia and South
Carolina. Georgia and South Carolina require prior regulatory approval for
dividends in excess of the greater of (i) 10% of a company's surplus as regards
policyholders or (ii) net gain from operations for life companies, or net
income, not including realized capital gains, for non-life companies, as of the
preceding year end.
In 1986, the NAIC adopted a Model Insurance Holding Company Systems
Regulatory Act which contains dividend payment restrictions like those currently
in place in Georgia and South Carolina, except that the NAIC model statute only
allows an insurer to pay dividends without prior regulatory approval up to the
"lesser of", instead of the "greater of", the two benchmarks. In connection with
its accreditation of states to conduct periodic company examinations, the NAIC
has encouraged states to adopt the model NAIC law on the payment of dividends.
No prediction can be made as to whether any legislative proposals relating to a
change in dividend limits will be enacted in the future.
If insurance regulators determine that payment of a dividend or any other
payment to an affiliate (such as a payment under a tax allocation agreement or
for employee or other services or pursuant to a surplus debenture) would,
because of the financial condition of the paying insurance company or otherwise,
be hazardous to such insurance company's policyholders or creditors, the
regulators may block payment of such dividends or such other payment to the
affiliates that would otherwise be permitted without prior approval. See Note 8
to the Consolidated Financial Statements.
Change of Control Regulation
The states in which the Company's insurance subsidiaries are domiciled have
enacted legislation or adopted administrative regulations affecting the
acquisition of control of insurance companies as well as transactions between
insurance companies and persons controlling them. Most states require
administrative approval of the acquisition of control of an insurance company
incorporated in the state or the acquisition of control of an insurance holding
company whose insurance subsidiary is incorporated in the state. In Florida, the
acquisition of 5% of such shares is generally deemed to be the acquisition of
"control" for the purpose of the holding company statutes and requires not only
the filing of detailed information concerning the acquiring
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<PAGE> 31
parties and the plan of acquisition, but also administrative approval prior to
the acquisition. In the other states in which the Company's insurance
subsidiaries are domiciled, however, an acquisition of 10% of such shares is
generally deemed to be the acquisition of control. In many states, the insurance
authority may find that "control" in fact does or does not exist in
circumstances in which a person owns or controls either a lesser or a greater
amount of securities.
COMPETITION
The competitors of the Company consist of both stock and mutual insurance
companies. Some competing companies, both stock and mutual, have been in
business for a longer time, are more widely known by reason of such factors as
age and size, and have greater financial resources than the Company. However,
due to the specialized nature of the markets served and products offered, the
Company's competitors differ among the different geographic locations and market
segments in which the Company conducts business.
The Company's strategy is to establish profitable insurance underwriting
and to service business in distribution channels that are relatively free of
competition. In keeping with this strategy, the Company markets non-traditional
insurance products through non-traditional distribution channels.
LEGAL PROCEEDINGS
The Company and certain of its insurance subsidiaries are presently parties
to a number of individual consumer and class action lawsuits pending in Alabama
involving premium, rate and policy coverage issues. As has been widely reported
in the news media, the insurance and finance industries have been targeted in
Alabama by plaintiffs' lawyers who enjoy a favorable judicial climate. The
Company typically has been named as a co-defendant with one or several retailer
or finance companies who have sold the Company's product to a consumer. A number
of other credit insurers are named as co-defendants in many of the suits.
Although these lawsuits generally involve relatively small amounts of
actual or compensatory damages, they typically assert claims requesting
substantial punitive awards. The Company denies any wrongdoing in any of these
suits and believes that it has not engaged in any conduct that would warrant an
award of punitive damages. The Company has been advised by legal counsel that it
has meritorious defenses to all claims being asserted against it.
While no one case is necessarily significant in terms of financial risk to
the Company, the judicial climate in Alabama is such that the outcome of these
cases is extremely unpredictable. Without admitting any wrongdoing, the Company
has settled a number of these suits, but there are still a significant number of
cases pending, and it is expected that more suits alleging essentially the same
causes of action are likely to continue to be filed during 1996. The Company
intends to continue to defend itself vigorously against all such suits and
believes, based on information currently available, that any liabilities that
could result are not expected to have a material effect on the Company's
financial position.
The Company is involved with a number of cases in the ordinary course of
business relating to insurance matters or, more infrequently, general business
matters. Generally, the Company's liability is limited to specific amounts
relating to insurance or policy coverage for which provision has been made in
the financial statements. Other cases involve general corporate matters which
generally do not represent significant contingencies for the Company.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following description of the capital stock of the Company is qualified
in its entirety by reference to the Company's Third Amended and Restated
Articles of Incorporation (the "Restated Articles"), which has been filed with
and is available from the offices of the Commission as referred to under
"Available Information."
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The Restated Articles authorized the issuance of 38,500,000 shares of
capital stock of which 3,500,000 shares are designated preferred stock, no par
value ("Preferred Stock"), and 35,000,000 shares are designated common stock,
par value $1.00 per share. As of March 31, 1996, there were 350,000 shares of
Series A Preferred Stock reserved for issuance as Participating Preferred Stock
issuable under the Company's Shareholder Rights Plan ("Rights Plan"). As of
March 31, 1996, no shares of Convertible Preferred Stock and 20,383,602 shares
of the Common Stock were outstanding. Additionally, at March 31, 1996, 1,472,586
shares of Common Stock were reserved for issuance, for the exercise of stock
options and the conversion of certain debt securities of the Company. See
"Prospectus Summary -- The Offering." All outstanding shares of Common Stock are
fully paid and nonassessable and shares of Convertible Preferred Stock offered
hereby will, upon full payment of the purchase price therefor, be fully paid and
nonassessable, and Common Stock issuable upon conversion or redemption thereof
will be fully paid and nonassessable.
Under the Restated Articles, the Board of Directors of the Company may
provide for the issuance of Preferred Stock in one or more series and the Board
of Directors is authorized to fix the designation, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof, including, without
limitation, the voting powers, if any, the dividend rate, conversion rights,
redemption price, or liquidation preference of any series of shares of preferred
stock, pursuant to a certificate of designation, without any further vote or
action by the Company's stockholders.
The description set forth below of the Convertible Preferred Stock, the
Series A Preferred Stock and Common Stock are qualified in their entirety by
reference to the Restated Articles.
CONVERTIBLE PREFERRED STOCK
The Convertible Preferred Stock has been authorized as a new series of
preferred stock, consisting of 2,300,000 shares.
Dividends
Holders of shares of Convertible Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available therefor, cash dividends at an annual rate of $3.125 per share,
payable quarterly in arrears on February 1, May 1, August 1 and November 1 of
each year, commencing November 1, 1996 (with respect to the period from the date
of initial issuance of such shares of Convertible Preferred Stock to such date),
except that if any such date is a Saturday, Sunday or legal holiday then such
dividend will be payable on the next day that is not a Saturday, Sunday or legal
holiday. Dividends will accrue and be cumulative from such date of initial
issuance and will be payable to holders of record as they appear on the stock
transfer books on such record dates as are fixed by the Board of Directors
(provided that no record date shall be later than (a) the sixth business day
prior to the date fixed for any redemption of the Convertible Preferred Stock
or, (b) in the case of the dividend payment date occurring on August 1, 2000,
the tenth business day prior to such date).
The Convertible Preferred Stock will have priority as to dividends over the
Common Stock and, when and if issued, the Series A Preferred Stock described
below under "-- Series A Preferred Stock" and any other series or class of the
Company's stock hereafter issued that ranks junior as to dividends to the
Convertible Preferred Stock, when and if issued (collectively, "Junior Dividend
Stock"), and no dividend (other than dividends payable solely in stock that is
Junior Dividend Stock and that ranks junior to the Convertible Preferred Stock
as to distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (such stock that is junior as to
liquidation rights, "Junior Liquidation Stock") (the Common Stock and any other
capital stock of the Company that is both Junior Dividend Stock and Junior
Liquidation Stock, "Junior Stock")) may be paid on any Junior Dividend Stock,
and no payment may be made on account of the purchase, redemption, retirement,
or other acquisition of Junior Dividend Stock or Junior Liquidation Stock (other
than such acquisitions pursuant to employee or
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director incentive or benefit plans or arrangements, or in exchange solely for
Junior Stock), unless all accrued and unpaid dividends on the Convertible
Preferred Stock for all dividend payment periods ending on or before the date of
payment of such dividends on Junior Dividend Stock, or such payment for such
Junior Dividend Stock or Junior Liquidation Stock, as the case may be, have been
paid or declared and set apart for payment. The Company may not pay dividends on
the Convertible Preferred Stock unless it has paid or declared and set apart for
payment or contemporaneously pays or declares and sets apart for payment all
accrued and unpaid dividends for all dividend payment periods on any class or
series of stock having parity with the Convertible Preferred Stock as to
dividends ("Parity Dividend Stock") ratably, so that the amount of dividends
declared and paid per share on the Convertible Preferred Stock and such Parity
Dividend Stock will bear to each other and the same ratio that the accrued and
unpaid dividends to the date of payment on Convertible Preferred Stock and such
Parity Dividend Stock bear each other. No payment may be made on account of the
purchase, redemption, retirement or other acquisition of shares of Junior Stock,
Parity Dividend Stock or other class or series of the Company's capital stock
ranking on a parity with the Convertible Preferred Stock as to distributions of
assets upon liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary (such stock that has parity with the Convertible
Preferred Stock as to liquidation rights, "Parity Liquidation Stock") (other
than such acquisitions pursuant to employee or director or incentive or benefit
plans or arrangements, or in exchange solely for Junior Stock) unless all
accrued and unpaid dividends on the Convertible Preferred Stock for all dividend
payment periods ending on or before the date of payment on account of such
acquisition of such Parity Dividend Stock or Parity Liquidation Stock shall have
been paid or declared and set apart for payment.
The amount of dividends payable per share of Convertible Preferred Stock
for each quarterly dividend period will be computed by dividing the annual
dividend amount by four. The amount of dividends payable for the initial period
and for any period shorter than a full quarterly dividend period will be
computed on the basis of a 360-day year of twelve 30-day months. No interest
will be payable in respect of any dividend payment on the Convertible Preferred
Stock which may be in arrears.
Under Florida law, no dividend or distribution to holders of capital stock
may be made if, after giving effect to such dividend or distribution, the
Company would not be able to pay its debts as they become due in the usual
course of business, or the Company's total assets would be less than the sum of
its total liabilities plus the amount that would be needed if the Company were
to be dissolved at the time of the payment of such dividend or distribution, to
satisfy the preferential rights upon dissolution of holders of Senior
Liquidation Stock (as defined below). As the Company is a holding company with
no business operations, its primary source of cash are dividends and other
payments from its insurance subsidiaries. Its insurance subsidiaries' ability to
pay dividends without prior regulatory approval is limited by applicable laws
and regulations. The Company is also subject to restrictions on dividend
payments (including dividend payments on the Convertible Preferred Stock)
pursuant to the terms of certain of its financing arrangements. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources" and "Business -- Government
Regulation -- Dividend Regulation."
Liquidation Rights
In the case of the voluntary or involuntary liquidation, dissolution or
winding up of the Company, holders of shares of Convertible Preferred Stock are
entitled to receive the liquidation preference of $50 per share, plus an amount
equal to any accrued and unpaid dividends to the payment date, before any
payment or distribution is made to the holders of Common Stock or any Junior
Liquidation Stock, but the holders of the shares of the Convertible Preferred
Stock will not be entitled to receive the liquidation preference of such shares
until the liquidation preference of any other series or class of stock hereafter
issued that ranks senior as to liquidation rights to the Convertible Preferred
Stock ("Senior Liquidation Stock") has been paid in full. The holders of
Convertible Preferred Stock and all series or classes of stock hereafter issued
that rank on a parity as to distributions of assets upon such liquidation,
dissolution or winding up of the Company with the Convertible Preferred Stock
are entitled to share ratably, in accordance with the respective preferential
amounts payable on such stock, in any distribution (after payment of the
liquidation preference of the Senior Liquidation Stock) which is not sufficient
to pay in full the aggregate of the amounts payable thereon. After payment in
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full of the liquidation preference of the shares of the Convertible Preferred
Stock, the holders of such shares will not be entitled to any further
participation in any distribution of assets by the Company. Neither a
consolidation nor merger of the Company with another corporation nor a sale or
transfer of all or substantially all of the Company's property or assets will be
considered a liquidation, dissolution or winding up of the Company.
Voting Rights
The holders of the Convertible Preferred Stock will not have voting rights
except as described below or as required by law. In exercising any such vote,
each outstanding share of Convertible Preferred Stock will be entitled to one
vote, excluding shares held by any entity controlled by the Company, which
shares shall have no voting rights.
Whenever dividends on the Convertible Preferred Stock or any outstanding
shares of Parity Dividend Stock have not been paid in an aggregate amount equal
to at least six quarterly dividends on such shares (whether or not consecutive),
the number of members of the Company's Board of Directors will be increased by
two, and the holders of the Convertible Preferred Stock, voting separately as a
class with the holders of Parity Dividend Stock on which like voting rights have
been conferred and are exercisable, will be entitled to elect such two
additional directors who shall continue to serve so long as such dividends
remain in arrears. Such voting rights will terminate when all such dividends
accrued and unpaid have been declared and paid or set apart for payment. The
term of office of all directors so elected will terminate immediately upon the
termination of such voting rights and the number of members of the Board of
Directors will be reduced by two.
In addition, so long as any Convertible Preferred Stock is outstanding, the
Company will not, without the affirmative vote or consent of the holders of at
least 66 2/3% of all outstanding shares of Convertible Preferred Stock and
outstanding Parity Dividend Stock (voting as a single class), (i) amend, alter
or repeal (by merger or otherwise) any provision of the Restated Articles or the
bylaws so as to affect adversely the relative rights, preferences,
qualifications, limitations, or restrictions of the Convertible Preferred Stock
or (ii) effect any reclassification of the Convertible Preferred Stock.
Redemption at Option of the Company
The Convertible Preferred Stock may not be redeemed prior to August 7,
2000. On or after such date, the Convertible Preferred Stock may be redeemed by
the Company, at its option, in whole or in part at any time, subject to the
limitations, if any, imposed by applicable law, at a cash redemption price of
$51.88 per share, plus accrued and unpaid dividends to but excluding the
redemption date, if redeemed on or prior to August 6, 2001, and at the following
redemption prices per share, if redeemed during the 12-month period ending
August 6:
<TABLE>
<CAPTION>
REDEMPTION
PRICE
YEAR PER SHARE
-------------------------------------------------------------- ----------
<S> <C>
2002.......................................................... $51.56
2003.......................................................... 51.25
2004.......................................................... 50.94
2005.......................................................... 50.63
2006.......................................................... 50.31
</TABLE>
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and thereafter at $50 per share plus, in each case, accrued and unpaid dividends
to but excluding the redemption date. If fewer than all the outstanding shares
of Convertible Preferred Stock are to be redeemed, the Company will select those
shares to be redeemed pro rata or by lot or in such other manner as the Board of
Directors may determine to be fair. There is no mandatory redemption or sinking
fund obligation with respect to the Convertible Preferred Stock. If at any time
dividends on the Convertible Preferred Stock are in arrears, the Company may not
redeem less than all of the then outstanding shares of the Convertible Preferred
Stock until all accrued dividends for all past dividend periods have been paid
in full.
Notice of redemption will be mailed at least 30 days but not more than 90
days before the date fixed for redemption to each holder of record of shares of
Convertible Preferred Stock to be redeemed at the address shown on the stock
transfer books. No fractional shares of Convertible Preferred Stock will be
issued upon a redemption of less than all of the Convertible Preferred Stock,
but in lieu thereof, an appropriate amount will be paid in cash based on the
value for the shares of Convertible Preferred Stock as determined in good faith
by the Board of Directors. After the date fixed for redemption, dividends will
cease to accrue on the shares of Convertible Preferred Stock called for
redemption and other rights of the holders of such shares will terminate, except
the right to receive the redemption price without interest, and all conversion
privileges will terminate on the fifth business day prior to the date fixed for
redemption.
Conversion Rights
The holder of any shares of Convertible Preferred Stock will have the
right, at the holder's option, to convert any or all shares into Common Stock at
any time at the conversion rate (subject to adjustment as described below) of
0.9987 shares for each share of Convertible Preferred Stock, equivalent to an
initial conversion price of $50.065 for each share of Common Stock, except that
if the Convertible Preferred Stock is called for redemption, the conversion
right will terminate at 5:00 p.m. New York City time on the business day prior
to the date fixed for such redemption and if not exercised prior to such time,
such conversion right will be lost, unless the Company defaults in making the
payment due upon redemption. Except as provided in the next paragraph, no
payment or adjustment will be made upon any conversion of any share of
Convertible Preferred Stock or on account of any dividends on the Common Stock
issued upon conversion (except that if a converting holder of Convertible
Preferred Stock is eligible for a dividend on both the Convertible Preferred
Stock and the Common Stock issued upon conversion, the holder is entitled to the
higher of such dividend amounts). Following conversion, the holder will no
longer have any right to payment of dividends on the shares surrendered for
conversion. No fractional shares of Common Stock will be issued upon conversion
but, in lieu thereof, an appropriate amount will be paid in cash based on the
reported last sale price for the shares of Common Stock on the Nasdaq National
Market on the day of such conversion.
If the Company, by dividend or otherwise, declares or makes a distribution
on its Common Stock referred to in clause (iv) or (v) of the next following
paragraph, the holders of the Convertible Preferred Stock, upon the conversion
thereof subsequent to the close of business on the date fixed for the
determination of shareholders entitled to receive such distribution and prior to
the effectiveness of the conversion price adjustment in respect of such
distribution, will be entitled to receive for each share of Common Stock into
which each such share of Convertible Preferred Stock is converted the portion of
the shares of Common Stock, rights, warrants, evidences of indebtedness, shares
of capital stock, cash and assets so distributed applicable to one share of
Common Stock; provided, however, that the Company may, with respect to all
holders so converting, in lieu of distributing any portion of such distribution
not consisting of cash or securities of the Company, pay such holder cash equal
to the fair market value thereof (as determined by the Board of Directors).
The conversion price will be subject to adjustment in certain events
including, without duplication: (i) dividends (and other distributions) payable
in Common Stock on any class of capital stock of the Company; (ii) the issuance
to all holders of Common Stock of rights or warrants, or the occurrence of an
event under the Rights Agreement, entitling holders of such rights or warrants
to subscribe for or purchase Common Stock at less than the then current market
price (as defined); (iii) subdivisions and combinations of Common Stock; (iv)
distributions to all holders of Common Stock of evidences of indebtedness of the
Company, shares of capital stock, cash or assets (including securities, but
excluding those rights, warrants,
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dividends and distributions referred to above and dividends and distributions
paid exclusively in cash); and (v) distributions consisting of cash, excluding
(A) cash that is part of a distribution referred to in (iv) above, and (B) any
cash representing an amount per share of Common Stock of any quarterly cash
dividend to the extent it does not exceed the amount per share of Common Stock
of the next preceding quarterly cash dividend (as adjusted to reflect any of the
events referred to in clauses (i) through (v) of this sentence) or all of any
such quarterly cash dividends if the amount thereof per share of Common Stock
multiplied by four does not exceed 15% of the current market price (as defined)
of Common Stock on the trading day (as defined) next preceding the date of
declaration of such dividend. Following certain adjustments to the conversion
price, notice of such event will be mailed to the holders of the Convertible
Preferred Stock.
The foregoing adjustments to the conversion price are designed to
compensate the holders of the Convertible Preferred Stock for the value of the
cash, securities or other assets that they would have otherwise received had
they converted their Convertible Preferred Stock into shares of Common Stock
prior to such distribution. Such adjustment would generally result in a reduced
conversion price, which would entitle the holders of Convertible Preferred Stock
to receive a greater number of shares of Common Stock upon conversion of the
Convertible Preferred Stock into Common Stock.
The Company from time to time may reduce the conversion price by an amount
for any period of time of at least 20 days, in which case the Company shall give
at least 15 days' notice of such reduction, if the Board of Directors of the
Company has made a determination that such reduction would be in the best
interest of the Company, which determination shall be conclusive.
In the event that the Company is a party to any transaction (including,
without limitation, a merger, consolidation, sale of all or substantially all of
the Company's assets, recapitalization or reclassification of the Common Stock
(each of the foregoing being referred to as a "Company Transaction")), in each
case (except in the case of a Common Stock Fundamental Change (as defined)) as a
result of which shares of Common Stock shall be converted into the right to
receive securities, cash or other property, each share of the Convertible
Preferred Stock shall thereafter be convertible into the kind and amount of
securities, cash and other property receivable upon the consummation of such
Company Transaction by a holder of that number of shares of Common Stock into
which one share of the Convertible Preferred Stock was convertible immediately
prior to such Company Transaction (or in the case of a Common Stock Fundamental
Change, common stock of the kind received by the holders of Common Stock as a
result of such Common Stock Fundamental Change) (but after giving effect to any
adjustment discussed in the next paragraph relating to a Fundamental Change (as
defined) if such Company Transaction constitutes a Fundamental Change, and
subject to funds being legally available for such purpose under applicable law
at the time of such conversion).
Notwithstanding any other provision in the preceding paragraphs to the
contrary, if any Fundamental Change occurs, then the conversion price in effect
will be adjusted immediately after such Fundamental Change as described below.
In addition, in the event of a Common Stock Fundamental Change, each share of
the Convertible Preferred Stock shall be convertible solely into common stock of
the kind received by holders of Common Stock as the result of such Common Stock
Fundamental Change. For purposes of calculating any adjustment to be made
pursuant to this paragraph in the event of a Fundamental Change, immediately
after such Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change (as defined), the
conversion price of the Convertible Preferred Stock will thereupon become
the lower of (A) the conversion price in effect immediately prior to such
Non-Stock Fundamental Change, but after giving effect to any other prior
adjustments, and (B) the result obtained by multiplying the greater of the
Applicable Price (as defined) or the then applicable Reference Market Price
(as defined) by a fraction of which the numerator will be $50 and the
denominator will be the then current redemption price per share (or, for
periods prior to August 7, 2000, an amount per share determined in
accordance with the Restated Articles); and
(ii) in the case of a Common Stock Fundamental Change, the conversion
price of the Convertible Preferred Stock in effect immediately prior to
such Common Stock Fundamental Change, but after giving effect to any other
prior adjustments, will thereupon be adjusted by multiplying such
conversion price by a fraction, of which the numerator will be the
Purchaser Stock Price (as defined) and the
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denominator will be the Applicable Price; provided, however, that in the
event of a Common Stock Fundamental Change in which (A) 100% of the value
of the consideration received by a holder of Common Stock is common stock
of the successor, acquiror or other third party (and cash, if any, is paid
with respect to any fractional interests in such common stock resulting
from such Common Stock Fundamental Change) and (B) all of the Common Stock
will have been exchanged for, converted into, or acquired for, common stock
(and cash with respect to fractional interests) of the successor, acquiror
or other third party, the conversion price of the Convertible Preferred
Stock in effect immediately prior to such Common Stock Fundamental Change
will thereupon be adjusted by dividing such conversion price by the number
of shares of common stock of the successor, acquiror, or other third party
received by a holder of one share of Common Stock as a result of such
Common Stock Fundamental Change.
The foregoing conversion price adjustments in the event of a Non-Stock
Fundamental Change will apply in situations whereby all or substantially all of
the Common Stock is acquired in a transaction in which 50% or less of the value
received by holders of Common Stock consists of common stock that has been
admitted for listing on a national securities exchange or quoted on the Nasdaq
National Market. If the market price of the Common Stock immediately prior to a
Non-Stock Fundamental Change is lower than the applicable conversion price of
the Convertible Preferred Stock then in effect, the conversion price will be
adjusted as described in (i) above and the holders of the Convertible Preferred
Stock will be entitled to receive the amount and kind of consideration that
would have been received if the Convertible Preferred Stock had been converted
into Common Stock prior to the Non-Stock Fundamental Change after giving effect
to such adjustment.
The foregoing conversion price adjustments in the event of a Common Stock
Fundamental Change will apply in situations whereby more than 50% of the value
received by holders of Common Stock consists of common stock of another company
that has been admitted for listing on a national securities exchange or quoted
on the Nasdaq National Market, in which case the Convertible Preferred Stock
will become convertible into shares of common stock of the other company. If
consideration for the Common Stock consists partly of common stock of another
company and partly of other securities, cash or property, each share of
Convertible Preferred Stock will be convertible solely into a number of shares
of such common stock determined so that the initial value of such shares
(measured as described in the definition of Purchaser Stock Price below) equals
the value of the shares of Common Stock into which such share of Convertible
Preferred Stock Price below) equals the value of the shares of Common Stock into
which such share of Convertible Preferred Stock was convertible immediately
before the Transaction (measured as described in the definition of Applicable
Price below). If consideration for Common Stock is solely common stock of
another company, each share of Convertible Preferred Stock will be convertible
into the same number of shares of such common stock receivable by a holder of
the number of shares of Common Stock into which such share of Convertible
Preferred Stock was convertible immediately before such transaction.
Depending upon whether the Fundamental Change is a Non-Stock Fundamental
Change or Common Stock Fundamental Change, a holder may receive significantly
different consideration upon conversion. In the event of a Non-Stock Fundamental
Change, the holder has the right to convert each share of the Convertible
Preferred Stock into the kind and amount of shares of stock and other securities
or property or assets receivable by a holder of the number of shares of Common
Stock issuable upon conversion of such share of the Convertible Preferred Stock
immediately prior to such Non-Stock Fundamental Change, but after giving effect
to the adjustment described above. However, in the event of a Common Stock
Fundamental Change in which less than 100% of the value of the consideration
received by a holder of Common Stock is common stock of the acquiror or other
third party, a holder of a share of the Convertible Preferred Stock who converts
a share following the Common Stock Fundamental Change will receive consideration
in the form of such common stock only, whereas a holder who has converted his
share prior to the Common Stock Fundamental Change will receive consideration in
the form of common stock as well as any other securities or assets (which may
include cash) receivable thereupon by a holder of the number of shares of Common
Stock issuable upon conversion of such share of Convertible Preferred Stock
immediately prior to such Common Stock Fundamental Change.
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The term "Applicable Price" means (i) in the event of a Non-Stock
Fundamental Change in which the holders of the Common Stock receive only cash,
the amount of cash received by the holder of one share of Common Stock and (ii)
in the event of any other Non-Stock Fundamental Change or any Common Stock
Fundamental Change, the average of the Closing Prices (as defined) for the
Common Stock during the ten trading days (as defined) prior to and including the
record date for the determination of the holders of Common Stock entitled to
receive cash, securities, property or other assets in connection with such Non-
Stock Fundamental Change or Common Stock Fundamental Change, or, if there is no
such record date, the date upon which the holders of the Common Stock shall have
the right to receive such cash, securities, property or other assets, in each
case, as adjusted in good faith by the Board of Directors or the Company to
appropriately reflect any of the events referred to in clauses (i) through (v)
of the third paragraph of this Conversion Rights subsection.
The term "Closing Price" of any common stock means on any day the last
reported sale price regular way on such day or in case no sale takes place on
such day, the average of the reported closing bid and asked prices regular way
in each case on the Nasdaq National Market or, if the common stock is not quoted
on such system, on the principal national securities exchange or quotation
system on which such stock is listed or admitted to trading or quoted, or, if
not listed or admitted to trading on any national securities exchange or
quotation system, the average of the closing bid and asked prices in the
over-the-counter market on such day as reported by the National Quotation Bureau
Incorporated, or a similarly generally accepted reporting service, or, if not so
available in such manner, as furnished by any New York Stock Exchange Member
firm selected by the Company for that purpose.
The term "Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board of
Directors of the Company) of the consideration received by holders of Common
Stock consists of common stock that for each of the ten consecutive trading days
referred to in the second preceding paragraph has been admitted for listing or
admitted for listing subject to notice of issuance on a national securities
exchange or quoted on the Nasdaq National Market, provided, however, that a
Fundamental Change shall not be a Common Stock Fundamental Change unless either
(i) the Company continues to exist after the occurrence of such Fundamental
Change and the outstanding shares of Convertible Preferred Stock continue to
exist as outstanding Convertible Preferred Stock, or (ii) not later than the
occurrence of such Fundamental Change, the outstanding shares of Convertible
Preferred Stock are converted into or exchanged for shares of Convertible
Preferred Stock of a corporation succeeding to the business of the Company,
which Convertible Preferred Stock has powers, preferences and relative,
participating, optional or other rights, and qualifications, limitations and
restrictions, substantially similar to those of the Convertible Preferred Stock.
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with a plan pursuant to which all or substantially all of
the Common Stock shall be exchanged for, converted into, acquired for or
constitute solely the right to receive cash, securities, property or other
assets (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise) provided, in the case of a plan involving more than one such
transaction or event, for purposes of adjustment of the conversion price, such
Fundamental Change shall be deemed to have occurred when substantially all of
the Common Stock of the Company shall be exchanged for, converted into, or
acquired for or constitute solely the right to receive cash, securities,
property or other assets, but the adjustment shall be based upon the highest
weighted average per share consideration which a holder of Common Stock could
have received in such transactions or events as a result of which more than 50%
of the Common Stock of the Company shall have been exchanged for, converted
into, or acquired for or constitute solely the right to receive cash,
securities, property or other assets.
The term "Non-Stock Fundamental Change" means any Fundamental Change other
than a Common Stock Fundamental Change.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the Closing Prices for the common stock
received in such Common Stock Fundamental Change for the ten consecutive trading
days prior to and including the record date for the determination of the holders
of
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<PAGE> 39
Common Stock entitled to receive such common stock, or if there is no such
record date, the date upon which the holders of the Common Stock shall have the
right to receive such common stock, in each case, as adjusted in good faith by
the Board of Directors to appropriately reflect any of the events referred to in
clauses (i) through (v) of the third paragraph of this subsection; provided,
however, that if no such Closing Prices exist, the Purchaser Stock Price shall
be set at a price determined in good faith by the Board of Directors of the
Company.
The term "Reference Market Price" shall mean $26.92 (which is an amount
equal to 66 2/3% of the reported last sale price for the Common Stock on the
Nasdaq National Market on July 23, 1996) and in the event of any adjustment to
the conversion price other than as a result of a Fundamental Change, the
Reference Market Price shall also be adjusted so that the ratio of the Reference
Market Price to the conversion price after giving effect to any such adjustment
shall always be the same ratio of $26.92 to the initial conversion price
specified in the first sentence of this subsection.
Notwithstanding the foregoing provisions, the issuance of any shares of
Common Stock pursuant to any plan providing for the reinvestment of dividends or
interest payable on securities of the Company and the investment of additional
optional amounts in shares of Common Stock under any such plan, and the issuance
of any shares of Common Stock or options or rights to purchase such shares
pursuant to any employee benefit plan or program of the Company or pursuant to
any option, warrant, right or exercisable, exchangeable or convertible security
outstanding as of the date the Convertible Preferred Stock was first designated
(other than the occurrence of certain events under the Rights Agreement or
successor thereto), and any issuance of Rights (as defined) shall not be deemed
to constitute an issuance of Common Stock or exercisable, exchangeable or
convertible securities by the Company to which any of the adjustment provisions
described above applies. There shall also be no adjustment of the conversion
price in case of the issuance of any stock (or securities convertible into or
exchangeable for stock) of the Company, except as specifically described above.
If any action would require adjustment of the conversion price pursuant to more
than one of the provisions described above, only one adjustment shall be made
and such adjustment shall be the amount of adjustment which has the highest
absolute value to holders of the Convertible Preferred Stock. No adjustment in
the conversion price will be required unless such adjustment would require an
increase or decrease of at least 1% of the conversion price, but any adjustment
that would otherwise be required to be made shall be carried forward and taken
into account in any subsequent adjustment.
Lack of Established Market for the Convertible Preferred Stock
There is currently no public market for the Convertible Preferred Stock.
Although an application has been made for the listing of the Convertible
Preferred Stock on the Nasdaq National Market, there can be no assurance that an
active market for the Convertible Preferred Stock will develop or that, if the
Convertible Preferred Stock is approved for such listing, such listing will
continue while the Convertible Preferred Stock is outstanding. Future trading
prices for the Convertible Preferred Stock will depend on many factors,
including, among others, the Company's financial results, the market for similar
securities and the volume of trading activity in the Convertible Preferred
Stock.
Rights Agreement
Shares of Common Stock issued upon conversion of the Convertible Preferred
Stock, and prior to any Distribution Date (as defined in the Rights Agreement)
and the redemption or expiration of the Rights will also be issued with Rights
in accordance with the terms and conditions of the Rights Agreement referred to
below. See "-- Series A Preferred Stock."
Transfer Agent
The transfer agent of the Convertible Preferred Stock will be The Bank of
New York. The Company maintains a commercial banking relationship with The Bank
of New York. The Bank of New York is the Trustee for the Company's medium term
notes, is a participant in the Company's short-term credit facility and is a
client of the Company.
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<PAGE> 40
SERIES A PREFERRED STOCK
The Series A Preferred Stock is issuable pursuant to purchase rights( the
"Rights") attributable to each outstanding share of Common Stock under the
Rights Agreement between the Company and the Chase Bank (the "Rights
Agreement"). Under certain conditions, each right may be exercised to purchase
1/100th of a share of Series A Preferred Stock for $31.00, subject to
adjustment. The rights are not exercisable or transferable apart from the Common
Stock until the "Distribution Date" which would occur on the earlier of the
following: (i) ten days after the date of a public announcement that a person or
a group has become the beneficial owner of 15% or more of the shares of the
Common Stock then outstanding (an "Acquiring Person") or (ii) ten business days
after a public announcement by a person or group of a tender offer which would
result in such person or group beneficially owning 15% or more of the shares of
Common Stock then outstanding.
Upon the occurrence of a "Flip In Event," each Right, other than those held
by an Acquiring Person causing such occurrence, will entitle the holder to
purchase Common Stock or, in certain circumstances, cash, property or other
securities having value equal to two times the purchase price of the right. A
Flip In Event occurs if: (i) the Company is the surviving corporation in a
merger with an Acquiring Person and the Company's Common Stock remains
outstanding and unchanged; (ii) an Acquiring Person is or becomes the beneficial
owner of 15% or more of the then outstanding shares of the Company's Common
Stock, except as set forth in the Rights Agreement; (iii) an Acquiring Person
engages in one or more "self-dealing" transactions as set forth in the Rights
Agreement; or (iv) there is an recapitalization, reclassification or similar
transaction involving the Company, which has the effect of increasing by more
than 1% of an Acquiring Person's proportionate share of the beneficial ownership
of the outstanding shares of any class of equity securities or securities
exercisable for or convertible into equity securities of the Company or any of
the Company's subsidiaries.
If at any time on or after the Distribution Date (i) the Company is
acquired in a merger or other business combination transaction in which the
Company is not the surviving corporation (or is the surviving corporation but
the Company's Common Stock is changed or exchanged), or (ii) more than 50% of
the Company's assets or earning power is sold or transferred, then each holder
of a Right, except the Acquiring Person, shall thereafter have the right to
receive, upon exercise of the Right, Common Stock of the acquiring entity having
a value equal to two times the Purchase Price of the Right.
The Rights, which do not have voting privileges, are subject to adjustment
to prevent dilution, expire on March 10, 1998 and may be redeemed by the Company
at a price of one cent per right at any time until ten days following the
Distribution Date. See "-- Common Stock -- Limitation on Changes in Control."
COMMON STOCK
Dividends and Voting Rights
Subject to the dividend preferences of any outstanding shares of Preferred
Stock, all shares of Common Stock are entitled to participate in such dividends
as may be declared by the Board of Directors of the Company out of assets
available for the payment thereof. See "Business Government
Regulation -- Dividend Regulation." The holders of the Common Stock are entitled
to one vote for each share held on all matters submitted to stockholders.
Provisions of the Restated Articles and Bylaws
The Restated Articles provides for a classified Board of Directors,
consisting of three classes as nearly equal in size as practicable. Each class
holds office until the third annual stockholders' meeting electing directors
following the most recent election of such class. A director may only be removed
with the consent or vote of the holders of 75% of all classes of stock entitled
to vote at an election of directors. Vacancies on the Board of Directors may be
filled only by a majority vote of the directors in the class in which such
vacancy occurs, if none so remain, by a majority vote of the directors of the
other two classes.
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Under the Restated Articles, the vote of holders of 85% of the voting stock
of the Company (including the affirmative vote of at least 50% of the shares
entitled to vote other than those of any 30% shareholder) is required for
approval upon (i) a merger or consolidation of the Company with or into another
corporation; (ii) a sale or lease exchange, mortgage, pledge, transfer or other
disposition of all of the assets of the Company or any majority subsidiaries
having an aggregate fair market value of $5,000,000 or more to another
corporation, person or entity; and (iii) an issuance or transfer by the Company
or certain subsidiaries of the Company of securities of the Company or such
subsidiary having an aggregate fair market value of $5,000,000 or more, in each
case where the other party to the transaction is a beneficial owner, directly or
indirectly, of 30% or more of the outstanding shares of any class or series of
voting stock of the Company with certain exceptions. Any amendment to the
Restated Articles which would amend the foregoing requirements requires the same
affirmative vote unless the amendment was recommended to the shareholders by at
least a majority of the entire Board of Directors and by at least two-thirds of
the continuing directors. Continuing directors or those directors who were
members of the Board of Directors elected by the public holders prior to the
date as of which any 30% shareholder acquires in excess of 5% of the then
outstanding Common Stock, or persons designated as continuing directors by a
majority of the continuing directors.
Section 607.0901 of the Florida Business Corporation Act
The Company is a Florida corporation subject to Section 607.0901 of the
Florida Business Corporation Act. Generally, Section 607.0901 prohibits a
publicly held Florida corporation from engaging in an "affiliated transaction"
with an "interested stockholder" unless: (i) the affiliated transaction is
approved by the affirmative vote of the holders of two-thirds of the voting
shares not including shares beneficially owned by the interested shareholder;
(ii) the affiliated transaction has been approved by a majority of the
disinterested directors; (iii) the interested shareholder has been the
beneficial owner of at least 80 percent of the corporation's outstanding voting
shares for at least 5 years preceding the announcement date; (iv) the interested
shareholder is the beneficial owner of at least 90 percent of the outstanding
voting shares of the corporation, exclusive of shares acquired directly from the
corporation in a transaction not approved by a majority of the disinterested
directors; or (v) in the affiliated transaction, consideration paid to the
holders of each class or series of voting shares would satisfy the requirements
of Section 601.0901. An "affiliated transaction" includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns 10% or more of the corporation's outstanding
voting stock.
Limitation on Changes in Control
Certain of the above provisions of the Restated Articles and the
Convertible Preferred Stock and Section 607.0901 could have the effect of
delaying, deferring or preventing a change in control of the Company or the
removal of existing management or deterring potential acquirors from making an
offer to stockholders of the Company. This could be the case notwithstanding
that a majority of the stockholders might benefit from such a change in control
or offer. In addition, the issuance of shares of Preferred Stock, or the
issuance of rights to purchase such shares, could be used to discourage an
unsolicited acquisition proposal. See "Business -- Government
Regulation -- Change of Control Regulation."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain Federal income tax
considerations relevant to the purchase, ownership and disposition of the
Convertible Preferred Stock, but it does not purport to be a complete analysis
of all Federal income tax considerations that may affect persons investing in
the Convertible Preferred Stock. The discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury regulations, and IRS
rulings and judicial decisions now in effect, all of which are subject to change
at any time, possibly with retroactive effect.
The following information is directed to purchasers of the Convertible
Preferred Stock on original issue who are U.S. citizens or residents (or U.S.
corporations) and who will hold the Convertible Preferred Stock as
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<PAGE> 42
a "capital asset" within the meaning of Section 1221 of the Code. The summary
does not address certain rules applicable to holders subject to special
treatment under Federal income tax laws, such as dealers in securities, banks,
insurance companies and tax-exempt organizations, and it does not discuss state,
local or foreign tax law. The summary also does not discuss all aspects of
Federal income taxation that may be relevant to a particular holder in light of
his or its individual investment circumstances.
The Company has not sought, nor does it intend to seek, a ruling from the
IRS as to any of the matters covered by the discussion, and there can be no
assurance that the IRS will not successfully challenge certain of the
conclusions reached in the discussion.
BECAUSE THE U.S. FEDERAL INCOME TAX CONSEQUENCES DISCUSSED BELOW DEPEND
UPON EACH HOLDER'S PARTICULAR TAX STATUS , AND DEPEND FURTHER UPON U.S. FEDERAL
TAX LAWS, REGULATIONS, RULINGS AND DECISIONS THAT ARE SUBJECT TO CHANGE (WHICH
CHANGES MAY BE RETROACTIVE IN EFFECT), PROSPECTIVE INVESTORS SHOULD CONSULT
THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF AN
INVESTMENT IN THE CONVERTIBLE PREFERRED STOCK, INCLUDING, BUT NOT LIMITED TO,
THE APPLICATION AND EFFECT OF ANY STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, AS
WELL AS THE CONSEQUENCES OF ANY RECENT, PENDING OR PROPOSED CHANGES IN
APPLICABLE LAWS.
DIVIDENDS ON CONVERTIBLE PREFERRED STOCK
Dividends paid on the Convertible Preferred Stock will be taxable to a
holder as ordinary dividend income to the extent paid out of current or
accumulated earnings and profits of the Company, as determined for Federal
income tax purposes. To the extent that a distribution on the Convertible
Preferred Stock to a holder is not made out of the Company's current or
accumulated earnings and profits, such distribution will first be treated as a
return of capital that will reduce the holder's adjusted tax basis in such
Convertible Preferred Stock, and then, to the extent that the distribution
exceeds the holder's adjusted tax basis in such Convertible Preferred Stock, the
excess will be taxed as a capital gain. Such gain will be long-term capital gain
if the holder's holding period for such Convertible Preferred Stock is more than
one year. The Company believes that its current and accumulated earnings and
profits should be sufficient to cause distributions on the Convertible Preferred
Stock to be taxable as dividend income, but no assurance can be given as to such
treatment.
Subject to certain limitations described below, corporations holding
Convertible Preferred Stock that receive dividends paid out of the company's
current or accumulated earnings and profits will be eligible for a
dividends-received deduction. The deduction will equal 70% of the dividends
received if the corporation receiving the dividend owns less than 20% (in voting
power or value) of the stock of the Company.
Prospective corporate investors in the Convertible Preferred Stock should
consider the effect of (i) Section 246A of the Code, which reduces the
dividends-received deduction allowed to a corporate stockholder that has
incurred indebtedness that is "directly attributable" to an investment in
portfolio stock such as the Convertible Preferred Stock, (ii) Section 246(c) of
the Code, which, among other things, disallows the dividends-received deduction
in respect of any dividend on a share of stock that is held for less than the
minimum holding period (which generally must include at least 46 days, but which
may exclude in certain instances periods during which the holder's risk of loss
is diminished), and (iii) Section 1059 of the Code, which, under certain
circumstances and subject to certain limitations, requires a corporate holder to
reduce (but not below zero) the adjusted basis of any stock it holds for
purposes of calculating gain or loss upon any subsequent disposition of the
share of Convertible Preferred Stock by the "nontaxed portion" of any
"extraordinary dividend." Where the basis reduction would otherwise reduce the
tax basis of Convertible Preferred Stock below zero, the holder must also
recognize gain to that extent upon any disposition of such stock. Generally, the
nontaxed portion of an extraordinary dividend is the amount excluded from income
under the dividends-received deduction. An extraordinary dividend on preferred
stock, such as the Convertible
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Preferred Stock, is a dividend that (i) equals or exceeds five percent of the
holder's adjusted tax basis in the stock (taking into account any prior
reduction in basis under Section 1059 as a result of any prior extraordinary
dividend), treating all dividends having ex-dividend dates within an 85-day
period as one dividend, or (ii) exceeds 20 percent of the holder's adjusted tax
basis in the stock, treating all dividends having ex-dividend dates within a
365-day period as one dividend. An extraordinary dividend would also include any
amount treated as a dividend in the case of a redemption that is either non-pro
rata as to all stockholders or in partial liquidation of the Company, regardless
of the relative amount of the dividend and regardless of the corporate holder's
holding period for the Convertible Preferred Stock. Recently proposed
legislation would require immediate recognition of gain, rather than reduction
of basis for purposes of calculating gain or loss on a subsequent disposition of
stock, where the basis of stock would otherwise be reduced below zero under the
foregoing rules. The proposal would also limit the basis of stock taken into
account for this purpose to the basis of shares redeemed if a redemption of
stock were treated as a dividend because options were treated as stock under the
constructive ownership rules referred to below under the caption "Redemption of
Convertible Preferred Stock." The Company is unable to predict whether this or
any similar proposal will be enacted and, if enacted, its form and effective
date.
For purposes of the corporate alternative minimum tax, alternative minimum
taxable income is increased by 75% of the amount by which a corporation's
adjusted current earnings in a taxable year exceeds its alternative minimum
taxable income computed without regard to such item. The amount of any dividend
that is included in adjusted current earnings generally will not be reduced by
an 70% dividends-received deduction otherwise allowed with respect to the
dividend.
SALE OR EXCHANGE OF CONVERTIBLE PREFERRED STOCK
Upon a sale or exchange of Convertible Preferred Stock (other than an
exchange made for Common Stock pursuant to the conversion privilege provided for
under the terms of the Convertible Preferred Stock) a holder will generally
recognize gain or loss for Federal income tax purposes in an amount equal to the
difference between (i) the amount of cash plus the fair market value of any
property received upon such sale or exchange and (ii) the holder's adjusted tax
basis in the stock being sold. Such gain or loss will be long-term capital gain
or loss if the stock has been held by the holder for more than one year.
REDEMPTION OF CONVERTIBLE PREFERRED STOCK
A redemption of the Convertible Preferred Stock will be a taxable event.
Such a redemption will be treated as a sale of such Convertible Preferred Stock
by the holder if the redemption (i) results in a "complete termination" of the
holder's stock interest in the Company under Section 302(b)(3) of the Code, (ii)
is "substantially disproportionate" with respect to the holder under Section
302(b)(2) of the Code, or (iii) is "not essentially equivalent to a dividend"
with respect to the holder under Section 302(b)(1) of the Code. In determining
whether any of these tests has been met, shares of stock considered to be owned
by the holder by reason of certain constructive ownership rules set forth in
Section 318 of the Code, as well as shares actually owned, generally must be
taken into account. A holder of shares of Convertible Preferred Stock that are
redeemed in a redemption pursuant to the terms of the Convertible Preferred
Stock that meets one of the tests described above will recognize taxable gain or
loss equal to the difference between (A) the amount of cash received by the
holder (less any portion thereof attributable to accumulated and declared but
unpaid dividends, which generally would be taxed as ordinary income) and (B)
that holder's tax basis in the Convertible Preferred Stock redeemed. Such gain
or loss will be capital gain or loss and will be long-term or short-term
depending on the holder's holding period for the Convertible Preferred Stock
redeemed.
If a redemption does not meet any of the tests described above, the cash
and the fair market value of property (except, in some circumstances, stock of
the Company or a successor thereto) received by the holder will be taxed as a
dividend to the extent paid out of the Company's current or accumulated earnings
and profits. If a redemption of the Convertible Preferred Stock is treated as a
distribution that is taxable as a dividend, the holder's basis in the redeemed
Convertible Preferred Stock will be transferred to the holder's remaining shares
of the Company's stock (if any).
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CONVERSION OF CONVERTIBLE PREFERRED STOCK
No gain or loss will generally be recognized for Federal income tax
purposes on conversion of the Convertible Preferred Stock solely into Common
Stock. However, if the conversion takes place when there is a dividend arrearage
on the Convertible Preferred Stock, it is possible that a portion of the Common
Stock received might be treated as a taxable dividend to the extent of such
dividend arrearage. Except for any Common Stock treated as payment of a
dividend, the tax basis for the Common Stock received upon conversion (including
any fractional share deemed received) will be the tax basis of the convertible
Preferred Stock converted, and the holding period of the Common Stock received
upon conversion (including any fractional share deemed received) will include
the holding period of the Convertible Preferred Stock converted into such Common
Stock. The receipt of cash in lieu of a fractional share upon conversion of
Convertible Preferred Stock to Common Stock will, upon receipt of cash,
generally be treated as a sale of such fractional share of Common Stock in which
the holder will recognize taxable gain or loss equal to the difference between
the amount of cash received and the holder's tax basis in the fractional share
redeemed. Such gain or loss will be capital gain or loss and will be long-term
or short-term depending on the holder's holding period for the fractional share
redeemed.
ADJUSTMENTS TO CONVERSION PROVISIONS
Treasury regulations issued under Section 305 of the Code treat certain
adjustments to conversion provisions of stock such as the Convertible Preferred
Stock as constructive distributions of stock with respect to preferred stock.
Such constructive distributions of stock would be taxable to holders of
Convertible Preferred Stock as described above under the caption "Dividends on
Convertible Preferred Stock." Any adjustment increasing the number of shares of
Common Stock into which the Convertible Preferred Stock can be converted could
constitute a constructive distribution of stock to holders of Convertible
Preferred Stock unless made pursuant to a bona fide, reasonable adjustment
formula that has the effect of preventing dilution of the interest of the
holders of Convertible Preferred Stock. Any adjustment in the conversion price
to compensate for taxable distributions of cash or property on any of the
outstanding Common Stock of the Company will be treated as a constructive
distribution of stock to holders of Convertible Preferred Stock. The Company is
unable to predict whether any such adjustment will be made.
BACKUP WITHHOLDING
Certain non-corporate holders of the Convertible Preferred Stock may be
subject to backup withholding at the rate of 31% with respect to dividends paid
on, or the proceeds of a sale or exchange of, the Convertible Preferred Stock or
Common Stock. Generally, backup withholding applies only when the taxpayer (i)
fails to furnish or certify his correct taxpayer identification number to the
payor in the manner required, (ii) is notified by the IRS that he has failed to
report payments of interest and dividends properly or (iii) under certain
circumstances, fails to certify that he has not been notified by the IRS that he
is subject to backup withholding for failure to report interest and dividend
payments. Any amounts withheld under the backup withholding rules will be
allowed as a refund or credit against a holder's U.S. Federal income tax
liability, provided such holder furnishes the required information to the IRS.
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UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated July 23, 1996 (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters"), for whom CS First Boston Corporation,
Donaldson, Lufkin & Jenrette Securities Corporation, Furman Selz LLC and
McDonald & Company Securities, Inc. are acting as representatives (the
"Representatives"), have severally but not jointly agreed to purchase from the
Company the following respective numbers of shares of Convertible Preferred
Stock:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
CONVERTIBLE
PREFERRED
UNDERWRITER STOCK
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<S> <C>
CS First Boston Corporation....................................... 450,000
Donaldson, Lufkin & Jenrette Securities Corporation............... 450,000
Furman Selz LLC................................................... 450,000
McDonald & Company Securities, Inc................................ 450,000
Advest, Inc. ..................................................... 50,000
The Chicago Corporation........................................... 50,000
Deutsche Morgan Grenfell/C.J. Lawrence Inc. ...................... 50,000
The Robinson-Humphrey Company, Inc. .............................. 50,000
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Total................................................... 2,000,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the Convertible Preferred
Stock offered hereby (other than those shares of Convertible Preferred Stock
covered by the over-allotment option described below) if any are purchased. The
Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances the purchase commitments of non-defaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
American Bankers has granted the Underwriters an option, expiring at the
close of business on the 30th day after the date of this Prospectus, to purchase
up to 300,000 additional shares of Convertible Preferred Stock at the initial
public offering price less the underwriting discounts and commissions, all as
set forth on the cover page of this Prospectus. Such option may be exercised
only to cover over-allotments in sale of shares of Convertible Preferred Stock.
To the extent such option is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares of Convertible Preferred Stock as it was obligated to
purchase pursuant to the Underwriting Agreement.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Convertible Preferred Stock to the public initially at the
public offering price set forth on the cover page of this Prospectus and,
through the Representatives, to certain dealers at such price less a concession
of $0.82 per share of Convertible Preferred Stock and the Underwriters and such
dealers may allow a discount of $0.10 per share of Convertible Preferred Stock
on sales to certain other dealers. After the initial public offering, the public
offering price and concession and discount to dealers may be changed by the
Representatives.
During the period commencing July 23, 1996 and continuing for 90 days, the
Company and its directors and certain executive officers have agreed that,
without CS First Boston Corporation's written permission, they will not offer,
sell, or contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under the
Securities Act relating to, any additional shares of Convertible Preferred Stock
or Common Stock or securities convertible into or exchangeable or exercisable
for any shares of Convertible Preferred Stock or Common Stock or publicly
disclose of its intention to make any offer, sale, pledge, disposal or filing
except for 30,000 shares of Common Stock acquired under one of the Company's
stock option plans.
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<PAGE> 46
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or contribute
to payments which the Underwriters may be required to make in respect thereof.
Eugene M. Matalene, Jr., a director of the Company, is a Managing Director
of Corporate Finance at Furman Selz LLC, a managing underwriter of this
offering. The Company has engaged and intends in the future to engage Furman
Selz LLC in connection with such financial matters as it deems appropriate.
Certain of the Underwriters and their affiliates have from time to time
performed, and continue to perform, various investment banking and commercial
banking services for the Company for which they have received customary
compensation.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Convertible Preferred Stock in Canada is being made
only on a private placement basis exempt from the requirement that the Company
prepare and file a prospectus with the securities regulatory authorities in each
province where trades of Convertible Preferred Stock are affected. Accordingly,
any resale of the Convertible Preferred Stock in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the Convertible
Preferred Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Convertible Preferred Stock in Canada who receives a
purchase confirmation will be deemed to represent to the Company and the dealer
from whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such
Convertible Preferred Stock without the benefit of a prospectus qualified under
such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has reviewed
the text above under "Resale Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights for damages or recission or rights of action under the civil
liability provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Convertible Preferred Stock to whom the Securities Act
(British Columbia) applies is advised that such purchaser is required to file
with the British Columbia Securities Commission a report within ten days of the
sale of any Convertible Preferred Stock acquired by such purchaser pursuant to
this offering. Such report must be in the form attached to British Columbia
Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained
from the Company. Only one such report must be filed in
46
<PAGE> 47
respect of the Convertible Preferred Stock acquired on the same date and under
the same prospectus exemption.
LEGAL MATTERS
The validity of the Convertible Preferred Stock and any American Bankers
Common Stock issuable upon conversion of such Convertible Preferred Stock will
be passed upon for American Bankers by Jorden Burt Berenson & Johnson LLP and
certain matters will be passed upon or on behalf of the Underwriters by Dewey
Ballantine. Dewey Ballantine will rely upon the opinion of Jorden Burt Berenson
& Johnson LLP with respect to certain matters regarding Florida law. James F.
Jorden, a director of the Company, is a partner in the law firm of Jorden Burt
Berenson & Johnson LLP, which law firms serves as the Company's general counsel.
Mr. Jorden owns directly and indirectly 2,850 shares of Common Stock and holds
options to acquire 3,000 shares of Common Stock under the Company's Non-Employee
Directors' Stock Option Plan.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995, incorporated in this Prospectus by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 have been so
incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
47
<PAGE> 48
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 3
Prospectus Summary.................... 4
The Company........................... 9
Use of Proceeds....................... 11
Price Range of Common Stock and
Dividends........................... 11
Capitalization........................ 12
Selected Historical Consolidated
Financial and Operating Data........ 13
Management's Discussion and Analysis
of Results of Operations and
Financial Condition................. 15
Business.............................. 21
Description of Capital Stock.......... 31
Certain United States Federal Income
Tax Considerations.................. 41
Underwriting.......................... 45
Notice to Canadian Residents.......... 46
Legal Matters......................... 47
Experts............................... 47
</TABLE>
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[ABIG LOGO]
2,000,000 Shares
$3.125 Series B Cumulative
Convertible Preferred Stock
(liquidation preference $50 per share)
PROSPECTUS
CS First Boston
Donaldson, Lufkin & Jenrette
Securities Corporation
Furman Selz
McDonald & Company
Securities, Inc.
- ------------------------------------------------------
