SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): August 13, 1996
AmVestors Financial Corporation
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Kansas
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
48-1021516
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(I.R.S. Employer Identification Number)
0-15330
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(Commission File Number)
415 Southwest Eighth Avenue, Topeka, Kansas 66603
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (913) 232-6945
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<PAGE>
Item 5. Other Events.
Attached is additional information regarding AmVestors Financial
Corporation, a Kansas corporation (the "Company") and the corporation formerly
known as Financial Benefit Group, a Florida corporation ("FBG"), which was
recently acquired by the Company and is now a wholly- owned subsidiary of the
Company.
Summary Financial Data
The Company. The following table summarizes certain selected financial data
of the Company derived from the historical consolidated financial statements of
the Company and related notes thereto. The information in this table does not
reflect the effect of the acquisition of FBG, which occurred April 8, 1996.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1996 1995
---------- -----------
(dollar amounts in
thousands, except
per share data)
<S> <C> <C>
Total revenue ............................................................................................. $ 49,278 $ 40,212
Operating earnings (loss) ................................................................................. 11,456 5,430
Net earnings (loss) ....................................................................................... 7,421 3,516
Earnings (loss) per share of common stock:
Primary ........................................................................................ 0.71 0.34
Fully diluted .................................................................................. 0.71 0.34
Dividends ................................................................................................. 0.075 --
Total assets .............................................................................................. 2,475,623 2,284,359
Total debt ................................................................................................ 7,000 --
Stockholders' equity ...................................................................................... 149,282 117,894
Fully diluted book value per share ........................................................................ 14.14 11.38
Other balance sheet data (excluding effects of SFAS No. 115)<F1>:
Total assets ................................................................................... 2,454,953 2,281,489
Stockholders' Equity ........................................................................... 135,846 115,024
Fully diluted book value per share ............................................................. 12.93 11.12
Other operating data:
Operating earnings (loss), excluding net investment gains (losses)
and related amortization of deferred acquisition costs<F2>.................................... 6,281 5,444
Net operating earnings (loss); excluding net investment gains (losses) and
related amortization of deferred acquisition costs and associated income taxes<F3>............ 4,113 3,539
Net operating earnings (loss), excluding net investment gains (losses) and related
amortization of deferred acquisition costs and associated income taxes, per common share<F4>:
Primary ...................................................................... $ 0.39 $ 0.34
Fully Diluted ................................................................ 0.39 0.34
Average shares outstanding:
Primary ...................................................................... 10,427 10,251
Fully diluted ................................................................ 10,493 10,292
Other data:
Ratio of earnings to fixed charges<F5> ......................................................... 91.6x 258.6x
Ratio of earnings to fixed charges pro forma<F5><F6>............................................ 76.4 --
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total revenue .......................................................... $ 166,651 $ 149,700 $ 162,523 $ 175,708 $ 173,372
Operating earnings (loss) .............................................. 25,206 19,286 27,749 19,761 10,577
Net earnings (loss) .................................................... 16,599 13,693 17,978 16,818 10,119
Earnings (loss) per share of common stock:
Primary ..................................................... 1.60 1.32 2.59 2.87 1.84
Fully diluted ............................................... 1.60 1.32 2.46 2.56 1.84
Dividends .............................................................. 0.075 -- -- -- --
Total assets ........................................................... 2,476,204 2,260,021 2,114,696 2,090,136 1,959,071
Total debt ............................................................. 7,000 -- -- 19,859 28,437
Stockholders' equity ................................................... 174,445 104,196 100,345 49,463 30,936
Fully diluted book value per share ..................................... 16.43 10.16 9.70 7.50 5.13
Other balance sheet data (excluding effects of SFAS No. 115)<F1>:
Total assets ................................................ 2,406,402 2,267,834 2,114,696 2,090,136 1,959,071
Stockholders' Equity ........................................ 129,073 112,009 100,345 49,463 30,936
Fully diluted book value per share .......................... 12.33 10.89 9.61 7.50 5.13
Other operating data:
Operating earnings (loss), excluding net investment
gains (losses) and related amortization of deferred
acquisition costs<F2> ..................................... 24,412 18,687 15,491 7,887 2,871
Net operating earnings (loss); excluding net investment
gains (losses) and related amortization of deferred
acquisition costs and associated income taxes<F3> ......... 15,910 13,064 10,733 4,012 1,037
Net operating earnings (loss), excluding net investment
gains (losses) and related amortization of deferred
acquisition costs and associated income taxes, per
common share<F4>:
Primary ................................... $ 1.54 $ 1.26 $ 1.54 $ 0.68 $ 0.19
Fully Diluted ............................. 1.53 1.26 1.47 0.61 0.19
Average shares outstanding:
Primary ................................... 10,354 10,341 6,860 5,770 5,508
Fully diluted ............................. 10,404 10,341 7,315 6,567 5,510
Other data:
Ratio of earnings to fixed charges<F5> ...................... 327.4x -- 27.9x 8.1x 2.5x
Ratio of earnings to fixed charges pro forma<F5><F6> ........ 319.1 -- -- -- --
- ----------
<FN>
<F1> "Other balance sheet data (excluding effects of SFAS No. 115)" is a non-GAAP measure, used by investment analysts to understand
a company's financial position, and is not intended as an alternative to the GAAP measures of assets, liabilities or
stockholders' equity.
<F2> Amounts shown reflect operating earnings (earnings before interest expense and taxes) adjusted to exclude net investment gains
(losses) and accelerated (reduced) amortization of deferred acquisition costs related to such investment gains (losses).
Amortization of deferred acquisition costs related to net investment gains (losses) excluded were: $2.0 million and $-0-
million for the three months ended March 31, 1996 and 1995, respectively, and $.2 million, $.2 million, $4.8 million, $8.7
million, and $8.8 million for the years ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively. Such other operating
data is a non-GAAP measure, used by investment analysts to understand the nature of a company's recurring results of
operations, and is not intended as an alternative to the GAAP measures of operating earnings or net earnings. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- The Company -- Margin Analysis."
<F3> Represents operating earnings after taxes adjusted to exclude net investment gains (losses) and accelerated (reduced)
amortization of deferred acquisition costs related to such investment gains (losses) and to exclude associated income tax
expense. See Note 1 above.
<F4> Related per share amounts are computed by dividing net operating earnings, as defined above, by the sum of weighted average
number of shares outstanding during the period plus dilutive common stock equivalents applicable to stock options and warrants.
See Notes 1 and 2 above.
<F5> For purposes of calculating the ratio of earnings to fixed charges, earnings consist of operating earnings which is before
income taxes and fixed charges. Fixed charges consist of interest expense on debt.
<F6> Assumes the replacement of existing debt under the Company's Credit Facility with proceeds of the recent Offering by the
Company of its 3% Convertible Subordinated Debentures.
</TABLE>
Summary Financial Data
FBG. The following table summarizes certain selected financial data of FBG
derived from the historical consolidated financial statements of FBG and related
notes thereto.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
--------------------- -------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- --------- --------- --------- ---------- --------- ----------
(dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue ...................................... $ 11,402 $ 13,440 $ 54,224 $ 51,063 $ 79,969 $ 81,204 $ 73,954
Operating earnings (loss) .......................... (471) 2,228 7,817 4,657 15,448 14,174 7,051
Net earnings (loss) ................................ (519) 1,284 4,601 726 9,118 9,966 6,129
Earnings (loss) per share of common stock:
Primary ................................. $ (0.06) $ 0.15 $ 0.53 $ 0.09 $ 1.11 $ 1.33 $ 0.89
Fully diluted ........................... (0.06) 0.15 0.53 0.09 0.51 1.19 0.87
Cash Dividends ..................................... -- -- -- -- -- -- --
Total assets ....................................... 711,581 731,453 719,945 730,903 789,569 787,607 769,274
Total debt ......................................... 15,500 16,000 15,500 16,000 15,000 15,000 1,627
Stockholders' equity ............................... 36,594 31,207 41,037 27,276 29,476 20,020 9,587
Fully diluted book value per share ................. 4.09 3.54 4.56 3.13 3.36 2.43 1.27
Other balance sheet data:
(excluding effects of SFAS No. 115)<F1>:
Total assets ............................ 708,403 731,948 710,517 734,281 789,569 787,607 769,274
Stockholders' equity .................... 34,592 31,702 35,005 30,654 29,476 20,020 9,587
Fully diluted book value per share ...... 3.88 3.59 3.93 3.48 3.36 2.43 1.27
Other operating data:
Operating earnings (loss), excluding
net investment gains (losses) and
related amortization of deferred
acquisition costs<F2>.................. (554) 1,982 6,809 3,657 (5,446) 1,073 (3,560)
Net operating earnings (loss),
excluding net investment gains
(losses) and related amortization
of deferred acquisition costs and
associated income taxes<F3>............ (349) 1,398 4,985 2,841 (3,554) 792 (3,455)
Net operating earnings (loss),
excluding net investment gains
(losses) and related amortization
of deferred acquisition costs and
associated income taxes, per common
share<F4><F5>
Primary .......................... $ (0.04) $ 0.17 $ 0.58 $ 0.34 $ (0.43) $ 0.11 $ (0.50)
Fully diluted .................... (0.04) 0.17 0.58 0.34 (0.20) 0.09 (0.49)
Average shares outstanding:
Primary .......................... 8,807 8,418 8,622 8,466 8,203 7,492 6,924
Fully diluted .................... 8,807 8,418 8,622 8,466 17,983 8,409 7,077
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<FN>
<F1> "Other balance sheet data (excluding effects of SFAS No. 115)" is a non-GAAP measure, used by investment analysts to understand
a company's financial position, and is not intended as an alternative to the GAAP measures of assets, liabilities or
stockholders' equity.
<F2> Amounts shown reflect operating earnings (earnings before interest expense and taxes) adjusted to exclude net investment gains
(losses) and accelerated amortization of deferred acquisition costs related to such investment gains (losses). Amortization of
deferred acquisition costs related to net investment gains (losses) excluded were $.1 million and $.4 million for the three
months ended March 31, 1996 and 1995, respectively, and $1.7 million, $1.7 million, $.9 million, $-0- and $-0- for the years
ended December 31, 1995, 1994, 1993, 1992 and 1991 respectively. Such other operating data is a non-GAAP measure, used by
investment analysts to understand the nature of a company's recurring results of operations, and is not intended as an
alternative to the GAAP measures of operating earnings or net earnings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- FBG -- Margin Analysis."
<F3> Represents operating earnings after taxes adjusted to exclude net investment gains (losses) and accelerated (reduced)
amortization of deferred acquisition costs related to such investment gains (losses) and to exclude associated income tax
expense. See Note 1 above.
<F4> Operating earnings for 1993 include a non-recurring charge ($7.0 million) related to the effect of a reinsurance transaction.
See Note 4 of Notes to Consolidated Financial Statements.
<F5> Related per share amounts are computed by dividing net operating earnings, as defined above, by the sum of weighted average
number of shares outstanding during the period plus dilutive common stock equivalents applicable to stock options and warrants.
See Notes 1 and 2 above.
</TABLE>
Summary Pro Forma Financial Data
The following table sets forth certain unaudited pro forma operating and
balance sheet data of the Company. The unaudited pro forma information gives
effect to the acquisition of FBG, using the purchase method of accounting
assuming for purposes of the operating data that the acquisition of FBG was
consummated on January 1, 1995 and for purposes of the balance sheet data that
the acquisition of FBG was consummated on the dates indicated. This data should
be read in conjunction with the selected historical data and the pro forma
financial data included elsewhere herein and the separate historical
consolidated financial statements of the Company and FBG which are included
elsewhere herein.
The pro forma financial data does not purport to represent what the
Company's consolidated financial position or results of operations actually
would have been had the acquisition of FBG been completed on the dates for which
the acquisition of FBG is being given effect, nor is it necessarily indicative
of the future financial position or operating results of the Company.
<TABLE>
<CAPTION>
Three Months Year Ended
Ended March 31, December 31,
--------------- ---------------
(in thousands, except
per share data)
<S> <C> <C>
Pro Forma Operating Data:
Total revenue ......................................................................... $ 61,397 $ 238,831
Operating earnings .................................................................... 13,140 43,922
Net earnings .......................................................................... 8,111 27,594
Net earnings per common share - fully diluted ......................................... .60 2.07
Weighted average common and common equivalent shares outstanding ...................... 13,414 13,325
Ratio of earnings to fixed charges <F1>................................................ 20.5x 20.6x
Ratio of earnings to fixed charges - as adjusted <F2><F3>.............................. 17.7 14.8
<CAPTION>
As Adjusted As
As of of March 31,
March 31, 1996 1996 <F3>
--------------- ---------------
(in thousands, except
per share data)
<S> <C> <C>
Pro Forma Balance Sheet Data:
Total assets .......................................................................... $ 3,201,802 $ 3,231,453
Total debt ............................................................................ 35,000 60,000
Stockholders' equity .................................................................. 186,974 186,747
Fully diluted book value per share .................................................... 13.87 14.37
- ----------
<FN>
<F1> For purposes of calculating the ratio of earnings to fixed charges, earnings consist of operating earnings (which is before
taxes and fixed charges). Fixed charges consist of interest expense on debt.
<F2> Assumes the replacement of $35 million of existing debt under a credit facility with proceeds of the Company's recent Offering
of its 3% Convertible Subordinated Debentures.
<F3> Gives effect to the offering of the Debentures and assumes net Offering proceeds of $61,750,000 and a Conversion Price of
$17.125.
</TABLE>
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF THE COMPANY
The following table sets forth for the periods and dates indicated,
selected historical financial data of the Company and does not reflect the
acquisition of FBG which occurred on April 8, 1996. The selected consolidated
income statement and balance sheet data for the five years in the period ended
December 31, 1995, is derived from the Company's audited consolidated financial
statements. The selected consolidated financial data for the three month periods
ended March 31, 1996 and 1995 is derived from the unaudited consolidated
financial statements of the Company and, in the opinion of management, reflect
all adjustments necessary for a fair presentation of the results of operations
and financial condition and is presented on a basis consistent with historical
practice. All such adjustments are of a normal recurring nature. The results of
operations for an interim period are not necessarily indicative of results that
may be expected for a full year or any other interim period and the audited
financial statements. The following should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere herein
and with "Management's Decision and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
--------------------- --------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- ---------- --------- --------- ---------- ---------- ----------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement and Other Data:
Revenue:
Insurance premiums and policy charges<F1>....... $ 2,457 $ 1,904 $ 8,500 $ 6,331 $ 6,594 $ 7,545 $ 11,798
Net investment income<F2>....................... 39,169 38,220 156,510 142,009 138,539 141,155 144,940
Net investment gains (losses) .................. 7,627 (10) 156 803 17,049 20,521 16,477
Income from disposal of private
placement securities<F3>...................... -- -- -- -- -- 5,821 --
Other revenue .................................. 25 98 1,485 557 341 666 157
--------- --------- --------- --------- --------- --------- ---------
Total Revenue .................................. 49,278 40,212 166,651 149,700 162,523 175,708 173,372
--------- --------- --------- --------- --------- --------- ---------
Benefits and expenses:
Benefits, claims and interest credited
to policyholders ............................. 30,620 29,000 118,886 112,310 113,848 128,049 135,209
Amortization of deferred policy
acquisition costs ............................ 4,970 2,988 12,365 9,026 9,436 16,409 14,967
General insurance expenses ..................... 1,921 2,215 8,370 7,587 8,830 8,694 9,447
Premium and other taxes, licenses,
fees and other expenses ...................... 311 579 1,824 1,491 2,660 2,795 3,172
--------- --------- --------- --------- --------- --------- ---------
Total benefits and expenses .................... 37,822 34,782 141,445 130,414 134,774 155,947 162,795
--------- --------- --------- --------- --------- --------- ---------
Operating earnings (loss) ...................... 11,456 5,430 25,206 19,286 27,749 19,761 10,577
Interest expense ............................... 125 21 77 -- 994 2,443 4,273
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income tax expense
(benefit and extraordinary item ............. 11,331 5,409 25,129 19,286 26,755 17,318 6,304
Income tax expense (benefit) ................... 3,910 1,893 8,530 5,593 8,564 118 (3,815)
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before extraordinary
item ......................................... 7,421 3,516 16,599 13,693 18,191 17,200 10,119
Extraordinary item<F4>.......................... -- -- -- -- (213) (382) --
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) ............................ $ 7,421 $ 3,516 $ 16,599 $ 13,693 $ 17,978 $ 16,818 $ 10,119
========= ========= ========= ========= ========= ========= =========
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
--------------------- --------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- ---------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Benefits and Expenses:
Earnings (loss) before extraordinary
item per share of common stock:
Primary .................................. $ 0.71 $ 0.34 $ 1.60 $ 1.32 $ 2.62 $ 2.94 $ 1.84
Fully diluted ............................ 0.71 0.34 1.60 1.32 2.49 2.62 1.84
Earnings (loss) per share of common stock:
Primary .................................. $ 0.71 $ 0.34 $ 1.60 $ 1.32 $ 2.59 $ 2.87 $ 1.84
Fully diluted ............................ 0.71 0.34 1.60 1.32 2.46 2.56 1.84
Dividends ................................... $ 0.075 -- $ 0.075 -- -- -- --
Other operating data:
Operating earnings (loss); excluding
net investment gains (losses) and
related amortization of deferred
acquistion costs<F5>...................... $6,28l $ 5,444 $ 24,412 $ 18,687 $ 15,491 $ 7,887 $ 2,871
Net operating earnings (loss);
excluding net investment gains
(losses) and related amortization
of deferred acquisition costs and
associated income taxes<F6> ............... 4,113 3,539 15,910 13,064 10,733 4,012 1,037
Net operating earnings (loss)
excluding net investment gains
(losses) and related amortization
of deferred acquisition costs and
associated income taxes per
common share<F7>:
Primary ................................... $ 0.39 $ 0.34 $ 1.54 $ 1.26 $ 1.54 $ 0.68 $ 0.19
Fully diluted ............................. 0.39 0.34 1.53 1.26 1.47 0.61 0.19
Average shares outstanding:
Primary ................................... $ 10,427 $ 10,251 $ 10,354 $ 10,341 $ 6,860 $ 5,770 $ 5,508
Fully diluted ............................. 10,493 10,292 10,404 10,341 7,315 6,567 5,510
Balance sheet data (at end of period):
Total assets<F8>........................... $2,454,953 $2,284,359 $2,406,402 $2,260,021 $2,114,696 $2,090,136 $1,959,071
Total debt ................................ 7,000 -- 7,000 -- -- 19,859 28,437
Stockholders' equity ...................... 149,282 117,894 174,445 104,196 100,345 49,463 30,936
Fully diluted book value
per share<F10>........................... 14.14 11.38 16.43 10.16 9.70 7.50 5.13
Other balance sheet data
(excluding effects of SFAS No. 115):<F11>
Total assets .............................. 2,454,953 2,281,489 2,406,402 2,267,834 2,114,696 2,090,136 1,959,071
Stockholders' equity ...................... 135,846 115,024 129,073 112,009 100,345 49,463 30,936
Fully diluted book value
per share ............................... 12.93 11.12 12.33 10.89 9.61 7.50 5.13
Statutory Data:<F12>
Net statutory
premiums<F12>............................ 97,869 72,710 353,877 269,448 219,455 169,235 219,222
Statutory capital and
surplus<F13> ............................ 97,433 85,845 98,289 87,521 87,146 74,461 68,571
Total AVR/MSVR<F14>........................ 27,216 24,488 26,441 23,633 24,376 17,452 17,507
Total IMR<F14>............................. 11,247 9,924 6,910 10,595 11,961 6,971 --
- ----------
<FN>
<F1> For generally accepted accounting principles ("GAAP") reporting, premiums received from single premium immediate annuities
without life contingencies and single premium deferred annuities are not reported as premium revenue. Net statutory premiums
as presented for statutory reporting purposes include such premium received.
<F2> Net investment income is presented net of investment expense.
<F3> The income from disposal of private placement securities represents the amount received in excess of market value when the
securities were sold to an affiliate of the placement agent in that offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- The Company -- Results of Operations -- Years Ended December 31, 1995, 1994,
and 1993" and Note 10 of Notes to Consolidated Financial Statements of the Company.
<F4> As a result of the restructuring of the Company's bank debt on April 24, 1992, the remainder of the expenses initially
incurred and capitalized under the original debt agreements was written off, resulting in an extraordinary loss on early
extinguishment of debt in the amount of $.4 million for the year ended December 31, 1992.
<F5> Amounts shown reflect operating earnings (earnings before interest and taxes) adjusted to exclude net investment gains
(losses) and accelerated (reduced) amortization of deferred acquisition costs related to such investment gains (losses).
Amortization of deferred acquisition costs related to net investment gains (losses) excluded were: $2.0 million and $-0-
million for the three months ended March 31, 1996 and 1995, respectively, and $.2 million, $.2 million, $4.8 million, $8.7
million, and ($8.8) million for the years ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively. Such other
operating data is a non-GAAP measure, used by investment analysts to understand the nature of a company's recurring results of
operations, and is not intended as an alternative to the GAAP measures of operating earnings or net earnings. See
"Management's Discussion and Analysis of Financial Condition and Results of Operations -- The Company -- Margin Analysis."
<F6> Represents operating earnings after taxes adjusted to exclude net investment gains (losses) and accelerated (reduced)
amortization of deferred acquisition costs related to such investment gains (losses) and to exclude associated income tax
expense. See Note 5 above.
<F7> Related per share amounts are computed by dividing net operating earnings, as defined above, by the sum of weighted average
number of shares outstanding during the period plus dilutive common stock equivalents applicable to stock options and
warrants. See Notes 5 and 6 above.
<F8> Effective January 1, 1993, the Company adopted the provisions of SFAS No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts" and has restated assets to present the effects of reinsurance contracts on a gross
basis for all balance sheet data presented above.
<F9> Effective January 1, 1994, the Company adopted the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", the effect of which was an increase in stockholders' equity of $19.6 million. This represented the
aggregate excess fair value over cost for securities included in the available-for-sale category, net of associated
amortization of deferred policy acquisition costs and deferred income taxes. See Note 1 of Notes to Consolidated Financial
Statements of the Company.
<F10> Fully diluted book value per share is computed by dividing stockholders' equity, adjusted for the proceeds received from the
assumed exercise of dilutive stock options and warrants, by the number of Company shares of Common Stock outstanding at the
balance sheet date, adjusted for the number of shares resulting from the assumed conversion of the outstanding convertible
Preferred Stock and the exercise of dilutive stock options and warrants.
<F11> "Other balance sheet data (excluding effects of SFAS No. 115)" is a non-GAAP measure, used by investment analysts to
understand a company's financial position, and is not intended as an alternative to the GAAP measures of assets, liabilities
or stockholders' equity.
<F12> Statutory data has been derived from the annual and quarterly statements of American as filed with insurance regulatory
authorities and prepared in accordance with statutory accounting practices.
<F13> Statutory capital and surplus does not include AVR/MSVR or IMR. During 1986, 1988, 1989 and 1990, American entered into
certain modified coinsurance treaties with ERC, commonly referred to as "surplus relief" or "MODCO" reinsurance, pursuant to
which it ceded certain risks related to $407.1 million of annuity business to ERC and received ceded commissions of $28.2
million. These transactions are not reflected in financial statements prepared in accordance with GAAP. American paid ERC
annual fees ranging from 3% to 3.5% of the outstanding coding commissions which in 1992 amounted to $.4 million.
<F14> IMR and AVR were required to be included in reports filed on or after December 31, 1992. Prior to that date American was
required to post a MSVR. The adoption of the rules replacing MSVR with AVR and IMR had no material adverse effect on American.
</TABLE>
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF FBG
The following table sets forth for the periods and dates indicated,
selected historical financial data of FBG. The selected consolidated income
statement and balance sheet data for the five years in the period ended December
31, 1995, is derived from FBG's audited consolidated financial statements. The
selected consolidated financial data for the three month periods ended March 31,
1996, and 1995 is derived from the unaudited consolidated financial statements
of FBG and, in the opinion of management, reflect all adjustments necessary for
a fair presentation of the results of operations and financial condition and is
presented on a basis consistent with historical practice and the audited
financial statements. All such adjustments are of a normal recurring nature. The
results of operations for an interim period are not necessarily indicative of
results that may be expected for a full year or any other interim period and the
audited financial statements. The following should be read in conjunction with
the consolidated financial statements and notes thereto appearing elsewhere
herein and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- FBG."
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
--------------------- --------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- ---------- --------- --------- ---------- ---------- ----------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement and Other Data:
Revenue:
Net investment income<F1>................... $ 9,578 $ 10,894 $ 43,072 $ 43,126 $ 53,006 $ 61,954 $ 57,608
Realized gains on investments .............. 224 657 2,706 2,668 21,827 13,101 10,611
Commissions and marketing fees ............. 453 579 2,887 1,423 1,062 1,209 876
Other Income ............................... 1,146 1,310 5,559 3,846 4,074 4,940 4,859
--------- --------- --------- --------- --------- --------- ---------
Total Revenue .............................. 11,402 13,440 54,224 51,063 79,969 81,204 73,954
--------- --------- --------- --------- --------- --------- ---------
Benefits and expenses:
Increase in future policy benefits ......... 6,517 6,868 28,114 28,067 41,468 63,700 51,675
General and administrative expenses ........ 2,560 1,055 4,591 4,117 4,794 2,742 3,699
Payroll and related expenses ............... 481 746 2,847 2,860 2,447 2,317 2,492
Amortization of deferred acquisition costs . 2,267 2,492 10,655 11,168 15,550 (2,008) 8,749
Interest ................................... 353 408 1,533 1,406 1,476 677 736
Depreciation and amortization .............. 48 51 200 194 262 279 288
--------- --------- --------- --------- --------- --------- ---------
Total benefits and expenses ................ 12,226 11,620 47,940 47,812 65,997 67,707 67,639
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income tax expense
and extraordinary charge ................. (824) 1,820 6,284 3,251 13,972 13,497 6,315
Income tax expense ......................... (305) 536 1,683 725 4,854 3,531 186
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before extraordinary
charge ................................... (519) 1,284 4,601 2,526 9,118 9,966 6,129
Extraordinary charge on extinguishment of
debt, net of tax<F2>...................... -- -- -- (1,800) -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) .......................... $ (519) $ 1,284 $ 4,601 $ 726 $ 9,118 $ 9,966 $ 6,129
========= ========= ========= ========= ========= ========= =========
Earnings (loss) before extraordinary item
per share of common stock
Primary .......................... $ (0.06) $ 0.15 $ 0.53 $ 0.30 $ 1.11 $ 1.33 $ 0.89
Fully diluted .................... (0.06) 0.15 0.53 0.30 0.51 1.19 0.87
Earnings (loss) per share of common stock
Primary .......................... (0.06) 0.15 0.53 0.09 1.11 1.33 0.89
Fully diluted .................... 0.06 0.15 0.53 0.09 0.51 1.19 0.87
Other operating data:
Operating earnings (loss) excluding net
investment gains (losses) and related
amortization of deferred acquistion
costs<F3>............ .................... (554) 1,982 6,809 3,657 (5,446) 1,073 (3,560)
Net operating earnings (loss) excluding net
investment gains (losses) and related
amortization of deferred acquisition costs
and income taxes<F4>...................... $ (349) $ 1,398 $ 4,985 $ 2,841 $ (3,554) $ 792 $ (3,455)
Net operating earnings (loss) excluding net
investment gains (losses) and related
amortization of deferred acquisition costs
and income taxes per common share<F5>:
Primary .......................... $ (0.04) $ 0.17 $ 0.58 $ 0.34 $ (0.43) $ 0.11 $ (0.50)
Fully diluted .................... (0.04) 0.17 0.58 0.34 (0.20) 0.09 (0.49)
Balance sheet data (at end of period):
Total assets<F6>............................ 711,581 731,453 719,945 730,903 789,569 787,607 769,274
Total debt ................................. 15,500 16,000 15,500 16,000 15,000 15,000 1,627
Shareholders' equity ....................... 36,594 31,207 41,037 27,276 29,476 20,020 9,587
Fully diluted book value per share<F7>...... 4.09 3.54 4.56 3.13 3.36 2.43 1.27
Other balance sheet data
(excluding effects of SFAS No. 115):<F8>
Total assets ............................... 708,403 731,948 710,517 734,281 789,569 787,607 769,274
Shareholders' equity ....................... 34,592 31,702 35,005 30,654 29,476 20,020 9,587
Fully diluted book value per share ......... 3.88 3.59 3.93 3.48 3.36 2.43 1.27
Statutory Data:<F9>
Net statutory premiums ..................... 20,480 18,351 62,498 76,533 57,777 110,149 143,412
Statutory capital and surplus<F10>.......... 32,627 30,782 33,476 30,258 31,092 27,282 23,910
Total AVR/MSVR<F11>......................... 8,955 8,804 8,933 8,728 8,741 8,236 7,609
Total IMR<F11>.............................. 7,746 7,743 7,727 7,861 7,006 3,612 0
- ----------
<FN>
<F1> Net investment income is presented net of investment expense.
<F2> As a result of restructuring FBG's outstanding long term debt on June 27, 1994, a $2.0 million charge was incurred for the
early extinguishment of the former obligation. The estimated tax benefit was $200,000 for the year ended December 31, 1994.
<F3> Amounts shown reflect operating earnings (earnings before interest expense and taxes adjusted to exclude net investment gains
(losses) and accelerated amortization of deferred acquisition costs related to such investment gains (losses). Amortization of
deferred acquisition costs related to net investment gains (losses) excluded were $.1 million and $.4 million for the three
months ended March 31, 1996 and 1995, respectively, and $1.7 million, $1.7 million, $.9 million, $-0-, and $-0- for the years
ended December 31, 1995, 1994, 1993, 1992 and 1991 respectively. Such other operating data is a non-GAAP measure, used by
investment analysts to understand the nature of a company's recurring results of operations, and is not intended as an
alternative to the GAAP measures of operating earnings or net earnings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - FBG -- Margin Analysis."
<F4> Represents operating earnings after taxes adjusted to exclude net investment gains (losses) and accelerated (reduced)
amortization of deferred acquisition costs related to such investment gains (losses) and to exclude associated income tax
expense.
<F5> Related per share amounts are computed by dividing net operating earnings, as defined above, by the sum of weighted average
number of shares outstanding during the period plus dilutive common stock equivalents applicable to stock options and
warrants.
<F6> Effective January 1, 1993, FBG adopted the provisions of SFAS No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts" and has restated assets to present the effects of reinsurance contracts on a gross
basis for all balance sheet data presented above.
<F7> Fully diluted book value per share is computed by dividing stockholders' equity, adjusted for the proceeds received from the
assumed exercise of dilutive stock options and warrants, by the number of FBG shares of Common Stock outstanding at the
balance sheet date, adjusted for the number of shares resulting from the assumed exercise of the dilutive stock options and
warrants.
<F8> "Other balance sheet data (excluding effects of SFAS No. 115)" is a non-GAAP measure, used by investment analysts to
understand a company's financial operation, and is not intended as an alternative to the GAAP measures of assets, liabilities
or stockholders' equity.
<F9> Statutory data has been derived from the annual and quarterly statements of FBG as filed with insurance regulatory authorizes
and prepared in accordance with statutory accounting practices.
<F10> Statutory capital and surplus does not include AVR/MSVR or IMR. During 1991, FBG entered into a modified coinsurance treaty
with a reinsurer, commonly referred to as "surplus relief" or "MODCO" reinsurance, pursuant to which it ceded certain risks
related to $138.9 million of deferred annuity business to the reinsurer and received ceded commissions of $10.0 million. These
transactions are not reflected in statements prepared in accordance with GAAP. FBG paid the reinsurer a risk charge of 3.0% of
the outstanding ceded commission, or $300,000, which is included in General and Administrative Expenses under GAAP.
<F11> IMR and AVR are required to be included in reports filed on or after December 31, 1992. Prior to that date FBG was required to
post a MSVR. The adoption of the rules replacing MSVR with AVR and IMR had no material adverse effect on FBG.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company
General
References to the Company in this section relate to the results of the
Company and do not give effect to the acquisition of FBG, which occurred on
April 8, 1996. For an analysis of FBG results see "--FBG."
The Company specializes in the sale of fixed annuity products as a
retirement savings vehicle for individuals. During each of the three years ended
December 31, 1995, 1994 and 1993, sales of fixed annuities have accounted for at
least 96% of the Company's premiums received, while sales of Single Premium
Immediate Annuities (SPIAs) and Flexible Premium Universal Life policies (FPULs)
have accounted for virtually all remaining premiums received.
The Company's operating earnings are derived primarily from its investment
income, including realized gains (losses), less interest credited to annuity
contracts and expenses. Under Generally Accepted Accounting Principles ("GAAP"),
premiums received on deferred annuities, SPIAs without life contingencies and
FPULs are not recognized as revenue at the time of sale. Similarly, policy
acquisition costs (principally commissions) related to such sales are not
recognized as expenses but are capitalized as deferred acquisitions costs
("DAC"). As a result of this deferral of costs and the lack of revenue
recognition for premiums received, no profit or loss is realized on these
contracts at the time of sale. Premiums received on deferred annuities, SPIAs
without life contingencies and FPULs are reflected on the Company's balance
sheet by an increase in assets equal to the premiums received and by a
corresponding increase in future policy liabilities.
The Company's earnings depend, in significant part, upon the persistency of
its annuities. Over the life of the annuity, net investment income, net
investment gains (losses) and policy charges are realized as revenue, and DAC is
amortized as an expense. The timing of DAC amortization is based on the
projected realization of profits including realized gains (losses) for each type
of annuity contract and is periodically adjusted for actual experience. If a
policy is terminated prior to its expected maturity, any remaining related DAC
is expensed in the current period. Most of American's annuity policies in force
have surrender charges, which expire over a period of from five to fourteen
years, which are designed to discourage and mitigate the effect of premature
withdrawals. As a result, the impact on earnings from surrenders will depend
upon the extent to which available surrender charges offset the associated
amortization of DAC. For the years ended 1995, 1994 and 1993, the Company's
weighted average expected surrender levels were 8.9%, 9.0% and 13.0%, compared
to the weighted average actual surrender levels of 14.2%, 9.8%, and 14.7% of
annuities in force at the beginning of the year. For the first three months of
1996, the Company's weighted average expected surrender level was 12.3%,
compared with the actual surrender level of 14.6% for that period. Historically,
the negative impact on earnings of any difference between the actual surrender
levels and expected surrender levels has been more than offset by the
realization of gains on the sale of securities and the change in future expected
gross profits as a result of the Company's reduction in credited rates.
Recent periods of low interest rates have reduced the Company's investment
yields. As a result of the lower investment yields, the Company elected to
reduce credited interest rates on certain of its annuity products. Certain
annuities issued by the Company include a "bailout" feature. This feature
generally allows policyowners to withdraw their entire account balance without
surrender charge for a period of 45 to 60 days following the initial
determination of a renewal credited rate below a predetermined level. If a
policyowner elects not to withdraw funds during this period, surrender charges
are reinstated. On policies including a "bailout" feature, the Company announces
its renewal credited rates on January 14 of each year. In January 1995, the
Company did not credit interest rates below the "bailout" rate. In January 1994
and 1993, the Company deemed it advisable, due to the general decline in
interest rates and the yield on its investment portfolio, to reduce credited
interest rates on certain annuity contracts below the "bailout" level. The
aggregate account values of annuity contracts on which the credited rate was
reduced below the "bailout" level totalled $109.8 million and $326.2 million
during 1994 and 1993, respectively. As a result, $18.3 million, or 17%, and
$139.6 million, or 43%, of such policies were surrendered during 1994 and 1993,
respectively. The Company was able to offset the negative impact of "bailout"
surrenders on its earnings through the realization of gains on the sale of its
securities. Excluding surrenders from "bailout" products, American's annuity
withdrawal rates were 9% for 1994 and 7% for 1993. As of March 31, 1996,
approximately $226.8 million, or 11% of annuity account values contained a
"bailout" provision and the current credited rates on these policies are above
the "bailout" rate. The "bailout" rate on $224.7 million of this amount is 6% or
less. If the Company reduces credited rates below the "bailout" rates on
policies containing "bailout" provisions in the future, it intends to pay any
resulting surrenders from cash provided by operations and premiums received. In
the event such sources are not sufficient to pay surrenders, the Company would
have to sell securities at the then current market prices. American expects that
withdrawals on its annuity contracts will increase as such contracts approach
the end of the surrender charge period. There is no certainty as to the
Company's ability to realize investment gains in the future to offset the
adverse impact on earnings, should future "bailout" surrenders occur.
Margin Analysis
The Company's earnings are primarily derived from the excess of investment
income over the amount it pays to its policyholders and the associated
amortization of DAC. From time to time and to a lesser extent in recent periods,
the Company's earnings have been impacted by realized investment gains and
losses and by the associated amortization of DAC. The actual timing and pattern
of such amortization is determined by the actual profitability to date (which
includes realized investment gains and losses) and the expected future
profitability of the Company's annuity contracts. To the extent investment
income is accelerated through realization of investment gains, the corresponding
amortization of DAC is also accelerated as the stream of profitability on the
underlying annuities is effectively accelerated. When investment losses are
realized, the reverse is true. The following analysis depicts the components of
the Company's margin:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
--------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Average invested assets<F1>............................................... $ 2,078.4 $ 1,936.2 $ 1,992.7 $ 1,862.3 $ 1,770.9
========== ========== ========== ========== ==========
Insurance premiums and policy charges .................................... $ 2.5 $ 1.9 $ 8.5 $ 6.3 $ 6.6
Net investment income<F2>................................................. 39.2 38.2 156.5 142.0 138.5
Net investment gains (losses), core<F4>................................... 0.4 -- (0.9) -- --
Policyholder benefits .................................................... (30.6) (29.0) (118.9) (112.3) (113.8)
---------- ---------- ---------- ---------- ----------
Gross interest margin .................................................... 11.4 11.1 45.2 36.0 31.3
Associated amortization of DAC ........................................... (2.9) (3.0) (12.1) (8.8) (4.7)
---------- ---------- ---------- ---------- ----------
Net interest margin ...................................................... 8.5 8.1 33.1 27.2 26.6
---------- ---------- ---------- ---------- ----------
Net investment gains (losses), other ..................................... 7.2 -- 1.0 0.8 17.0
Associated amortization of DAC ........................................... (2.0) -- (0.2) (0.2) (4.8)
---------- ---------- ---------- ---------- ----------
Net margin (loss) from investment gains (losses), other .................. 5.2 -- 0.8 0.6 12.2
---------- ---------- ---------- ---------- ----------
Total net margin (loss) .................................................. 13.7 8.1 33.9 27.8 38.8
Expenses, net ............................................................ (2.2) (2.7) (8.7) (8.5) (11.1)
---------- ---------- ---------- ---------- ----------
Operating earnings (loss) ................................................ 11.5 5.4 25.2 19.3 27.7
Interest expense ......................................................... (0.1) -- (0.1) -- (1.0)
---------- ---------- ---------- ---------- ----------
Earnings before income taxes ............................................. 11.3 5.4 25.1 19.3 26.7
Income tax expense (benefit) ............................................. 3.9 1.9 8.5 5.6 8.5
---------- ---------- ---------- ---------- ----------
Net earnings (loss) before extraordinary loss ............................ 7.4 3.5 16.6 13.7 18.2
Extraordinary loss on early extinguishment of debt ....................... -- -- -- -- (0.2)
---------- ---------- ---------- ---------- ----------
Net earnings ............................................................. $ 7.4 $ 3.5 $ 16.6 $ 13.7 $ 18.0
========== ========== ========== ========== ==========
Operating earnings (loss) ................................................ $ 11.5 $ 5.4 $ 25.2 $ 19.3 $ 27.7
Less:Net margin (loss) from investment gains (losses) .................... 5.2 -- 0.8 0.6 12.2
---------- ---------- ---------- ---------- ----------
Operating earnings excluding net investment gains
(losses) and associated amortization of DAC<F3> ........................... $ 6.3 $ 5.4 $ 24.4 $ 18.7 $ 15.5
========== ========== ========== ========== ==========
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
-------------------- ----------------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- --------
(annualized)
(percentage of average invested assets)
<S> <C> <C> <C> <C> <C>
Average invested assets<F1>........................................ 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
Insurance premiums and policy charges ............................. 0.47% 0.39% 0.43% 0.34% 0.37%
Net investment income<F2>.......................................... 7.54 7.90 7.85 7.62 7.82
Net investment gains (losses), core<F4> ............................ 0.08 -- (0.04) -- --
Policyholder benefits ............................................. (5.89) (5.99) (5.97) (6.03) (6.43)
------ ------ ------ ------ ------
Gross interest margin ............................................. 2.20 2.30 2.27 1.93 1.76
Associated amortization of DAC .................................... (0.57) (0.62) (0.61) (0.47) (0.26)
------ ------ ------ ------ ------
Net interest margin ............................................... 1.63 1.68 1.66 1.46 1.50
------ ------ ------ ------ ------
Net investment gains (losses), other .............................. 1.39 -- 0.05 0.04 0.96
Associated amortization of DAC .................................... (0.39) -- (0.01) (0.01) (0.27)
------ ------ ------ ------ ------
Net margin (loss) from investment gains (losses), other
1.00 -- 0.04 0.03 0.69
------ ------ ------ ------ ------
Total net margin (loss) ........................................... 2.63 1.68 1.70 1.49 2.19
Expenses, net ..................................................... (0.42) (0.56) (0.44) (0.46) (0.62)
------ ------ ------ ------ ------
Operating earnings (loss) ......................................... 2.20 1.12 1.26 1.03 1.57
Interest expense .................................................. (0.02) -- -- -- (0.06)
------ ------ ------ ------ ------
Earnings before income taxes ...................................... 2.18 1.12 1.26 1.03 1.51
Income tax expense (benefit) ...................................... 0.75 0.39 0.43 0.30 0.48
------ ------ ------ ------ ------
Net earnings (loss) before extraordinary loss ..................... 1.42 0.73 0.83 0.73 1.03
Extraordinary loss on early extinguishment of debt ................ -- -- -- -- (0.01)
------ ------ ------ ------ ------
Net earnings ...................................................... 1.42% 0.73% 0.83% 0.73% 1.02%
====== ====== ====== ====== ======
Operating earnings (loss) ......................................... 2.20% 1.12% 1.26% 1.03% 1.57%
Less: Net margin (loss) from investment gains (losses)............. 1.00 -- 0.04 0.03 0.69
------ ------ ------ ------ ------
Operating earnings excluding net investment gains
(losses) and associated amortization of DAC<F3>.................. 1.20% 1.12% 1.22% 1.00% 0.88%
====== ====== ====== ====== ======
- ----------
<FN>
<F1> Average of cash, invested assets (before SFAS No. 115 adjustment) and net amounts due to or from brokers on unsettled security
trades at the beginning and end of period.
<F2> Net investment income is presented net of investment expense.
<F3> The Company believes that disclosure of operating earnings excluding net investment gains (losses) and related amortization of
deferred acquisition costs provides a supplemental measure, which may be useful to investors, of the Company's earnings from
its operations separated from the impact of net investment gains (losses) whose timing may be influenced by investment and
other considerations unrelated to operations.
<F4> Represents the net of all trading gains (losses) and gains (losses) on securities upon which the expected returns are
dependent upon the performance of the underlying equity.
May not add due to rounding.
</TABLE>
Results of Operations
Three Months Ended March 31, 1996, and 1995.
Insurance premiums and policy charges increased $.6 million or 32%, to $2.5
million in 1996 from $1.9 million in 1995, due to a $.4 million increase in
surrender charges received as a result of increased surrenders of annuity
policies and a $.2 million increase in SPIA sales. The increased surrender
activity realized in 1996 and 1995 reflects both the increased number of
policies no longer covered by a surrender charge and the returns available on
alternative investments as annuity rates have declined.
Net investment income increased $1.0 million, or 3%, to $39.2 million in
1996 from $38.2 million in 1995. This increase reflects an increase in average
invested assets from $1.9 billion in 1995 to $2.1 billion in 1996, offset in
part by a decrease in the average yield on investment assets from 7.9% for the
three months ended March 31, 1995, to 7.5% for the same period in 1996.
Net investment gains were $7.6 million in 1996, compared with a loss of
approximately $10,000 in 1995. Gains and losses may be realized upon securities
which are disposed of for various reasons. The gains realized during both 1995
and 1996 are the result of general portfolio management. Unrealized gains
(losses) in the Company's bond portfolio were $28.1 million and $96.8 million as
of March 31, 1996 and December 31, 1995, respectively.
Benefits, claims and interest credited to policyholders increased to $1.6
million, or 6% to $30.6 million in 1996 from $29.0 million in 1995. This
increase resulted primarily from an increase in annuity liabilities to $2.1
billion on March 31, 1996, from $2.0 billion on March 31, 1995. The interest
rate credited on the Company's annuity liabilities was 5.9% on March 31, 1996
and 1995.
Amortization of deferred policy acquisition costs increased $2.0 million,
or 67%, to $5.0 million in 1996 from $3.0 million in 1995. Amortization of DAC
associated with gross interest margin decreased $.1 million to $2.9 millon in
1996 from $3.0 million in 1995. Amortization of DAC associated with investment
gains increased to $2.0 million on $7.6 million of gains in 1996 from a benefit
of approximately $3,700 on losses of approximately $10,000. Acquisition costs
incurred in 1996 and deferred into future policy periods were $9.1 million,
compared with $7.4 million in 1995.
Income tax expense increased $2.0 million to $3.9 million in 1996 from $1.9
million in 1995. Taxes were provided at an effective rate of 35% on both 1996
and 1995 income.
Years Ended December 31, 1995, 1994 and 1993.
Insurance premiums and policy charges increased $2.2 million or 35%, to
$8.5 million in 1995 from $6.3 million in 1994, due to an increase in surrender
charges assessed on the surrender of annuity policies. This follows a decrease
of $.3 million or 5%, to $6.3 million in 1994 from $6.6 million in 1993. This
decrease reflects a $.5 million decrease in SPIA sales which was partially
offset by a $.3 million increase in surrender charges assessed on the surrender
of annuity policies. Surrender benefits increased $113.4 million to $307.4
million in 1995 from $194.0 million in 1994. The 1994 amount of $194.0 million
represents a decrease of $76.8 million from $270.8 million in 1993. The increase
in surrenders realized in 1995 reflects both the increased number of policies no
longer covered by a surrender charge and the returns available on alternative
investments as annuity rates decline. The decrease realized in 1994 reflects the
reduction in surrenders from "bailout" products to $18.3 million in 1994 from
$139.6 million in 1993.
Net investment income increased $14.5 million, or 10%, to $156.5 million
from $142.0 million in 1994. This increase resulted from both an increase in
average invested assets from $1.9 billion in 1994 to $2.0 billion in 1995 and an
increase in the average yield on invested assets from 7.6% in 1994 to 7.9% in
1995. Net investment income increased $3.5 million, or 3%, to $142.0 million in
1994 from $138.5 million in 1993. This increase resulted from an increase in
average invested assets from $1.8 billion in 1993 to $1.9 billion in 1994,
offset in part by a reduction in the average yield on invested assets from 7.8%
in 1993 to 7.6% in 1994. The 1994 yield was impacted by losses generated by an
investment in investment partnerships. These partnerships form a fund of funds
totalling $23.1 million on December 31, 1995, which is structured in an attempt
to consistently provide returns in excess of the Standard & Poor's ("S&P") 500
over time without regard to the general direction of financial markets. This
fund generated income of $3.6 million in 1995 compared with a loss of $1.9
million in 1994 and income of $1.2 million in 1993.
Net trading losses of $.9 million in 1995 primarily result from a program
designed to create capital losses for tax purposes which can be carried back
against capital gains realized in 1992. To accomplish this, the Company utilized
a preferred stock dividend roll program, buying the stock at prices which
included the dividend, collecting the dividend and then selling the stock at
prices excluding the dividend. The net effect of this program was to generate
dividend income of $1.0 million, included in net investment income, and capital
losses of $1.0 million. The Company had no trading activity in either 1994 or
1993.
Net investment gains increased $.2 million, or 25%, to $1.0 million in 1995
from $.8 million in 1994. This follows a decrease of $16.2 million, or 95%, to
$.8 million in 1994 from $17.0 million in 1993. The 1995 gain reflects the
release of the allowance for credit losses that was first established in 1989.
The release of this reserve increased 1995 investment gains by $2.2 million.
Gains and losses may be realized upon securities which are disposed of for
various reasons. The gains realized in 1994 are the result of general portfolio
management while those taken in 1993 were to reduce the effects of the statutory
losses resulting from surrenders following the reduction of interest crediting
rates on certain annuity policies below the "bailout" rate. The decision to
realize gains or losses lies to a great degree in management's discretion.
Unrealized gains (losses) in the Company's bond portfolio were $96.8 million,
($105.6) million and $81.4 million as of December 31, 1995, 1994 and 1993
respectively.
Other revenue increased $.9 million, or 150%, to $1.5 million in 1995 from
$.6 million in 1994. This increase resulted from a gain of $.7 million
recognized on the sale of Omni-Tech Medical Inc., and a $.3 million increase in
Omni-Tech sales. Other revenue increased $.3 million to $.6 million in 1994 from
$.3 million in 1993. This increase is due to an increase in Omni-Tech sales.
Benefits, claims and interest credited to policyholders increased $6.6
million, or 6%, to $118.9 million in 1995 from $112.3 million in 1994. This
increase results primarily from an increase in the average interest rate
credited on the Company's annuity liabilities, from 5.9% as of December 31, 1994
to 6.0% as of December 31, 1995, along with an increase in annuity liabilities
to $2.1 billion on December 31, 1995 from $2.0 billion on December 31, 1994. In
1994, this expense decreased $1.5 million, to $112.3 million from $113.8 million
in 1993. This decrease resulted primarily from a reduction in the average
interest rate credited on annuity liabilities, from 6.2% as of December 31, 1993
to 5.9% as of December 31, 1994. This decrease was partially offset by an
increase in annuity liabilities to $2.0 billion on December 31, 1994 from $1.8
billion on December 31, 1993.
Amortization of DAC increased $3.4 million, or 38%, to $12.4 million in
1995 from $9.0 million in 1994. Amortization of DAC associated with gross
interest margin increased $3.3 million to $12.1 million in 1995 from $8.8
million in 1994. Amortization of DAC associated with investment gains was
unchanged at an expense of $.2 million on gains of $1.0 million in 1995 and an
expense of $.2 million on gains of $.8 million in 1994. The increase in 1995
amortization associated with gross interest margin reflects the increased
surrenders realized during 1995. Amortization of DAC decreased $.4 million, to
$9.0 million in 1994 from $9.4 million in 1993. Amortization of DAC associated
with gross interest margins increased $4.1 million, to $8.8 million in 1994,
from $4.7 million in 1993. Amortization of DAC associated with investment gains
decreased $4.6 million, to $.2 million in 1994, from $4.8 million in 1993. The
1993 amortization amounts reflect the lowering of interest crediting rates and
the resulting increase in the estimates of future expected gross profits and the
realization of $17.0 million of investment gains. Acquisition costs incurred in
1995 and deferred into future policy periods were $34.8 million, compared with
$25.8 million in 1994 and $18.2 million in 1993.
General insurance expenses increased $.8 million, or 11%, to $8.4 million
in 1995 from $7.6 million in 1994. Management believes this increase can be
attributed to increases in business activity and assets under management. This
follows a decrease of $1.2 million to $7.6 million in 1994 from $8.8 million in
1993. This decrease is primarily attributable to the deferral of additional
expenses related to the acquisition of annuity contracts in 1994.
Premium and other taxes, licenses and fees increased $.3 million, or 23%,
to $1.6 million in 1995 from $1.3 million in 1994 following a decrease of $1.1
million in 1994 from $2.4 million in 1993. The above amounts include charges of
approximately $1.0 million, $.5 million and $1.6 million for the years 1995,
1994 and 1993, respectively, for nonrecoverable guaranty fund assessments
resulting from the significant number of insolvencies that have occurred in
recent years.
Interest expense increased $.1 million in 1995 as a result of $7.0 million
of borrowing under the Company's Credit Facility. The proceeds of this borrowing
were contributed to the surplus of American. Interest expense decreased $1.0
million in 1994 following the repayment of all debt in November, 1993, with
proceeds from the Company's 1993 common stock offering.
Income tax expense increased $2.9 million to $8.5 million in 1995
from $5.6 million in 1994. This follows a $3.0 million decrease in 1994 from
$8.6 million in 1993. Taxes were provided at an effective rate of 34%, 29% and
32% in 1995, 1994 and 1993, respectively.
Liquidity and Capital Resources
The Company is an insurance holding company whose principal assets are the
common stock of American and FBL. As a holding company, the Company relies on
funds received from American and FBL to meet its cash requirements at the
holding company level. The Company's primary cash requirements are to pay
operating expenses. See "-- FBG" for a discussion of FBL's liquidity and capital
resources.
The Company receives funds from American in the form of commissions paid to
American Sales, investment fees paid to AVIG, rent, administrative, printing and
data processing charges and dividends. The insurance laws of Kansas generally
limit the ability of American to pay cash dividends in excess of certain amounts
without prior regulatory approval and also require that certain agreements
relating to the payment of fees and charges to the Company by American be
approved by the Kansas Insurance Commissioner.
The liquidity requirements of American are met by premiums received from
annuity sales, net investment income received, and proceeds from investments
upon maturity, sale or redemption as well as the proceeds of investments. The
primary uses of funds by American are the payment of surrenders, policy
benefits, operating expenses and commissions, as well as the purchase of assets
for investment.
American must maintain capital and surplus levels, determined on the
statutory accounting basis, in order to conduct business in the jurisdictions in
which it is licensed. American is required under Florida statutes to maintain
capital and surplus of at least 4.0% of policyowner liabilities exclusive of the
Asset Valuation Reserve ("AVR") and Interest Maintenance Reserve ("IMR"). At
March 31, 1996, American's capital and surplus/liabilities ratio was 4.8%.
For purposes of the Company's consolidated statements of cash flows,
financing activities include premiums received from sales of SPDAs, surrenders
and death benefits paid, and surrender and policy charges collected on these
contracts. The net cash provided by (used in) these particular financing
activities for the three months ended March 31, 1996, and 1995, was $5.2 million
and $(19.2) million, respectively.
The increase in net cash provided by annuity contracts without life
contingencies in the first three months of 1996 resulted primarily from a $21.3
million increase in premiums received from $75.8 million to $97.1 million and a
$2.7 million decrease in surrender and death benefits paid from $96.5 million to
$93.8 million.
Net cash provided by the Company's operating activities was $38.7 million
and $40.1 million in 1996 and 1995, respectively.
American can generate cash through the sale of securities from its
available-for-sale and trading portfolios. As of March 31, 1996, these
portfolios had a carrying value of $2.1 billion. As of March 31, 1996, 8.4% of
these securities were invested in below investment grade securities compared
with 7.9% as of December 31, 1995. As of March 31, 1996, American owned
securities with an original cost of $7.5 million which were determined to have
other than a temporary decline in value. Accordingly, writedowns were taken
which resulted in no value being carried in the Company's financial statements.
Cash provided by financing and operating activities and by the sale and
maturity of portfolio investments is used primarily to purchase portfolio
investments and for the payment of acquisition costs (commissions and expenses
associated with the sale and issue of policies). To meet its anticipated
liquidity requirements, the Company purchases investments taking into account
the anticipated future cash flow requirements of its underlying liabilities. In
addition, the Company invests a portion of its assets in short-term investments
and maturities of less than one year (2% and 1% as of March 31, 1996, and
December 31, 1995, respectively). The weighted average duration of the Company's
investment portfolio was 4.5 years as of March 31, 1996.
The Company continually assesses its capital requirements in light of
business developments and various capital and surplus adequacy ratios which
affect insurance companies. During the past five years, the Company has met its
capital needs and those of American through several different sources including
bank borrowing and the sale of both preferred and common stock. On December 31,
1991, the Company issued 172,000 shares of its $2.00 Series B Convertible
Preferred Stock with a total stated value of $4.3 million. The Preferred Stock
was convertible at $7.50 per share into 573,332 shares of the Company's Common
Stock. On December 30, 1992, the Company issued and sold 235,294 shares of
Common Stock at $10.625 per share to the Company's Leveraged Employee Stock
Ownership Plan ("LESOP"). This purchase was financed with the proceeds of a $2.5
million loan from American. For additional information regarding the LESOP, see
Note 6 of Notes to Consolidated Financial Statements. In 1993, the Company
raised $29.4 million through the sale of 3,451,668 shares of Common Stock. On
December 31, 1994, the Company entered into a credit agreement with The First
National Bank of Chicago and Boatmen's First National Bank of Kansas City, as
lenders. Under the terms of this agreement, the lenders have committed to lend
up to $15 million in the form of a 5-year reducing credit facility, of which $7
million has been borrowed at December 31, 1995. For additional information
regarding this credit agreement, see Note 5 of Notes to Consolidated Financial
Statements.
Dividends by American to the Company are limited by laws applicable to
insurance companies. Under Kansas law, American may pay a dividend from its
surplus profits, without prior consent of the Kansas Commissioner of Insurance,
if the dividend does not exceed the greater of 10% of statutory capital and
surplus at the end of the preceding year or all of the statutory net gain from
operations of the preceding year.
Recent regulatory actions against certain large life insurers encountering
financial difficulty have prompted the various state guaranty associations to
begin assessing life insurance companies for the resulting losses. For further
information regarding the effects of guaranty fund assessments, see Note 11 of
Notes to Consolidated Financial Statements.
Reinsurance. The Company had amounts receivable under reinsurance
agreements of $144.2 million and $146.6 million as of March 31, 1996, and
December 31, 1995, respectively. Of the amounts, $142.5 million and $145.0
million, respectively, were associated with a single insurer, Employers
Reinsurance Corporation ("ERC"). In 1989, the Company entered into a coinsurance
agreement which ceded 90% of the risk on the Company's block of Single Premium
Whole Life ("SPWL") policies written prior to 1989 to ERC. The agreement
provides that ERC assumes 90% of all risks associated with each policy in the
block. Under the terms of the contract, the Company continues to administer the
policies and is reimbursed for all payments made under the terms of those
policies. The Company also received a fee from the reinsurer for administering
such policies. Cash settlements under the contract are made with ERC on a
monthly basis. If ERC were to become insolvent, American would remain
responsible for the payment of all policy liabilities.
In addition, the Company is a party to two assumption reinsurance
agreements with other reinsurers.
Effect of Inflation and Changes in Interest Rates. The Company does not
believe that inflation has had a material effect on its consolidated results of
operations during the past three years. The Company seeks to manage its
investment portfolio, in part, to reduce its exposure to interest rate
fluctuations. In general, the market value of the Company's fixed income
securities increases or decreases directly with interest rate changes. For
example, if interest rates decline (as was the case in 1995), the Company's
fixed income investments generally will increase in market value, while net
investment income will decrease. Conversely, if interest rates rise (as was the
case in 1996), fixed income investments generally will decrease in market value,
while net investment income will increase.
In a rising interest rate environment (such as that experienced in 1994),
the Company's average cost of funds would increase over time as it prices its
new and renewing annuities to maintain a generally competitive market rate.
During such a rise in interest rates, new funds would be invested in bonds with
higher yields than the liabilities assumed. In a declining interest rate
environment, the Company's cost of funds would decrease over time, reflecting
lower interest crediting rates on its fixed annuities.
In addition to the increase in the Company's average cost of funds caused
by a rising interest rate environment, surrenders of annuities that are no
longer protected by surrender charges increase. While the Company experienced a
decrease in total surrenders during 1994, the decrease was primarily due to the
large number of bailout surrenders in 1993. Throughout 1994, the Company saw an
increase in surrenders of policies which no longer were covered by surrender
charges. Management believes that increased surrenders experienced in 1994 were
due to the increasing interest rates through 1994. This surrender trend
continued throughout 1995 and into 1996. Management believes that surrenders are
lower during periods of declining interest rates.
FBG
General
FBG specialized (and FBL continues to specialize) in the sale of deferred
annuity products as a retirement savings vehicle for individuals. During each of
the three years ended December 31, 1995, 1994 and 1993, sales of deferred
annuities have accounted for at least 93% of FBL's premiums received, while
sales of SPIAs have accounted for the remainder. FBL also markets and sells
deferred annuities for unaffiliated insurers and is paid marketing fees and
commissions for such sales and services.
FBG's operating earnings have been derived primarily from its investment
results, including realized gains (losses), less interest credited to annuity
contracts and expenses. Under GAAP, premiums received are not recognized as
revenue at the time of sale. Similarly, policy acquisition costs (principally
commissions) related to such sales are not recognized as expenses but are
capitalized as DAC. As a result of this deferral of costs and the absence of
revenue recognition for premiums received, no profit or loss is realized on
these contracts at the time of sale. Premiums received are reflected on FBG's
balance sheet by an increase in assets equal to the premiums received and by a
corresponding increase in future policy liabilities.
FBG's earnings have depended, in large part, upon the persistency of its
annuities. Over the life of the annuity, net investment income and net
investment gains are realized as revenue, and DAC is amortized as an expense.
The timing of DAC amortization is based on the projected realization of profits
including realized gains (losses) for each type of annuity contract and is
periodically adjusted for actual experience. If a policy is terminated prior to
its expected maturity, any remaining related DAC is expended in the current
period. Most of FBL's annuity policies in force have surrender charges which are
designed to discourage and mitigate the effects of premature withdrawals. As a
result, the impact on earnings from surrenders will depend upon the extent to
which available surrender charges offset the associated amortization of DAC.
Historically, the negative impact on earnings of any difference between the
actual surrender levels and expected surrenders levels has been offset by the
realization of gains on the sale of securities and the change in future expected
gross profits as a result of FBL's reduction in credited rates.
Recent periods of low interest rates reduced FBG's investment yields. As a
result of the lower investment yields, FBL elected to reduce credited interest
rates on certain of its annuity products. Certain annuities issues by FBL
include a "bailout" feature. This feature generally allows policyowners to
withdraw their account balance without surrender charge for a period of 30 days
following the initial determination of a renewal crediting rate below a
predetermined level. If a policyowner elects not to withdraw funds during this
period, surrender charges are reinstated. The aggregate account values of
annuity contracts on which the crediting rate was reduced below the "bailout"
level totalled $14.6 million, $182.5 million, and $74.7 million during 1995,
1994 and 1993 respectively. As a result, $5.3 million, or 36%, $73.1 million, or
40%, and $25.3 million, or 34% of such policies were surrendered during 1995,
1994 and 1993, respectively.
FBG was able to offset the negative impact of "bailout" on its earnings
through the realization of gains on the sale of its securities. Excluding
surrenders from "bailout" products, FBL's annuity withdrawal rates were 16.7%
for 1995, 11.6% for 1994, and 9.6% for 1993, which management believes is
consistent with industry experience for comparable product durations. Annuity
account values that contained a "bailout provision" were $45.6 million or 8.9%,
$66.4 million or 12.8%, and $250 million or 44.6% as of December 31, 1995, 1994,
and 1993, respectively. The current weighted average credited rates on the
remaining policies with "bailout" provisions is 4.5% or less. FBL is now less
disposed to reduce credited interest rates below current "bailout" rate levels
because the current earnings rate on its investment portfolios is 7.5% and the
reinvestment rate is approximately 6.75%. Furthermore, FBL no longer markets
products with "bailout" interest rates, hence it has been a matter of
diminishing concern. If FBL reduces credited rates below the "bailout" rates on
policies containing "bailout" provisions in the future, it intends to pay any
resulting surrenders from cash provided by operations and premiums received. In
the event such sources are not sufficient to pay surrenders, FBL would have to
sell securities at the then current market prices. FBL expects the withdrawals
on its annuity contracts will increase as such contracts approach maturity
because as the surrender charges "wear off," the policies become more
susceptible to disintermediation. FBL may not be able to realize investment
gains in the future to offset the adverse impact on earnings, should future
"bailout" surrenders occur.
Margin Analysis.
FBG's earnings are primarily derived from the excess of investment income
over the amount it pays to its policy holders and the associated amortization of
DAC. From time to time and to a lesser extent in recent periods, FBG's earnings
have been impacted by realized investment gains and losses and by the associated
amortization of DAC. The actual timing pattern of such amortization is
determined by the actual profitability to date (which includes realized
investment gains and losses) and the expected future profitability on a
particular annuity contract. To the extent investment income is accelerated
through realization of investment gains, the corresponding amortization of DAC
is also accelerated as the stream of profitability on the underlying annuities
is effectively accelerated. When investment losses are realized, the reverse is
true. The following analysis depicts the components of FBG's margin:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
-------------------- ---------------------------------
1996 1995 1995 1994 1993
--------- -------- -------- -------- ---------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Average invested assets<F1>.............................................. $ 531.5 $ 529.8 $ 530.0 $ 546.7 $ 625.3
======== ======== ======== ======== ========
Net investment income<F2>................................................ $ 9.6 $ 10.9 $ 43.0 $ 43.1 $ 53.0
Policyholder benefits ................................................... 6.5 6.9 28.1 28.1 41.5
-------- -------- -------- -------- --------
Gross interest margin ................................................... 3.1 4.0 14.9 15.0 11.5
Associated amortization of DAC .......................................... 2.1 2.1 9.0 9.5 14.7
-------- -------- -------- -------- --------
Net interest margin ..................................................... 1.0 1.9 5.9 5.5 (3.2)
-------- -------- -------- -------- --------
Net investment gains .................................................... 0.2 0.7 2.7 2.7 21.9
Associated amortization of DAC .......................................... 0.1 0.4 1.7 1.7 0.9
-------- -------- -------- -------- --------
Net margin from investment gains ........................................ 0.1 0.3 1.0 1.0 21.0
-------- -------- -------- -------- --------
Total net margin ........................................................ 1.1 2.2 6.9 6.5 17.8
Expenses, net ........................................................... 1.5 -- (0.9) 1.9 2.3
-------- -------- -------- -------- --------
Operating earnings (loss) ............................................... (0.4) 2.2 7.8 4.6 15.5
Interest expense ........................................................ 0.4 0.4 1.5 1.4 1.5
-------- -------- -------- -------- --------
Earnings before income taxes ............................................ (0.8) 1.8 6.3 3.2 14.0
Income tax expense (benefit) ............................................ (0.3) 0.5 1.7 0.7 4.9
-------- -------- -------- -------- --------
Earnings (loss) before extraordinary loss ............................... (0.5) 1.3 4.6 2.5 9.1
Extraordinary loss on early extinguishment of debt ...................... -- -- -- 1.8 --
-------- -------- -------- -------- --------
Net earnings ............................................................ $ (0.5) $ 1.3 $ 4.6 $ 0.7 $ 9.1
======== ======== ======== ======== ========
Operating earnings (loss) ............................................... $ (0.4) $ 2.2 $ 7.8 $ 4.6 $ 15.5
Less:Net margin from investment gains ................................... 0.1 0.3 1.0 1.0 21.0
-------- -------- -------- -------- --------
Operating earnings excluding net investment
gains (losses) and associated amortization of DAC<F3>.................. $ (0.5) $ 1.9 $ 6.8 $ 3.6 $ (5.5)
======== ======== ======== ======== ========
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
------------------- ------------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(annualized)
(percentage of average invested assets)
<S> <C> <C> <C> <C> <C>
Average invested assets<F1>............................................... 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
Net investment income<F2>................................................. 7.22 8.22 8.11 7.88 8.48
Policyholder benefits .................................................... 4.89 5.21 5.30 5.14 6.64
------ ------ ------ ------ ------
Gross interest margin .................................................... 2.33 3.02 2.81 2.74 1.84
Associated amortization of DAC ........................................... 1.58 1.59 1.70 1.74 2.35
------ ------ ------ ------ ------
Net interest margin ...................................................... 0.75 1.43 1.11 1.01 (0.51)
------ ------ ------ ------ ------
Net investment gains (losses) ............................................ 0.15 0.53 0.51 0.49 3.50
Associated amortization of DAC ........................................... 0.08 0.30 0.32 0.31 0.14
------ ------ ------ ------ ------
Net margin (loss) from investment gains (losses) ......................... 0.07 0.23 0.19 0.18 3.36
------ ------ ------ ------ ------
Total net margin (loss) .................................................. 0.83 1.66 1.30 1.19 2.85
Expenses, net ............................................................ 1.13 -- (0.17) 0.35 0.37
------ ------ ------ ------ ------
Operating earnings (loss) ................................................ (0.30) 1.66 1.47 0.84 2.48
Interest expense ......................................................... 0.30 0.30 0.28 0.26 0.24
------ ------ ------ ------ ------
Earnings before income taxes and extraordinary item ...................... (0.60) 1.36 1.19 0.59 2.24
Income tax expense (benefit) ............................................. (0.23) 0.38 0.32 0.13 0.78
------ ------ ------ ------ ------
Earnings (loss) before extraordinary loss ................................ (0.37) 0.98 0.87 0.46 1.46
Extraordinary loss on early extinguishment of debt ....................... -- -- -- 0.33 --
------ ------ ------ ------ ------
Net earnings (loss) ...................................................... (0.37) 0.98 0.87 0.13 1.46
====== ====== ====== ====== ======
Operating earnings (loss) ................................................ (0.30) 1.66 1.47 0.84 2.48
Less: Net margin (loss) from investment gains (losses).................... 0.07 0.23 0.19 0.18 3.36
------ ------ ------ ------ ------
Operating earnings excluding net investment gains
(losses) and associated amortization of DAC<F3>........................... (0.37)% 1.43% 1.28% 0.66% (0.88)%
====== ====== ====== ====== ======
- ----------
<FN>
<F1> Average of cash and invested assets (before SFAS No. 115 adjustment) at the beginning and end of period.
<F2> Net investment income is presented net of investment expense.
<F3> The Company believes that disclosure of operating earnings excluding net investment gains (losses) and related amortization of
deferred acquisition costs provides a supplemental measure, which may be useful to investors, of the Company's earnings from
its operations separated from the impact of net investment gains (losses) whose timing may be influenced by investment and
other considerations unrelated to operations.
May not add due to rounding.
</TABLE>
Results of Operations
Three Months Ended March 31, 1996 and 1995.
After tax earnings from operations before realized gains on investments and
interest decreased to a loss of $.3 million for the quarter ended March 31, 1996
from $1.4 million for the quarter ended March 31, 1995. The decrease was
attributed to certain non-recurring professional fees related to the merger with
a subsidiary of the Company. Also, the investment portfolio of FBL, FBG's
wholly-owned subsidiary, yielded less in investment income due to restructuring
to shorten maturities in addition to adjustments to reflect changes in expected
maturities on mortgage-backed securities following changes in market interest
rates.
Net income, including capital gains and interest expense, decreased to a
loss of $.5 million for the quarter ended March 31, 1996 from earnings of $1.3
million for the quarter ended March 31, 1995. The decrease is attributed to the
aforesaid non-recurring professional fees and changes to the investment
portfolio of FBL.
Investment income, aggregated for the available-for-sale and the
held-to-maturity portfolios, decreased to $9.6 million for the quarter ended
March 31, 1996 from $10.9 million for the quarter ended March 31, 1995. The
decrease was attributed to restructuring the investment portfolio of FBL to
achieve shorter overall maturities in addition to an adjustment to the expected
maturities of its mortgage-backed portfolio resulting from changes in market
interest rates. Investment income as a percentage of invested assets decreased
to 7.5% for the three months ended March 31, 1996 from 8.5% for the three months
ended March 31, 1995.
Realized gains on investments decreased to $.2 million for the quarter
ended March 31, 1996 from $.7 million for the quarter ended March 31, 1995.
Commissions and marketing fees decreased to $.5 million for the quarter
ended March 31, 1996 from $.6 million for quarter ended March 31, 1995. The
decrease was attributed to less production during the current period for one of
the client companies that was a significant producer in the year- earlier
period.
Other income which includes surrender charges and rental income on the home
office building decreased to $1.1 million for the quarter ended March 31, 1996
from $1.3 million for the quarter ended March 31, 1995. The decrease related to
slightly less surrender charge income during the current period due to a
disparate mix of surrendering business when compared to the year earlier period.
Interest credited to policyowners decreased to $6.5 million for the three
months ended March 31, 1996 from $6.9 million for the three months ended March
31, 1995. The decrease related to lower average credited interest rates on
policyowner reserves in the current period compared to the year-earlier period.
General and administrative expenses increased to $2.6 million for the
quarter ended March 31, 1996 from $1.1 million for the quarter ended March 31,
1995. The increase resulted principally to non-recurring professional fees
related to the acquisition of FBG by the Company.
Payroll and related expenses decreased to $.5 million for the quarter ended
March 31, 1996 from $.7 million for the quarter ended March 31, 1995. The
decrease related to the termination of FBG's ESOP as of December 31, 1995 and
also to the discontinuance of accrued bonuses during the current period.
Amortization of DAC decreased to $2.3 million for the quarter ended March
31, 1996 from $2.5 million for the quarter ended March 31, 1995. The decrease
related to the relative level of overall policy surrenders and withdrawals for
FBL which were less than expected during the current period.
Interest expense was $.4 million for the quarter ended March 31, 1996 and
$.4 million for the quarter ended March 31, 1995.
Years Ended December 31, 1995, 1994 and 1993
After tax earnings from operations before realized gains on investments and
interest increased to $5.0 million for the year ended December 31, 1995 from
$2.8 million for the year ended December 31, 1994. The improvement was
attributed to maintenance of FBL's core investment spread on its in force
annuity business combined with reduced amortization of DAC which directly
related to reduced surrender activity in FBL. Also, increased commissions and
marketing fees earned through FBG's other wholly-owned subsidiaries, AIMCOR and
TIM primarily accounted for the remainder of the earnings improvement. After tax
earnings from operations before realized gains on investments, interest and
reinsurance effects increased to $2.8 million for the year ended December 31,
1994 from a loss of $3.6 million for the year ended December 31, 1993. This
improvement was attributed to FBL's increased spread between the earned rate on
its investments and the credited rates on annuity policies issued by FBL.
Net income, including capital gains and interest expense, increased to $4.6
million for the year ended December 31, 1995 from $2.5 million before a
tax-effected extraordinary charge for the early extinguishment of convertible
debt for the year ended December 31, 1994. The improvement is again attributed
to the reduction in amortization of DAC and the increased commissions and
marketing fees. Net income, before a non-recurring, extraordinary charge related
to the early extinguishment of debt and including capital gains, interest
expense and the effects of reinsurance, decreased to $2.5 million in 1994 from
$9.1 million in 1993. Primary earnings per share, before the extraordinary
charge, decreased to $.30 in 1994 from $1.11 in 1993. The decline in net income
was attributable to the fact that 1993 earnings included net realized capital
gains on investments (after taxes and amortization of capital gains and related
DAC) of $13.6 million while 1994 earnings included only $.8 million of net
realized gains on investments.
The extraordinary charge in 1994 of $2.0 million before a tax benefit of
$200,000 related to the early extinguishment of both a $10 million subordinated
convertible debenture owed to Southwestern Life Insurance Company of Dallas,
Texas, a subsidiary of Southwestern Life Corporation, and a $5.0 million term
note owed to Southwestern Life Corporation (formerly I.C.H. Corporation). These
debts were refinanced through a $16.0 million borrowing from Fleet Bank
(formerly Shawmut Bank) of Hartford, Connecticut.
Effective June 30, 1993, FBL entered into a reinsurance arrangement with
Philadelphia Life Insurance Company ("Philadelphia Life") under which FBL ceded
$140.1 million of statutory annuity reserves on 6,000 policies to Philadelphia
Life on a coinsurance basis. The account value relating to this block of
business totaled $154.6 million and the DAC totaled $21.5 million as of the June
30, 1993 transaction date. As of December 31, 1995, the reserves totaled $114.8
million and the DAC totaled $7.3 million.
Investment income remained unchanged at $43.1 million in 1995 and 1994.
Investment income from the available-for-sale portfolio increased to $42.0
million in 1995 from $27.4 million in 1994. Investment income from the
held-to-maturity portfolio decreased to $1.0 million in 1995 from $15.7 million
in 1994. Investment income as a percentage of invested assets increased to 8.5%
in 1995 from 8.2% in 1994. The slight increase was attributed to higher average
effective interest rates in 1995 compared to 1994. Investment income decreased
to $43.1 million in 1994 from $53.0 million in 1993. The $43.1 million consists
of $27.4 million from the available-for-sale portfolio and $15.7 million from
the held-to-maturity portfolio. The decrease resulted primarily from the smaller
asset base under management following the $140.1 million transfer of reserves to
Philadelphia Life effective June 30, 1993. Secondarily, lower prevailing
reinvestment interest rates and the excess of surrenders over new premiums
written contributed to the decrease. Investment income as a percentage of
invested assets declined to 8.2% in 1994 from 8.9% in 1993. This reduction was
attributed to lower average effective interest rates in 1994 compared to 1993.
Realized gains on investments were unchanged at $2.7 million for 1995 and
1994. Included in realized gains for 1995 was $.3 million from the sale of FBG's
Causeway manufactured home community. Realized gains on investments decreased to
$2.7 million in 1994 from $21.8 million in 1993. Net capital gains during 1993
related principally to FBL's sale of corporate bonds to effect the Philadelphia
Life reinsurance treaty.
Commissions and marketing fees increased to $2.9 million in 1995 from $1.4
million in 1994. The increase relates primarily to a new client company for both
AIMCOR and TIM. Commissions and marketing fees increased to $1.4 million in 1994
from $1.1 million in 1993. The increase relates to both the commission income of
TIM and to the growth in AIMCOR's marketing fees. FBG receives quarterly
marketing fees based on the policyholders' account value on business produced
for four unaffiliated carriers.
Other income which includes surrender charges and rental income on the home
office building increased to $5.6 million in 1995 from $3.8 million in 1994. The
increase primarily relates to increased surrender charge income. During 1994,
FBL credited renewal interest rates on existing policies at levels which, in
some cases, entitled policyowners to surrender their policies without surrender
charges for a limited period after notice was given of the new rate. During 1995
this option was available on a significantly smaller block of business.
The increase in future policy benefits remained unchanged at $28.1 million
for 1995 and 1994. The increase in liability for future policy benefits
decreased to $28.1 million in 1994 from $41.4 million in 1993. The decrease is
attributed to lower credited interest rates in 1994.
General and administrative expenses increased to $4.6 million for 1995 from
$4.1 million for 1994. The increase related principally to non-recurring
professional fees related to the acquisition of FBG by the Company. General and
administrative expenses decreased to $4.1 million in 1994 from $4.8 million in
1993. The decrease is attributed to reduced marketing expenses for non-life
company operations. In addition, expenses were offset by the settlement of a
lawsuit against a former money manager of FBG.
Payroll and related expenses decreased to $2.8 million in 1995 from $2.9
million in 1994 due to reductions in executive staff and deferred compensation
costs which was offset by increases in compensation for merit. Payroll and
related expenses increased to $2.9 million in 1994 from $2.4 million in 1993.
The increase related to merit pay increases, temporary help utilized to process
an increase in policyowner surrenders and added management staff in non-life
company operations.
Amortization of DAC decreased $10.7 million in 1995 from $11.2 million in
1994. The decrease related to the relative level of overall policy surrenders
and withdrawals for FBL which were less during 1995. Amortization of DAC
decreased to $11.2 million in 1994 from $15.6 million in 1993. The decrease is
primarily attributed to prior year amortization relating to the Philadelphia
Life reinsurance treaty. Current year amortization would have been slightly
higher due to the effect of surrenders and capital gains.
Interest expense increased to $1.5 million in 1995 from $1.4 million in
1994. The increase related to the higher average level of short term interest
rates in 1995 to which FBL's interest rate is indexed to. Interest expense
decreased to $1.4 million in 1994 from $1.5 million in 1993. The slight decrease
reflects the effects of a lower interest rate on outstanding debt following a
refinancing which occurred in June, 1994.
Liquidity and Capital Resources
The liquidity and cash requirements of FBL are met by premiums received
from annuity sales, net investment income received and proceeds from investments
upon maturity, sales or redemption. The primary uses of funds by FBL are the
payment of surrenders, policy benefits, operating expenses and commissions, as
well as the purchase of securities for investment.
FBL must maintain capital and surplus levels, determined on the statutory
accounting basis, in order to conduct business in the jurisdictions in which it
is licensed. FBL is required under Florida statutes to maintain capital and
surplus of at least 4.0% of policyowner liabilities exclusive of the Asset
Valuation Reserve ("AVR") and Interest Maintenance Reserve ("IMR"). At March 31,
1996, FBL's capital and surplus/liabilities ratio was 6.6%.
Florida's insurance statutes and regulations restrict FBL's dividends.
Florida insurance regulations limit the aggregate dividends that Florida
domiciled life insurance companies, including FBL, can pay without prior
regulatory approval to the greater of its statutory net operating profits and
realized net operating profits for the preceding year (provided there is
available surplus from net operating profits and net capital gains) or 10% of
its available and accumulated statutory surplus derived from net operating
profits and net realized capital gains. After payment of a dividend, FBL must
have 115% of required statutory surplus. Aggregate dividends exceeding these
mandated limits require special permission from the Florida Insurance
Department. Approximately $3.4 million is available as of April 30, 1996 for the
payment of dividends by FBL without regulatory approval.
FBL can generate cash by the sale of securities from its available-for-sale
portfolio. As of March 31, 1996, the available-for-sale portfolio had a carrying
value of $508.4 million. FBL carried approximately 8.1% of its fixed maturity
and equity portfolio in less than investment grade securities at March 31, 1996
and 8.3% as of December 31, 1995. As of March 31, 1996, FBL did not own any
bonds that were in default or issued by entities in bankruptcy.
As of March 31, 1996, FBG had $15.5 million of debt outstanding to Fleet
National Bank. In connection with the acquisition of FBG by the Company this
loan was repaid.
Effects of Inflation and Changes in Interest Rates.
FBG does not believe that inflation has had a material effect on its
consolidated results of operations during the past three years. FBG seeks to
manage its investment portfolio, in part, to reduce its exposure to interest
rate fluctuations. In general, the market value of FBG's fixed income securities
increases or decreases directly with interest rate changes. For example, if
interest rates decline (as was the case in 1995), FBG's fixed income investments
generally will increase in market value, while net investment income will
decrease. Conversely, if interest rates rise (as was the case in 1996), fixed
income investments generally will decrease in market value, while net investment
income will increase.
In a rising interest rate environment (such as experienced in 1994), FBG's
average cost of funds would increase over time as it prices its new and renewing
annuities to maintain a generally competitive market rate. During such a rise in
interest rates, new funds would be invested in bonds with higher yields that the
liabilities assumed. In a declining interest rate environment, FBG's cost of
funds would decrease over time, reflecting lower interest crediting rates on its
fixed annuities.
In addition to the increase in FBG's average cost of funds caused by a
rising interest rate environment, surrenders of annuities that are no longer
protected by surrender charges increase. While FBG experienced a decrease in
total surrenders during 1994, the decrease was primarily due to the large number
of bailout surrenders in 1993. Throughout 1994, FBG saw an increase in
surrenders of policies which no longer were covered by surrender charges.
Management believes that increased surrenders experienced in 1994 were due to
the increasing interest rates through 1994. This trend continued throughout 1995
and into 1996. Management believes that surrenders are lower during periods of
declining interest rates.
BUSINESS
General
The Company is an insurance holding company which operates through
subsidiaries that are engaged in the development, underwriting, marketing and
servicing of fixed annuity products in the United States. Through its insurance
subsidiaries, American Investors Life Insurance Company, Inc. ("American") and
Financial Benefit Life Insurance Company ("FBL"), the Company offers a variety
of annuity products through approximately 9,100 agents in 47 states and the
District of Columbia. As a result of its recent acquisition of Financial Benefit
Group, Inc. ("FBG"), the Company's assets increased from approximately $2.5
billion to $3.2 billion, stockholders' equity increased from $149.3 million to
$187.0 million, and annuities in force increased from approximately $2.1 billion
to $2.6 billion, on a pro forma basis as of March 31, 1996. The acquisition was
completed on April 8, 1996. The management of the Company believes that the
acquisition of FBG provides the Company with: (i) an attractive block of
in-force annuity contracts; (ii) enhanced marketing opportunities through new
agency relationships; (iii) diversified sources of revenue from FBG marketing
subsidiaries; and (iv) opportunities for economies of scale and operating
synergies derived from the consolidation of administrative and operations
functions.
The Company's operating earnings have historically been derived from
American. Following the acquisition of FBG, the Company's operating earnings
will be derived from American, FBL, and to a lesser extent, AIMCOR and TIM.
The Company's principal operating subsidiaries are American Investors Life
Insurance Company, Inc. (American), American Investors Sales Group, Inc.
(American Sales), AmVestors Investment Group, Inc. (AVIG), Financial Benefit
Life Insurance Company (FBL), Annuity International Marketing Corporation
(AIMCOR) and The Insurancemart, Inc. (TIM).
Industry Overview and Target Customer
The Company's business is in the growing asset accumulation industry, which
offers financial products to the large market of middle-aged individuals and
senior citizens who are approaching or have reached retirement age. U.S. Census
Bureau statistics indicate that the 45 to 64 age group, which numbered
approximately 46.4 million people in 1990, is projected to grow to 61.0 million
by the year 2000 and 78.6 million by 2010. The Company targets individuals aged
50 and older, which in 1995 accounted for over 85% of premiums at American and
over 84% of premiums at FBL.
The Company believes that the growth in the fixed annuities market is the
result of several demographic trends including longer life expectancy, rising
per capita income, the aging population, declines in coverage from corporate
pension plans and concerns about the long-term viability of the social security
system. Fixed annuities involve a one-time deposit or periodic deposits of cash
into an account that, after an accumulation period specified by the customer,
entitles the customer to receive the principal value plus accumulated interest
in the form of a lump sum payment or through annuity payments over a certain
period or for life. Interest credited during the accumulation period is
generally not subject to federal or state income tax until withdrawn.
The Company believes that annuity products are attractive to purchasers who
are concerned with out-living their savings. Total industry-wide fixed annuity
premiums have grown from approximately $30 billion in 1982 to over $137 billion
in 1994, and annuity premiums have exceeded traditional life insurance premiums
since 1986.
The typical fixed annuity buyer is of pre-retirement age, with a household
income below $75,000. The average premium for single premium annuities in 1995
was $31,000 (as compared to American's and FBL's combined average of
approximately $29,000). The anticipated uses for annuity income are retirement
expenses, nursing home care and unanticipated medical costs.
American, American Sales, AVIG
Overview
Founded in 1965, American has focused on the sale of single premium fixed
annuities since 1984. During various periods prior to 1984, American offered
participating and nonparticipating ordinary life insurance, flexible premium
annuities and certain disability income and cancer expense policies. However, in
the middle 1980s, American perceived greater opportunities in the savings and
retirement market and began to concentrate its marketing efforts on the sale of
single premium fixed annuities. The Company was incorporated in 1986 to serve as
a holding company for all the common stock of American.
Deferred fixed annuities accounted for approximately 96% of all premiums
received by the Company in 1995. Other products offered include single premium
immediate annuities (SPIAs) and flexible premium universal life policies
(FPULs). As of March 31, 1996, American had total annuity contracts in force of
$2.1 billion.
To access the market of potential annuity buyers, American maintains a
network of independent agents licensed in 47 states and the District of
Columbia. As of March 31, 1996, American had approximately 7,300 agents
contracted to sell its annuity products. American does not market its products
through stockbrokers or financial institutions. Agents selling American's
annuities are recruited through the Company's wholly-owned subsidiary, American
Sales, as well as through various other marketing organizations. American
endeavors to attract agents to sell its products by offering a broad selection
of fixed annuity products with competitive commission rates, by providing
timely, comprehensive services to agents and customers and by continuing to
specialize in annuity products. From January 1, 1990 to December 31, 1995,
approximately 31% of annuity premiums received by American have been produced by
agents recruited by American Sales, resulting in commission savings for American
as compared with business produced by agents recruited through other marketing
organizations.
The Company's strategy for American is to expand sales in a growing market,
attract quality agents, sell products with profit potential and maintain a high
quality investment portfolio. The Company also has a goal to grow and diversify
within the financial services industry through market affiliations and
acquisitions.
American incorporates certain features in its annuity contracts that are
designed to reduce the occurrence and effect of premature contract terminations
and significant withdrawals. Such features include surrender charges which
decline over time and which apply, subject to certain exceptions, to premature
terminations during the first five to fourteen years of an annuity contract. In
addition, annual withdrawals free of surrender charges are generally limited to
10% of an annuity's cash value. Certain of American's annuities also provide for
deferred payments of the surrender value of the annuity over a five year period
or market value adjustments of surrender value which reflect changes in interest
rates.
Certain annuity policies incorporate a "bailout" feature which generally
allows policyowners to withdraw their account balances for a limited period of
time, free of surrender charges, if credited rates fall below a specified level.
American experienced significant surrenders following the reduction of credited
rates below specified "bailout" levels during 1992 and 1993. As of March 31,
1996, 11% of American's in-force annuity business was subject to this "bailout"
provision, with an average "bailout" rate of 5.16%.
On May 9, 1995, A.M. Best Company which rates insurance companies based on
factors of concern to policyowners, reaffirmed American's "A-" (Excellent)
rating. On April 14, 1996, Duff & Phelps reaffirmed American's claims paying
ability rating of "A+" (High).
Strategy
The Company has developed a business strategy to better enable American to
capitalize on what it perceives as significant opportunities in the growing
fixed annuity market. The elements of this strategy are to (i) expand sales in
the growing fixed annuity market, (ii) attract quality agents, (iii) design and
sell products with profit potential, and (iv) maintain a high quality investment
portfolio. The Company also has a goal to grow and diversify within the
financial services industry through market affiliations and acquisitions.
Expand Sales in a Growing Market. American believes that its focus on
deferred annuity products in the expanding savings and retirement market
provides opportunity for growth. American seeks to meet the needs of the savings
and retirement market by offering a portfolio of single premium fixed annuity
products nationwide. In 1995, over 85% of American's premiums received were from
individuals ages 50 and over.
Attract Quality Agents. American intends to pursue growth of its business
through increased production from existing agents and through the creation of
new agent relationships. American believes that it is able to attract agents to
sell its products by providing a broad selection of fixed annuity products with
competitive commission rates, and timely, comprehensive services to agents and
customers. American recruits agents through its wholly-owned subsidiary,
American Sales, and through other marketing organizations, and regularly
evaluates its distribution system for growth opportunities. American has
approximately 7,300 independent insurance agents licensed to sell its products
in 47 states and the District of Columbia.
Design and Sell Products with Profit Potential. American seeks to design
its products to enhance the potential for profit and reduce the risk of loss.
Management's philosophy is to limit sales of annuities when it believes that
market conditions would prevent American from achieving targeted spreads.
American adjusts credited rates based on prevailing market conditions and
available investment yields, subject to certain interest rate guarantees.
Annuities currently issued by American include features such as surrender
charges, limited free withdrawal privileges, market value adjustments and
deferred payout provisions. These features are designed to encourage persistency
and provide protection from losses due to premature termination. Management of
American continuously monitors and adjusts its product features and terms in
response to market conditions.
Maintain a High Quality Investment Portfolio. American's investments are
managed by a wholly-owned subsidiary of the Company, AVIG, which seeks to
maintain a high quality investment portfolio and to purchase investments taking
into account the anticipated cash flows of its assets and liabilities. As of
March 31, 1996, approximately 98% of American's investment portfolio consisted
of bonds approximately 92% of which were investment grade. The weighted average
duration of American's bond portfolio was 4.5 years as of that date.
Diversification and Growth. The Company has a goal to diversify in the
financial services industry. The Company may pursue this goal, and otherwise
expand its current business, through acquisitions and joint venture marketing
opportunities. The Company has no current agreements or understandings with any
entity with respect to any such acquisition or marketing affiliation.
Marketing and Distribution
American maintains contact with approximately 29,000 agents that do not
currently sell American's products, but have either sold American's annuities in
the past or have expressed an interest in doing so. These agents continue to
receive periodic mailings related to interest rate and commission changes, and
new product introductions, and are reappointed upon their request, at the
discretion of American, in order to represent American in selling its products.
In order to save costs associated with reappointing existing agents, American
does not automatically reappoint an agent that has not written business for
twelve months. Such costs include the annual appointment fee of $20 to $40 per
agent. American collects premiums from policyowners throughout the United
States. During 1995, 62.0% of its deferred annuity sales were in the following
states: California (10.6%), Florida (8.7%), Ohio (6.5%), Texas (6.1%), Illinois
(6.0%), New Jersey (5.5%), Pennsylvania (5.1%), Wisconsin (4.8%), Kansas (4.6%)
and Michigan (4.1%).
American recruits new agents through American Sales and through other
marketing organizations. Because both American Sales and other marketing
organizations rely on independent agents, American does not maintain an
exclusive or captive sales force thereby avoiding the related costs. In
addition, American does not market its annuity products through stock brokers or
financial institutions. From January 1, 1990 to December 31, 1995, approximately
31% of annuity premiums received by American have been produced by agents
recruited through American Sales. Marketing organizations are responsible for,
and bear the cost of, recruiting agents. In accordance with industry custom,
American Sales and the marketing organizations receive a gross commission from
American for originating an annuity contract, a portion of which is paid to the
originating agent (the "street commission"). The marketing organizations or
American Sales retains the difference between the gross commission and the
street commission (the "override commission"). The availability of override
commissions provides an economic incentive to the marketing organizations to
recruit agents who produce business.
In recruiting new agents, principally through direct mail solicitations,
American analyzes the market for its products and reviews the number and
geographical distribution of its agents regularly. Data reviewed include
premiums received and agents contracted by state. This allows American to
identify specific regions of the country where it believes it can most
effectively recruit agents for the sales of its annuity products. American
develops a targeted list of potential agents from sources such as databases of
licensed agents maintained by state insurance commissioners as well as industry
associations such as the Million Dollar Round Table and the American Society of
Chartered Life Underwriters. American also regularly advertises its products,
rates and commission levels in various industry trade publications. To be
contracted by American, agents must be licensed by state insurance regulatory
authorities and have their applications approved by American.
Credited rates, commissions, the perceived quality of the issuer, product
features and services are generally the principal factors influencing an agent's
willingness and ability to sell particular annuity products. American believes
that both agents and policyowners value the service provided by American. For
example, American generally issues a fixed annuity policy, together with the
agent's commission check, within 72 hours of receiving the application and
premium. American also seeks to provide ongoing service to the agent. Towards
that end, American provides agents with access to American's senior executives.
American has developed an interactive system accessible by all agents to obtain
policy information. In addition, agents and policy owners can access information
about their policies via a toll-free telephone number.
American is not dependent on any one agent or agency for any substantial
amount of its business. No single agent accounted for more than 1% of American's
annual sales in 1995, and the top twenty individual agents accounted for
approximately 11% of American's volume in 1995. American does not have exclusive
agency agreements with its agents and management believes most of these agents
sell products, similar to those sold by American, for other insurance companies.
This can result in sales declines if for any reason American is relatively less
competitive or there are concerns such as existed in 1991, about asset quality,
the downgrade in American's A.M. Best Company rating, and the insolvencies of
other insurance companies.
The four major independent marketing organizations, exclusive of American
Sales, through which American recruits agents to sell its annuity products were
responsible for the recruitment of agents that accounted for 45% of premiums
received during 1995. While the termination of American's relationships with any
of its marketing organizations could result in the loss of agents and could
adversely affect the level of sales and surrenders, American does not believe
that the loss of any one marketing organization would have a material adverse
effect on the financial condition of American.
Products
American specializes in the sale of fixed annuity products to individuals.
During each of the past three years, sales of deferred annuities have accounted
for approximately 96% of American's premiums received, while sales of SPIAs and
FPULs have accounted for virtually all remaining premiums received.
Single premium deferred annuities involve a one-time premium deposit by the
policyowner at the time of issuance. Following an accumulation period, the
policyowner is entitled to receive the principal value plus accumulated interest
credited to such annuity account, payable either in a lump-sum or through
annuity payments over a certain period or for life. Interest credited during the
accumulation period generally is not subject to federal or state income tax.
American currently sells annuity products with different benefits, interest
rates and commission structures. These products offer tax-deferred accumulation
of interest, various interest guarantees, guaranteed cash values, and a choice
of guaranteed income options on the selected maturity date. The portfolio of
products is continuously reviewed with new plans added and others discontinued
in an effort to remain competitive.
American's operating earnings are derived primarily from its investment
results, including realized gains (losses), less interest credited to annuity
contracts and expenses. In determining credited rates, American takes into
account the profitability of its annuity business and the relative competitive
positions of its products. Credited rates during the initial and any renewal
period are based on assumptions and estimates relating principally to
persistency, investment yield and expenses as well as management's judgment as
to certain market and competitive conditions.
American's fixed annuities have an initial credited interest rate (as of
May 24, 1996) of 5.30% to 9.80%, depending on the features of the contract)
guaranteed for a period of one to five years. From January 1, 1990 to December
31, 1995, the initial credited interest rates on 60% of American's annuities
issued were guaranteed for one year, 35% were guaranteed for from one to two
years, and 5% were guaranteed for five years. Following the initial guarantee
period, American may adjust the credited interest rate annually, subject to the
guaranteed minimum interest rates specified in the contracts. The minimum
guaranteed rates currently range from 3% to 6%. At March 31, 1996, the credited
rates on deferred annuities with accumulated values of approximately $458.4
million were set at the minimum guaranteed rate. The credited rates on deferred
annuities representing a majority of total accumulated value may be reset by the
Company within a period of one year subject to the guaranteed minimum rate. The
accumulated values of deferred annuities by credited interest rates are as
follows as of March 31, 1996:
Credited Rates Accumulated Value
(in millions)
----------------------------------------- -----------------
Less than 5.5%........................... $ 924.3
5.5% to 6.5%............................. 664.6
6.5% to 7.5%............................. 261.7
Greater than 7.5%........................ $ 169.8
---------
$ 2,020.4
American incorporates a number of features in its annuity products designed
to reduce the occurrence and adverse effect of premature termination of the
policy. Premature termination of an annuity contract results in the loss of
future investment earnings related to the annuity deposit and in the accelerated
recognition of deferred expenses related to policy acquisition, principally
commissions, which are otherwise expensed over the life of the policy.
The primary feature incorporated by American to minimize premature
terminations is a surrender charge. While the policyowner is permitted at any
time to withdraw all or part of the accumulated value of their policy, such
withdrawals are generally subject to a surrender charge for the period of years
specified in the contract. The surrender charge, which is a percentage of the
total accumulated value including accrued interest, is designed to discourage
premature termination. Surrender charges, subject to certain exceptions, apply
for the number of years specified in the contract and decline to zero over a
period of five to fourteen years. All annuities policies currently issued by
American include surrender charges. As of March 31, 1996, 83% of American's
contracts in force had surrender charges. In addition, annual withdrawals free
of surrender charges are limited to 10% of an annuity's accumulated value.
The following table indicates information as of March 31, 1996 on surrender
charges associated with the five products that comprise the largest blocks of
American's in-force business:
<TABLE>
<CAPTION>
Total Weighted Average Surrender Charge Weighted Average Surrender Charge Period
Account Value Period Remaining on all Remaining on Policies with Surrender
Product ($ in millions) Policies (Years) Charges (Years)
- ------------------------------ --------------- --------------------------------- ----------------------------------------
<S> <C> <C> <C>
SPDA I........................ $291.8 2.9 4.0
SPDA VII...................... 234.5 1.5 3.7
SPDA XI....................... 306.2 3.6 3.6
SPDA XIB...................... 235.4 6.8 6.8
Alliance Series
(FPDA, PO, FPDA P2, FPDA P4).. 199.2 10.8 10.8
</TABLE>
When American receives a request for surrender of an annuity policy, a
conservation letter is mailed to the policyowner. This letter is designed to
inform the policyowner of the possible tax implications and the surrender charge
payable under the annuity policy. It is the practice of the Company that
surrender benefits are not generally paid until American receives a written
response to the conservation letter. Typically policyowners who have requested a
surrender of $10,000 or more are personally contacted by telephone. American's
conservation procedures are designed to (i) attempt to conserve the business,
(ii) ascertain the causes of the surrenders, and (iii) identify and terminate
agents who write low persistency business. In certain contracts, the surrender
charge is waived for a period of 45 to 60 days following the crediting of a
renewal rate below a specified rate (the "bailout" rate). Of American's $2.1
billion annuity contracts in force as of March 31, 1996, approximately $226.8
million have a "bailout" feature remaining. The "bailout" rate on $224.7 million
of this amount is 6% or less. Surrender charges also generally do not apply to
one-time annual withdrawals by policyowners of up to 10% of the accumulated
value of the annuity.
Approximately 40% of the deferred annuity business in force as of March 31,
1996 provides that American may pay any surrender value in level installments
over 60 months in lieu of a lump sum payment. Additionally, at that date
approximately 12% of American's deferred annuity business in force had a market
value adjustment provision that will provide American with additional protection
during a period of rising interest rates through a reduction in the surrender
value payable upon surrender of the policy during the period the surrender
charge is in effect.
Investments
American's earnings are largely determined by its ability to maintain a
spread between its investment results and the interest credited on its annuity
products. As of March 31, 1996, American had $2.13 billion of cash and invested
assets of which $2.06 billion or approximately 97% represented investments in
bonds, which had a duration of 4.5 years. At that date, approximately 92% of
American's bond portfolio was rated investment grade. As of March 31, 1996, the
market value of American's bond portfolio exceeded its historical cost by $28.1
million.
The following table depicts the Company's investment portfolio by asset
class as of March 31, 1996:
<TABLE>
<CAPTION>
GAAP CARRYING VALUE MARKET
--------------------------- -------------------------
Dollars (000) Percent Dollars (000) Percent
------------- -------- ------------- -------
<S> <C> <C> <C> <C>
US Treasury & Government Obligations ............ $ 50,772 2.40% $ 50,772 2.40%
Municipal ....................................... 19,617 0.93 19,617 0.93
Corporate-Investment Grade ...................... 1,146,011 54.12 1,146,011 54.12
Corporate-Non-Investment Grade .................. 162,558 7.68 162,558 7.68
Mortgage Backed Securities
Pass-Throughs ................................. 3,292 0.16 3,292 0.16
CMO Non-Sequential ............................ 541,508 25.57 541,508 25.57
CMO Sequential-Investment Grade ............... 134,648 6.36 134,648 6.36
CMO Sequential-Non-Investment Grade ........... 6,407 0.30 6,407 0.30
Mortgage loans on Real Estate ................... 5,336 0.25 5,345 0.25
Real Estate Investments ......................... 419 0.02 419 0.02
Equity Securities ............................... 1,585 0.07 1,585 0.07
Preferred Securities
Investment Grade .............................. 14,836 0.70 14,836 0.70
Non-Investment Grade .......................... 1,271 0.06 1,271 0.06
Policy Loans .................................... 5,231 0.25 5,231 0.25
Collateral Loans ................................ 3,039 0.14 3,039 0.14
Partnerships .................................... 20,488 0.97 20,488 0.97
Other Investments ............................... 2 0.00 2 0.00
Short Term Investments .......................... 428 0.02 428 0.02
---------- ------ ---------- -------
Total ........................................... $2,117,448 100.00% $2,117,457 100.00%
========== ====== ========== =======
</TABLE>
Investment Results
The following table summarizes the Company's investment results for the
period indicated:
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
---------------------------- ---------------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(dollars in Millions)
<S> <C> <C> <C> <C> <C>
Average invested assets<F1>.................... $ 2,078.4 $ 1,936.2 $ 1,992.7 $ 1,862.3 $ 1,770.9
Net investment income<F2>...................... 39.2 38.2 156.5 142.0 138.5
Yield<F3>...................................... 7.5% 7.9% 7.9% 7.6% 7.8%
Net investment gains<F4>....................... $ 7.6 -- $ 0.1 $ 0.8 $ 17.0
- ----------
<FN>
<F1> Average of cash, invested assets (before SFAS 115 adjustment) and net amounts due to or from brokers on unsettled security
trades at the beginning and end of period.
<F2> Net of investment expenses.
<F3> Net investment income divided by average invested assets.
<F4> Net invested gains (losses) include in 1994 and 1993 provisions for impairments in value that were considered other than
temporary.
</TABLE>
Reinsurance.
American reinsures portions of life insurance risks with unaffiliated
insurance companies under traditional indemnity reinsurance agreements.
Generally, American enters into traditional reinsurance arrangements to assist
in diversifying its risk and to limit its maximum loss exposure on risks that
exceed American's policy retention limits, currently $150,000 per life.
Reinsurance does not fully discharge American's obligation to pay policy claims
on the reinsured business. American remains responsible for policy claims to the
extent the reinsurer is unable to pay claims. No reinsurer of business ceded by
American has failed to pay any policy claims (either individually or in the
aggregate) with respect to such ceded business. As of March 31, 1996, American
had ceded to reinsurers $234.7 million of its $305.7 million of life insurance
in force ($211.8 million and $280.1 million, respectively, of which are whole
life policies substantially all of which were written by American prior to 1989)
and had recorded $144.2 million of related reinsurance receivables against
future policy benefits. Of the insurance ceded and reinsurance receivables
recorded, $205.1 million and $142.5 million, respectively, relate to one
reinsurance contract with Employers Reassurance Corporation ("ERC"). This
reinsurance agreement pertains to the coinsurance of 90% of all risks associated
with all of the SPWL policies written by American prior to 1989. Based on a
review of the statutory Annual Statements filed by ERC with the Kansas Insurance
Department and ERC's A.M. Best rating of "A+" (Superior), the Company believes
that ERC is solvent and capable of meeting its obligations on the policies
reinsured.
Properties
The Company owns its home office complex consisting of four buildings and
the adjacent real property in Topeka, Kansas. Total floor space in the four
buildings is approximately 31,000 square feet. As of March 31, 1996, the book
value of such properties was $1.4 million. The Company intends to sell such
properties. During 1995, American began construction of a six-story home office
building containing 102,000 square feet in Topeka, Kansas. The estimated total
cost of such construction is $10.0 to $12.0 million, which American anticipates
will be funded through normal cash flows. The Company plans to occupy three
floors of the new facility by early 1997, with the balance leased to tenants.
FBL, AIMCOR, TIM
Overview
FBL is a life insurance company which, like American, specializes in the
sale of fixed annuity products. FBL was initially licensed in Florida, its state
of domicile, in 1983 and is now authorized to sell insurance in 39 additional
states, the U.S. Virgin Islands and the District of Columbia. Since January,
1984, when FBL's single premium annuity sales commenced, FBL has offered a
variety of single and flexible premium deferred fixed annuity and single premium
immediate annuity plans. Deferred fixed annuity products accounted for
approximately 96% of all premiums received by FBL in 1995 and approximately 96%
of all premiums received by it during the first three months of 1996.
FBL's fixed annuity products are targeted to both the retirement market (up
to age 75) and the super senior market (up to age 100). Specific products,
underwritten by FBL, are designed for each segment and are sold through
independent agents recruited by The Insurancemart (TIM) and other unaffiliated
national marketing organizations. FBL does not market its products through
stockbrokers or financial institutions. As of January 1, 1996, approximately
1,800 independent agents were licensed to sell FBL's products. From January 1,
1990 to December 31, 1995, approximately 67% of annuity premiums received by FBL
have been produced by agents recruited by TIM, resulting in commission savings
as compared with business written by other marketing companies.
FBL's strategy is to increase its annuity premium writings by expanding
into additional territories, recruiting and contracting with quality agents, and
designing and selling profitable annuity products while maintaining its quality
investment portfolio and its investment margins.
FBL incorporates certain features in its annuity contracts that are
designed to reduce the occurrence and effect of premature contract terminations
and significant withdrawals. Such features include surrender charges which
decline over time and which apply to premature terminations during the first
seven to nine years of an annuity contract. In addition, annual withdrawals free
of surrender charges are limited to 10% of an annuity's accumulated value or, in
some cases, the prior twelve months' earned interest. Certain of FBL's annuities
also provide for deferred payments of the surrender value of the annuity over a
five year period.
Certain annuity policies written by FBL incorporate a "bailout" feature
which generally allows policyowners to withdraw their account balances for a
limited period of time, free of surrender charges, if credited rates fall below
a specified level. FBL experienced significant surrenders following the
reduction of credited rates below specified "bailout" levels from 1992 through
1994. In January, 1992 over 83% of FBL's in force annuity business was subject
to this "bailout" provision. As of March 31, 1996, this percentage was reduced
to only 5% of FBL's in-force annuity business with an average credited "bailout"
rate of 4.5%.
FBL is rated "B" (Adequate) by A.M. Best Company.
AIMCOR and TIM, along with FBL, are former subsidiaries of FBG. AIMCOR is a
developer and marketer of annuities for its client companies, FBL and several
other unaffiliated insurance companies. AIMCOR provides turn-key service to its
client companies and receives royalty income that is based upon the accumulated
value of annuity policies generated by TIM on behalf of these companies. TIM
functions as a wholesaler for FBL, American, all of the life insurance companies
with which AIMCOR has marketing agreements and for other unaffiliated carriers.
TIM has approximately 5,400 independent agents and it earns an override
commission on its sales of annuity products.
Strategy
FBL has developed a business strategy to increase its market share in the
growing fixed annuity market. The elements of this strategy include: (i)
expanding into additional territories; (ii) recruiting and contracting with
quality agents; (iii) designing and selling profitable products; and (iv)
maintaining a quality investment portfolio.
Expanding into Additional Territories. FBL is currently licensed in 39
states, the U.S. Virgin Islands and the District of Columbia. Sales of annuities
in 1996 were primarily in Florida, Ohio, Michigan, Indiana, Texas, Wisconsin,
Arizona, Iowa and California, representing over 72% of total sales. Its more
recent admissions to Texas and California, two populous states, substantially
widen its agent recruiting opportunities and allow FBL to market its products to
agents with a broader base of annuity consumers. FBL continues to seek admission
into other states such as Illinois, New Jersey and Connecticut.
Recruiting Quality Agents. FBL intends to pursue growth of its business
through increased production from existing agents and through the recruitment of
new agents. As of March 31, 1996, over 70% of agents contracted by FBL were
recruited through its affiliate, TIM.
Designing and Selling Profitable Products. FBL seeks to design its products
to enhance the potential for profit and reduce the risk of loss. FBL adjusts
credited rates based on prevailing market conditions and available investment
yields, subject to certain interest rate guarantees. Annuities currently issued
by FBL include features such as surrender charges, limited free withdrawal
privileges, and deferred payout provisions. These features are designed to
encourage persistency and provide protection from losses due to premature
termination.
Maintaining Quality Investment Portfolio. Following completion of the
acquisition of FBG, investments are managed by a wholly-owned subsidiary of the
Company, AVIG, which seeks to maintain a high quality investment portfolio and
to purchase investments taking into account the anticipated cash flows of its
assets and liabilities. As of March 31, 1996, approximately 95% of FBL's
investment portfolio consisted of bonds approximately 92% of which were
investment grade bonds. The weighted average duration of FBL's bond portfolio
was 5.0 years as of that date. FBL has minimal holdings in mortgage loans and
equities and the only real estate holding is its home office building.
Marketing and Distribution
To sell its products to the annuity buyer, FBL maintains a network of
independent agents licensed in 39 states, the U.S. Virgin Islands and the
District of Columbia. FBL does not market its annuity products through
stockbrokers or financial institutions. As of March 31, 1996, FBL had
approximately 1,800 agents contracted to sell its annuity products. In order to
maintain a contract with FBL, an agent must produce business in the prior twelve
months before time for reappointment, otherwise said agent will generally not be
reappointed.
FBL also maintains contact with a group of prospective agents who were at
one time licensed with FBL or had expressed an interest in doing so. These
agents currently receive agent communications and new product introductions on a
periodic basis.
All of FBL's annuity sales have been made by independent agents contracted
to FBL and recruited through marketing organizations, primarily TIM. For the
year ended December 31, 1995, agents contracted through TIM produced
approximately 71% of annuity premiums for FBL. Agents recruited through one
independent marketing company produced approximately 27% of FBL's annuity
premium during that same time period. Marketing companies, including TIM,
receive an override commission on the business written by the agents they
recruit and absorb all of the cost of recruiting an FBL agent. FBL's premium
written was $76.5 million in 1994, $62.5 million in 1995 and $20.9 million
through March 31, 1996.
FBL is not dependent on any one agent or agency for any substantial amount
of its business. No single agent accounted for more than 2.0% of FBL's annual
sales in 1995, and the top twenty individual agents accounted for approximately
24% of FBL's volume in 1995. FBL does not have any exclusive agreements with its
agents, and management believes all of these agents sell products for other
insurance companies, including American.
Products
FBL specializes in the sale of fixed annuity products to individuals.
During each of the past three years ended December 31, 1995, 1994 and 1993,
sales of deferred fixed annuities have accounted for over 93% of FBL's premiums
received. The balance of premium receipts were from sales of SPIAs.
FBL, like American, currently sells annuity products with various benefits,
interest rates and commission structures. These products offer tax-deferred
accumulation of interest, various interest guarantees, guaranteed cash values
and a choice of guaranteed income options on the selected maturity date. FBL's
operating earnings are derived in the same manner as American as are rate
crediting practices.
FBL markets two distinct annuity products, one targeted to the retirement
market (the "Champion Annuity") and a second to the super senior market (the
"Senior Advantage Annuity"). The Champion Annuity, which is issued to age 75,
guarantees an initial credited rate for one year and an annual renewal rate each
year thereafter. The policy has a nine year surrender charge period and a
minimum guaranteed credited rate of 3%. The Senior Advantage Annuity, which is
issued to age 100, has a seven year surrender charge period with the same
guarantees on initial and minimum rates.
As of March 31, 1996, the credited rates on deferred annuities with
accumulated values of approximately $197 million were set at the minimum
guaranteed rate. The accumulated values of deferred annuities by credited
interest rates are as follows at March 31, 1996:
Credited Rates Accumulated Value
(in millions)
------------------------------------------------- -----------------
Less than 4.5%............................... $ 340.5
4.5% to 5.5%................................. 39.6
5.5% to 6.5%................................. 69.6
Greater than 6.5%............................ 63.8
--------
$ 512.7
The surrender charge provisions in the FBL fixed annuities are similar to
those contained in the American fixed annuities and are included to minimize
premature terminations. All fixed annuities currently issued by FBL include
surrender charges and over 95% of FBL's deferred annuity contracts in force as
of March 31, 1996 have surrender charges.
The following table indicates information as of March 31, 1996, on
surrender charges associated with the three products that comprise the largest
blocks of FBL's in-force business.
<TABLE>
<CAPTION>
Weighted Average Weighted Average Surrender
Total Surrender Charge Period Charge Period Remaining on
Account Value Remaining on all Policies with Surrender
Product ($ in millions) Policies (Years) Charges (Years)
- ------------- --------------- ----------------------- --------------------------
<S> <C> <C> <C>
Champion..... $220.4 5.2 5.2
Senior....... 70.8 5.4 5.4
Accumulator.. 186.3 3.0 3.0
</TABLE>
In certain FBL fixed annuity contracts, the surrender charge is waived for
a period of 30 days following the crediting of a renewal rate below a specified
rate ( the "bailout rate"). Of FBL's $512.7 million of annuity reserves in force
as of March 31, 1996, $27.2 million or 5.3% have a "bailout" feature remaining
with a weighted average "bailout" rate of 4.5% or less.
Approximately 62% of the deferred annuity business in force as of March 31,
1996, provides that FBL may pay any surrender value in level installments over
60 months in lieu of a lump sum payment.
Investments
Similar to the earnings of American, FBL's earnings are largely determined
by its ability to maintain a spread between its investment results and the
interest credited on its annuity products. As of March 31, 1996, FBL had $540.4
million of cash and invested assets of which $511.4 million or approximately 95%
represented investments in bonds, which had a duration of 5.0 years. At that
date, approximately 92% of FBL's bond portfolio was rated investment grade. As
of March 31, 1996, the market value of the bond portfolio exceeded its
historical cost by $8.7 million.
The following table depicts FBG's investment portfolio by asset class as of
March 31, 1996:
<TABLE>
<CAPTION>
GAAP CARRYING VALUE MARKET
----------------------- -----------------------
DOLLARS DOLLARS
(000) PERCENT (000) PERCENT
--------- ------- -------- --------
<S> <C> <C> <C> <C>
BONDS
US Treasury & Government Obligations ......................................... $ 1,473 0.28% $ 1,509 0.29%
Corporate-Investment Grade ................................................... 276,960 52.57 277,008 52.57
Corporate-Non-Investment Grade ............................................... 43,903 8.33 43,903 8.33
Mortgage Backed Securities:
Pass-Throughs ..................................................... 265 0.05 265 0.05
CMO Non-Sequential ................................................ 145,770 27.67 145,770 27.66
CMO Sequential-Investment Grade ................................... 43,638 8.28 43,638 8.28
Mortgage Loans on Real Estate ................................................ 5,895 1.12 5,895 1.12
Equity Securities ............................................................ 792 0.15 792 0.15
Preferred Securities
Pfd.-Investment Grade ............................................. 4,700 0.89 4,700 0.89
Pfd.-Non-Investment Grade ......................................... 3,500 0.66 3,500 0.66
Total ........................................................................ $526,980 100.00% $526,980 100.00%
======== ====== ======== =======
</TABLE>
The following table summarizes FBG's investment results for the periods
indicated:
<TABLE>
<CAPTION>
Three Months Ended March 31, For the Year Ended December 31,
---------------------------- ------------------------------------------
1996 1995 1995 1994 1993
---------- ----------- --------- --------- ---------
(dollars in Millions)
<S> <C> <C> <C> <C> <C>
Average invested assets<F1>.................... $ 531.5 $ 529.8 $ 530.0 $ 546.7 $ 625.3
Net investment income<F2>...................... 9.6 10.9 43.0 43.1 53.0
Yield<F3>...................................... 7.2% 8.4% 8.1% 7.9% 8.5%
Net investment gains .......................... $ 0.2 $ 0.7 $ 2.7 $ 2.7 $ 21.9
- ----------
<FN>
<F1> Average of cash, invested assets (before SFAS No. 115 adjustment) and net amounts due to or from brokers on unsettled security
trades at the beginning and end of period.
<F2> Net of investment expenses.
<F3> Net investment income divided by average invested assets.
</TABLE>
Reinsurance
In July, 1993, FBL entered into a coinsurance treaty with Philadelphia
Life, a Pennsylvania domiciled subsidiary of Life Partners Group, Inc. Under the
terms of the agreement, FBL ceded $140.1 million of statutory annuity reserves
to Philadelphia Life on approximately 6,000 policies. FBL is to receive a share
in future profits from the business ceded, on a coinsurance basis, and is to
continue to administer the business on a fee basis.
AIMCOR
AIMCOR develops and markets annuities for FBL and several other
unaffiliated insurance companies. AIMCOR provides turn-key service to its client
companies and receives royalty income that is based upon the accumulated value
of annuity policies generated on behalf of AIMCOR clients.
The Insurancemart, Inc.
TIM is a marketing company, or wholesaler, which recruits agents to sell
annuities and in some cases, life insurance, for FBL, American, all insurers
with which AIMCOR has marketing agreements and other unaffiliated carriers. TIM
was acquired by FBG in November, 1987. Agents under contract through TIM now
exceed 5,400. These agents have generated $23.9 million of annuity premium in
the three months ended March 31, 1996. TIM receives an override on all annuity
and life insurance premiums sold through TIM recruited agents.
<TABLE>
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
(DOLLARS IN THOUSANDS)
<CAPTION>
Historical as of
March 31, 1996
---------------------------- Pro Forma
Adjustments Pro
AmVestors FBG <F1> Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Bonds -- available for sale ........................................ $ 2,063,146 508,436 1,426 2,573,008
Other investments .................................................. 54,302 18,460 (234) 72,528
----------- ----------- ----------- -----------
TOTAL INVESTMENTS ....................................... 2,117,448 526,896 1,192 2,645,536
Cash and cash equivalents .......................................... 12,512 13,515 -- 26,027
Amounts due from reinsurers ........................................ 144,169 111,166 -- 255,335
Deferred policy acquisition costs-- AmVestors ...................... 163,812 -- 163,812
Deferred policy acquisition costs-- FBG ............................ 46,150 (46,150) 0
Present value of future profits-- FBG .............................. -- 45,000 45,000
Goodwill ........................................................... -- -- 11,295 11,295
Other assets ....................................................... 37,682 13,854 3,261 54,797
----------- ----------- ----------- -----------
$ 2,475,623 711,581 14,598 3,201,802
=========== =========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities:
Policy liabilities ...................................... $ 2,302,900 650,174 -- 2,953,074
Existing credit facility ................................ 7,000 15,500 (22,500) 0
New Credit Facility ..................................... -- -- 35,000 35,000
Other liabilities ....................................... 16,441 9,313 1,000 26,754
----------- ----------- ----------- -----------
2,326,341 674,987 13,500 3,014,828
----------- ----------- ----------- -----------
Stockholders' equity:
Common stock ............................................ 12,922 -- 3,403 16,325
Paid-in capital ......................................... 64,371 -- 34,289 98,660
Unrealized investments gains ............................ 13,436 -- -- 13,436
Retained earnings ....................................... 61,382 -- -- 61,382
FBG net equity .......................................... -- 36,594 (36,594) 0
Leveraged employee stock ownership plan ................. (2,829) -- -- (2,829)
----------- ----------- ----------- -----------
149,282 36,594 1,098 186,974
----------- ----------- ----------- -----------
$ 2,475,623 711,581 14,598 3,201,802
=========== =========== =========== ===========
Number of common shares outstanding ................................ 10,155 7,065 -- 12,830
=========== =========== =========== ===========
</TABLE>
<TABLE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(1) Pro forma Balance Sheet adjustments related to the acquisition of FBG by the Company (the "Merger") and the financing thereof
are summarized in the following table and more fully described in the notes that follow.
<CAPTION>
Bank
Financing
Acquisition Total
Stock Fees and Fair Value Pro Forma
Issuance (a) Expenses (b) Adjustments (c) Adjustments
-------------- ------------ --------------- -----------
<S> <C> <C> <C> <C>
Bonds -- available for sale ................................ -- 1,426 -- 1,426
Other investments .......................................... (234) -- -- (234)
Deferred policy acquisition costs-- FBG .................... -- -- (46,150) (46,150)
Present value of future profits-- FBG ...................... -- -- 45,000 45,000
Goodwill ................................................... -- -- 11,295 11,295
Acquisition costs .......................................... 37,926 11,074 (49,000) --
Other assets ............................................... -- -- 3,261 3,261
Existing credit facility ................................... -- (22,500) -- (22,500)
New credit facility ........................................ -- 35,000 -- 35,000
Other liabilities .......................................... -- -- 1,000 1,000
Common stock ............................................... 3,403 -- -- 3,403
Paid-in-capital ............................................ 34,289 -- -- 34,289
FBG net equity ............................................. -- -- (36,594) (36,594)
- --------------
<FN>
(a) Represents the issuance of 2.7 million shares of Company Common Stock exchanged for 7.1 million shares of FBG Class A Common
Stock and the estimated value of the Company Warrants recorded at $.31 for each share of FBG Class A Common Stock exchanged.
The pro forma calculations assume a Company Stock Price of $12.1625 and reflect the components of the "Merger Consideration"
in connection with the acquisition of FBG.
(b) Represents $35 million of borrowings under the Credit Facility to (i) refinance $22.5 million of borrowings under the old
credit facility of FBG and the Company (ii) pay the $10.0 million cash portion of the Merger Consideration and make cash
payments in lieu of fractional shares and fractional Company Warrants and to pay certain holders of FBG Options and dissenting
stockholders of FBG and (iii) pay $1.082 million of related fees and expenses.
(c) Represents adjustments to reflect FBG net assets at estimated fair market value based upon management's preliminary allocation
of the aggregate Merger Consideration. The following depicts the components of the aggregate Merger Consideration in millions:
Common shares issued (2.7 million shares @ $12.1625) $ 32.8
Cash 10.0
Warrants to purchase common shares (.66 million @ $3.326) 2.2
Substitute options and warrants 3.0
Expenses, rounding 1.0
------
$ 49.0
======
</TABLE>
<TABLE>
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Historical
Year Ended
December 31, 1995
-----------------------
Pro Forma Pro
AmVestors FBG Adjustments Forma
--------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Insurance premiums and policy charges .................................. $ 8,500 4,871 -- 13,371
Net investment income .................................................. 156,510 43,072 287(a) 199,869
Net investment gains ................................................... 156 2,706 17,669(a) 20,531
Other revenue .......................................................... 1,485 3,575 -- 5,060
-------- -------- -------- --------
Total revenue ...................................................... 166,651 54,224 17,956 238,831
-------- -------- -------- --------
Benefits, claims and interest credited to policyholders ................ 118,886 28,114 -- 147,000
Amortization of:
Deferred policy acquisition costs .................................. 12,365 10,655 (11,382)(b) 11,638
Present value of future profits .................................... -- -- 19,078 (b) 19,078
Goodwill ........................................................... -- -- 993 (b) 993
Other expenses ......................................................... 10,194 7,638 (1,632)(c) 16,200
-------- -------- -------- --------
Total benefits and expenses ........................................ 141,445 46,407 7,057 194,909
-------- -------- -------- --------
Operating earnings ..................................................... 25,206 7,817 10,899 43,922
Interest expense ....................................................... 77 1,533 527(d) 2,137
-------- -------- -------- --------
Earnings before taxes .................................................. 25,129 6,284 10,372 41,785
Income tax expense ..................................................... 8,530 1,683 3,978(e) 14,191
-------- -------- -------- --------
Net earnings ........................................................... 16,599 4,601 6,394 27,594
======== ======== ======== ========
Net earnings per common share:
Primary ............................................................ $ 1.60 .53 2.08
======== ======== ========
Fully diluted ...................................................... $ 1.60 .53 2.07
======== ======== ========
Average shares outstanding(f):
Primary ............................................................ 10,354 8,622 13,275
Fully diluted ...................................................... 10,404 8,622 13,325
</TABLE>
<TABLE>
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Historical Three Months
Ended March 31, 1996
------------------------
Pro Forma Pro
AmVestors FBG Adjustments Forma
----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Insurance premiums and policy charges ..................................... $ 2,457 983 -- 3,440
Net investment income ..................................................... 39,169 9,578 64(a) 48,811
Net investment gains ...................................................... 7,627 224 653(a) 8,504
Other revenue ............................................................. 25 617 -- 642
----------- ----------- ----------- -----------
Total revenue ......................................................... 49,278 11,402 717 61,397
----------- ----------- ----------- -----------
Benefits, claims and interest credited to policyholders ................... --
30,620 6,517 37,137
Amortization of:
Deferred policy acquisition costs ..................................... 4,970 2,267 (2,504) 4,733
Present value of future profits ....................................... -- -- 2,288 2,288
Goodwill .............................................................. -- -- 248 248
Other expenses ............................................................ 2,232 3,089 (1,470) 3,851
----------- ----------- ----------- -----------
Total benefits and expenses ........................................... 37,822 11,873 (1,438) 48,257
----------- ----------- ----------- -----------
Operating earnings ........................................................ 11,456 (471) 2,155 13,140
Interest expense .......................................................... 125 353 162 640
----------- ----------- ----------- -----------
Earnings before taxes ..................................................... 11,331 (824) 1,993 12,500
Income tax expense ........................................................ 3,910 (305) 784 4,389
----------- ----------- ----------- -----------
Net earnings .............................................................. 7,421 (519) 1,209 8,111
=========== =========== =========== ===========
Net earnings per common share:
Primary ............................................................... $ .71 (.06) -- .61
=========== =========== ===========
Fully diluted ......................................................... .71 (.06) -- .60
=========== =========== ===========
Average shares outstanding(f):
Primary ............................................................... 10,427 8,807 -- 13,348
Fully diluted ......................................................... 10,493 8,807 -- 13,414
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
Pro Forma Statement of Earnings adjustments related to the acquisition and
financing thereof are as follows:
(a) Represents additional amortization of discounts on securities held for the
period and adjustment of net investment gains (losses) resulting from the
application of purchase accounting on a pro forma basis.
(b) Represents amortization of present value of future profits and amortization
of goodwill resulting from the application of purchase accounting, reduced
by a reversal of historical amortization of deferred policy acquisition
costs applicable to policies written prior to January 1, 1995. Present value
of future profits are amortized in relation to the incidence of expected
gross profits on the in-force blocks of business over the expected life of
the policies, using a discount rate for amortization purposes equal to the
respective policy credited rate as of January 1, 1995. Pro forma
amortization of present value of future profits for the five years ending
December 31, 1999 are estimated to be approximately $19.1 million, $9.2
million, $8.0 million, $6.9 million, and $5.4 million, respectively.
Goodwill amortization is calculated over a period of 30 years using the
straight line method.
(c) Represents the estimated reduction in expenses attributable to certain
employment agreements which would result from the Merger and professional
fees incurred by FBG as a result of the Merger.
(d) Represents additional interest expense related to the incremental borrowings
under the New Credit Facility, including amortization of debt issue costs.
Interest under the Credit Facility will be determined at the option of the
Company to be (i) a fluctuating interest rate equal to the higher of (a) the
corporate base rate of interest announced by the lender, or (b) the weighted
average of the rates on overnight Federal Funds transactions with members of
the Federal Reserve System arranged by Federal Funds brokers, as published
by the Federal Reserve Bank of New York, plus 1/2% per annum; or (ii) the
Eurodollar Rate plus 1.75% (which percentage will decrease throughout the
term of the Credit Facility at a rate to be determined prior to each
interest payment date). For purposes of calculating pro forma interest
expense, an interest rate of 7.75% was assumed.
(e) To adjust income tax expense for the income tax effect of the foregoing pro
forma adjustments at the statutory rate of 35%.
(f) Historical earnings per common share amounts are computed by dividing
earnings by the sum of the weighted average number of shares outstanding
during the period plus dilutive common stock Zequivalents applicable to
stock options and warrants. Pro forma earnings per common share amounts are
computed by dividing pro forma earnings by the pro forma weighted average
shares of Company Common Stock after the acquisition. In addition to the
historical weighted average shares of the Company Common Stock for each
period presented, the pro forma weighted average includes an estimated
2,921,000 shares of the Company Common Stock to be issued in connection with
the acquisition, based on an assumed Company Stock Price of $12.1625.
(g) Net operating earnings, which represents operating earnings after taxes
adjusted to exclude net investment gains (losses) and accelerated (reduced)
amortization of deferred acquisition costs related to such investment gains
(losses) and to exclude associated income tax expense for the pro forma
periods are as follows:
Historical Pro
AmVestors Forma
----------- -------------
Year Ended December 31, 1995:
Net operating earnings ..................... $ 15,910 21,417
Per common share--
fully diluted .......................... 1.53 1.61
Three Months Ended March 31, 1996:
Net operating earnings ..................... 4,114 4,555
Per common share--
fully diluted .......................... $ .39 $ .34
Net operating earnings is a non-GAAP measure, used by investment analysts to
understand the nature of a company's recurring results of operations, and is not
intended as an alternative to the GAAP measures of operating earnings or net
earnings.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AmVestors Financial Corporation
Independent Auditors' Report ...................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994 ...... F-3
Consolidated Statements of Earnings for the Years Ended
December 31, 1995, 1994 and 1993 .................................. F-5
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993 ............................ F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 ............................ F-7
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1995, 1994 and 1993 ............................ F-9
Consolidated Interim Financial Statements (Unaudited) ............. F-31
Notes to Consolidated Interim Financial Statements ................ F-37
Financial Benefit Group, Inc. ............................................
Independent Auditors' Report ...................................... F-55
Consolidated Balance Sheets as of December 31, 1995 and 1994 ...... F-56
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 ............................ F-57
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993 ............................ F-58
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 ............................ F-59
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1995, 1994 and 1993 ............................ F-60
Consolidated Interim Financial Statements (Unaudited) ............. F-83
Notes to Consolidated Interim Financial Statements ................ F-87
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
AmVestors Financial Corporation
Topeka, Kansas
We have audited the accompanying consolidated balance sheets of AmVestors
Financial Corporation and subsidiaries (the company) as of December 31, 1995 and
1994, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of AmVestors Financial Corporation
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
The company adopted the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities in 1994.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
February 29, 1996
F-2
<PAGE>
<TABLE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000's Omitted)
<CAPTION>
As of December 31,
-------------------------------
ASSETS 1995 1994
- ------------------------------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Investments:
Debt securities:
Bonds:
Held-to-maturity (market: $-0- and $1,145,692) .............................. $ -- 1,237,185
Available-for-sale (cost: $1,947,777 and $621,138) .......................... 2,044,606 607,046
Trading (cost: $1,489 and $-0-) ............................................. 1,485 --
---------- ----------
2,046,091 1,844,231
---------- ----------
Equity securities:
Common stock, available-for sale (cost: $1,047 and $2,124) ........................ 1,181 2,325
Preferred stock, available-for-sale (cost: $7,566 and $45) ........................ 7,733 31
Preferred stock, trading (cost: $619 and $-0-) .................................... 629 --
---------- ----------
9,543 2,356
---------- ----------
Other long-term investments ............................................................... 39,491 58,773
Short-term investments .................................................................... 436 520
---------- ----------
2,095,561 1,905,880
Less allowance for credit losses .......................................................... -- (2,231)
---------- ----------
Total investments .................................................................. 2,095,561 1,903,649
---------- ----------
Cash and cash equivalents ................................................................. 48,281 10,621
Accounts receivable (net of allowance for uncollectible accounts of $739 and $227) ........ 454 2,310
Amounts receivable under reinsurance agreements ........................................... 146,618 149,656
Amounts receivable on securities settlements in process ................................... 10,873 905
Accrued investment income ................................................................. 29,357 29,296
Deferred policy acquisition costs ......................................................... 140,476 148,871
Deferred income taxes ..................................................................... -- 11,136
Other assets .............................................................................. 4,584 3,577
---------- ----------
Total assets .............................................................................. $2,260,021 2,476,204
========== ==========
See notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000's Omitted, except share and per share data)
<CAPTION>
As of December 31,
--------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ------------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Liabilities:
Policy liabilities:
Future policy benefits ............................................................. $ 2,259,028 2,148,763
Other policy liabilities ........................................................... 7,312 2,983
----------- ----------
2,266,340 2,151,746
Notes payable ................................................................ 7,000 --
Deferred income taxes ........................................................ 22,901 --
Amounts due on securities settlements in process ................................... 1,438 274
Accrued expenses and other liabilities ............................................. 4,080 3,805
----------- ----------
Total liabilities ............................................................ 2,301,759 2,155,825
----------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value authorized - 2,000,000 shares ..................... -- --
Common stock, no par value, authorized - 25,000,000 shares; issued and outstanding -
10,140,738 shares in 1995 and 10,034,742 shares in 1994....................... 12,904 12,769
Paid in capital .................................................................... 64,284 63,499
Unrealized investment gains (losses) (net of deferred policy acquisition cost
amortization expense (benefit) of $27,327 and ($3,476) and deferred income tax
expense (benefit) of $24,431 and ($2,616)).................................... 45,372 (7,813)
Retained earnings .................................................................. 54,714 38,876
----------- ----------
177,274 107,331
Less leveraged employee stock ownership trust (LESOP) .............................. (2,829) (3,135)
----------- ----------
Total stockholders' equity ................................................... 174,445 104,196
----------- ----------
Total liabilities and stockholders' equity ................................... $ 2,476,204 2,260,021
=========== ==========
See notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(000's Omitted, except per share data)
For the Year Ended December 31,
-----------------------------------------
1995 1994 1993
------------ ----------- ------------
<S> <C> <C> <C>
Revenue:
Insurance premiums and policy charges.......................................... $ 8,500 6,331 6,594
Net investment income.......................................................... 156,510 142,009 138,539
Net trading losses............................................................. (882) -- --
Net investment gains........................................................... 1,038 803 17,049
Other revenue.................................................................. 1,485 557 341
------------ ----------- ------------
Total revenue............................................................ 166,651 149,700 162,523
------------ ----------- ------------
Benefits and expenses:
Benefits, claims and interest credited to policyholders........................ 118,886 112,310 113,848
Amortization of deferred policy acquisition costs.............................. 12,365 9,026 9,436
General insurance expenses..................................................... 8,370 7,587 8,830
Premium and other taxes, licenses and fees..................................... 1,603 1,252 2,395
Other expenses................................................................. 221 239 265
------------ ----------- ------------
Total benefits and expenses.............................................. 141,445 130,414 134,774
------------ ----------- ------------
Operating earnings.................................................................... 25,206 19,286 27,749
Interest expense...................................................................... 77 -- 994
------------ ----------- ------------
Earnings before income tax expense and extraordinary item............................. 25,129 19,286 26,755
Income tax expense.................................................................... 8,530 5,593 8,564
------------ ----------- ------------
Earnings before extraordinary item.................................................... 16,599 13,693 18,191
Extraordinary item: Loss on early extinguishment of debt (net of income tax benefit
of $100)................................................................. -- -- (213)
------------ ----------- ------------
Net earnings.......................................................................... $ 16,599 13,693 17,978
============ =========== ============
Earnings per share of common stock:
Primary:
Earnings before extraordinary item....................................... $ 1.60 1.32 2.62
Extraordinary item....................................................... -- -- (.03)
------------ ----------- ------------
Net earnings............................................................. $ 1.60 1.32 2.59
============ =========== ============
Fully diluted:
Earnings before extraordinary item....................................... $ 1.60 1.32 2.49
Extraordinary item....................................................... -- -- (.03)
------------ ----------- ------------
Net earnings............................................................. $ 1.60 1.32 2.46
============ =========== ============
Average shares outstanding:
Primary.................................................................. 10,354 10,341 6,860
Fully diluted............................................................ 10,404 10,341 7,315
See notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(000's Omitted, except share and per share data)
<CAPTION>
Unrealized
Investment
Common Paid-in Gains Retained Treasury
Stock Capital (Losses) Earnings Stock LESOP Total
---------- -------------- ------------ ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1993............. $ 8,186 45,016 (809) 7,441 (6,855) (3,688) 49,463
Net earnings.............................. -- -- -- 17,978 -- -- 17,978
Change in unrealized investment gains
(losses)................................ -- -- 1,873 -- -- -- 1,873
Cash dividends to stockholders ($1.50
per share on preferred stock)........... -- -- -- (236) -- -- (236)
Cash paid on reverse stock split.......... -- (25) -- -- -- -- (25)
Issuance of common stock:
upon completion of stock offering....... 4,392 25,014 -- -- -- -- 29,406
upon exercise of options................ 290 1,704 <F1> -- -- -- -- 1,994
upon conversion of preferred stock...... 729 (557) -- -- -- -- --
Retirement of treasury stock.............. (690) (6,165) -- -- 6,855 -- --
Repurchase of warrants on debt payment.... -- (375) -- -- -- -- (375)
Allocation of LESOP shares................ -- -- -- -- -- 267 267
---------- -------------- ------------ ----------- ---------- --------- ----------
Balance as of December 31, 1993........... 12,907 64,612 1,064 25,183 -- (3,421) 100,345
Net earnings.............................. -- -- -- 13,693 -- -- 13,693
Cumulative effect of adoption of
SFAS 115................................ -- -- 19,613 -- -- -- 19,613
Change in unrealized investment gains
(losses)................................ -- -- (28,490) -- -- -- (28,490)
Remaining offering costs.................. -- (135) -- -- -- -- (135)
Redemption stockholders rights plan....... -- (101) -- -- -- -- (101)
Issuance of common stock:
upon exercise of options................ 28 143 <F1> -- -- -- -- 171
Purchase of treasury shares............... -- -- -- -- (1,186) -- (1,186)
Retirement of treasury stock.............. (166) (1,020) -- -- 1,186 -- --
Allocation of LESOP shares................ -- -- -- -- -- 286 286
---------- -------------- ------------ ----------- ---------- --------- ----------
Balance as of December 31, 1994........... 12,769 63,499 (7,813) 38,876 -- (3,135) 104,196
Net earnings.............................. -- -- -- 16,599 -- -- 16,599
Change in unrealized investment gains
(losses)................................ -- -- 53,185 -- -- -- 53,185
Cash dividends to stockholders ($.075 per
share on common stock).................. -- -- -- (761) -- -- (761)
Issuance of common stock:
upon exercise of options................ 135 785 <F1> -- -- -- -- 920
Allocation of LESOP shares................ -- -- -- -- -- 306 306
Balance December 31, 1995................. $ 12,904 64,284 45,372 54,714 -- (2,829) 174,445
========== ============== ============ =========== ========== ========= ==========
- ----------------
<FN>
<F1> Net of income tax benefit of $440, $10 and $129 for the years ended December 31, 1995, 1994 and 1993, respectively.
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<CAPTION>
(000's Omitted)
For the Year Ended December 31,
------------------------------------------------------------------
1995 1994 1993
--------------------- ------------------- -------------------
<S> <C> <C> <C>
Operating Activities:
Net earnings.............................................. $16,599 13,693 17,978
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Interest credited to policyholders...................... 121,182 114,871 116,942
Amortization of (discounts) premiums on debt securities,
net................................................... (1,561) (2,347) (1,905)
Amortization of deferred policy acquisition costs....... 12,365 9,026 9,436
Net trading losses...................................... 882 -- --
Net investment (gains).................................. (1,038) (803) (17,049)
Accrued investment income............................... (61) (2,752) (2,366)
Deferred income taxes................................... 6,990 651 4,635
Other, net.............................................. 2,538 (1,830) 1,982
--------------------- ------------------- -------------------
Net cash provided by operating activities..... 157,896 130,509 129,653
--------------------- ------------------- -------------------
Investing Activities:
Purchases of securities:
Held-to-maturity.................................... (5,052) (242,464) (578,918)
Available-for-sale.................................. (343,322) (332,647) --
Trading............................................. (72,018) -- --
Proceeds from sale of securities:
Held-to-maturity.................................... -- 8,302 341,498
Available-for-sale.................................. 140,742 319,846 --
Trading............................................. 69,017 -- --
Proceeds from maturity or redemption:
Held-to-maturity..................................... 26,303 35,375 184,280
Available-for-sale.................................. 85,767 86,973 --
Other long-term investments, net.......................... 19,271 (20,215) (20,326)
Short-term investments, net............................... 83 1,392 (487)
Capitalization of deferred policy acquisition costs....... (34,775) (25,750) (18,212)
Other, net................................................ (1,741) (413) (497)
--------------------- ------------------- -------------------
Net cash used in investing activities......... (115,725) (169,601) (92,662)
--------------------- ------------------- -------------------
Financing Activities:
Premiums received......................................... 357,705 267,802 222,177
Surrender and death benefits paid......................... (372,234) (246,632) (318,880)
Surrender and risk charges collected...................... 6,971 5,409 5,161
Securities settlements in process......................... (8,804) 573 (25,609)
Proceeds from notes payable............................... 7,000 -- --
Payments on notes payable................................. -- -- (19,918)
Cash dividends to stockholders............................ (761) -- --
Issuance of common stock.................................. 920 171 31,400
Other, net................................................ 4,692 608 (2,590)
--------------------- ------------------- -------------------
Net cash provided by (used in) financing
activities.................................. (4,511) 27,931 (108,259)
--------------------- ------------------- -------------------
Increase (Decrease) in Cash and Cash Equivalents................. 37,660 (11,161) (71,268)
Cash and Cash Equivalents:
Beginning of year......................................... 10,621 21,782 93,050
--------------------- ------------------- -------------------
End of year............................................... $48,281 10,621 21,782
===================== =================== ===================
See notes to consolidated financial statements.
</TABLE>
F-7
<PAGE>
<TABLE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Increase (Decrease) in Cash and Cash Equivalents
<CAPTION>
(000's Omitted)
For the Year Ended December 31,
-------------------------------------------------------
1995 1994 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
Supplemental schedule of cash flow information:
Income tax payments (refunds) ...................................... $ (1,507) 6,150 3,204
================= ================= =================
Interest payments .................................................. $ 43 -- 1,071
================= ================= =================
Change in net unrealized investment gains (losses)......................... $ 111,035 (56,823) --
Less: Associated reduction in amortization of deferred policy acquisition
costs............................................................... (30,803) 16,221 --
Deferred income tax (expense) benefit .............................. -- (27,047) 13,177
----------------- ----------------- -----------------
Net change in net unrealized investment gains (losses) .................... $ 53,185 (27,425) --
================= ================= =================
See notes to consolidated financial statements.
</TABLE>
F-8
<PAGE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
1. Summary of Significant Accounting Policies:
- ----------------------------------------------
a. Principles of consolidation:
The consolidated financial statements include the accounts of AmVestors and
its wholly-owned subsidiaries American Investors Life Insurance Company, Inc.
(American), American Investors Sales Group, Inc. (American Sales), AmVestors
Investment Group, Inc. (AIG), (collectively the company). All significant
intercompany accounts and transactions have been eliminated.
b. Investments:
Debt securities held-to-maturity are carried at amortized cost, except that
those securities with an other than temporary impairment in value are carried at
estimated net realizable value. Debt securities available-for-sale are carried
at estimated market value, with any unrealized gains or losses recorded in
stockholders' equity.
Investments are reviewed on each balance sheet date to determine if they are
impaired. In determining whether an investment is impaired, the company
considers whether the decline in market value at the balance sheet date is an
other than temporary decline; if so, then the investment's carrying value is
reduced to a new cost basis which represents estimated net realizable value. The
decline in value is reported as a realized loss, and a recovery from the new
cost basis is recognized as a realized gain only at sale.
The estimates of net realizable value are based on information obtained from
published financial information provided by issuers, independent sources such as
broker dealers or the company's independent investment advisor. Such amounts
represent an estimate of the consideration to be received in the future when the
defaulted company's debt is settled through the sale of their assets or the
restructuring of their debt. These estimates do not represent the discounted
present value of these future considerations.
Investments in common stock and preferred stock are carried at market, with
unrealized gains (losses) recorded in stockholders' equity for securities
available-for-sale.
Investments in debt and equity securities which were purchased principally
for the purpose of selling such securities in the near term are classified as
trading securities and are carried at market. Unrealized gains (losses) are
included currently in the results of earnings.
The cost of securities sold is determined on the identified certificate
basis.
Other long-term investments include policy loans and mortgage loans on real
estate which are carried at cost less principal payments since date of
acquisition, and certain partnership investments which are carried at an amount
equal to the partner's estimated market value with any unrealized gains or
losses recorded in net investment income.
c. Fair value of financial instruments:
Estimated fair value amounts have been determined by the company using
available market information and appropriate valuation methodologies. Due to the
fact that considerable judgment is required to interpret market data to develop
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
the estimates of fair value, the estimates presented are not necessarily
indicative of the amounts that could be realized in a current market exchange.
The carrying values and estimated fair values of the company's financial
instruments as of December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
(000's Omitted)
---------------------------------------------------------------------------------
1995 1994
------------------------------------------ ------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Assets:
Debt securities........................... $2,046,091 2,046,091 1,844,231 1,752,738
Equity securities......................... 9,543 9,543 2,356 2,356
Other long-term investments............... 39,491 39,546 58,773 58,536
Short-term investments.................... 436 436 520 520
Cash and cash equivalents................. 48,281 48,281 10,621 10,621
Amounts receivable on securities
settlement in process................... 10,873 10,873 905 905
Accounts receivable and accrued
investment income....................... 29,811 29,811 31,606 31,606
Liabilities:
Future policy benefits - investment
contracts............................... 2,022,653 1,900,895 1,917,066 1,799,090
Other policy liabilities.................. 7,312 7,312 2,983 2,983
Notes payable............................. 7,000 7,000 -- --
Amounts due on securities settlements in
process................................. 1,438 1,438 274 274
Accrued expenses and other liabilities.... 4,080 4,080 3,805 3,805
</TABLE>
Debt securities - Fair values are based on quoted market prices or dealer
quotes, if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Equity securities - Fair value equals the carrying value as these securities
are carried at quoted market value.
Other long-term investments - For certain homogeneous categories of mortgage
loans, fair value is estimated using quoted market prices for securities backed
by similar loans, adjusted for differences in loan characteristics. Fair value
of policy loans and other long-term investments is estimated to approximate the
assets' carrying value.
Short-term investments and cash and cash equivalents - The carrying amounts
reported in the balance sheet approximate the assets' fair value.
Amounts receivable on securities settlements in process - The carrying amount
reported in the balance sheet approximate the fair value of this asset.
Accounts receivable and accrued investment income - The carrying amounts
reported in the balance sheet for these assets approximates fair value.
Future policy benefits for investment contracts - The fair values for
deferred annuities were estimated to be the amount payable on demand at the
reporting date as those investment contracts have no defined maturity and are
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
similar to a deposit liability. The amount payable at the reporting date was
calculated as the account balance less any applicable surrender charges.
Notes payable - The fair value of the company's note payable has been
estimated to be an amount equal to the balance reported in the balance sheet.
Other policy liabilities - The carrying amount reported in the balance sheet
approximates the fair value of these liabilities.
Amounts due on securities settlements in process - The carrying amount
reported in the balance sheet approximates the fair value of this liability.
Accrued expenses and other liabilities - The carrying amount in the balance
sheet approximates the fair value of these liabilities.
The use of different market assumptions and/or estimation methodologies could
have a material effect on the estimated fair value amounts.
d. Significant Risks and Uncertainties
Nature of Operations - The company specializes in the sale of deferred
annuity products, the earnings on which are not currently taxable to the annuity
owner. Any changes in tax regulation which eliminate or significantly reduce
this advantage of tax deferred income would adversely impact the operations of
the company. The company's products are marketed through a network of
independent agents licensed in 47 states and the District of Columbia. The
company is not dependent on any one agent or agency for a substantial amount of
its business. No single agent accounted for more than 1% of annuity sales in
1995, and the top twenty individual agents accounted for approximately 11% of
1995 annuity sales.
Use of Estimates in the Preparation of Financial Statements - The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results may differ
from those estimates.
Certain Significant Estimates - Certain costs incurred to acquire new
business are deferred and amortized in relation to the incidence of expected
gross profits over the expected life of the policies. Determination of expected
gross profits includes management's estimate of certain elements over the life
of the policies, including investment income, interest to be credited to the
contract, surrenders and resultant surrender charges, deaths and in the case of
life insurance, mortality charges to be collected. These estimates of expected
gross profits are used as a basis for amortizing deferred costs. These estimates
are periodically reviewed by management and if actual experience indicates that
the estimates should be revised the total amortization recorded to date is
adjusted by a charge or credit to earnings.
e. Deferred policy acquisition costs:
The costs of acquiring new business (primarily commissions and policy
expenses), which vary with and are directly related to the production of new
business, have been deferred. The deferred costs related to investment-type
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
deferred annuity contracts are amortized in relation to the incidence of
expected gross profits over the expected life of the policies. For single
premium life insurance, deferred policy acquisition costs are amortized over the
life of the policies, but not more than 20 years for policies issued before
January 1, 1987, and not more than 30 years for policies issued after December
31, 1986, based on the expected gross profits for the amortization periods. The
deferred costs related to traditional life contracts are amortized over the
premium paying period for the related policies using the same actuarial
assumptions as to interest, mortality and withdrawals as are used to calculate
the reserves for future benefits.
Net investment gains realized in 1995, 1994 and 1993 resulted in the company
experiencing investment margins greater than those estimated. As a result,
$3,902, $203,940 and $4,790,523 of the unamortized balance of deferred policy
acquisition costs were expensed in 1995, 1994 and 1993, respectively. The amount
charged off is based on actual gross profits earned to date in relation to total
gross profits expected to be earned over the life of the related contracts.
Estimates of the expected gross profits to be realized in future years
include the anticipated yield on investments. Deferred policy acquisition costs
will be adjusted in the future based on actual investment income earned.
f. Future policy benefits:
Liabilities for future policy benefits under life insurance policies, other
than single premium life insurance, have been computed by the net level premium
method based upon estimated future policy benefits (excluding participating
dividends), investment yield, mortality and withdrawals giving recognition to
risk of adverse deviation. Interest rates range from 4 1/2% to 10 1/2% depending
on the year of issue, with mortality and withdrawal assumptions based on company
and industry experience prevailing at the time of issue.
For single premium life insurance and single premium annuities, the future
policy benefits are equal to the accumulation of the single premiums at the
credited rate of interest and for single premium whole life, less any mortality
charges.
g. Participating policies:
The company issued participating policies on which dividends are paid to
policyholders as determined annually by the Board of Directors. The amount of
dividends declared but undistributed is included in other liabilities. Policy
benefit reserves do not include a provision for estimated future participating
dividends.
h. Depreciation:
The home office buildings are depreciated on the straight-line basis over
estimated lives of 40 years. Other depreciation is provided on the straight-line
basis over useful lives ranging from 5 to 8 years.
i. Income taxes:
The company and its subsidiaries prepare and file their income tax returns on
a consolidated basis.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The company provides for the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
reported in the financial statements on the liability method.
j. Earnings per share:
Primary earnings per share of common stock is computed by dividing net
earnings (reduced by preferred dividend requirements in 1993) by the sum of the
weighted average number of shares outstanding during the period plus dilutive
common stock equivalents applicable to stock options and warrants, calculated
using the treasury stock method. During 1993, 573,332 common shares were issued
upon conversion of $4,300,000 of Series B Convertible Preferred Stock. Had this
conversion occurred on January 1, 1993, primary earnings per share would have
been $2.46 for 1993. During 1993, 1,646,883 shares of common stock were sold to
retire debt in the amount of $14,030,289. Had this sale and the corresponding
retirement of debt occurred on January 1, 1993, primary earnings per share would
have been $2.25 for 1993.
k. Consolidated statements of cash flows:
For purposes of reporting cash flows, cash and cash equivalents includes cash
and money market accounts and other securities with original maturities within
three months.
l. New accounting standards:
Effective January 1, 1994, the company adopted the provisions of SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities." This
Statement addresses the accounting and reporting for certain investments in debt
and equity securities by requiring such investments to be classified in
held-to-maturity, available-for-sale, or trading categories. The cumulative
effect of the adoption of this Statement was an increase in stockholder's equity
of $19,612,653 (net of related amortization of deferred policy acquisition costs
of $12,745,031 and deferred income tax expense of $10,560,659), representing the
aggregate excess fair value over cost for those securities included in the
available-for-sale category, net of associated amortization of deferred policy
acquisition costs and deferred income tax expense.
Effective November 30, 1995, the company adopted the provisions of "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities" and transferred all bonds with an amortized cost of
$1,159,390,768 classified as held to maturity to available-for-sale. The effect
of the adoption was an increase in stockholders' equity of $21,218,205 (net of
related amortization of deferred policy acquisition costs of $12,792,403 and
deferred income taxes of $11,425,188). Net earnings for the year ended
December 31, 1995 were not affected by the adoption of this implementation
guide.
Effective for fiscal years beginning after December 15, 1995, SFAS No. 121,
"Accounting for the Impairment Of Long Lived Assets" establishes accounting
standards for the impairment of long-lived assets, certain intangibles, and
goodwill related to those assets. The company does not expect this Statement to
have a material effect on its consolidated financial statements.
Effective January 1, 1996, SFAS No. 123, "Accounting for Stock-Based
Compensation," will require increased disclosure of compensation expense arising
from stock compensation plans. The Statement encourages rather than requires
companies to adopt a new method that accounts for stock compensation awards
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
based on their estimated fair value at the date they are granted. Companies will
be permitted, however, to continue accounting under APB Opinion No. 25 which
requires compensation cost be recognized based on the difference, if any,
between the quoted market price of the stock on the date of grant and the amount
an employee must pay to acquire the stock. The company will continue to apply
APB Opinion No. 25 in its consolidated financial statements and will disclose
pro forma net income and earnings per share in a footnote to its consolidated
financial statements, determined as if the new method were applied.
m. Reclassifications:
Certain reclassifications have been made to conform prior years' financial
statements to the December 31, 1995, presentation.
2. Investments:
A summary of investment income is as follows:
<TABLE>
<CAPTION>
(000's Omitted)
For the Year Ended December 31,
-------------------------------------------------------------------
1995 1994 1993
--------------------- -------------------- --------------------
<S> <C> <C> <C>
Net investment income:
Debt securities ....................................... $ 148,040 142,469 136,533
Equity securities ..................................... 1,158 50 76
Other long-term investments ........................... 8,032 486 3,096
Short-term investments ................................ 1,612 830 931
--------------------- -------------------- --------------------
158,842 143,835 140,636
Less investment expenses .............................. 2,332 1,826 2,097
--------------------- -------------------- --------------------
Net investment income ........................................ $ 156,510 142,009 138,539
===================== ==================== ====================
Net investment gains (losses):
Debt securities ....................................... $ 417 (533) 18,486
Equity securities ..................................... 646 1,335 (274)
Other ................................................. (25) 1 (1,163)
--------------------- -------------------- --------------------
Net investment gains (losses) ................................ $ 1,038 803 17,049
===================== ==================== ====================
Net trading gains (losses):
Debt securities ....................................... $ 68 -- --
Equity securities ..................................... (950) -- --
--------------------- -------------------- --------------------
Net trading gains (losses) ................................... $ (882) -- --
===================== ==================== ====================
</TABLE>
Certain limited partnership investments are included in income from other
long-term investments. These funds (commonly referred to as hedge funds) are
managed by outside investment advisors. The investment guidelines of these
partnerships provide for a broad range of investment alternatives, including
stocks, bonds, futures, options, commodities, and various other financial
instruments. These investments were purchased with the strategy to achieve a
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
yield in excess of the S&P 500 Index. The partnerships are carried at an amount
equal to the company's share of the partnerships' estimated market value with
related unrealized gains and losses recorded in net investment income. In
accordance with the permitted guidelines, the investments purchased by these
partnerships may experience greater than normal volatility which could
materially affect the company's earnings for any given period.
The maturity of the company's debt and equity securities portfolio as of
December 31, 1995 was as follows:
<TABLE>
<CAPTION>
(000's Omitted)
As of December 31, 1995
-----------------------------------------------------------------------
Available-for-sale Trading
-------------------------------- -------------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Debt Securities:
Bonds:
One year or less ................................... $ 25,660 23,361 -- --
Two years through five years ....................... 461,364 478,490 -- --
Six years through ten years ........................ 1,228,934 1,302,318 462 467
Eleven years and after ............................. 231,819 240,437 1,027 1,018
---------- ---------- ---------- ----------
1,947,777 2,044,606 1,489 1,485
Equity securities .................................. 8,613 8,914 619 629
---------- ---------- ---------- ----------
$1,956,390 2,053,520 2,108 2,114
========== ========== ========== ==========
</TABLE>
These tables include mortgage-backed securities based on the estimated
future cash flows of the underlying mortgages.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The amortized cost, estimated market value and unrealized market gains and
losses of debt and equity securities as of December 31, 1995, and 1994 were as
follows:
<TABLE>
<CAPTION>
(000's Omitted)
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1995
Bonds available-for-sale:
Corporate debt obligations
Investment grade ...................................... $1,076,873 63,321 724 1,139,470
High-yield............................................. 147,878 5,468 1,810 151,536
---------- ---------- ---------- ----------
1,224,751 68,789 2,534 1,291,006
U.S. Treasury obligations.................................... 51,743 942 21 52,664
Mortgage-backed securities
Investment grade ...................................... 661,652 32,062 1 693,713
High-yield............................................. 9,631 -- 2,408 7,223
---------- ---------- ---------- ----------
Bonds available-for-sale .................................... 1,947,777 101,793 4,964 2,044,606
---------- ---------- ---------- ----------
Bonds trading:
Corporate debt obligations
Investment grade ...................................... 458 -- 7 451
High-yield............................................. 1,031 5 2 1,034
---------- ---------- ---------- ----------
Bonds trading................................................ 1,489 5 9 1,485
---------- ---------- ---------- ----------
Total bonds ................................................. 1,949,266 101,798 4,973 2,046,091
Equity securities............................................ 9,232 614 303 9,543
---------- ---------- ---------- ----------
$1,958,498 102,412 5,276 2,055,634
========== ========== ========== ==========
December 31, 1994
Bonds held-to-maturity:
Corporate debt obligations
Investment grade ...................................... $ 792,746 1,160 62,907 730,999
High-yield ............................................ 135,698 108 9,267 126,539
---------- ---------- ---------- ----------
928,444 1,268 72,174 857,538
U.S. Treasury obligations.................................... 3,618 -- 319 3,299
Mortgage-backed securities .................................. 305,123 20,169 20,269 284,855
---------- ---------- ---------- ----------
Bonds held-to-maturity ...................................... 1,237,185 1,269 92,762 1,145,692
---------- ---------- ---------- ----------
Bonds available-for-sale:
Corporate debt obligations
Investment grade ...................................... 253,055 1,005 5,633 248,427
High-yield............................................. 1,218 -- 8 1,210
---------- ---------- ---------- ----------
254,273 1,005 5,641 249,637
Mortgage-backed securities .................................. 366,865 590 10,046 357,409
---------- ---------- ---------- ----------
Bonds available-for-sale .................................... 621,138 1,595 15,687 607,046
---------- ---------- ---------- ----------
Total bonds ................................................. 1,858,323 2,864 108,449 1,752,738
Equity securities............................................ 2,169 417 230 2,356
---------- ---------- ---------- ----------
$1,860,492 3,281 108,679 1,755,094
========== ========== ========== ==========
</TABLE>
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The preceding table includes the carrying value and estimated market value
of debt securities which the company has determined to be impaired (other than
temporary decline in value) as follows:
Original Accumulated Carrying Estimated
Cost Writedowns Value Market Value
----------- ----------- ----------- ------------
December 31, 1995 ........ $7,545 7,545 -- --
December 31, 1994 ........ $9,535 7,814 1,721 1,721
The company defines high-yield securities as those corporate debt
obligations rated below investment grade by Standard & Poor's and Moody's or, if
unrated, those that meet the objective criteria developed by the company's
independent investment advisory firm. Management believes that the return on
high-yield securities adequately compensates the company for additional credit
and liquidity risks that characterize such investments. In some cases, the
ultimate collection of principal and timely receipt of interest is dependent
upon the issuer attaining improved operating results, selling assets or
obtaining financing.
The amortized cost, estimated market value and unrealized market gains and
losses by type of mortgage-backed security as of December 31, 1995, and
December 31, 1994 were as follows:
<TABLE>
<CAPTION>
(000's Omitted)
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1995
Government agency mortgaged-backed securities:
Planned amortization classes and accretion directed classes .............. $71,164 1,823 -- 72,987
Targeted amortization classes and accretion directed classes ............. 7,833 360 -- 8,193
Pass-throughs
32 3 -- 35
---------- ---------- ---------- ----------
Total government agency mortgage-backed securities.................. 79,029 2,186 -- 81,215
---------- ---------- ---------- ----------
Government sponsored enterprise mortgage-backed securities:
Planned amortization classes ............................................. 403,359 23,750 -- 427,109
Sequential classes ....................................................... 19,546 1,405 -- 20,951
Pass-throughs............................................................. 3,258 21 -- 3,279
---------- ---------- ---------- ----------
Total government sponsored enterprise mortgage-backed
securities ................................................... 426,163 25,176 -- 451,339
---------- ---------- ---------- ----------
Other mortgage-backed securities:
Planned amortization classes ............................................. 18,574 172 -- 18,746
Sequential classes ....................................................... 134,245 4,484 1 138,728
Pass-throughs ............................................................ 11 -- -- 11
Subordinated classes...................................................... 13,261 44 2,408 10,897
---------- ---------- ---------- ----------
Total other mortgage-backed securities.............................. 166,091 4,700 2,409 168,382
---------- ---------- ---------- ----------
Total mortgage-backed securities ................................................ $671,283 32,062 2,409 700,936
========== ========== ========== ==========
</TABLE>
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
<TABLE>
<CAPTION>
(000's Omitted)
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1994
Government agency mortgaged-backed securities:
Planned amortization classes and accretion directed classes ......... $ 75,557 12 5,614 69,955
Targeted amortization classes and accretion directed classes ........ 7,729 -- 319 7,410
Pass-throughs 40 2 -- 42
---------- ---------- ---------- ----------
Total government agency mortgage-backed securities............. 83,326 14 5,933 77,407
---------- ---------- ---------- ----------
Government sponsored enterprise mortgage-backed securities:
Planned amortization classes ........................................ 410,313 104 15,852 394,565
Sequential classes .................................................. 19,705 -- 1,087 18,618
Pass-throughs........................................................ 299 -- 2 297
---------- ---------- ---------- ----------
Total government sponsored enterprise mortgage-backed
securities .............................................. 430,317 104 16,941 413,480
---------- ---------- ---------- ----------
Other mortgage-backed securities:
Planned amortization classes ........................................ 22,686 22 745 21,963
Sequential classes .................................................. 125,100 451 5,345 120,206
Pass-throughs ....................................................... 13 -- -- 13
Subordinated classes................................................. 10,546 -- 1,351 9,195
---------- ---------- ---------- ----------
Total other mortgage-backed securities......................... 158,345 473 7,441 151,377
---------- ---------- ---------- ----------
Total mortgage-backed securities ........................................... $ 671,988 591 30,315 642,264
========== ========== ========== ==========
</TABLE>
Certain mortgage-backed securities are subject to significant prepayment
risk. This is due to the fact that in periods of declining interest rates,
mortgages may be repaid more rapidly than scheduled, as individuals refinance
higher rate mortgages to take advantage of the lower current rates. As a result,
holders of mortgage-backed securities may receive large prepayments on their
investments which they are unable to reinvest at an interest rate comparable to
the rate on the prepaying mortgages. Mortgage-backed pass-through securities and
sequential classes, which comprised 23.4% and 21.6% of the carrying value of the
company's mortgage-backed securities as of December 31, 1995 and December 31,
1994, respectively, are sensitive to this prepayment risk.
A portion of the company's mortgage-backed securities portfolio consists of
planned amortization class ("PAC"), targeted amortization class ("TAC") and
accretion directed class ("AD") instruments. These securities are designed to
amortize in a more predictable manner by shifting the primary risk of prepayment
to investors in other tranches (support classes) of the mortgage-backed
security. PAC, TAC and AD securities comprised 74.6% and 76.8% of the carrying
value of the company's mortgage- backed securities as of December 31, 1995 and
December 31, 1994, respectively.
As of December 31, 1995, 75.3% of the company's mortgage-backed securities
were issued by either government agencies or government sponsored enterprises,
compared to 76.4% as of December 31, 1994. The credit risk associated with these
securities is generally less than other mortgage-backed securities. With the
exception of six issues, with a carrying value of $19.3 million as of
F-18
<PAGE>
December 31, 1995, all of the company's investments in other mortgage-backed
securities are rated A or better by Standard & Poor's or Moody's.
The following investments held as of December 31, 1995, exceeded ten
percent of stockholders' equity:
<TABLE>
<CAPTION>
(000's Omitted)
As of December 31,
----------------------------------------------------------------------
1995 1994
---------------------------------- ---------------------------------
Amortized Estimated Amortized Estimated
Cost Market Cost Market
---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
10% of Stockholders' Equity................................. $17,444 -- 10,420 --
================ ================
Bonds:
FNMA 94 83 B, 7.5%, 7-2003.................................. $19,197 20,598 19,177 18,031
LA County Pension Oblig, various interest rates and due
dates through 2005.................................... 18,633 20,675 -- --
Quebec Province CDA, 8.625%, due 01-2005.................... 20,199 21,923 -- --
</TABLE>
The amounts shown as "estimated market" are primarily based on quotations
obtained from independent sources such as broker dealers who make markets in
similar securities. Unless representative trades of securities actually occur at
the balance sheet date, these quotes are generally estimates of market value
based on an evaluation of appropriate factors such as institution-size trading
in similar securities, yield, credit quality, coupon rate, maturity, type of
issue and other market data. Losses are recognized in the period they occur
based upon specific review of the securities portfolio and other factors.
The consideration received on sales of debt and equity securities, carrying
value and realized gains and losses on those sales were as follows:
(000's Omitted)
For the Year Ended December 31,
-----------------------------------
1995 1994 1993
--------- --------- ---------
Consideration received .................. $ 275,012 462,138 393,142
Carrying value .......................... 275,204 461,335 374,584
--------- --------- ---------
Net investment gains (losses) .... (192) 803 18,558
========= ========= =========
Investment gains ........................ $ 2,773 4,268 18,677
Investment losses ....................... (2,965) (3,465) (119)
--------- --------- ---------
Net investment gains (losses) .... $ (192) 803 18,558
========= ========= =========
During 1995, the company transferred bonds of four issuers from
held-to-maturity to available-for- sale based upon a significant deterioration
in the issuers' creditworthiness. The book value of these bonds at the time of
transfer was $16,128,888. Included in the above table are 1995 losses of
$2,151,154 on the sale of bonds of four issuers which the company had
transferred from held-to- maturity to available-for-sale.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The 1994 amounts include bonds of one issuer which the company had
classified as held-to- maturity, the sale of which resulted in a loss of
$205,526. The decision to sell these bonds was based upon a significant
deterioration in the issuers' creditworthiness. The book value of these bonds at
the time of sale was $8,507,732.
Net unrealized gains (losses) on debt securities held-to-maturity, debt
securities available-for-sale, equity securities available-for-sale and other
long-term investments changed as follows:
<TABLE>
<CAPTION>
(000's) Omitted
Net Unrealized Gains (Losses)
------------------------------------------------------------------------------------
Debt Debt Equity
Securities Securities Debt Securities Equity Other
Held-to- Available-for- Securities Available-for- Securities Long-term
Maturity Sale Trading Sale Trading Investments
---------- -------------- ---------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1993 ............. $ 37,420 4,115 -- (809) -- --
1993 Net Change ........................... 911 38,920 -- 1,091 -- 1,330
--------- --------- --------- --------- --------- ---------
Balance as of December 31, 1993 .......... 38,331 43,035 -- 282 -- 1,330
1994 Net Change ........................... (129,824) (57,127) -- (95) -- (1,330)
--------- --------- --------- --------- --------- ---------
Balance as of December 31, 1994 .......... (91,493) (14,092) -- 187 -- --
1995 Net Change ........................... 91,493 110,921 (4) 114 10 --
--------- --------- --------- --------- --------- ---------
Balance as of December 31, 1995 .......... $ -- 96,829 (4) 301 10 --
========= ========= ========= ========= ========= =========
</TABLE>
At December 31, 1995 and 1994, investments with statutory carrying values
of $1,956,343,973 and $1,866,074,033, respectively, were on deposit with various
insurance departments. These amounts exceeded the minimum required deposits by
$53,856,902 and $66,325,834 as of December 31, 1995 and 1994 respectively.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3. Other Assets:
Other assets consist of the following:
(000's) Omitted
As of December 31,
-------------------
1995 1994
------ ------
Property and equipment at cost:
Home office building (including
land of $352) ............................... $3,643 2,152
Furniture and equipment ....................... 3,711 3,464
Automobiles ................................... 99 115
------ ------
7,453 5,731
Less accumulated depreciation ........................ 3,650 3,336
------ ------
3,803 2,395
Other ................................................ 781 1,182
------ ------
$4,584 3,577
====== ======
4. Reinsurance:
The company reinsures portions of insurance it writes. The maximum amount
of risk retained by the company on any one life is $150,000.
A summary of reinsurance data follows (000's Omitted):
<TABLE>
<CAPTION>
For the Ceded to
Year Ended Gross other Net
December 31, Descriptions amount companies amount
- ------------------------ -------------------------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
1995 Life insurance in force $ 311,991 240,206 71,785
Insurance premiums and policy charges $ 9,409 909 8,500
Future policy benefits $ 2,259,028 145,183 2,113,845
1994 Life insurance in force $ 330,108 259,200 70,908
Insurance premiums and policy charges $ 7,308 977 6,331
Future policy benefits $ 2,148,763 148,575 2,000,188
1993 Life insurance in force $ 354,703 280,819 73,884
Insurance premiums and policy charges $ 7,936 1,342 6,594
Future policy benefits $ 2,005,339 150,500 1,854,839
</TABLE>
The company is contingently liable for the portion of the policies
reinsured under each of its existing reinsurance agreements in the event the
reinsurance companies are unable to pay their portion of any reinsured claim.
Management believes that any liability from this contingency is unlikely.
The company had amounts receivable under reinsurance agreements of
$146,617,611 and $149,656,094 as of December 31, 1995, and December 31, 1994,
respectively. Of the amounts, $144,965,371 and $147,949,099 were associated with
a single reinsurer. In 1989, the company entered into a coinsurance agreement
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
which ceded 90% of the risk on the company's block of single premium whole life
policies written prior to 1989 to Employers Reassurance Corporation (ERC). The
agreement provides that ERC assumes 90% of all risks associated with each policy
in the block. Reimbursements received from ERC for amounts paid by the company
on the reinsured risks totalled $12,044,418, $9,740,717 and $7,991,680 for the
years ended December 31, 1995, 1994 and 1993, respectively.
The following table identifies the components of the amounts receivable
from ERC:
(000's) Omitted
As of December 31,
-----------------------
1995 1994
-------- --------
Reserve for future policy benefits ............... $143,558 146,919
Reimbursement for benefit payments ............... 1,407 1,030
-------- --------
$144,965 147,949
======== ========
5. Credit Agreement:
On December 29, 1994, the company entered into a credit agreement with The
First National Bank of Chicago (First Chicago) and Boatmen's First National Bank
of Kansas City (Boatmen's), as Lenders. On July 28, 1995, this agreement was
amended to reduce the commitment from $25,000,000 to $15,000,000. The company
has agreed to pay a commitment fee of .25% per annum on the unused portion of
the commitment. Borrowings under this agreement may be used for general
corporate purposes. During December, 1995, the company borrowed $7,000,000
(effective annual interest at December 31, 1995 of 6.91%) under the credit
agreement and contributed the proceeds to the capital and surplus of American.
Principal repayments for this borrowing are as follows: 1996 - $-0- 1997 -
$1,820,000 1998 - $2,240,000 1999 - $2,940,000.
Interest on the borrowings under this agreement is determined at the option
of the company to be: (i) a fluctuating rate of interest equal to the higher of
the corporate base announced by First Chicago from time to time, and a
fluctuating rate equal to the weighted average of rates on overnight Federal
Funds transactions with members of the Federal Reserve System as published by
the Federal Reserve Bank of New York plus .50% per annum, or (ii) a Eurodollar
rate plus a margin ranging from 1.00% to 1.25%.
In addition to general covenants which are customary for facilities such as
this, the company has agreed to maintain minimum consolidated net worth, a
minimum cash flow coverage ratio, minimum risk based capital for American,
minimum capital, surplus and asset valuation reserve of American and to maintain
a maximum debt to equity (including indebtedness) ratio.
Additional covenants include: (i) limitations on acquisitions; (ii)
maintenance of current lines of business; (iii) limitations on additional
indebtedness; (iv) limitations on investments; (v) limitations on dividends and
stock repurchases, and (vi) limitations on mergers, consolidations and sales of
assets, typical of such facilities.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. Retirement Plans:
The company sponsors an Employee Stock Ownership Plan (ESOP) for all
full-time employees with one year of service. Qualifying participants may
contribute an amount not to exceed ten percent of covered compensation. The
company made no contributions to the plan during the three years ended
December 31, 1995.
The company sponsors a Leveraged Employee Stock Ownership Plan (LESOP) for
all full-time employees with one year of service.
The LESOP has acquired 370,244 shares of the company's stock through the
proceeds of a note payable to American. The note bears interest at 7.0% and is
payable in annual installments through December 30, 2002. The note had unpaid
principal balances of $3,010,882 and $3,336,038 as of December 31, 1995 and
1994, respectively.
Each year, the company will make contributions to the LESOP which are to be
used to make loan interest and principal payments. On December 31 of each year,
a portion of the common stock is allocated to participating employees. Of the
361,735 shares of the company's common stock now owned by the LESOP, 119,518
shares have been allocated to the participating employees with the remaining
242,217 shares being held by American as collateral for the loan.
The unallocated portion of the company's common stock owned by the LESOP
has been recorded as a separate reduction of stockholders' equity. Contributions
to the LESOP during December 31, 1995, 1994 and 1993 were $305,564, $285,565 and
$266,886, respectively.
During 1992, the company's Board of Directors approved retirement plans for
its members and members of the Board of Directors of certain of its
subsidiaries. The plans provide that retired Directors shall serve as Advisory
Members to the Board at a fee of $750 per meeting attended and a monthly
lifetime benefit in the amount of $750 be paid to each qualified Director upon
retirement. In addition, the company has agreed to continue any life insurance
policies being provided as of the date of retirement.
To qualify for this benefit, a Director must have reached the age of 60 and
meet years of service requirements thereafter. The plan also calls for a
mandatory retirement on the date the Director's term expires following age 70.
A liability in the amount of $435,637, representing the present value of
future benefits, has been established. Charges (credits) to earnings relating to
the plans were ($85,543), ($40,244) and ($3,282), for the years ended December
31, 1995, 1994 and 1993, respectively.
Effective January 1, 1993, the company adopted an Age-Weighted Money
Purchase Plan for all full-time employees with one year of service. The full
cost of this plan will be paid by the company with qualifying participants
receiving contributions based upon their age at plan implementation and current
salary. Contributions to the Age-Weighted Money Purchase Plan for the year ended
December 31, 1995, 1994 and 1993, were $210,907, $215,664 and $213,059,
respectively.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
7. Stockholders' Equity:
Dividends by American to AmVestors are limited by laws applicable to
insurance companies. Under Kansas law, American may pay a dividend from its
surplus profits, without prior consent of the Kansas Commissioner of Insurance,
if the dividend does not exceed the greater of 10% of statutory capital and
surplus at the end of the preceding year or all of the statutory net gain from
operations of the preceding year. As of December 31, 1995, surplus profits of
American were $16,764,059 and 10% of statutory capital and surplus was
$9,828,859. American is also required to maintain, on a statutory basis, paid-in
capital stock and surplus (capital in excess of par value and unassigned
surplus) of $400,000 each. As of December 31, 1995 and 1994 American's statutory
capital and surplus was $98,288,590 and $87,521,204 respectively. Statutory net
income (loss) for the years 1995, 1994 and 1993 was $5,984,601, $4,167,120 and
($1,469,786), respectively.
In connection with the original establishment of the Interest Maintenance
Reserve (IMR), the Commissioner of Insurance of Kansas, the company's
domiciliary state, ordered that American prepare its December 31, 1992, NAIC
Annual Statement Form to equitably allocate 1992 capital gains and losses, not
included in the calculation of the Asset Valuation Reserve (AVR), on other than
government securities, fifty (50%) percent to surplus and fifty (50%) percent to
IMR, after calculation of the AVR pursuant to the instructions provided by the
NAIC. This differs from prescribed statutory accounting practices.
This represented a permitted accounting practice for regulatory purposes,
the effect of which was to increase statutory surplus by $8,168,000 as of
December 31, 1992 ($6,371,000 as of December 31, 1995).
In addition, American received permission from the Commissioner of
Insurance of Kansas to amortize the effects of changing to Actuarial Guideline
No. 32 concerning the Commissioners Annuity Reserve Valuation Method for
individual annuity contracts over a three-year period beginning in 1995 rather
than to record the full amount of the change of $2,176,000. The effect of this
permitted accounting practice was to increase statutory surplus by $943,150 as
of December 31,1995.
On March 17, 1989, the Board of Directors of the company adopted the 1989
Nonqualified Stock Option Plan. The options granted under the 1989 Nonqualified
Plan will cover the same number of shares and have the same exercise price as
the cancelled options, and none of such options may be exercised beyond ten
years from the original date of grant of the cancelled option. A total of
839,841 options to acquire common stock are outstanding under the 1989
Nonqualified Plan.
The 1989 Nonqualified Plan is administered by the Board of Directors and
officers of the company and its subsidiaries. The terms of the options,
including the number of shares, and the exercise price are subject to the sole
discretion of the Board of Directors.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Changes during the years were as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Options outstanding, beginning of year ................................. 859,837 816,107 757,340
Options granted ........................................................ 86,000 95,000 413,000
Options exercised ...................................................... (105,996) (22,200) (227,561)
Options expired ........................................................ -- (29,070) (126,659)
Options cancelled ...................................................... -- -- (13)
-------- -------- --------
Options outstanding, end of year ....................................... 839,841 859,837 816,107
======== ======== ========
Outstanding options exercisable at end of year ......................... 779,841 764,837 403,107
======== ======== ========
Options reserved for future grants at end of year ...................... 46,247 132,247 145,677
======== ======== ========
Option prices per share:
Exercised, during the year ...................................... $4.84-$10.63 $ 5.31-$7.50 $ 4.84-$9.60
Outstanding, end of year ........................................ $4.84-$12.66 $4.84-$12.66 $4.84-$13.75
</TABLE>
On March 17, 1989, the Board of Directors also adopted the 1989 Stock
Appreciation Rights Plan (the SAR Plan) and the 1989 Restricted Stock Plan (the
Restricted Stock Plan). The SAR Plan authorized the Board of Directors to grant
stock appreciation rights to employees, officers and directors in such amounts
and with such exercise prices as it shall determine. No stock appreciation
rights granted under the SAR Plan may be exercised more than five years from its
date of grant. The SAR Plan authorized a maximum of 125,000 shares to be issued
pursuant to stock appreciation rights granted thereunder.
For the Year Ended December 31,
-------------------------------
1995 1994 1993
----- ------- -------
Rights outstanding, beginning of year ...... -- 30,000 60,000
Rights granted ............................. -- -- --
Rights exercised ........................... -- -- (30,000)
Rights expired ............................. -- (30,000) --
Rights cancelled ........................... -- -- --
----- ------- -------
Rights outstanding, end of year ............ -- -- 30,000
===== ======= =======
Reserved for future grants ................. 5,000 5,000 5,000
===== ======= =======
The company recorded compensation expense relating to stock appreciation
rights of $-0-, $-0- and $1,875, for the years ended December 31, 1995, 1994,
and 1993, respectively.
The Restricted Stock Plan authorizes the Board of Directors to make
restricted stock awards to employees, officers and directors in such amounts as
it shall determine. The stock issued pursuant to such awards is subject to
restrictions on transferability for a period of five years. Such stock is
subject to a five-year vesting schedule, and the company is required to
repurchase all vested stock from a grantee if such grantee's employment with the
company is terminated prior to the lapse of the transfer restrictions. The
Restricted Stock Plan authorizes a maximum of 125,000 shares to be issued
thereunder. No restricted stock awards have been granted pursuant to the
Restricted Stock Plan.
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
In conjunction with a previous bank borrowing, the company issued ten-year
warrants to purchase a total of 170,002 shares of its common stock as summarized
in the following table:
Warranty Issue Number of Exercise Expiration
Holder Date Shares Price Date
- -------------------- ------------- ------------ ------------- --------------
Morgan Guaranty 12/8/88 75,000 $ 3.9688 12/9/98
4/30/92 95,002 6.3855 5/1/02
------------
170,002
============
8. Stockholders' Rights Plan:
On June 30, 1994, the company's Board of Directors voted to repeal the 1988
Stockholders' Rights Plan and set the close of business on July 22, 1994 as the
record date for the payment of the one cent per share redemption price.
Stockholders of record were paid on August 8, 1994, in full redemption of the
rights under the plan. The total amount to redeem the Rights was $101,432.
9. Other Revenue:
Effective December 1, 1989, the company entered into a coinsurance
agreement with Employers Reassurance Corporation (ERC) which reinsured 90% of
the risk on the company's block of SPWL policies written prior to 1989. The
agreement provides that ERC assumes 90% of all risks associated with each policy
in the block. These policies continue to be administered by American. In return,
American receives an administrative allowance of $31.50 per policy per year. The
total allowance received in 1995, 1994 and 1993 was $121,780, $129,972 and
$136,912, respectively.
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
10. Income Taxes:
The provision for income taxes charged to operations was as follows:
(000's Omitted)
For the Year Ended December 31,
-------------------------------
1995 1994 1993
-------- -------- -------
Current income tax expense .................... $1,540 4,942 4,477
Deferred income tax expense (benefit) ......... 6,990 651 4,087
-------- -------- -------
Total income tax expense (benefit) ..... $8,530 5,593 8,564
======== ======== =======
The net deferred tax asset was comprised of the following:
(000's Omitted)
For the Year Ended
December 31,
------------------------
1995 1994
--------- ---------
Gross deferred tax assets:
Investments ................................. $ 679 7,178
Deferred policy acquisition costs ........... 9,565 --
Property and equipment ...................... 314 341
Other assets ................................ 143 11
Reserves for future policy benefits ......... 109,273 107,448
Accrued expenses and other liabilities....... 1,708 1,828
--------- ---------
121,682 116,806
--------- ---------
Gross deferred tax liabilities:
Investments ................................. 36,442 1,011
Accounts receivable ......................... 50,708 51,940
Accrued investment income ................... -- 193
Deferred policy acquisition costs ........... 55,530 49,653
Policy and contract claims .................. 335 279
--------- ---------
143,015 103,076
--------- ---------
(21,333) 13,730
Less valuation allowance .............. (1,568) (2,594)
--------- ---------
Net deferred tax asset (liability) .... $ (22,901) 11,136
========= =========
The company's net deferred tax asset (liability) consists of amounts that
represent both ordinary tax deductions and capital losses in future tax returns
and includes a valuation allowance as it is more likely than not that a portion
of the deferred tax asset will not be realized. The inability to offset ordinary
income with capital losses and uncertainty as to the timing of future losses and
the ability to carry those losses back against prior income has resulted in the
company establishing a valuation allowance.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The actual tax expense (benefit) for each year differs from the "expected"
tax expense (computed by applying the Federal tax rate of 35% to earnings before
income taxes) as follows:
<TABLE>
<CAPTION>
(000's Omitted)
For the Year Ended December 31,
---------------------------------------------------------------------
1995 1994 1993
------------------- ----------------- ------------------
<S> <C> <C> <C>
Expected tax expense................................... $8,795 6,750 9,091
State Income tax....................................... 71 254 201
Change in valuation allowance on future deductions..... 188 (153) (470)
Change in valuation allowance on capital loss temporary
differences..................................... (179) (597) (555)
Change in expected tax rate on future deductions....... -- (321) --
Change in other net temporary differences, not
previously tax effected......................... (345) (340) 297
------------------- ----------------- ------------------
Actual income tax expense (benefit).................... $8,530 5,593 8,564
=================== ================= ==================
</TABLE>
Deferred income taxes are provided for the tax effects of transactions that
are reported in different periods for financial reporting and tax return
purposes. The primary component of the deferred income tax provision are as
follows:
<TABLE>
<CAPTION>
(000's Omitted)
For the Year Ended December 31,
---------------------------------------------------------------------
1995 1994 1993
------------------- ----------------- ------------------
<S> <C> <C> <C>
Investments............................................ $3,067 (692) 938
Accounts receivable.................................... (1,232) 843 4,447
Accrued investment income.............................. (193) 204 (10)
Deferred policy acquisition costs...................... 7,094 6,629 2,488
Property and equipment................................. 27 (234) (107)
Other assets........................................... (133) (9) (1)
Future policy benefits................................. (1,825) (5,632) (2,485)
Policy and contract claims............................. 56 178 --
Accrued expenses and other liabilities................. 120 114 (440)
Operating loss carryforward............................ -- -- 282
Valuation allowance on future deductions and capital
loss differences................................ 9 (750) (1,025)
------------------- ----------------- ------------------
Deferred income tax expense (benefit).................. $6,990 651 4,087
=================== ================= ==================
</TABLE>
11. Acquisition:
On September 8, 1995, the company signed a merger agreement pursuant to
which it will acquire all of the outstanding capital stock of Financial Benefit
Group (FBG), a Delaware corporation, for $5.31 per share, payable in the
company's common stock warrants and cash.
FBG is an insurance holding company which owns all of the shares of
Financial Benefit Life Insurance Company, a Florida domiciled insurer which
specializes in the sale and underwriting of annuity products and is admitted in
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
41 jurisdictions, which includes 39 states, the District of Columbia and the
U.S. Virgin Islands. FBG also owns all of the shares of Annuity International
Marketing Corporation and The Insurancemart, Inc. both of which specialize in
the distribution and marketing of annuities.
The merger is subject to the approval of the stockholders of FBG and the
company and the fulfillment of certain other conditions set forth in the merger
agreement. Special Meetings of Stockholders for both FBG and the company will be
held on April 8, 1996 to approve the acquisition, with the closing expected to
occur as soon thereafter as practicable.
In connection with the acquisition, the company received a bank commitment
from First Chicago for borrowing of up to $35 million, the proceeds of which
will be used to fund the cash portion of the purchase price and refinance
existing indebtedness of the company and FBG.
The transaction will be accounted for using the purchase method with any
resulting goodwill being amortized over a period not to exceed 40 years.
12. Commitments and Contingencies:
The company's insurance subsidiary is subject to state guaranty association
assessments in all states in which it is admitted. Generally these associations
guarantee specified amounts payable to residents of the state under policies
issued by insolvent insurers. Most state laws permit assessments or some portion
thereof to be credited against future premium taxes. Charges (credits) relating
to guaranty fund assessments impacted 1995, 1994 and 1993 income before taxes by
approximately $1,001,000, $504,000 and $1,594,000, respectively. The company
expects that further changes to income may be required in the future and will
record such amounts when they become known.
13. Quarterly results (Unaudited):
The company's quarterly results are set forth in the following table:
<TABLE>
<CAPTION>
(000's Omitted, except per share data)
1995 Quarter Ended
March 31 June 30 Sept. 30 Dec. 31
--------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Total revenue....................... $ 40,212 40,378 40,378 45,683
=============== =============== ============== ================
Earnings before income taxes........ $ 5,409 5,494 5,607 8,619
Income tax expense.................. 1,893 1,923 1,801 2,913
--------------- --------------- -------------- ----------------
Net earnings........................ $ 3,516 3,571 3,806 5,706
=============== =============== ============== ================
Per share of common stock:
Primary:
Net earnings........................ $ .34 .35 .37 .55
=============== =============== ============== ================
Fully diluted:
Net earnings........................ $ .34 .34 .37 .55
=============== =============== ============== ================
</TABLE>
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
<TABLE>
<CAPTION>
1994 Quarter Ended
------------------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
--------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Total revenue....................... $37,491 35,594 37,519 38,188
=============== =============== ============== ================
Earnings before income taxes........ $ 5,412 3,771 4,833 5,270
Income tax expense.................. 1,840 1,282 1,628 843
--------------- --------------- -------------- ----------------
Net earnings........................ $ 3,572 2,489 3,205 4,427
=============== =============== ============== ================
Per share of common stock:
Primary:
Net earnings........................ $ .34 .24 .31 .43
=============== =============== ============== ================
Fully diluted:
Net earnings........................ $ .34 .24 .31 .43
=============== =============== ============== ================
</TABLE>
F-30
<PAGE>
<TABLE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1995
(000's Omitted)
(Unaudited)
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
ASSETS
Investments:
Debt securities:
Bonds:
Available-for-sale (cost: $2,035,105 and $1,947,777) ......................... $2,063,146 2,044,606
Trading (cost: $1,650 and $1,489) ............................................ 1,668 1,485
---------- ---------
2,064,814 2,046,091
---------- ---------
Equity securities:
Common stock:
Available-for sale (cost: $1,347 and $1,047) ................................. 1,585 1,181
Preferred stock:
Available-for-sale (cost: $14,533 and $7,566) ................................ 15,016 7,733
Trading (cost: $1,074 and $619) .............................................. 1,091 629
---------- ---------
17,692 9,543
---------- ---------
Other long-term investments ................................................................ 34,515 39,491
Short-term investments ..................................................................... 427 436
---------- ---------
Total investments ................................................................... 2,117,448 2,095,561
---------- ---------
Cash and cash equivalents .................................................................. 12,512 48,281
Accounts receivable (net of allowance for uncollectible accounts of $815 and $739).......... 275 454
Amounts receivable under reinsurance agreements............................................. 144,169 146,618
Amounts receivable on securities settlements in process..................................... 1,743 10,873
Accrued investment income .................................................................. 29,501 29,357
Deferred policy acquisition costs .......................................................... 163,812 140,476
Other assets ............................................................................... 6,163 4,584
---------- ---------
Total assets ........................................................................ $2,475,623 2,476,204
========== =========
See notes to consolidated interim financial statements.
</TABLE>
F-31
<PAGE>
<TABLE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1995 (000's Omitted, except share and per share data)
(Unaudited)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- --------------------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Liabilities:
Policy liabilities:
Future policy benefits.......................................................... $ 2,296,246 2,259,028
Other policy liabilities........................................................ 6,654 7,312
--------------- ---------------
2,302,900 2,266,340
Notes payable......................................................................... 7,000 7,000
Amounts due on securities settlements in process...................................... 3,400 1,438
Deferred income taxes................................................................. 6,443 22,901
--------------- ---------------
Accrued expenses and other liabilities................................................ 6,598 4,080
--------------- ---------------
Total liabilities......................................................... 2,326,341 2,301,759
--------------- ---------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value authorized - 2,000,000 shares........................ -- --
Common stock, no par value, authorized - 25,000,000 shares; issued and
outstanding - 10,154,995 shares in 1996 and 10,140,738 shares in 1995........... 12,922 12,904
Paid in capital....................................................................... 64,371 64,284
Unrealized investment gains (losses) (net of deferred policy acquisition cost
amortization expense (benefit) of $8,092 and $27,327 and deferred
income tax expense (benefit) of $7,234 and $24,431)............................. 13,436 45,372
Retained earnings..................................................................... 61,382 54,714
--------------- ---------------
152,111 177,274
Less leveraged employee stock ownership trust (LESOP)................................. (2,829) (2,829)
--------------- ---------------
Total stockholders' equity................................................ 149,282 174,445
--------------- ---------------
Total liabilities and stockholders' equity................................ $ 2,475,623 2,476,204
=============== ===============
See notes to consolidated financial statements.
</TABLE>
F-32
<PAGE>
<TABLE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended March 31, 1996 and 1995 (000's Omitted, except share and per share data)
(Unaudited)
<CAPTION>
1996 1995
------------- -----------
<S> <C> <C>
Revenue:
Insurance premiums and policy charges........................................................ $ 2,457 1,904
Net investment income........................................................................ 39,169 38,220
Net investment gains (losses)................................................................ 7,627 (10)
Other revenue................................................................................ 25 98
------------- -----------
Total revenue.......................................................................... 49,278 40,212
------------- -----------
Benefits and expenses:
Benefits, claims and interest credited to policyholders...................................... 30,620 29,000
Amortization of deferred policy acquisition costs............................................ 4,970 2,988
General insurance expenses................................................................... 1,921 2,215
Premium and other taxes, licenses and fees................................................... 251 525
Other expenses............................................................................... 60 54
------------- -----------
Total benefits and expenses............................................................ 37,822 34,782
------------- -----------
Operating earnings.................................................................................. 11,456 5,430
Interest expense.................................................................................... 125 21
------------- -----------
Earnings before income tax expense ................................................................. 11,331 5,409
Income tax expense.................................................................................. 3,910 1,893
------------- -----------
Net earnings........................................................................................ $ 7,421 3,516
============= ===========
Earnings per share of common stock:
Primary:
Net earnings........................................................................... $ .71 .34
============= ===========
Fully diluted:
Net earnings........................................................................... $ .71 .34
============= ===========
Average shares outstanding:
Primary................................................................................ 10,427 10,251
Fully diluted.......................................................................... 10,493 10,292
See notes to consolidated interim financial statements.
</TABLE>
F-33
<PAGE>
<TABLE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(000's Omitted, except share and per share data)
(Unaudited)
<CAPTION>
Unrealized
Investment
Common Paid-in Gains Retained
Stock Capital (Losses) Earnings LESOP Total
-------- ------------ ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1995 ....................... $ 12,769 63,499 (7,813) 38,876 (3,135) 104,196
Net earnings ........................................ -- -- -- 16,599 -- 16,599
Change in unrealized investment
gains (losses) ............................... -- -- 53,185 -- -- 53,185
Cash dividends to stockholders
($.075 per share on common stock) ............ -- -- -- (761) -- (761)
Issuance of common stock:
upon exercise of options ..................... 135 785<F1> -- -- -- 920
Allocation of LESOP shares .......................... -- -- -- -- 306 306
-------- -------- -------- -------- -------- --------
Balance as of December 31, 1995 ..................... 12,904 64,284 45,372 54,714 (2,829) 174,445
Net earnings ........................................ -- -- -- 7,421 -- 7,421
Change in unrealized investment
gains (losses) ............................... -- -- (31,936) -- -- (31,936)
Cash dividends to stockholders
($.075 per share on common stock) ............ -- -- -- (753) -- (753)
Issuance of common stock:
upon exercise of options ..................... 18 87<F1> -- -- -- 105
-------- -------- -------- -------- -------- --------
Balance March 31, 1996 .............................. $ 12,922 64,371 13,436 61,382 (2,829) 149,282
======== ======== ======== ======== ======== ========
- ----------------
<FN>
<F1> Net of income tax benefit of $29 and $440 for the period ended March 31, 1996, and December 31, 1995, respectively.
See notes to consolidated financial statements.
</TABLE>
F-34
<PAGE>
<TABLE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Three Months Ended March 31, 1996 and 1995
(000's Omitted)
(Unaudited)
<CAPTION>
1996 1995
---------------- ---------------
<S> <C> <C>
Operating Activities:
Net earnings............................................................................ $ 7,421 3,516
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Interest credited to policyholders................................................ 30,835 29,242
Amortization of (discounts) premiums on debt securities, net...................... (241) (266)
Amortization of deferred policy acquisition costs................................. 4,970 2,988
Net investment (gains) losses..................................................... (7,627) 10
Accrued investment income......................................................... (144) 133
Deferred income taxes............................................................. 737 2,411
Other, net........................................................................ 2,779 2,093
---------------- ---------------
Net cash provided by operating activities................................... 38,730 40,127
---------------- ---------------
Investing Activities:
Purchases of securities:
Held-to-maturity............................................................ -- (612)
Available-for-sale.......................................................... (261,348) (40,042)
Trading..................................................................... (6,332) --
Proceeds from sale of securities:
Held-to-maturity............................................................ -- --
Available-for-sale.......................................................... 135,203 1,721
Trading..................................................................... 6,290 --
Proceeds from maturity or redemption of securities:
Held-to-maturity............................................................ -- 4,793
Available-for-sale.......................................................... 38,558 25,131
Trading..................................................................... 259 --
Other long-term investments, net.................................................. 4,977 4,728
Short-term investments, net....................................................... 9 67
Capitalization of deferred policy acquisition costs............................... (9,071) (7,436)
Other, net........................................................................ (984) (156)
---------------- ---------------
Net cash used in investing activities....................................... (92,439) (11,806)
---------------- ---------------
Financing Activities:
Premiums received................................................................. 97,144 75,768
Surrender and death benefits paid................................................. (93,786) (96,499)
Surrender and risk charges collected.............................................. 1,880 1,507
Securities settlements in process................................................. 11,092 65
Cash dividends to stockholders.................................................... (753) --
Issuance of common stock.......................................................... 105 260
Other, net........................................................................ 2,258 424
---------------- ---------------
Net cash provided by (used in) financing activities......................... 17,940 (18,475)
---------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents............................................... (35,769) 9,846
Cash and Cash Equivalents:
Beginning of year................................................................. 48,281 10,621
---------------- ---------------
End of year....................................................................... $12,512 20,467
================ ===============
See notes to consolidated financial statements.
</TABLE>
F-35
<PAGE>
<TABLE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Increase (Decrease) in Cash and Cash Equivalents
Three Months Ended March 31, 1996 and 1995
(000's Omitted)
(Unaudited)
<CAPTION>
Supplemental schedule of cash flow information: 1996 1995
-------- --------
<S> <C> <C>
Income tax payments (refunds) .......................................................................... $ 315 (1,272)
======== ========
Interest payments ...................................................................................... $ 118 --
======== ========
Change in net unrealized investment gains (losses) ..................................................... $(68,368) 19,792
Less: Associated increase reduction in amortization of deferred policy acquisition costs ........ 19,235 (4,948)
Deferred income tax (expense) benefit ............................................................ 17,197 (4,161)
-------- --------
Net change in net unrealized investment gains (losses) ................................................. $(31,936) 10,683
======== ========
See Notes to Consolidated Interim Financial Statements.
</TABLE>
F-36
<PAGE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
a. Principles of Consolidation:
The consolidated financial statements include the accounts of AmVestors and
its wholly-owned subsidiaries American Investors Life Insurance Company, Inc.
(American), American Investors Sales Group, Inc. (American Sales), and AmVestors
Investment Group, Inc. (AIG) (collectively the company). All significant
intercompany accounts and transactions have been eliminated.
b. Accounting Principles and Practices:
The accompanying unaudited consolidated financial statements have been
prepared on the basis of generally accepted accounting principles as promulgated
by the American Institute of Certified Public Accountants. In the opinion of the
company, the consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly the
financial position as of March 31, 1996 and the results of earnings and the
statements of cash flows for the three month periods ended March 31, 1996 and
1995.
c. Investments:
Debt securities held-to-maturity are carried at amortized cost, except that
those securities with an other than temporary impairment in value, are carried
at estimated net realizable value. Debt securities available-for-sale are
carried at estimated market value, with any unrealized gains or losses recorded
in stockholders' equity.
Investments are reviewed on each balance sheet date to determine if they
are impaired. In determining whether an investment is impaired, the company
considers whether the decline in market value at the balance sheet date is an
other than temporary decline; if so, then the investment's carrying value is
reduced to a new cost basis which represents estimated net realizable value. The
decline in value is reported as a realized loss, and a recovery from the new
cost basis is recognized as a realized gain only at sale.
The estimates of net realizable value are based on information obtained
from published financial information provided by issuers, independent sources
such as broker dealers or the company's independent investment advisors. Such
amounts represent an estimate of the consideration to be received in the future
when the defaulted company's debt is settled through the sale of their assets or
the restructuring of their debt. These estimates do not represent the discounted
present value of these future considerations.
Investments in common and preferred stock are carried at market, with
unrealized gains (losses) recorded in stockholders' equity for securities
available-for-sale.
Investments in debt and equity securities which were purchased principally
for the purpose of selling such securities in the near term are classified as
trading securities and are carried at market. Unrealized gains (losses) are
included currently in the results of earnings.
The cost of securities sold is determined on the identified certificate
basis.
F-37
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS-(Continued)
Other long-term investments include policy loans and mortgage loans on real
estate which are carried at cost less principal payments since date of
acquisition, and certain partnership investments which are carried at an amount
equal to the company's share of the partner's estimated market value with any
unrealized gains or losses recorded in net investment income.
d. Fair Value of Financial Instruments:
Estimated fair value amounts have been determined by the company using
available market information and appropriate valuation methodologies. Due to the
fact that considerable judgment is required to interpret market data to develop
the estimates of fair value, the estimates presented are not necessarily
indicative of the amounts that could be realized in a current market exchange.
The carrying values and estimated fair values of the company's financial
instruments as of March 31, 1996, and December 31, 1995, were as follows:
<TABLE>
<CAPTION>
(000's Omitted)
1996 1995
----------------------------------------- ------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------------- ------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Assets:
Debt securities............................ $2,064,814 2,064,814 2,046,091 2,046,091
Equity securities.......................... 17,692 17,692 9,543 9,543
Other long-term investments................ 34,515 34,524 39,491 39,546
Short-term investments..................... 427 427 436 436
Cash and cash equivalents.................. 12,512 12,512 48,281 48,281
Amounts receivable on securities
settlements in process................ 1,743 1,743 10,873 10,873
Accounts receivable and accrued investment
income................................ 29,776 29,776 29,811 29,811
Liabilities:
Future policy benefits - investment
contracts............................. 2,059,172 1,935,054 2,022,653 1,900,895
Other policy liabilities................... 6,654 6,654 7,312 7,312
Notes payable.............................. 7,000 7,000 7,000 7,000
Amounts due on securities settlements in
process............................... 3,400 3,400 1,438 1,438
Accrued expenses and other liabilities..... 6,598 6,598 4,080 4,080
</TABLE>
Debt securities - Fair values are based on quoted market prices or dealer
quotes, if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Equity securities - Fair value equals the carrying value as these
securities are carried at quoted market value.
Other long-term investments - For certain homogeneous categories of
mortgage loans, fair value is estimated using quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. Fair value of policy loans and other long-term investments is
estimated to approximate the assets' carrying value.
Short-term investments and cash and cash equivalents - The carrying amounts
reported in the balance sheet approximate the assets' fair value.
F-38
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS-(Continued)
Amounts receivable on securities settlements in process - The carrying
amount reported in the balance sheet approximates the fair value of this asset.
Accounts receivable and accrued investment income - The carrying amounts
reported in the balance sheet for these assets approximates fair value.
Future policy benefits for investment contracts - The fair values for
deferred annuities were estimated to be the amount payable on demand at the
reporting date as those investment contracts have no defined maturity and are
similar to a deposit liability. The amount payable at the reporting date was
calculated as the account balance less any applicable surrender charges.
Other policy liabilities - The carrying amount reported in the balance
sheet approximates the fair value of these liabilities.
Notes payable - The fair value of the company's note payable has been
estimated to be an amount equal to the balance reported in the balance sheet.
Amounts due on securities settlements in process - The carrying amount
reported in the balance sheet approximates the fair value of this liability.
Accrued expenses and other liabilities - The carrying amount reported in
the balance sheet approximates the fair value of these liabilities.
The use of different market assumptions and/or estimation methodologies
could have a material effect on the estimated fair value amounts.
e. Significant Risks and Uncertainties:
Nature of Operations - The company specializes in the sale of deferred
annuity products, the earnings on which are not currently taxable to the annuity
owner. Any changes in tax regulations which eliminate or significantly reduce
this advantage of tax deferred income would adversely impact the operations of
the company. The company's products are marketed through a network of
independent agents licensed in 47 states and the District of Columbia. The
company is not dependent on any one agent or agency for a substantial amount of
its business. No single agent accounted for more than 1% of annuity sales in
1995, and the top twenty individual agents accounted for approximately 11% of
1995 annuity sales.
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.
Certain Significant Estimates - Certain costs incurred to acquire new
business are deferred and amortized in relation to the incidence of expected
gross profits over the expected life of the policies. Determination of expected
gross profits includes management's estimate of certain elements over the life
of the policies, including investment income, interest to be credited to the
contract, surrenders and resultant surrender charges, deaths and in the case of
life insurance, mortality charges to be collected. These estimates of expected
gross profits are used as a basis for amortizing deferred costs. These estimates
F-39
<PAGE>
are periodically reviewed by management and, if actual experience indicates that
the estimates should be revised, the total amortization recorded to date is
adjusted by a charge or credit to earnings.
f. Deferred Policy Acquisition Costs:
The costs of acquiring new business (primarily commissions and policy
expenses), which vary with and are directly related to the production of new
business, have been deferred. The deferred costs related to investment-type
deferred annuity contracts are amortized in relation to the incidence of
expected gross profits over the expected life of policies. For single premium
life insurance, deferred policy acquisition costs are amortized over the life of
the policies, but not more than 20 years for policies issued before January 1,
1987, and not more than 30 years for policies issued after December 31, 1986,
based on the expected gross profits for the amortization periods. The deferred
costs related to traditional life contracts are amortized over the premium
paying period for the related policies using the same actuarial assumptions as
to interest, mortality and withdrawals as are used to calculate the reserves for
future benefits.
Net investment gains (losses) realized in the first three months of 1996
and 1995 resulted in the company experiencing investment margins greater than
those estimated. As a result, $2,147,467 and $3,731 of the unamortized balance
of deferred policy acquisition costs were expensed in the three months ended
March 31, 1996 and 1995, respectively. The amount charged off is based on actual
gross profits earned to date in relation to total gross profits expected to be
earned over the life of the related contracts.
Estimates of the expected gross profits to be realized in future years
include the anticipated yield on investments. Deferred policy acquisition costs
will be adjusted in the future based on actual investment income earned.
g. Future Policy Benefits:
Liabilities for future policy benefits under life insurance policies, other
than single premium life insurance, have been computed by the net level premium
method based upon estimated future policy benefits (excluding participating
dividends), investment yield, mortality and withdrawals giving recognition to
risk of adverse deviation. Interest rates range from 4 1/2% to 10 1/2% depending
on the year of issue, with mortality and withdrawal assumptions based on company
and industry experience prevailing at the time of issue.
For single premium life insurance and single premium annuities, the future
policy benefits are equal to the accumulation of the single premiums at the
credited rate of interest and for single premium whole life, less any mortality
charges.
h. Participating Policies:
The company issued participating policies in past years on which dividends
are paid to policyholders as determined annually by the Board of Directors. The
amount of dividends declared but undistributed is included in other liabilities.
Policy benefit reserves do not include a provision for estimated future
participating dividends.
F-40
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS-(Continued)
i. Depreciation:
The home office buildings are depreciated on the straight-line basis over
estimated lives of 40 years. Other depreciation is provided on the straight-line
basis over useful lives ranging from 5 to 8 years.
j. Income Taxes:
The company and its subsidiaries prepare and file their income tax returns
on a consolidated basis.
The company provides for the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
reported in the financial statements on the liability method.
k. Earnings per Share:
Earnings per share of common stock are computed by dividing net earnings by
the sum of the weighted average number of shares outstanding during the period
plus dilutive common stock equivalents applicable to stock options and warrants
calculated using the treasury stock method.
l. Consolidated Statements of Cash Flows:
For purposes of reporting cash flows, cash and cash equivalents includes
cash and money market accounts.
m. New Accounting Standards:
Effective January 1, 1995, the company adopted the provisions of SFAS No.
119, "Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments." This Statement requires disclosure about the amount,
nature, and terms of derivative financial instruments. Since the company has no
derivative financial instruments as defined in the Statement, the adoption of
this accounting standard did not result in any additional financial statement
disclosure.
Effective November 30, 1995, the company adopted the provisions of "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities" and transferred all bonds with an amortized cost of
$1,159,390,768 classified as held-to-maturity to available-for-sale. The effect
of the adoption was an increase in stockholders' equity of $21,218,205 (net of
related amortization of deferred policy acquisition costs of $12,792,403 and
deferred income taxes of $11,425,188). Net earnings for the year ended December
31, 1995 were not affected by the adoption of this implementation guide.
Effective for fiscal years beginning after December 15, 1995, SFAS No. 121,
"Accounting for the Impairment of Long Lived Assets" establishes accounting
standards for the impairment of long-lived assets, certain intangibles, and
goodwill related to those assets. The company does not expect this Statement to
have a material affect on its consolidated financial statements.
Effective for financial statements for fiscal years beginning after
December 15, 1995, SFAS No. 123, "Accounting for Stock-Based Compensation," will
require increased disclosure of compensation expense arising from stock
compensation plans. The Statement encourages rather than requires companies to
adopt a new method that accounts for stock compensation awards based on their
F-41
<PAGE>
estimated fair value at the date they are granted. Companies will be permitted,
however, to continue accounting under APB Option No. 25 which requires
compensation cost be recognized based on the difference, if any, between the
quoted market price of the stock on the date of grant and the amount an employee
must pay to acquire the stock. The company will continue to apply APB Option No.
25 in its consolidated financial statements and will disclose pro forma net
income and earnings per share in a footnote to its consolidated financial
statements, determined as if the new method were applied.
n. Reclassifications:
Certain reclassifications have been made to conform the March 31, 1995 and
December 31, 1995 financial statements to the March 31, 1996 presentation.
2. Investments:
A summary of investment income is as follows:
<TABLE>
<CAPTION>
(000's Omitted)
For the Period Ended
March 31,
---------------------------
1996 1995
------- -------
<S> <C> <C>
Debt securities ............................................................................. $37,781 36,199
Equity securities ........................................................................... 168 6
Other long-term investments ................................................................. 1,234 2,113
Short-term investments ...................................................................... 715 435
------- -------
39,898 38,753
Less investment expenses .................................................................... 729 533
------- -------
Net investment income ....................................................................... $39,169 38,220
======= =======
Net investment gains (losses): Realized investment gains (losses):
Debt securities, available-for-sale .................................................. $ 7,203 7
Debt securities, held-to-maturity .................................................... -- 6
Debt securities, trading ............................................................. 280 --
Equity securities, available-for-sale ................................................ -- 2
Equity securities, trading ........................................................... 115 --
Other ................................................................................ -- (25)
------- -------
Net realized investment gains (losses) ...................................................... 7,598 (10)
------- -------
Unrealized investment gains (losses):
Debt securities, trading ............................................................. 22 --
Equity securities, trading ........................................................... 7 --
------- -------
Net unrealized investment gains (losses) .................................................... 29 --
------- -------
Net investment gains (losses) ............................................................... $ 7,627 (10)
======= =======
</TABLE>
F-42
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS-(Continued)
Certain limited partnership investments are included in income from other
long-term investments. These funds (commonly referred to as hedge funds) are
managed by outside investment advisors. The investment guidelines of these
partnerships provide for a broad range of investment alternatives, including
stocks, bonds, futures, options, commodities, and various other financial
instruments. These investments were purchased with the strategy that yields in
excess of the S&P 500 Index may be obtained. The partnerships are carried at an
amount equal to the company's share of the partnerships' estimated market value
with related unrealized gains and losses recorded in net investment income. In
accordance with the permitted guidelines, the investments purchased by these
partnerships may experience greater than normal volatility which could
materially affect the company's earnings for any given period.
The maturity of the company's debt and equity securities portfolio as of
March 31, 1996 was as follows:
<TABLE>
<CAPTION>
(000's Omitted)
As of March 31, 1996
-------------------------------------------------------------------------
Available-for-sale Trading
---------------------------------- -----------------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Debt securities:
One year or less ................................ $ 41,941 40,151 -- --
Two years through five years .................... 439,092 449,821 759 756
Six years through ten years ..................... 1,254,470 1,275,156 729 753
Eleven years and after........................... 299,602 298,018 162 159
--------------- --------------- --------------- ---------------
2,035,105 2,063,146 1,650 1,668
Equity securities 15,880 16,601 1,074 1,091
--------------- --------------- --------------- ---------------
$ 2,050,985 2,079,747 2,724 2,759
=============== =============== =============== ===============
</TABLE>
These tables include mortgage-backed securities based on the estimated cash
flows of the underlying mortgages.
F-43
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS-(Continued)
The book value, estimated market value and unrealized market gains and
losses of debt and equity securities as of March 31, 1996, and December 31,
1995, were as follows:
<TABLE>
<CAPTION>
(000's Omitted)
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
March 31, 1996
- ----------------------------------------------------
Bonds, available-for-sale:
Corporate debt obligations
Investment grade ...................... $1,143,316 33,583 12,780 1,164,119
High-yield............................. 162,099 2,771 2,471 162,399
---------- ---------- ---------- ----------
1,305,415 36,354 15,251 1,326,518
U.S. Treasury obligations ................... 50,138 774 140 50,772
Mortgage-backed securities
Investment grade ...................... 671,010 14,134 5,695 679,449
High-yield............................. 8,542 -- 2,135 6,407
---------- ---------- ---------- ----------
Bonds, available-for-sale ................... 2,035,105 51,262 23,221 2,063,146
---------- ---------- ---------- ----------
Bonds, trading:
Corporate debt obligations
Investment grade ...................... 1,489 23 3 1,509
High-yield............................. 161 1 3 159
---------- ---------- ---------- ----------
Bonds, trading............................... 1,650 24 6 1,668
---------- ---------- ---------- ----------
Total bonds ................................. 2,036,755 51,286 23,227 2,064,814
Equity securities............................ 16,954 1,300 562 17,692
---------- ---------- ---------- ----------
$2,053,709 52,586 23,789 2,082,506
========== ========== ========== ==========
December 31, 1995
- ----------------------------------------------------
Bonds, available-for-sale:
Corporate debt obligations
Investment grade ...................... $1,076,873 63,321 724 1,139,470
High-yield ............................ 147,878 5,468 1,810 151,536
---------- ---------- ---------- ----------
1,224,751 68,789 2,534 1,291,006
U.S. Treasury obligations ................... 51,743 942 21 52,664
Mortgage-backed securities
Investment grade ...................... 661,652 32,062 1 693,713
High-yield ............................ 9,631 -- 2,408 7,223
---------- ---------- ---------- ----------
Bonds, available-for-sale: ......................... 1,947,777 101,793 4,964 2,044,606
---------- ---------- ---------- ----------
Bonds, trading:
Corporate debt obligations
Investment grade ...................... 458 -- 7 451
High-yield ............................ 1,031 5 2 1,034
---------- ---------- ---------- ----------
Bonds, trading .............................. 1,489 5 9 1,485
---------- ---------- ---------- ----------
Total bonds ................................. 1,949,266 101,798 4,973 2,046,091
Equity securities ........................... 9,232 614 303 9,543
---------- ---------- ---------- ----------
$1,958,498 102,412 5,276 2,055,634
========== ========== ========== ==========
</TABLE>
F-44
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS-(Continued)
The preceding table includes the carrying value and estimated market
value of debt securities which the company has determined to be impaired (other
than temporary decline in value) as follows:
(000's omitted)
Original Accumulated Carrying Estimated
Cost Write Downs Value Market Value
------------ ------------ ------------ ------------
March 31, 1996.......... $7,545 7,545 -- --
December 31, 1995....... $7,545 7,545 -- --
The company defines high-yield securities as those corporate debt
obligations rated below investment grade by Standard & Poor's and Moody's or, if
unrated, those that meet the objective criteria developed by the company's
independent investment advisory firm. Management believes that the return on
high-yield securities adequately compensates the company for additional credit
and liquidity risks that characterize such investments. In some cases, the
ultimate collection of principal and timely receipt of interest is dependent
upon the issuer attaining improved operating results, selling assets or
obtaining financing.
The amortized cost, estimated market value and unrealized market gains
and losses by type of mortgage-backed security as of March 31, 1996, and
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
(000's Omitted)
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
March 31, 1996
- ----------------------------------------------------------------------------
Government agency mortgaged-backed securities:
Planned amortization classes ........................................ $ 64,212 401 -- 64,613
Targeted amortization classes and accretion directed classes ........ 7,858 191 -- 8,049
Pass-throughs ....................................................... 29 3 -- 32
------------ ------------ ------------ ------------
Total government agency mortgage- backed securities ........... 72,099 595 -- 72,694
------------ ------------ ------------ ------------
Government-sponsored enterprise mortgage-backed securities:
Planned amortization classes ........................................ 433,709 11,001 4,323 440,387
Sequential classes .................................................. 272 4 -- 276
Pass-throughs ....................................................... 3,230 20 -- 3,250
------------ ------------ ------------ ------------
Total government sponsored enterprise mortgage-backed
securities .............................................. 437,211 11,025 4,323 443,913
------------ ------------ ------------ ------------
Other mortgage-backed securities:
Planned amortization classes ........................................ 17,312 78 -- 17,390
Sequential classes .................................................. 140,782 2,428 1,372 141,838
Pass-throughs ....................................................... 10 -- -- 10
Subordinated classes
12,138 8 2,135 10,011
------------ ------------ ------------ ------------
Total other mortgage-backed securities.......................... 170,242 2,514 3,507 169,249
------------ ------------ ------------ ------------
Total mortgage-backed securities ........................................... $ 679,552 14,134 7,830 685,856
============ ============ ============ ============
</TABLE>
F-45
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS-(Continued)
<TABLE>
<CAPTION>
(000's Omitted)
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
December 31, 1995
- ----------------------------------------------------------------------------
Government agency mortgage-backed securities:
Planned amortization classes ........................................ $ 71,164 1,823 -- 72,987
Targeted amortization classes and accretion directed classes ........ 7,833 360 -- 8,193
Pass-throughs........................................................ 32 3 -- 35
------------ ------------ ------------ ------------
Total government agency mortgage- backed securities............ 79,029 2,186 -- 81,215
------------ ------------ ------------ ------------
Government sponsored enterprise mortgage-backed securities:
Planned amortization classes ........................................ 403,359 23,750 -- 427,109
Sequential classes .................................................. 19,546 1,405 -- 20,951
Pass-throughs........................................................ 3,258 21 -- 3,279
------------ ------------ ------------ ------------
Total government sponsored enterprise mortgage-backed
securities .............................................. 426,163 25,176 -- 451,339
------------ ------------ ------------ ------------
Other mortgage-backed securities:
Planned amortization classes ........................................ 18,574 172 -- 18,746
Sequential classes .................................................. 134,245 4,484 1 138,728
Pass-throughs ....................................................... 11 -- -- 11
Subordinated classes................................................. 13,261 44 2,408 10,897
------------ ------------ ------------ ------------
Total other mortgage-backed securities ........................ 166,091 4,700 2,409 168,382
------------ ------------ ------------ ------------
Total mortgage-backed
securities ................................................................. $ 671,283 32,062 2,409 700,936
============ ============ ============ ============
</TABLE>
Certain mortgage-backed securities are subject to significant prepayment
risk. This is due to the fact that in periods of declining interest rates,
mortgages may be repaid more rapidly than scheduled, as individuals refinance
higher rate mortgages to take advantage of the lower current rates. As a result,
holders of mortgage-backed securities may receive large prepayments on their
investments which they are unable to reinvest at an interest rate comparable to
the rate on the prepaying mortgages. Mortgage-backed pass-through securities and
sequential classes, which comprised 21.2% and 23.4% of the carrying value of the
company's mortgage-backed securities as of March 31, 1996 and December 31, 1995,
respectively, are sensitive to this prepayment risk.
A portion of the company's mortgage-backed securities portfolio consists
of planned amortization class ("PAC"), targeted amortization class ("TAC") and
accretion directed class ("AD") instruments. These securities are designed to
amortize in a more predictable manner by shifting the primary risk of prepayment
to investors in other tranches (support classes) of the mortgage-backed
security. PAC, TAC and AD securities comprised 77.0% and 74.6% of the carrying
value of the company's mortgage-backed securities as of March 31, 1996 and
December 31, 1995.
As of March 31, 1996, 74.9% of the company's mortgage-backed securities
were issued by either government agencies or government-sponsored enterprises,
compared to 75.3% as of December 31, 1995. The credit risk associated with these
securities is generally less than other mortgage-backed securities. With the
exception of six issues, with a carrying value of $18,082,768 as of March 31,
1996, all of the company's investments in other mortgage-backed securities are
rated A or better by Standard & Poor's or Moody's.
F-46
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS-(Continued)
The amounts shown as "estimated market" are primarily based on quotations
obtained from independent sources such as broker dealers who make markets in
similar securities. Unless representative trades of securities actually occur at
the balance sheet date, these quotes are generally estimates of market value
based on an evaluation of appropriate factors such as institution-size trading
in similar securities, yield, credit quality, coupon rate, maturity, type of
issue and other market data. Losses are recognized in the period they occur
based upon specific review of the securities portfolio and other factors.
The consideration received on sales of debt and equity securities,
carrying value and realized gains and losses on those sales were as follows:
(000's Omitted)
For the Period Ended
March 31,
-------------------------
1996 1995
--------- ---------
Consideration received .......................... $ 180,312 33,873
Carrying value .................................. 172,714 33,858
Change in unrealized gains (losses) on trading
securities..................................... 29 --
--------- ---------
Net investment gains (losses) ............ $ 7,627 15
========= =========
Investment gains ................................ $ 8,365 15
Investment losses ............................... (767) --
Change in unrealized gains (losses) on trading
securities..................................... 29 --
--------- ---------
Net investment gains (losses) ............ $ 7,627 15
========= =========
The above table contains no sales of securities which the company had
classified as held-to-maturity.
Net unrealized gains (losses) on debt securities held-to-maturity, debt
securities available-for-sale, debt securities trading, equity securities
available-for-sale and equity securities trading changed as follows:
<TABLE>
<CAPTION>
(000's) Omitted
Net Unrealized Gains (Losses)
--------------------------------------------------------------------------------------
Debt Debt Equity
Securities Securities Debt Securities Equity
Held- Available-for Securities Available-for Securities
to-Maturity -Sale Trading -Sale Trading
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance as of January 1, 1995 .............. $ (91,493) (14,092) -- 187 --
1995 Net Change ............................ 91,493 110,921 (4) 114 10
--------------- --------------- --------------- --------------- ---------------
Balance as of December 31, 1995 ............ -- 96,829 (4) 301 10
1996 Net Change ............................ -- (68,788) 22 420 7
--------------- --------------- --------------- --------------- ---------------
Balance as of March 31, 1996 ............... $ -- 28,041 18 721 17
=============== =============== =============== =============== ===============
</TABLE>
F-47
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS-(Continued)
At March 31, 1996, and December 31, 1995, investments with statutory
carrying values of $2,026,957,262 and $1,956,343,973, respectively, were on
deposit with various insurance departments. These amounts exceeded the minimum
required deposits by $61,109,979 and $53,856,902 as of March 31, 1996, and
December 31, 1995, respectively.
3. Other Assets:
Other assets consist of the following:
<TABLE>
<CAPTION>
(000's) Omitted
------------------------------------------------------
March 31, December 31,
1996 1995
------------------------- -------------------------
<S> <C> <C>
Property and equipment at cost:
Home office building (including land of $352)...................... $4,559 3,643
Furniture and equipment............................................ 3,645 3,711
Automobiles........................................................ 99 99
------------------------- -------------------------
8,303 7,453
Less accumulated depreciation............................................. 3,656 3,650
------------------------- -------------------------
4,647 3,803
Other..................................................................... 1,516 781
------------------------- -------------------------
6,163 4,584
========================= =========================
</TABLE>
4. Reinsurance:
The company reinsures portions of insurance it writes. The maximum amount
of risk retained by the company on any one life is $150,000.
A summary of reinsurance data follows (000's Omitted):
<TABLE>
<CAPTION>
Ceded to
For the Gross Other Net
Period Ended Descriptions Amount Companies Amount
- ----------------------- -------------------------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
March 31, 1996 Life insurance in force............... $ 305,699 234,692 71,007
Insurance premiums and policy charges. $ 2,649 192 2,457
March 31, 1995 Life insurance in force............... $ 324,030 252,801 71,229
Insurance premiums and policy charges. $ 2,188 284 1,904
March 31, 1996 Future policy benefits................ $ 2,296,246 143,406 2,152,840
December 31, 1995 Future policy benefits................ $ 2,259,028 145,183 2,113,845
</TABLE>
The company is contingently liable for the portion of the policies
reinsured under each of its existing reinsurance agreements in the event the
reinsurance companies are unable to pay their portion of any reinsured claim.
Management believes that any liability from this contingency is likely.
F-48
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS-(Continued)
The company had amounts receivable under reinsurance agreements of
$144,169,337 and $146,617,611 as of March 31, 1996, and December 31, 1995,
respectively. Of the amounts, $142,507,965 and $144,965,371 were associated with
a single reinsurer. In 1989, the company entered into a coinsurance agreement
which ceded 90% of the risk on the company's block of single premium whole life
policies written prior to 1989 to Employers Reassurance Corporation (ERC). The
agreement provides that ERC assumes 90% of all risks associated with each policy
in the block. Reimbursement received from ERC for amounts paid by the company on
the reinsured risks totalled $2,416,764 and $3,891,613 for periods ended March
31, 1996 and 1995, respectively.
The following table identifies the components of the amounts receivable
from ERC:
(000's) Omitted
--------------------------
March 31, December 31,
1996 1995
------------ ------------
Reserve for future policy benefits ................. $ 141,778 143,558
Reimbursement for benefit payments
and administrative allowance ..................... 730 1,407
------------ ------------
$ 142,508 144,965
============ ============
5. Credit Agreement:
On December 29, 1994, the company entered into a credit agreement with
The First National Bank of Chicago (First Chicago) and Boatmen's First National
Bank of Kansas City (Boatmen's), as Lenders. On July 28, 1995, this agreement
was amended to reduce the commitment from $25,000,000 to $15,000,000. The
company has agreed to pay a commitment fee of .25% per annum on the unused
portion of the commitment. Borrowings under this agreement may be used for
general corporate purposes. During December, 1995, the company borrowed
$7,000,000 (effective annual interest at March 31, 1996 of 6.67%) under the
credit agreement and contributed the proceeds to the capital and surplus of
American. Principal repayments for this borrowing are as follows: 1996 - $-0-
1997 - $1,820,000 1998 - $2,240,000 1999 - $2,940,000.
Interest on the borrowings under this agreement is determined at the
option of the company to be: (i) a fluctuating rate of interest equal to the
higher of the corporate base rate announced by First Chicago from time to time,
and a fluctuating rate equal to the weighted average of rates on overnight
Federal Funds transactions with members of the Federal Reserve System as
published by the Federal Reserve Bank of New York plus .50% per annum, or (ii) a
Eurodollar rate plus a margin ranging from 1.00% to 1.25%.
In addition to general covenants which are customary for facilities such
as this, the company has agreed to maintain minimum consolidated net worth, a
minimum cash flow coverage ratio, minimum risk based capital for American,
minimum capital, surplus and asset valuation reserve of American and to maintain
a maximum debt to equity (including indebtedness) ratio.
Additional covenants include: (i) limitations on acquisitions; (ii)
maintenance of current lines of business; (iii) limitations on additional
indebtedness; (iv) limitations on investments; (v) limitations on dividends and
stock repurchases; and (vi) limitations on mergers, consolidations and sales of
assets, typical of such facilities.
F-49
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS-(Continued)
6. Retirement Plans:
The company sponsors an Employee Stock Ownership Plan (ESOP) for all
full-time employees with one year of service. Qualifying participants may
contribute an amount not to exceed 10% of covered compensation. The company made
no contributions to this plan during either the three months ended March 31,
1996 or 1995.
The company sponsors a Leveraged Employee Stock Ownership Plan (LESOP)
for all full-time employees with one year of service.
The LESOP has acquired 370,244 shares of the company's stock through the
proceeds of a note payable to American. The note bears interest at 7.0% and is
payable in annual installments through December 30, 2002. The note had an unpaid
principal balance of $3,010,882 as of March 31, 1996, and December 31, 1995.
Each year the company will make contributions to the LESOP which are to
be used to make loan interest and principal payments. On December 31 of each
year, a portion of the common stock will be allocated to participating
employees. Of the 361,213 shares of the company's common stock now owned by the
LESOP, 118,996 shares have been allocated to the participating employees with
the remaining 242,217 shares being held by American as collateral for the loan.
The unallocated portion of the company's common stock owned by the LESOP
has been recorded as a separate reduction of stockholders' equity. Accrued
contributions to the LESOP were $81,738, and $76,391, for the three months ended
March 31, 1996, and 1995, respectively.
During 1992, the company's Board of Directors approved retirement plans
for its members and members of the Board of Directors of certain of its
subsidiaries. The plans provide that retired Directors shall serve as Advisory
Members to the Board at a fee of $750 per meeting attended and a monthly
lifetime benefit in the amount of $750 be paid to each qualified Director upon
retirement. In addition, the company has agreed to continue any life insurance
policies being provided as of the date of retirement.
To qualify for this benefit, a Director must reach the age of 60 and meet
years of service requirements thereafter. The plan also calls for a mandatory
retirement on the date the Director's term expires following age 70.
A liability in the amount of $437,623, representing the present value of
future benefits, has been established. Charges (credits) to earnings related to
the plans were $1,986 and $(1,395) for the three months ended March 31, 1996 and
1995, respectively.
Effective January 1, 1993, the company adopted an Age-Weighted Money
Purchase Plan for all full-time employees with one year of service. The full
cost of this plan will be paid by the company with qualifying participants
receiving contributions based upon their age at plan implementation and current
salary. Contributions to the Age-Weighted Money Purchase Plan for the three
months ended March 31, 1996, and 1995 were $67,249 and $65,276 respectively.
F-50
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS-(Continued)
7. Stockholders' Equity:
Dividends by American to AmVestors are limited by laws applicable to
insurance companies. Under Kansas law, American may pay a dividend from its
surplus profits, without prior consent of the Kansas Commissioner of Insurance,
if the dividend does not exceed the greater of 10% of statutory capital and
surplus at the end of the preceding year or all of the statutory net gain from
operations of the preceding year, provided that such dividend does not exceed
its unassigned surplus (surplus profits) at the end of the preceding year. As of
December 31, 1995, surplus profits of American were $16,764,059 and 10% of
statutory capital and surplus was $9,828,859. American is also required to
maintain, on a statutory basis, paid-in capital stock and surplus (capital in
excess of par value and unassigned surplus) of $400,000 each. As of March 31,
1996, and December 31, 1995, American's statutory capital and surplus was
$97,433,060 and $98,288,590, respectively. Statutory net income (loss) for 1995
was $5,984,601.
In connection with the original establishment of the Interest Maintenance
Reserve (IMR), the Commissioner of Insurance of Kansas, the company's
domiciliary state, ordered that American prepare its December 31, 1992, NAIC
Annual Statement Form to equitably allocate 1992 capital gains and losses, not
included in the calculation of the Asset Valuation Reserve (AVR), on other than
government securities, fifty (50%) percent to surplus and fifty (50%) percent to
IMR, after calculation of the AVR pursuant to the instructions provided by the
NAIC. This differs from prescribed statutory accounting practices.
This represented a permitted accounting practice for regulatory purposes,
the effect of which was to increase statutory surplus by $8,168,000 as of
December 31, 1992 ($5,533,000 as of March 31, 1996).
In addition, American received permission from the Commissioner of
Insurance of Kansas to amortize the effects of changing to Actuarial Guideline
No. 32 concerning the Commissioners Annuity Reserve Valuation Method for
individual annuity contracts over a three-year period beginning in 1995 rather
than to record the full amount of the change of $2,176,000. The effect of this
permitted accounting practice was to increase statutory surplus by $943,150 as
of December 31, 1995 ($817,067 as of March 31, 1996).
On March 17, 1989, the Board of Directors of the company adopted the 1989
Nonqualified Stock Option Plan. These options have an exercise price equal to
the closing price of the company's stock on the date of grant and none may be
exercised beyond ten years from the grant date. A total of 832,084 options to
acquire common stock are outstanding under the 1989 Nonqualified Plan.
The 1989 Nonqualified Plan is administered by the Board of Directors and
officers of the company and its subsidiaries. The terms of the options,
including the number of shares, and the exercise price are subject to the sole
discretion of the Board of Directors.
F-51
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS-(Continued)
Changes during the periods were as follows:
<TABLE>
<CAPTION>
For the Period Ended
-----------------------------------------------------------
March 31, December 31,
1996 1995
------------------------- -------------------------
<S> <C> <C>
Options outstanding, beginning of period....................... 841,341 859,837
Options granted................................................ 5,000 87,500
Options exercised.............................................. (14,257) (105,996)
------------------------- -------------------------
Options outstanding, end of period............................. 832,084 841,341
========================= =========================
Outstanding options exercisable at end of period............... 825,584 779,841
========================= =========================
Options reserved for future grants at end of period............ 39,747 44,747
========================= =========================
Option prices per share:
Exercised, during the period............................ $5.31 $4.84-$10.63
Outstanding, end of period.............................. $4.84-$12.66 $4.84-$12.66
</TABLE>
On March 17, 1989, the Board of Directors also adopted the 1989 Stock
Appreciation Rights Plan (the SAR Plan) and the 1989 Restricted Stock Plan (the
Restricted Stock Plan). The SAR Plan authorized the Board of Directors to grant
stock appreciation rights to employees, officers and directors in such amounts
and with such exercise prices as it shall determine. No stock appreciation
rights granted under the SAR Plan may be exercised more than five years from its
date of grant. The SAR Plan authorized a maximum of 125,000 shares to be issued
pursuant to stock appreciation rights granted thereunder.
<TABLE>
<CAPTION>
For the Period Ended
---------------------------------------------------------------
March 31, December 31,
1996 1995
--------------------------- ----------------------------
<S> <C> <C>
Rights outstanding, beginning of period..................... -- --
Rights granted.............................................. -- --
Rights exercised............................................ -- --
Rights expired.............................................. -- --
Rights cancelled............................................ -- --
--------------------------- ----------------------------
Rights outstanding, end of period........................... --0-- --0--
=========================== ============================
Rights reserved for future grants at end of period.......... 5,000 5,000
=========================== ============================
</TABLE>
The company recorded no compensation expense relating to stock
appreciation rights for the three months ended March 31, 1996, and 1995,
respectively.
The Restricted Stock Plan authorizes the Board of Directors to make
restricted stock awards to employees, officers and directors in such amounts as
it shall determine. The stock issued pursuant to such awards is subject to
restrictions on transferability for a period of five years. Such stock is
subject to a five-year vesting schedule, and the company is required to
repurchase all vested stock from a grantee if such grantee's employment with the
company is terminated prior to the lapse of the transfer restrictions. The
Restricted Stock Plan authorizes a maximum of 125,000 shares to be issued
thereunder. No restricted stock awards have been granted pursuant to the
Restricted Stock Plan.
F-52
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS-(Continued)
In conjunction with a previous bank borrowing, the company issued
ten-year warrants to purchase a total of 170,002 shares of its common stock as
summarized in the following table:
<TABLE>
<CAPTION>
Warranty Issue Number of Exercise Expiration
Holder Date Shares Price Date
- ---------------------------- ------------------- --------------------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
Morgan Guaranty 12/8/88 75,000 $ 3.9688 12/9/98
4/30/92 95,002 6.3855 5/1/02
---------------------------
170,002
===========================
</TABLE>
8. Other Revenue:
Effective December 1, 1989, the company entered into a coinsurance
agreement with Employers Reassurance Corporation (ERC) which reinsured 90% of
the risk on the company's block of SPWL policies written prior to 1989. The
agreement provides that ERC assumes 90% of all risks associated with each policy
in the block. These policies continue to be administered by American. In return,
American receives an administrative allowance of $31.50 per policy per year. The
total allowance received during the three months ended March 31, 1996 and 1995
was $29,187 and $31,301, respectively.
9. Income Taxes:
The provision for income taxes charged to operations was as follows:
<TABLE>
<CAPTION>
(000's Omitted)
For the Three Months Ended
March 31,
--------------------------------------------------------------
1996 1995
------------------------------ -------------------------
<S> <C> <C>
Current income tax expense (benefit)..................... $3,172 (518)
Deferred income tax expense (benefit).................... 738 2,411
------------------------------ -------------------------
Total income tax expense.......................... $3,910 1,893
============================== =========================
</TABLE>
10. Acquisition:
On September 8, 1995, the company signed a merger agreement pursuant to
which it will acquire all of the outstanding capital stock of Financial Benefit
Group, Inc., (FBG) a Delaware corporation, for $5.31 per share, payable in the
company's common stock, warrants and cash.
FBG is an insurance holding company which owns all of the shares of
Financial Benefit Life Insurance Company, a Florida domiciled insurer which
specializes in the sale and underwriting of annuity products and is admitted in
41 jurisdictions, which includes 39 states, the District of Columbia and the
U.S. Virgin Islands. FBG also owns all of the shares of Annuity International
Marketing Corporation and The Insurancemart, Inc. both of which specialize in
the distribution and marketing of annuities.
F-53
<PAGE>
The merger received the approval of the shareholders of both FBG and the
company, and became effective on April 8, 1996.
In connection with the acquisition, the company borrowed $35,000,000
under a credit agreement with The First National Bank of Chicago, Fleet National
Bank and Boatmen's First National Bank of Kansas City, the proceeds of which
were used to fund the cash portion of the purchase price and refinance existing
indebtedness of the company and FBG.
The transaction will be accounted for using the purchase method with any
resulting goodwill being amortized over a period not to exceed 40 years.
11. Contingencies:
The company's insurance subsidiary is subject to state guaranty
association assessments in all states in which it is admitted. Generally, these
associations guarantee specified amounts payable to residents of the state under
policies issued by insolvent insurers. Most state laws permit assessments or
some portion thereof to be credited against future premium taxes. Charges
(credits) relating to the guaranty fund assessments impacted 1995 and 1994
income before taxes by approximately $1,001,000 and $504,000, respectively. The
company expects that further charges to income may be required in the future and
will record such amounts when they become known.
F-54
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Financial Benefit Group, Inc. And Subsidiaries:
We have audited the accompanying consolidated balance sheets of Financial
Benefit Group, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Financial Benefit Group, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for debt and equity securities
effective January 1, 1994 to conform with Statement of Financial Accounting
Standards No. 115.
/s/ DELOITTE & TOUCHE LLP
Miami, Florida
March 22, 1996
F-55
<PAGE>
<TABLE>
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<CAPTION>
1995 1994
---------- ----------
(in thousands,
except share data)
<S> <C> <C>
ASSETS
INVESTMENTS (Notes 1,2,10,11):
Fixed maturities available-for-sale ...................................................................... $ 485,079 $ 289,787
Fixed maturities held-to-maturity ........................................................................ 11,772 190,836
Real estate investments .................................................................................. 3,230
Mortgage loans on real estate ............................................................................ 5,898 3,903
Equity securities ........................................................................................ 792 800
---------- ----------
Total investments ................................................................................. 503,541 488,556
CASH AND CASH EQUIVALENTS ................................................................................ 52,860 27,462
ACCRUED INVESTMENT INCOME ................................................................................ 5,742 8,152
DEFERRED POLICY ACQUISITION COSTS (Note 1) ............................................................... 43,077 73,959
FUTURE POLICY BENEFITS RECOVERABLE FROM REINSURER (Note 4) ............................................... 107,507 123,076
OTHER ASSETS (Note 3) .................................................................................... 7,218 9,698
---------- ----------
TOTAL .................................................................................................... $ 719,945 $ 730,903
========== ==========
LIABILITIES
FUTURE POLICY BENEFITS AND CLAIMS ACCRUAL (Notes 1,4) .................................................... $ 653,612 $ 682,039
OTHER LIABILITIES AND ACCRUED EXPENSES ................................................................... 9,796 5,588
LONG-TERM DEBT (Note 5) .................................................................................. 15,500 16,000
---------- ----------
Total liabilities ................................................................................. 678,908 703,627
---------- ----------
SHAREHOLDERS' EQUITY (Notes 5,6):
CLASS A COMMON STOCK, $.01 par value; authorized 25,000,000 shares; issued 6,958,192 in 1995
and 6,898,422 shares in 1994; outstanding 6,471,567 shares
in 1995 and 6,411,797 shares in 1994 ................................................................... 70 68
CLASS B COMMON STOCK, $.01 par value; authorized 1,750,000 shares; issued 412,115 shares in
1995 and 416,822 shares in 1994; outstanding 323,667 shares in 1995 and 328,374
shares in 1994 ......................................................................................... 4 5
ADDITIONAL PAID-IN CAPITAL ............................................................................... 22,411 22,313
RETAINED EARNINGS ........................................................................................ 14,524 9,923
NET UNREALIZED APPRECIATION (DEPRECIATION) ON AVAILABLE-FOR-SALE SECURITIES NET OF DEFERRED POLICY
ACQUISITION COSTS, $15,875 IN 1995 AND $7,630 IN 1994 AND OF TAXES, $3,396 IN 1995 AND
($1,786) IN 1994 ....................................................................................... 5,524 (3,378)
SUBSCRIPTIONS RECEIVABLE - ESOP .......................................................................... (159)
COMMON STOCK IN TREASURY, at cost ........................................................................ (1,496) (1,496)
---------- ----------
Total shareholders' equity ........................................................................ 41,037 27,276
---------- ----------
TOTAL .................................................................................................... $ 719,945 $ 730,903
========== ==========
See notes to consolidated financial statements.
</TABLE>
F-56
<PAGE>
<TABLE>
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
1995 1994 1993
------------- ------------- --------------
(in thousands, except share data)
----------------------------------------------
<S> <C> <C> <C>
REVENUE:
Net investment income:
Fixed maturities available-for-sale.................................. $42,038 $27,417 --
Fixed maturities held-to-maturity.................................... 1,034 15,709 --
Fixed maturities..................................................... -- -- $53,006
Realized gains on investments (Note 2)..................................... 2,706 2,668 21,827
Commissions and marketing fees............................................. 2,887 1,423 1,062
Other Income............................................................... 5,559 3,846 4,074
------------- ------------- --------------
Total revenue............................................ 54,224 51,063 79,969
------------- ------------- --------------
BENEFITS AND EXPENSES:
Increase in liability for future policy benefits........................... 28,114 28,067 41,468
General and administrative expenses........................................ 4,591 4,117 4,794
Payroll and related expenses............................................... 2,847 2,860 2,447
Amortization of deferred acquisition costs................................. 10,655 11,168 15,550
Interest expense........................................................... 1,533 1,406 1,476
Depreciation and amortization.............................................. 200 194 262
------------- ------------- --------------
Total benefits and expenses.............................. 47,940 47,812 65,997
------------- ------------- --------------
INCOME BEFORE INCOME TAX PROVISION AND EXTRAORDINARY CHARGE....................... 6,284 3,251 13,972
INCOME TAX PROVISION (Note 8)..................................................... 1,683 725 4,854
------------- ------------- --------------
INCOME BEFORE EXTRAORDINARY CHARGE................................................ 4,601 2,526 9,118
EXTRAORDINARY CHARGE ON EXTINGUISHMENT OF DEBT, NET OF TAX OF APPROXIMATELY $200.. (1,800)
------------- ------------- --------------
NET INCOME........................................................................ 4,601 726 9,118
============= ============= ==============
EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENT:
Primary:
Weighted average shares.............................................. 8,622,251 8,466,144 8,203,291
Earnings before extraordinary charge................................. $ 0.53 $ 0.30 $ 1.11
Extraordinary charge................................................. -- (0.21) --
------------- ------------- --------------
Net income........................................................... $ 0.53 $ 0.09 $ 1.11
============= ============= ==============
Fully diluted:
Weighted average shares.............................................. Not Not 17,982,767
applicable applicable
Earnings before extraordinary charge
Net income........................................................... $ 0.51
==============
See notes to consolidated financial statements.
</TABLE>
F-57
<PAGE>
<TABLE>
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Thousands, except per share data)
<CAPTION>
Class A Class B Additional Investment Subscriptions Cost of Total
Common Common Paid-In Retained Gains Receivable Treasury Shareholders'
Stock Stock Capital Earnings (Losses) ESOP Stock Equity
-------- -------- -------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 ................. $ 59 $ 5 $20,276 $ 1,960 $ 51 $ (835) $ (1,496) $ 20,020
Exercise of stock options ................ 1 -- 43 -- -- -- -- 44
Net Changes in unrealized depreciation on
equity securities....................... -- -- -- -- (51) -- -- (51)
Payment received on ESOP subscriptions.... -- -- -- -- -- 345 -- 345
Net Income ............................... -- -- -- 9,118 -- -- -- 9,118
-------- -------- -------- -------- -------- ----------- -------- --------
BALANCE, DECEMBER 31, 1993 ............... 60 5 20,319 11,078 -- (490) (1,496) 29,476
Effect on net unrealized appreciation on
available-for-sale securities of
adopting Statement of Financial
Accounting Standards No. 115............ -- -- -- -- 1,687 -- -- 1,687
Stock dividend of one Class A Common share
for twenty Class A or B Common shares... 6 -- 1,875 (1,881) -- -- -- --
Exercise of stock options ................ 2 -- 119 -- -- -- -- 121
Net changes in unrealized depreciation on
available-for-sale securities........... -- -- -- -- (5,065) -- -- (5,065)
Payment received on ESOP subscriptions.... -- -- -- -- -- 331 -- 331
Net income ............................... -- -- -- 726 -- -- -- 726
-------- -------- -------- -------- -------- ----------- -------- --------
BALANCE, DECEMBER 31, 1994 ............... 68 5 22,313 9,923 (3,378) (159) (1,496) 27,276
Exercise of stock options ................ 2 (1) 98 -- -- -- -- 99
Net changes in unrealized depreciation on
available-for-sale securities........... -- -- -- -- 8,902 -- -- 8,902
Payment received on ESOP subscriptions.... -- -- -- -- -- 159 -- 159
Net income ............................... -- -- -- 4,601 -- -- -- 4,601
-------- -------- -------- -------- -------- ----------- -------- --------
BALANCE, DECEMBER 31, 1995 ............... $ 70 $ 4 $22,411 $14,524 $ 5,524 $ -- $ (1,496) $ 41,037
======== ======== ======== ======== ======== =========== ======== ========
See notes to consolidated financial statements.
</TABLE>
F-58
<PAGE>
<TABLE>
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
1995 1994 1993
--------- --------- ----------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................................................... $ 4,601 $ 726 $ 9,118
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by operating activities:
Extraordinary charge on extinguishment of
debt, net of tax benefit ....................................................... -- 1,800 --
Change in future policy benefits and claims accrual .................................. 28,114 28,067 41,468
Realized investment (gains) losses, net .............................................. (2,706) (2,668) (21,827)
Depreciation and amortization ........................................................ 200 194 262
Change in deferred policy acquisition costs .......................................... 3,817 (791) 9,325
Change in accrued investment income .................................................. 2,410 (168) 3,636
Change in deferred taxes, net ........................................................ (356) 1,361 247
Change in other assets and liabilities, net .......................................... 599 1,585 3,291
--------- --------- ---------
Total adjustments .................................................. 32,078 29,380 36,402
--------- --------- ---------
Net cash provided by operating activities .......................... 36,679 30,106 45,520
--------- --------- ---------
INVESTING ACTIVITIES:
Purchases of available-for-sale securities ........................................... (338,222) (146,381) --
Purchase of held-to-maturity securities .............................................. -- (41,672) --
Purchase of investments .............................................................. -- -- (690,364)
Purchase of common and preferred stock ............................................... (1,004) -- --
Proceeds for sales of available-for-sale securities .................................. 346,670 214,339 --
Proceeds from sales of held-to-maturity securities ................................... 7,804 -- --
Proceeds for sales of investments .................................................... 44 -- 651,380
Proceeds from sale of real estate .................................................... 1,590 -- --
Proceeds from maturities and redemptions of
available-for-sale securities and held-to-maturity securities....................... 9,550 10,429 --
Proceeds from maturity of investments ................................................ -- -- 71,576
Purchase of property and equipment ................................................... (57) (198) (137)
--------- --------- ---------
Net cash provided by investing activities .......................... 26,375 36,517 32,455
--------- --------- ---------
FINANCING ACTIVITIES:
Premiums received .................................................................... 62,493 76,533 57,777
Surrenders and other benefits paid ................................................... (99,907) (145,386) (104,767)
Borrowings under long-term debt ...................................................... 16,000 5,000
Principal payments on long-term debt ................................................. (500) (15,000) (7,119)
Payment to extinguish debt ........................................................... -- (2,000) --
Exercise of stock options ............................................................ 99 121 44
Payment received on ESOP subscriptions ............................................... 159 331 345
--------- --------- ---------
Net cash used in financing activities .............................. (37,656) (69,401) (48,720)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................................... 25,398 (2,778) 29,255
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................................................. 27,462 30,240 985
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR ...................................................... $ 52,860 $ 27,462 $ 30,240
========= ========= =========
See notes to consolidated financial statements.
</TABLE>
F-59
<PAGE>
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Financial Benefit Group, Inc. (the "Company") is a holding corporation
formed to create and sell insurance products through its wholly-owned
subsidiaries. Its principal products are deferred and immediate annuities.
Subsidiaries include Financial Benefit Life Insurance Company ("Financial
Benefit Life"), Financial Benefit Management Corporation, Annuity
International Marketing Corporation ("AIMCOR"), The Insurancemart, Inc. and
Rainbow Card Pack Publications, Inc.
Accounting Policies
Basis of Consolidation - The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
include the accounts of the Company and its wholly-owned subsidiaries. All
material intercompany transactions and balances have been eliminated.
Significant Risks and Uncertainties
Nature of Operations - The Company specializes in the sale of deferred
annuity products, the earnings on which are not currently taxable to the
annuity owner. Any changes in tax regulation which eliminate or
significantly reduce this advantage of tax deferred income would adversely
impact the operations of the Company.
Use of Estimates in the Preparation of Financial Statements- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Certain Significant Estimates - Certain costs incurred to acquire new
business are deferred and amortized in relation to the incidence of
expected gross profits over the expected life of the policies.
Determination of expected gross profits includes management's estimate of
certain elements over the life of the policies, including investment
income, interest to be credited to the contract, surrenders and resultant
surrender charges, deaths and in the case of life insurance, mortality
charges to be collected. These estimates of expected gross profits are used
as a basis for amortizing deferred costs. These estimates are periodically
reviewed by management and if actual experience indicates that the
estimates should be revised the total amortization recorded to date is
adjusted by a charge or credit to earnings.
Investments - Statement of Financial Accounting Standards ("SFAS") No. 115,
Accounting for Certain Investments in Debt and Equity Securities
("Statement No. 115"), was adopted by the Company as of January 1, 1994. In
accordance with Statement No. 115, the Company's prior- year financial
statements have not been restated to reflect the change in accounting
principle. Under Statement No. 115, securities are classified as either
available-for-sale, held-to-maturity or trading. The Company classified
approximately 60% of its fixed maturity securities portfolio as
F-60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
"available-for-sale" with the remainder classified as "held-to-maturity."
Securities classified as available-for-sale are carried at fair value and
unrealized gains and losses on such securities are reported as a separate
component of shareholders' equity. Securities classified as
held-to-maturity are carried at cost, adjusted for amortization of premium
or discount.
The effect of adopting Statement No. 115 on January 1, 1994 caused
shareholders' equity to be increased by $1,687,000 (net of $4,016,000
deferred policy acquisition costs amortization and of deferred taxes of
$991,000 that would have been recorded if those securities had been sold at
their fair value on January 1, 1994).
Effective November 30, 1995, the Company adopted the provisions of "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in
Debt and Equity Securities" and transferred bonds with an amortized cost of
$165,826,000 classified as held-to- maturity to available-for-sale. The
effect of the adoption was an increase in stockholders' equity of
$1,165,000 (net of related amortization of deferred policy acquisition
costs of $3,114,000 and deferred income taxes of $684,000). Net earnings
for the year ended December 31, 1995 were not affected by the adoption of
this implementation guide.
Prior to the adoption of Statement No. 115, the Company carried a small
portion of its fixed maturity investments (designated as held-for-sale) at
lower of cost or market with the other than temporary declines in value
recognized through charges to realized gain (loss) on investments. The
remainder of fixed maturity investments were carried at amortized cost.
Equity securities continue to be carried at fair value with the unrealized
gains and losses reported as a separate component of shareholders' equity.
The adoption of Statement No. 115 had no effect on net income.
Real estate held for investment is carried at cost. Real estate held for
sale was carried at the lower of cost or fair value.
Mortgage loans are reported at principal balance less allowances for
estimated uncollectible amounts, if any.
Deferred Policy Acquisition Costs - The costs of acquiring new business
(primarily commissions and policy expenses), which vary with and are
directly related to the production of new business, have been deferred. For
annuity contracts issued prior to 1991, such costs are being amortized
using the interest method which recognizes acquisition and interest costs
as expenses at a constant rate applied to net policy liabilities. For
annuity contracts issued subsequent to December 1992, such costs are being
amortized generally in proportion to the present value of expected gross
profits using the retrospective deposit method. Management, periodically,
based on actuarial studies, reviews the recoverability of these costs. As
of December 31, 1995 and 1994, based on such studies, management has
concluded that these costs are recoverable.
Future Policy Benefits - Reserves for future policy benefits on annuity
contracts, which are considered investment contracts as defined in SFAS No.
97, are calculated using the prospective deposit method. Under this method,
the benefit reserve is established for the present value of future benefits
based on various assumptions as to mortality and surrenders. Benefit
reserve factors are prepared per unit in force and applied to the actual
premium in force at the valuation date. Effective January 1, 1992, future
F61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
policy benefits for annuity contracts represent policyholder account
balances consisting of the premiums received plus credited interest, less
any withdrawals.
Property and Equipment - Property, plant and equipment is recorded at cost,
and depreciation is provided on a straight-line basis over the estimated
useful life. The principal estimated useful lives are: buildings and
improvements, 10 to 40 years, and machinery, equipment, and fixtures, 3 to
5 years. Certain leases for computers have been capitalized and are
included in office equipment and depreciated on a straight-line basis over
5 years.
Income Taxes - The Company records its income taxes under SFAS No. 109,
which it adopted in 1993, and requires taxes to be recorded based on the
liability method. The adoption of SFAS No. 109 did not have a material
effect on the financial statements that had previously been prepared using
SFAS No. 96.
Cash Flows - In the preparation of the statement of cash flows, highly
liquid investments (U.S. Treasury Bills - $49,999,223 and $25,088,000 as of
December 31, 1995 and 1994, respectively) with maturities under three
months are considered to be cash equivalents. Cash of $2,861,000 and
$2,374,000 as of December 31, 1995 and 1994 is invested at a rate of 5.5%
and 5.8%, respectively.
Stock Dividends - Stock dividends are recorded by applying the number of
shares declared to the closing bid price on the record date.
Earnings Per Share - Earnings per common share and common equivalent share
were computed by dividing net income by the weighted average number of
shares of common stock and common stock equivalents outstanding during the
year, as adjusted for all stock dividends. Outstanding warrants and options
(see Notes 5, 6 and 7) have been included in the calculation when the
average market price of common stock exceeds the exercise price of the
options and warrants using the modified treasury stock method. The
convertible debentures were not considered common stock equivalents.
Earnings per common share assuming full dilution was determined for 1993 on
the assumption that the convertible debentures were converted on the issue
date, October 28, 1992, and the option to acquire 51% of the Company was
exercised. As to the debentures and the 51% option, net earnings for 1993
were adjusted by $1,147,000 for net interest less the tax effect. On April
22, 1994, the Company paid $2 million to accelerate the payment of the
subordinated convertible debenture resulting in the extinguishment of the
conversion rights (see Note 5). As to the options and warrants, the
year-end common stock price of $4.75, $3.00 and $3.375 for 1995, 1994 and
1993, respectively, was used in the calculation. As of December 31, 1995,
there were no dilutive securities other than the common stock equivalents
used in computing primary earnings per share.
New Accounting Pronouncements - The Company did not adopt SFAS No. 123,
Accounting for Stock-Based Compensation, which establishes financial
accounting and reporting standards for stock-based employee compensation
plans, including stock options, stock purchase plans and restricted stock
appreciation rights. SFAS No. 123 defines and encourages the use of the
fair value method of accounting for employee stock-based compensation. The
Company presently accounts for stock options in accordance with the
standards established by Accounting Principles Board Opinion no. 25 ("APB
No. 25"). The Company has not determined whether it will adopt the method
of accounting prescribed in SFAS No. 123 or continue to use the method of
F-62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
accounting prescribed in APB No. 25. SFAS No. 123 is effective for
transactions entered into in fiscal years that begin after December 15,
1995.
Reclassifications - Certain reclassifications have been made to conform
prior years' financial statements to the current year presentation.
2. INVESTMENTS AND INVESTMENT INCOME
The following table summarizes investments in available-for-sale and
held-to-maturity securities at the indicated dates:
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gain Loss Fair
Value
(in thousands)
<S> <C> <C> <C> <C>
Available-for-sale securities:
Bonds:
United States Government and
government agencies and authorities............. $ 138,036 $ 5,208 $ 203 $ 143,041
Public utilities...................................... 7,925 545 -- 8,470
Investment grade corporate bonds...................... 271,704 17,208 634 288,278
High-yield corporate bonds............................ 42,112 3,195 17 45,290
------------- ------------- ------------- -------------
Total available-for-sale.................................... $ 459,777 $ 26,156 $ 854 $ 485,079
============= ============= ============= =============
Held-to-maturity securities:
Bonds:
United States Government and
government agencies and authorities............. $ 2,522 $ 69 $ -- $ 2,591
Public utilities......................................
Investment grade corporate bonds...................... 1,050 21 1 1,070
High-yield corporate bonds............................
Preferred stock............................................. 8,200 -- 77 8,123
------------- ------------- ------------- -------------
Total held-to-maturity...................................... $ 11,772 $ 90 $ 78 $ 11,784
============= ============= ============= =============
</TABLE>
F-63
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
December 31, 1994
--------------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gain Loss Fair
Value
(in thousands)
<S> <C> <C> <C> <C>
Available-for-sale securities:
Bonds:
United States Government and
government agencies and authorities.................... $ 85,226 $ 125 $ 6,120 $ 79,231
Public utilities............................................. 39,588 260 2,762 37,086
Investment grade corporate bonds............................. 132,763 2,888 5,370 130,281
High-yield corporate bonds................................... 44,764 367 1942 43,189
------------ ------------ ------------ -----------
Total available-for-sale........................................... $ 302,341 $ 3,640 $ 16,194 $ 289,787
============ ============ ============ ===========
Held-to-maturity securities:
Bonds:
United States Government and
government agencies and authorities.................... $ 58,136 $ 42 $ 5,775 $ 52,403
Public utilities............................................. 10,579 4 797 9,786
Investment grade corporate bonds............................. 112,791 1,306 8,598 105,499
High-yield corporate bonds................................... 1,997 9 144 1,862
Preferred stock.................................................... 7,333 -- -- 7,333
------------ ------------ ------------ -----------
Total held-to-maturity............................................. $ 190,836 $ 1,361 $ 15,314 $ 176,883
============ ============ ============ ===========
</TABLE>
F-64
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The cost and fair value by maturity date for investment securities is as
follows:
1995
-------------------------------------
Amortized Estimated
Cost Fair
Value
(in thousands)
Available-for-sale
1996.................................... $ 3,458 $ 3,529
1997 - 2001............................. 153,088 164,458
2002 - 2006............................. 270,779 283,673
After 2006.............................. 32,452 33,419
---------------- -----------------
$ 459,777 $ 485,079
================ =================
Held-to-maturity
1996..................................... $ 1,899 $ 1,908
1997 - 2001.............................. 2,773 2,372
2002 - 2006.............................. 3,600 4,004
After 2006............................... 3,500 3,500
---------------- -----------------
$ 11,772 $ 11,784
================ =================
F-65
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company defines high-yield securities as those corporate debt
obligations rated below investment grade by independent bond rating
agencies or, if unrated, those that meet objective criteria developed by
the Company. Management believes that when carefully selected, high-yield
securities can provide a return that adequately compensates the Company for
the additional credit and liquidity risk that characterize such
investments. The ultimate collection of principal and timely receipt of
interest is dependent upon the issuer attaining improved operating results,
selling assets or obtaining additional financing. Generally, estimates of
market value are based on an evaluation of appropriate factors such as
institution-size trading in similar securities, yield, credit quality,
coupon rate, maturity, type of issue and other market data. The market
value of high- yield securities and the secondary market for high-yield
securities may be volatile because these securities are affected by
fundamental factors in addition to interest rate levels. Probable losses
are recognized in the period they occur based upon a specific review of the
high-yield securities portfolio and other factors.
Under the terms of certain high-yield securities, the payment of all or a
portion of current interest is deferred until periods later than the period
in which the interest is earned by the Company. The Company recognizes such
interest income until future cash receipts are not probable.
Real estate investments of $-0- and $3,230,000 for 1995 and 1994,
respectively, consist of investments in a manufactured home community. As
part of a planned divestiture strategy, the Company sold one property in
October 1992, three on January 22, 1993, one on May 27, 1993 and one on
June 29, 1995. In addition, the Company gave up one property in a
foreclosure proceeding during 1993 which resulted in a loss of $3.8
million. In connection with the sales occurring in 1993 and 1995, the
Company received five mortgage loans on these properties for $5.9 million.
Interest rates on the mortgages range from 7.5% to 9.25% and the mortgages
are due in varying installments over the next fifteen years.
The following table summarizes investment income for all securities for the
periods indicated:
Year Ended December 31,
------------------------------------
1995 1994 1993
(In thousands)
United States Government Bonds............ $ 11,678 $ 11,578 $ 12,512
Other Bonds............................... 28,492 29,053 37,141
Cash on deposit and short-term
investments............................. 1,221 1,284 1,857
Common and preferred stock................ 674 773 837
Real estate and mortgages................. 1,140 570 823
---------- ----------- -----------
43,205 43,258 53,170
Investment expense........................ (133) (132) (164)
---------- ----------- -----------
Net investment income..................... $ 43,072 $ 43,126 $ 53,006
========== =========== ===========
At December 31, 1995 and 1994, approximately $3.7 million was on deposit
with state regulatory authorities for policyholder protection.
F-66
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cost of marketable equity securities was $1.3 million and $800,000 in 1995
and 1994, respectively.
Operating data concerning sales of securities is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Proceeds from sale of available-for-sale securities................................. $346,670 $214,339 --
Proceeds from sales of held-to-maturity securities.................................. 7,804 -- --
Proceeds from sales of investment securities........................................ -- -- 651,380
Gross realized gains from sales of available-for-sale securities.................... 5,997 2,946 --
Gross realized losses from sales of available-for-sale securities................... 3,600 454 --
Gross realized losses from sales of held-to-maturity securities..................... 39 -- --
Gross realized gains from sales of investment securities............................ -- -- 26,001
Gross realized losses from sales of investment securities........................... -- -- 852
</TABLE>
Realized losses recognized for impairment of real estate investments were
$-0-, $-0- and $3,322,000 in 1995, 1994 and 1993, respectively. There were
no realized losses recognized for impairment of high-yield corporate bonds
in any of the last three years.
3. OTHER ASSETS
Other assets consist of the following:
December 31,
--------------------
1995 1994
(in thousands)
Property and equipment, at cost:
Land and improvements .................................. $ 715 $ 715
Building and improvements .............................. 2,731 2,731
Furniture and equipment ................................ 1,200 1,245
------- -------
4,646 4,691
Less accumulated depreciation .......................... (1,891) (1,787)
------- -------
2,755 2,904
Deferred taxes ......................................... 1,384
Due from reinsurer ..................................... 2,044 1,857
Income tax recoverable ................................. 353 1,375
Other assets ........................................... 2,066 2,178
------- -------
$ 7,218 $ 9,698
======= =======
F-67
<PAGE>
4. REINSURANCE
Effective June 30, 1993, Financial Benefit Life entered into a reinsurance
arrangement with Philadelphia Life Insurance Company ("Philadelphia Life")
under which Financial Benefit Life ceded $137.4 million of statutory
annuity reserves on 6,000 policies to Philadelphia Life on a coinsurance
basis. Under the arrangement, Philadelphia Life had the right to assume the
policies (assumption reinsurance - full legal arrangement) through
notification of Financial Benefit Life until January 1, 1995. No such
notification was received and, thus, Financial Benefit Life will continue
to administer the policies and will receive a fee for these services in
addition to a share of future profits exceeding $3.5 million. The account
value of GAAP reserves relating to this block of business totaled $154.6
million and the deferred acquisition costs ("DAC") totaled $21.5 million as
of June 30, 1993. Since the majority of the policies ceded under this
arrangement are considered investment products, investment accounting was
applied as opposed to reinsurance accounting. In that regard, the amount of
cash transferred to Philadelphia Life was accounted for as an investment
asset - future policy benefits recoverable from reinsurer and the
policyholder balances continue to remain as liabilities of the Company and
are included in future policy benefits in the accompanying financial
statements. Deferred acquisition costs were reduced by the difference
between (a) the DAC on the block of business of $21.5 million and (b) the
difference between the statutory reserves and the related policyholder
liabilities. The 1993 net loss from the transfer was approximately $7
million and consisted of (a) the DAC write-off discussed above of
approximately $4.3 million and (b) the difference between cash transferred
and statutory reserves of approximately $2.7 million. The account value of
this business was $114.8 million and $133.9 million as of December 31, 1995
and 1994, respectively. In addition, the DAC was $7.3 million and $10.8
million as of December 31, 1995 and 1994, respectively.
5. LONG-TERM DEBT
December 31,
---------------------------
1995 1994
Revolving note ................................. $15,500,000 $16,000,000
=========== ===========
The principal required to be paid for the next five years is as follows:
1996............................................ -- $ 2,000,000
1997............................................ -- 3,000,000
1998............................................ -- 4,000,000
1999............................................ -- 6,500,000
Interest paid on all outstanding debt was $1,532,659 in 1995, $1,406,075 in
1994 and $1,494,841 in 1993.
Revolving Note
On June 27, 1994, the Company entered into a revolving credit agreement
with Shawmut Bank (the "Bank") of Hartford, Connecticut whereby the Bank
provided $16 million of financing to the Company. The proceeds were used to
retire both the Southwestern Life Corporation term loan, the Southwestern
Life Insurance Company subordinated convertible debenture and provide $1.0
F-68
<PAGE>
million towards a $2.0 million charge for early extinguishment of the
convertible debt. The revolving credit agreement with the Bank is
collateralized by the common stock of FBL.
The term of the Bank credit agreement is 5.5 years with interest indexed to
either the prime rate or London Interbank Offered Rate ("LIBOR") plus a
specified number of basis points based on the A.M. Best Company rating of
Financial Benefit Life. The agreement also provides for specific reductions
in principal each year.
In connection with the Bank credit agreement, the Company granted
detachable warrants to purchase 75,000 shares of its Class A Common Stock
at $3.25 per share. The warrants expire June 30, 2001.
In addition to general covenants which are typical in such financing, the
Company has agreed to certain levels of consolidated net worth, statutory
capital and surplus of Financial Benefit Life, GAAP earnings and that
interest expense and fixed charges meet certain coverage ratios each
quarter. As of December 31, 1995, the Company failed to meet covenants
regarding meeting minimum GAAP earnings and minimum statutory earnings. The
Company obtained a written waiver in March 1996 from the Bank waiving such
noncompliance. Should the merger discussed in note 12 be consummated the
Company would again be in violation of the Agreement. At that point either
the debt would be repaid or an additional waiver would be necessary.
Senior Term Note and Loan
On February 18, 1992, the Company executed a $5 million term note with
Wabash Life Insurance Company, a subsidiary of Life Partners Group, which
was paid in full on November 17, 1993. The note required interest, to be
paid quarterly, at the lesser of the prime rate plus 1.5% or the maximum
non-usurious rate permitted by law. Principal payments were not required
until the date of maturity, February 18, 1994.
In connection with the note, the Company granted five and ten-year
detachable warrants to purchase 1,000,000 shares of its Class A Common
Stock, exercisable at $1.00 and $.75 per share, respectively. The warrants
became exercisable in periodic increments over the term of the note and as
of the prepayment date, 500,000 (375,000 - $.75, 125,000 - $1.00) warrants
were granted. All rights to the remaining 500,000 were extinguished.
On November 16, 1993, the Company executed a $5 million term loan with
Southwestern Life Corporation (formerly I.C.H. Corporation) which was paid
in full on June 27, 1994. The proceeds were used to prepay the term note
due Wabash Life Insurance Company. Quarterly amortizing payments of
$250,000 were required until maturity. Interest accrued at the prime rate
plus 2.0%. For collateral, the Company has pledged the stock of Financial
Benefit Life. The proceeds for the loan payment were received as part of
the Shawmut Bank refinancing.
Subordinated Convertible Debenture
On October 28, 1992, the Company issued a $10 million convertible
subordinated debenture to Southwestern Life Insurance company ("SWL") of
Dallas, Texas, a subsidiary of Southwestern Life Corporation, pursuant to a
debenture Purchase Agreement dated October 27, 1992. The debenture was also
paid in full on June 27, 1994, as part of the Shawmut Bank refinancing.
Under the terms of the Debenture Purchase Agreement, SWL purchased a
ten-year 10% debenture convertible into Class A Common Stock of the Company
F-69
<PAGE>
at a price of $2.50 per share, with annual increases in the conversion
price beginning in 1993 subject to anti-dilution provisions. The debenture
required quarterly interest payments with the principal balance payable
October 2002. In addition, under a Stockholders' Agreement among the
Company, SWL and certain of the Company's stockholders, SWL was granted an
option, exercisable after conversion of the debenture, to enable it to
acquire, in the aggregate, 51% of all of the Company's common stock on a
fully diluted basis. The Company had reserved sufficient shares of unissued
common stock for the potential conversion and/or acquisition as discussed
above.
Under the terms of a modification agreement signed on April 22, 1994, the
Company was allowed, for cash consideration of $2.0 million, to accelerate
payment of both the subordinated convertible debenture and also the senior
term loan. The payment extinguished conversion rights to approximately 4.2
million shares of the Company's Class A Common Stock as well as eliminated
an option to purchase a controlling interest of the Company. The $2.0
million payment is recorded as an extraordinary charge net of the
applicable income tax benefit of $200,000 in the accompanying 1994
consolidated statement of operations.
6. SHAREHOLDERS' EQUITY
a. Financial Benefit Life's shareholders' equity and results of operations
reported on a statutory basis to state regulatory authorities and
reported on a GAAP basis are as follows:
Statutory GAAP
(In thousands)
Shareholders' equity:
December 31, 1995 ........................................ $33,476 $55,815
(Unaudited)
December 31, 1994 ........................................ 30,256 43,181
Net income for period ended:
December 31, 1995 ........................................ $ 3,355 $ 3,737
(Unaudited)
December 31, 1994 ........................................ 1,674 2,918
December 31, 1993 ........................................ 3,502 9,313
The principal differences between GAAP and statutory accounting are as
follows: (a) acquisition costs, such as commissions and other costs in
connection with acquiring new business, are charged to current
operations as incurred for statutory purposes; (b) premium deposits for
annuity policies are recognized as revenue for statutory purposes but
are excluded under SFAS No. 97 for GAAP; (c) policy reserves are based
on statutory assumptions for statutory purposes where as under SFAS No.
97, policy reserves reflect account value for GAAP; (d) deferred income
taxes are not provided for differences in reporting policy reserves, and
other material book-tax timing differences for statutory purposes; (e)
the interest maintenance reserve and the asset valuation reserve are
reported as
F-70
<PAGE>
liabilities for statutory purposes; (f) certain assets designated as
"nonadmitted assets" (principally furniture and equipment) have been
charged to surplus for statutory purposes; (g) for statutory purposes,
reinsurance arrangements for investment and insurance products are
recorded using reinsurance accounting and all balances are recorded net
of such reinsurance; and (h) for statutory purposes, there is no
requirement to classify investment securities as available-for-sale or
held-to-maturity and, therefore, all bonds are recorded at amortized
cost.
Florida's insurance statutes and regulations restrict the flow of funds,
including dividends, from Financial Benefit Life to the Company. Florida
insurance regulations limit the aggregate dividends that Florida
domiciled life insurance companies, including Financial Benefit Life,
can pay without prior regulatory approval to the greater of its
statutory net operating profits and realized net operating profits for
the preceding year (provided there is available surplus from net
operating profits and net capital gains) or 10% of its available and
accumulated statutory surplus derived from net operating profits and net
realized capital gains. After payment of a dividend, Financial Benefit
Life must have 115% of required statutory surplus. Aggregate dividends
exceeding these mandated limits require special permission from the
Florida Insurance Department. The Company does not intend to rely on
dividends in excess of those not requiring special permission.
Approximately $3.4 million is available in 1996 for the payment of
dividends by Financial Benefit Life without regulatory approval.
b. The Class A and Class B Common Stock are identical, except that (a) the
holders of the Class A Common Stock, voting as a class, elect one-third
(or the next lower whole number) of the directors, and the holders of
the Class B Common Stock, voting as a class, elect two-thirds (or the
next higher whole number) of the directors, (b) voting on any amendment
to change the relative rights and preferences of the Class A and Class B
Common Stock are by class and the approval of the majority of each class
is required, and (c) each share of Class B Common Stock is convertible
at the option of the holder into 1.35 shares of Class A Common Stock.
Voting on all other matters is on a one share, one vote basis, without
regard to class.
c. On December 9, 1992, the Board of Directors of the Company declared a 5%
stock dividend on Class A and Class B Common Stock held as of January
19, 1993 paid through Class A shares. This dividend resulted in the
issuance of 278,228 shares of Class A Common Stock on January 31, 1993.
Fractional shares were paid in cash.
d. On January 7, 1994, the Board of Directors of the Company declared a 5%
stock dividend on Class A and Class B Common Stock held as of January
18, 1994 paid through Class A shares. This dividend resulted in the
issuance of 296,677 shares of Class A Common Stock on January 28, 1994.
Fractional shares were paid in cash.
e. On December 8, 1994, the Board of Directors of the Company declared a 5%
stock dividend on Class A and Class B Common Stock held as of January
17, 1995 paid through Class A shares. This dividend resulted in the
issuance of 320,825 shares of Class A Common Stock on January 27, 1995.
Fractional shares were paid in cash.
F-71
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. EMPLOYEE BENEFIT PLANS AND RETIREMENT PLANS
In June 1988, the Company provided an employment agreement and deferred
compensation plan for its Chief Executive Officer. In June 1990, this plan
was terminated and replaced by a new plan which extended the term by one
year and increased the benefit level.
In March 1991, this plan was amended to provide for a lump sum payment
equal to the present value of vested benefits to a Trust established for
its Chief Executive Officer. The Amendment required the Company to pay
monthly to the Trustees the amount necessary to fund the accrued present
value of vested benefits.
In June 1991 and March 1994, the plan was further amended to provide for
one-year extensions and increased benefit levels. As of December 31, 1994,
the plan was terminated by mutual consent of the parties.
The plan provided that if the employee was terminated after May 31, 1993,
the annual benefit would be determined using 75% of average annual
compensation for a period of 118 months. The plan also provided for reduced
compensation in the event of earlier termination of employment, disability,
death or mutual agreement. Compensation expense under the plan for 1995,
1994 and 1993 was $-0-, $372,000 and $479,000, respectively.
The Company has an Incentive Stock Option Plan for employees, an Equity
Incentive Non-qualified Warrant/Option Program for agents and others, and a
newly adopted Non-qualified Option Plan for agents and others.
The Employee Incentive Stock Option Plan ("Employee Option Plan") covers
800,000 shares of Class A Common Stock and 300,000 shares of Class B Common
Stock adjusted for annual stock dividends. However, at no time shall the
total number of Class A and Class B common shares subject to outstanding
Employee Incentive Stock Options be more than 20% of the total number of
Class A and Class B common shares outstanding, after adjusting the
authorized shares for annual stock dividends.
The Equity Incentive Non-qualified Warrant/Option Program covers 750,000
shares of Class A Common Stock and 150,000 shares of Class B Common Stock
(adjusted for annual stock dividends). Under this plan, officers and
directors of the Company and other key persons were granted warrants and
National Sales Offices, contracted to AIMCOR, were granted non-qualified
options based on premium writings.
Effective June 2, 1994, the Company adopted a new Option Plan covering
150,000 shares of Class A Common Stock (adjusted for annual stock
dividends) under which non-employee directors, certain independent
contractors of the Company, National Marketing Organizations ("NMO") of the
Company, shareholders, officers or employees of NMOs and other key persons
may be eligible to receive grants.
Options and warrants granted under all plans are at 100% of the fair market
value of the shares on the date of grant and are adjusted for stock
dividends. The accompanying table discloses the changes for all plans for
the year.
F-72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
Class A Shares Class B Shares
Year Ended Year Ended
December 31, December 31,
--------------------------- ---------------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Options and warrants outstanding, beginning of year ............. 1,456,601 1,570,031 445,130 445,130
Granted ......................................................... 12,500 -- -- --
Increased by dividends .......................................... -- 90,558 -- --
Exercised ....................................................... (53,447) (190,798) -- --
Cancelled or expired ............................................ (4,823) (13,190) -- --
---------- ---------- ----------- -----------
Options and warrants outstanding at end of year ................. 1,410,831 1,456,601 445,130 445,130
========== ========== =========== ===========
Outstanding options and warrants exercisable at end of year ..... 1,143,324 896,974 339,796 251,463
========== ========== =========== ===========
Option and warrant prices per share:
Outstanding, end of year ................................. $.59-$3.10 $.59-$3.10 $1.00-$4.50 $1.00-$4.50
========== ========== =========== ===========
</TABLE>
The plans, as amended, provide that options granted shall be granted with
respect to the Class A Common Stock except that in the cases of grants made
to officers of the Company with more than four years of continuous service
as such at the time of the grant, options may be granted with respect to
the Class B Common Stock.
During the second quarter of 1989, the Company established an Employee
Stock Ownership Plan ("ESOP"). The ESOP purchased 625,000 shares of Class A
Common Stock from the Company for $1,954,000. To purchase the shares, the
ESOP borrowed the funds from the Company. The loan bears interest at the
prime rate and requires equal quarterly principal payments over the
seven-year term. The revenues of the ESOP will primarily consist of
contributions by the Company of up to 25% of eligible employees' salaries.
In 1995, 1994 and 1993, the Company incurred $385,000, $354,000 and
$386,000, respectively, of expense in connection with this plan.
During 1993, the Company's Board of Directors approved a Director's
Severance Plan for the members of the Board of Directors. The Plan provides
a benefit equal to 50% of the average annual attendance fees (including
Board and all committees) earned in the last three years. The benefit
continues for the same number of years that the member served on the Board.
A liability in the amount of $200,000, representing the present value of
future benefits, has been established as of December 31, 1995.
In connection with the planned merger with AmVestors Financial Corporation
("AmVestors") (see Note 12), the Company has a contingent liability in
terms of a severance plan for its employees which provides a cash benefit
on termination, based on four weeks plus two additional weeks for every
year of service. Management does not consider the amount to be material.
8. INCOME TAX
The Company and its subsidiaries file a consolidated income tax return.
Deferred income taxes, which are included in other assets, are the result
of temporary differences between the amounts reported for financial
F-73
<PAGE>
statement purposes and amounts per the tax return. The differences
principally relate to:
1. The use of statutory formulas for computing future policy benefits on
the tax return which differ from the computations for financial
reporting purposes.
2. Non-life operating loss carry forwards which are limited in their usage
against life Company taxable income.
3. Deferred acquisition costs which are substantially expensed for tax
purposes and capitalized and amortized for financial statement purposes.
4. Losses on investments are recorded for financial statement purposes when
an other than temporary decline in value occurs but are not recorded for
tax purposes until the investment is sold.
5. Accrual of market discount is recorded currently in the financial
statements but deferred for tax purposes until the bond is sold.
6. Unrealized appreciation or depreciation on available-for-sale securities
is recorded through stockholders' equity but is not recorded for tax
purposes until the gains or losses are realized through the sale of the
securities.
Year Ended
December 31,
--------------------------------------
1995 1994 1993
(in thousands)
Current................................ $ 2,039 $ (836) $ 4,607
Deferred............................... (356) 1,361 247
------------- --------- ----------
$ 1,683 $ 525 $ 4,854
============= ========= ==========
The following are the components of the deferred tax provision:
Year Ended
December 31,
--------------------------------------
1995 1994 1993
(in thousands)
Deferred acquisition cost.............. $ (2,766) $ (698) $ (8,884)
Future policy benefits................. 3,015 1,928 9,590
Other.................................. (605) 131 (459)
------------- --------- ----------
$ (356) $ 1,361 $ 247
============= ========= ==========
F-74
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Year Ended
December 31,
--------------------------------------
1995 1994 1993
(in thousands)
Expected tax at statutory rate......... $ 2,136 $ 423 $ 4,750
Tax benefit of temporary differences
not previously fully tax effected.... (83) (71) (427)
Limitation on deductibility of capital
and non-life losses.................. (283) 759 105
Settlement of tax examination
contingency.......................... (245) (623) --
State tax and other.................... 158 37 426
------------- --------- ----------
$ 1,683 $ 525 $ 4,854
============= ========= ==========
At December 31, the net deferred tax asset (liability) consisted of the
following:
1995 1994
Deferred acquisition costs ........................... $(21,161) $(19,990)
Future policy benefits ............................... 21,792 20,805
Unrealized capital (gains) losses .................... (3,396) 1,904
Other ................................................ (419) (580)
-------- --------
Net deferred tax assets .............................. (3,184) 2,139
Less valuation allowance ............................. 376 755
-------- --------
Net .................................................. $ (3,560) $ 1,384
======== ========
Financial Benefit Life has no net realized capital loss carry forwards
available to offset future capital gains for financial statement purposes.
A valuation allowance has been established to the extent future reversals
of existing deductible temporary differences may not generate a tax
benefit.
Income tax paid (refunded) was $638,000 ($1,683,000) and $6,175,000 in
1995, 1994 and 1993, respectively.
9. REGULATORY MATTERS
Financial Benefit Life is subject to regulation by the Insurance Department
of the State of Florida (the "Department") and other states in which it is
admitted. Financial Benefit Life is required to meet minimum statutory
capital requirements imposed by the Department in order to operate without
restrictions. As of December 31, 1995 and 1994, the minimum statutory
capital requirements are the greater of $1.5 million or 4% of statutory
liabilities (approximately $19.8 million and $20.0 million, respectively).
Financial Benefit Life's statutory capital, as reported in its Annual
Statement to the Department as of December 31, 1995 and 1994, was $33.5
F-75
<PAGE>
million (unaudited) and $30.3 million, respectively. Statutory capital does
not include the asset valuation reserve or the interest maintenance
reserve.
During March and August 1992, the Department notified Financial Benefit
Life that certain investments in limited partnerships of affiliates
exceeded limitations established by Florida Statutes and, as a result,
Financial Benefit Life did not meet minimum capital requirements. On
December 21, 1992, the Department issued an Order to Show Cause alleging
certain technical violations of Florida Statutes relating to the financial
condition of Financial Benefit Life as of September 30, 1992, due to its
investments in limited partnerships with its affiliates.
On January 8, 1993, the Department and Financial Benefit Life agreed to a
Consent Order in which the Department recognized certain actions, past and
future, taken by Financial Benefit Life to meet minimum capital
requirements. Past actions included the Company's issuance of a $10 million
convertible subordinated debenture (see Note 5) and contribution of $7
million to Financial Benefit Life as additional surplus. Future actions
included divestiture of these limited partnerships and/or dissolution and
conversion to direct investments in real estate by March 31, 1993.
Financial Benefit Life sold its interest in four of the partnerships as of
March 31, 1993, sold another on May 27, 1993, and dissolved and converted
the remaining two partnerships to direct investments in real estate.
Management believes Financial Benefit Life met all the requirements of the
Consent Order, which specifically recognized that in consideration of these
events, Financial Benefit Life was in compliance as of November 30, 1992,
with the minimum capital and surplus requirement.
As discussed in Note 4, the Company entered into a reinsurance arrangement
with Philadelphia Life. For statutory purposes, the Company has taken
reserve credit of approximately $107 million and $123 million in its 1995
and 1994 Annual Statement, respectively, filed with the Department of
Insurance. The Company has taken reserve credit for this arrangement since
management believes that such arrangement qualifies for credit under
Florida Statute 624.810 and related Florida Regulation 4-144, thereby
meeting all transfer of risk requirements. The primary effects in 1995,
1994 and 1993, respectively, for statutory purposes of this arrangement was
(a) to recognize liability gains of approximately $12 million, net of tax
in 1993, and (b) to reduce policyholder liabilities by approximately $107
million, $123 million and $134 million and therefore reduce the amount of
surplus that otherwise would have been required by approximately $4.3
million, $4.9 million and $5.3 million.
Financial Benefit Life is required to disclose Risk Based Capital ("RBC")
in its statutory filing with the Department. The RBC calculation serves as
a benchmark for the regulation of Financial Benefit Life's solvency by
state insurance regulators. RBC provides an elastic means of setting the
capital standards for insurance companies to support their overall business
operations in light of their size and risk profile. The RBC formulas focus
on four general types of risk: (1) asset or default risk: (2)insurance or
underwriting risk; (3) interest rate risk (asset/liability matching); and
(4) business risk.
Financial Benefit Life's total adjusted capital at December 31, 1995 of
$42.4 million (surplus and asset valuation reserve) exceeded all the RBC
levels. The required RBC levels were as follows: Company action level RBC
of $17.1 million; Regulatory action level RBC of $12.8 million; Authorized
control level RBC of $8.5 million; and Mandatory control level RBC of $5.9
million. The Company anticipates continuing to meet RBC requirements in
1996.
F-76
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1995 1994
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
(in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments............................................................. $ 52,860 $ 52,860 $ 27,462 $ 27,462
Available-for-sale securities .............................................................. 485,079 485,079 289,787 289,787
Held-to-maturity securities ................................................................ 11,772 11,784 190,689 176,736
Equity securities .......................................................................... 792 792 800 800
Mortgage loans ............................................................................. 5,898 5,898 3,903 3,903
Future policy benefits recoverable from reinsurer........................................... 107,507 -- 123,076 --
Financial liabilities:
Annuity contracts .......................................................................... 649,603 587,468 677,775 606,228
Revolving note ............................................................................. 15,500 15,500 16,000 16,000
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate fair values.
Cash and Short-Term Investments - The carrying amount is a reasonable
estimate of fair value.
Investment and Equity Securities - Fair value equals quoted market price,
if available. If a quoted market price is not available, fair values are
based on quotations obtained from an independent source that provides a
pricing service (see Note 2).
Annuity Contracts - Certain of the Company's long-duration single premium
deferred annuity products, not subject to significant mortality risk, are
considered investment contracts. Fair value is estimated based on the cash
surrender value of the contracts.
Long-Term Debt - Rates currently available to the Company for debt with
similar terms and remaining maturities, with considerations for warrants,
prepayment and convertible features, are used to estimate fair value of
existing debt.
Mortgage Loans - Since all mortgage loans were made in 1993 and 1995 and
were made in connection with real estate disposals, the carrying amount is
a reasonable estimate of fair value.
Future Policy Benefits Recoverable - As this instrument cannot be exchanged
in a current transaction, it was deemed impractical to estimate the fair
value.
F-77
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. INVESTMENTS OVER TEN PERCENT
At December 31, 1995, direct investments in other than bonds and notes of
the United States Government, or of a United States Government Agency or
authority, which exceeded ten percent of total stockholders' equity
consisted of the following:
<TABLE>
<CAPTION>
Amortized Cost Amortized Cost
Name (in thousands) Name (in thousands)
<C> <C> <C> <C>
Associates Corp. $5,420 Kemper $4,743
Burlington Northern 4,997 Marriott International 4,956
Cigna 5,000 MetLife Insurance Co. 4,998
Chase 4,997 Nabisco 4,996
Chase 1994-1A4 6,581 Norwest Corp. 4,962
Citicorp 8,974 Price/Costco Inc. 4,940
DLJ Mortgage Acceptance Corp. 4,860 Prudential Ins. Co. 5,087
DLJ Mortgage Acceptance Corp. 5,000 Reebok 5,100
Dayton Hudson Corp. 4,996 Ryder Systems 5,967
Deere (John) Capital Corp. 6,163 Sears Roebuck & Co. 4,470
FMC Corp. 5,477 Secured Finance Inc. 5,190
First Chicago 4,980 SASI 95-B A3 10,814
First Union 5,064 Spartan Holdings, Inc. 5,133
Ford Motor Credit 5,981 Telecommunications Inc. 5,044
General Motors Corp. 7,000 USX Corp. 4,742
Georgia Pacific Corp. 5,000 UNUM Corp. 4,857
Goldman Sachs 144A 5,883 U.S. West Cap. Fndg. 5,000
ITT Destinations 5,991
</TABLE>
At December 31, 1994, direct investments in other than bonds and notes of
the United States Government, or of a United States Government Agency or
authority, which exceeded ten percent or total stockholders' equity
consisted of the following:
<TABLE>
<CAPTION>
Amortized Cost Amortized Cost
Name (in thousands) Name (in thousands)
<C> <C> <C> <C>
Aetna Life & Casualty $3,497 General Motors Corp. $7,000
American Life $2.32 Cum.Pref. 3,000 Georgia Pacific Corp. 5,000
B.H.P. Co. Ltd. 7,965 GTE Corp. 2,991
Bank of Scotland 2,997 Home Mac Mtg. Secs. 87-3D 3,424
Broad, Inc. 3,000 Illinois Power Co. 4,970
Capstead 1994 - H2 15A3 3,534 John Hancock 5,952
Chase 1994 - 1A4 4,187 Long Island Lighting 4,984
Dayton Hudson Corp. 4,494 Louisiana Power and Light 10,000
Deere (John) Capital Corp. 5,870 Mass Mutual Life 4,978
Detroit Edison 4,996 Morgan Stanley Group 4,984
Dial Corp. 5,000 Newscorp 5,037
Dillard Dept. Stores 2,992 Paramount Communications 4,936
DLJ Cumulative Exch. Pfd. 3,000 Province of Quebec 9,949
DLJ Mortgage Accep. Corp. 3,000 Scott Paper Notes 2,998
DLJ Mortgage Accep. Corp. 3,954 Secured Finance Inc. 3,693
Equitable Co.'s Inc. 4,975 Spartan Holdings Inc. 5,207
First Chicago Corp. 3,991 Texas Utilities Elec. Co. 4,991
FMC Corp. 4,478 Time Warner Entertainment 3,962
GATC 2,996 USX Corp. 8,235
</TABLE>
F-78
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. SUBSEQUENT EVENTS
The Company announced on September 8, 1995 a proposed merger with
AmVestors. On March 4, 1996, the Company and AmVestors jointly set March 5,
1996 as the record date for their respective Special Meetings of
Stockholders to be held on Monday, April 8, 1996. The purpose of the
Special Meetings is to seek stockholder approval of the merger of the
Company with and into AmVestors.
F-79
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
Condensed Balance Sheets - Parent Company
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
ASSETS
Cash............................................................................................... $ 143 $ 93 $ 19
Investment in life insurance subsidiary ........................................................... 55,815 43,181 44,636
Investments in other subsidiaries ................................................................. 1,726 542 846
Property and equipment (net) ...................................................................... 32 16 25
Income tax recoverable and deferred taxes ......................................................... 4,024 2,722 1,732
Other assets ...................................................................................... 387 502 482
-------- -------- --------
Total assets....................................................................................... $ 62,127 $ 47,056 $ 47,740
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Revolving note.............................................................................. $ 15,500 $ 16,000 $ --
Senior term loan ........................................................................... -- -- 5,000
Subordinated convertible debenture ......................................................... -- -- 10,000
Accounts payable ........................................................................... 767 231 314
Accrued interest payable ................................................................... -- -- 214
Accounts payable to subsidiaries ........................................................... 4,823 3,549 2,736
-------- -------- --------
Total liabilities ................................................................................. 21,090 19,780 18,264
-------- -------- --------
Shareholders' equity:
Class A Common Stock ....................................................................... 70 68 60
Class B Common Stock ....................................................................... 4 5 5
Additional paid-in capital ................................................................. 22,411 22,313 20,319
Retained earnings .......................................................................... 14,524 9,923 11,078
Net unrealized appreciation (depreciation) on securities ................................... 5,524 (3,378) --
Subscriptions receivable - ESOP ............................................................ -- (159) (490)
-------- -------- --------
42,533 28,772 30,972
Less treasury stock, at cost ...................................................................... (1,496) (1,496) (1,496)
-------- -------- --------
Total shareholders' equity ........................................................................ 41,037 27,276 29,476
-------- -------- --------
Total liabilities and shareholders' equity......................................................... $ 62,127 $ 47,056 $ 47,740
======== ======== ========
</TABLE>
F-80
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Statements of Income - Parent Company
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Net interest income................................................................................... $ 20 $ 20 --
Dividend income from subsidiaries .................................................................... 625 1,706 $ 1,440
Other income ......................................................................................... -- -- 60
------- ------- -------
Total income ............................................................................ 645 1,726 1,500
------- ------- -------
General expenses ..................................................................................... 773 638 462
Interest expense ..................................................................................... 1,522 1,399 1,476
------- ------- -------
Total expenses .......................................................................... 2,295 2,037 1,938
------- ------- -------
Income (loss) from operations before income taxes and extraordinary charge............................ (1,650) (311) (438)
Provision for income (taxes) benefit ................................................................. 1,484 1,225 1,011
Equity in undistributed net income of subsidiaries.................................................... 4,767 1,612 8,545
------- ------- -------
Income before extraordinary charge ................................................................... 4,601 2,526 9,118
Extraordinary charge on extinguishment of debt, net of tax of approximately $200,000.................. -- (1,800) --
------- ------- -------
Net income............................................................................................ $ 4,601 $ 726 $ 9,118
======= ======= =======
</TABLE>
F-81
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Statement of Cash Flows - Parent Company
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Operating Activities:
Net Income.................................................................................. $ 4,601 $ 726 $ 9,118
Adjustment to reconcile net income to net cash provided by operating activities:
Equity in undistributed net of subsidiaries ................................................ (4,767) (1,612) (8,545)
Extraordinary charge on extinguishment of debt, net of the benefit ......................... -- 1,800 --
Depreciation and amortization .............................................................. 10 8 15
Change in other assets and other liabilities, net .......................................... 623 (304) (1,914)
Other, net ................................................................................. 500
-------- -------- --------
Net cash provided by (used in) operating activities ........................................ 467 618 (826)
-------- -------- --------
Financing activities:
Borrowings under long-term debt ............................................................ -- 16,000 5,000
Principal payments under long-term debt .................................................... (500) (15,000) (5,000)
Payment to extinguish debt ................................................................. -- (2,000) --
Exercise of stock options .................................................................. 99 125 44
Subscriptions receivable - ESOP ............................................................ 159 331 345
-------- -------- --------
Net cash provided by (used in) financing activities .................................. (242) (544) 389
-------- -------- --------
Cash flows from investing activities:
Acquisition property ....................................................................... (26) -- (15)
Investments in subsidiaries ................................................................ (149) -- --
-------- -------- --------
Net cash provided by (used in) investing activities .................................. (175) -- (15)
-------- -------- --------
Net change in cash ................................................................................ 50 74 (452)
Cash, beginning of year ........................................................................... 93 19 471
-------- -------- --------
Cash, end of year.................................................................................. $ 143 $ 93 $ 19
======== ======== ========
</TABLE>
F-82
<PAGE>
<TABLE>
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM BALANCE SHEETS
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(unaudited)
(in thousands)
<S> <C> <C>
ASSETS
INVESTMENTS:
Fixed maturities available for sale at fair value ............................................. $ 508,436 $ 485,079
Fixed maturities held to maturity at amortized cost (market
value $11,257 at March 31, 1996; $11,784 at December 31, 1995 ............................... 11,772 11,772
Equity securities are market, cost $1,300 at March 31, 1996
and $1,300 at December 31, 1995 ............................................................. 792 792
Mortgage loans on real estate, at amortized cost .............................................. 5,896 5,898
--------- ---------
Total Investments ....................................................................... 526,896 503,541
CASH AND CASH EQUIVALENTS ............................................................................ 13,515 52,860
ACCRUED INVESTMENT INCOME ............................................................................ 7,373 5,742
DEFERRED POLICY ACQUISITION COSTS .................................................................... 46,150 43,077
FUTURE POLICY BENEFITS RECOVERABLE FROM REINSURER .................................................... 111,166 107,507
OTHER ASSETS ......................................................................................... 6,481 7,218
--------- ---------
TOTAL ASSETS .................................................................................. $ 711,581 $ 719,945
========= =========
LIABILITIES
FUTURE POLICY BENEFITS AND CLAIMS ACCRUAL ............................................................ $ 650,174 $ 653,612
OTHER LIABILITIES AND ACCRUED EXPENSES ............................................................... 9,313 9,796
LONG-TERM DEBT ....................................................................................... 15,500 15,500
--------- ---------
TOTAL LIABILITIES ............................................................................. 674,987 678,908
SHAREHOLDERS' EQUITY
Class A Common Stock $.01 par value:
Authorized 25,000,000 shares:Issued 7,047,155 shares in 1996 and 6,958,192
shares in 1995; outstanding 6,560,530 in 1996 and 6,471,567 in 1995 ......................... 70 70
Class B Common Stock $.01 par value:
Authorized 1,750,000 shares:Issued 462,015 shares in 1996 and 412,115 shares
in 1995; outstanding 373,567 shares in 1996 and 323,667 shares in 1995 ...................... 5 4
Additional paid-in capital ........................................................................... 22,516 22,411
Retained earnings .................................................................................... 14,005 14,524
Net unrealized appreciation (depreciation) on available-for-sale securities net of
deferred policy acquisition costs and taxes ........................................................ 1,494 5,524
Less common stock in treasury, at cost ............................................................... (1,496) (1,496)
--------- ---------
Total shareholder's equity .............................................................. 36,594 41,037
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............................................. $ 711,581 $ 719,945
========= =========
See note to consolidated interim financial statements.
</TABLE>
F-83
<PAGE>
<TABLE>
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1996 1995
------------ -----------
(Unaudited)
(in thousands except
share data)
<S> <C> <C>
REVENUE:
Net investment income .............................................................. $ 9,578 10,894
Realized gains on investments ...................................................... 224 657
Commissions and marketing fees ..................................................... 453 579
Other income ....................................................................... 1,147 1,310
----------- -----------
11,402 13,440
BENEFITS AND EXPENSES:
Increase in future policy benefits ....................................................... 6,517 6,868
General and administrative expenses ...................................................... 2,560 1,055
Payroll and related expenses ............................................................. 481 746
Amortization of deferred acquisition costs ............................................... 2,267 2,492
Interest expense ......................................................................... 353 408
Depreciation and amortization ............................................................ 48 51
----------- -----------
12,226 11,620
----------- -----------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) ............................................... (824) 1,820
INCOME TAX EXPENSE (BENEFIT) .................................................................... (305) 536
----------- -----------
NET INCOME (LOSS) ............................................................................... $ (519) 1,284
=========== ===========
EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENT:
Primary:
Weighted Average Shares ............................................................ 8,806,546 8,418,456
Net Income (Loss) .................................................................. (.06) .15
=========== ===========
Fully Diluted:
Weighted Average Shares ............................................................ N/A N/A
Net Income (Loss) .................................................................. N/A N/A
=========== ===========
See note to consolidated interim financial statements.
</TABLE>
F-84
<PAGE>
<TABLE>
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF SHAREHOLDER'S EQUITY
(In thousands except share data)
<CAPTION>
Net
Unrealized
Appreciation
(Depreciation)
Class A Class B Additional On Available- Subscriptions Cost of Total
Common Common Paid-in Retained for-Sale Receivable- Treasury Shareholders'
Stock Stock Capital Earnings Securities ESOP Stock Equity
------- ------- ---------- -------- -------------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994...... $ 60 5 20,319 11,078 0 (490) (1,496) 29,476
Effect on net unrealized
appreciation on available-
for-sale-securities of
adopting Statement of
Financial Accounting
Standards No. 115........... -- -- -- -- 1,687 -- -- 1,687
Stock dividend of one Class A
Common share for twenty
Class A or B Common shares.. 6 -- 1,875 (1,881) -- -- -- --
Exercise of stock options..... 2 -- 119 -- -- -- -- 121
Net changes in unrealized
appreciation on available-
for-sale securities......... -- -- -- -- (5,065) -- -- (5,065)
Payment received on ESOP
subscriptions .............. -- -- -- -- -- 331 -- 331
Net Income ................... -- -- -- 726 -- -- -- 726
------- ------- ---------- -------- -------------- ------------- -------- -------------
Balance, December 31, 1994.... 68 5 22,313 9,923 (3,378) (159) (1,496) 27,276
Exercise of stock options..... 2 (1) 98 -- -- -- -- 99
Net changes in unrealized
depreciation on available-
for-sale securities ........ -- -- -- -- 8,902 -- -- 8,902
Payment received on ESOP
subscriptions............... -- -- -- -- -- 159 -- 159
Net Income ................... -- -- -- 4,601 -- -- -- 4,601
------- ------- ---------- -------- -------------- ------------- -------- -------------
Balance December 31, 1995 .... 70 4 22,411 14,524 5,524 -- (1,496) 41,037
Exercise of stock options .... -- 1 105 -- -- -- -- 106
Net changes in unrealized
appreciation on available-
for-sale securities ........ -- -- -- -- (4,030) -- -- (4,030)
Net Loss ..................... -- -- -- (519) -- -- -- (519)
------- ------- ---------- -------- -------------- ------------- -------- -------------
Balance, March 31, 1996....... 70 5 22,516 14,005 1,494 -- (1,496) 36,594
======= ======= ========== ======== ============== ============= ======== =============
See note to consolidated interim financial statements.
</TABLE>
F-85
<PAGE>
<TABLE>
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended
March 31,
1996 1995
--------- ---------
(Unaudited)
(in thousands)
<S> <C> <C>
Cash Flow from Operating Activities
Net Income .................................................................................... $ (519) 1,284
Adjustments to reconcile net income to net cash provided by
operating activities
Interest credited to policyholders ...................................................... 6,517 6,868
Realized investment gains, net .......................................................... (224) (657)
Depreciation and amortization ........................................................... 48 51
Change in deferred policy acquisition costs ............................................. 116 417
Change in accrued investment income ..................................................... (1,631) (169)
Change in deferred taxes, net ........................................................... (305) 536
Change in other assets and liabilities, net ............................................. 3,280 1,510
-------- --------
Total Adjustments ....................................................................... 7,801 8,556
-------- --------
Net cash provided by operating activities ............................................... 7,282 9,840
-------- --------
Cash Flows from Investment Activities:
Proceeds from sales of available-for-sale securities........................................... 7,093 68,387
Proceeds from maturities and redemptions of available-for-sale securities and
held-to-maturity securities............................................................. 1,050 1,559
Purchase of available-for-sale securities ..................................................... (48,558) (69,110)
Purchase of property and equipment ............................................................ -- (23)
-------- --------
Net cash provided by (used in) investing activities............................................ (40,415) 813
-------- --------
Cash Flows from Financing Activities:
Premiums received ............................................................................. 20,476 18,350
Surrenders and other benefits paid ............................................................ (26,794) (26,440)
Exercise of Stock Options ..................................................................... 106 7
Collection of Subscriptions receivable - ESOP ................................................. -- 123
-------- --------
Net cash used in financing activities ......................................................... (6,212) (7,960)
-------- --------
Net decrease in cash and cash equivalents ............................................................ (39,345) 2,693
Cash and cash equivalents at beginning of period ..................................................... 52,860 27,462
-------- --------
Cash and cash equivalents at end of period ........................................................... $ 13,515 30,155
======== ========
See note to consolidated interim financial statements.
</TABLE>
F-86
<PAGE>
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Note 1 - The above statements are unaudited but include all adjustments
(consisting of only normal recurring accruals) which the Company
considers necessary to present fairly the financial position and the
statements of income and cash flow.
F-87
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -------------------------------------------------------------------
2.1 Agreement and Plan of Merger by and among AmVestors Financial
Corporation and AmVestors Acquisition Subsidiary, Inc. and FBG
dated September 8, 1995, Amendment No., 1 thereto dated October 17,
1995, Amendment No. 2 thereto dated December 28, 1995, and
Amendment No. 3 thereto dated February 14, 1996 (incorporated
herein by reference to Exhibit 2.1 to Registration Statement on
Form S-4, File No. 333-01309 dated March 1, 1996.)*
4.1 Indenture dated July 12, 1996 between AmVestors Financial
Corporation and Boatmen's Trust Company.
4.2 Form of 3% Convertible Subordinated Debentures due 2003 (included
in Indenture filed as Exhibit 4.1).
4.3 Registration Rights Agreement dated July 12, 1996 between
AmVestors Financial Corporation and The Robinson-Humphrey Company,
Inc.
4.4 Purchase Agreement dated July 12, 1996 between AmVestors Financial
Corporation and purchasers of the 3% Convertible Subordinated
Debentures due 2003.
4.5 Custodial Agreement dated July 12, 1996 between Boatmen's Trust
Company and The Robinson-Humphrey Company, Inc.
4.6 Warrant Agreement by and between AmVestors Financial Corporation
and Boatmen's Trust Company, as Warrant Agent (incorporated herein
by reference to Exhibit 4.3 to Registration Statement on Form S-4,
File No. 333-01309 dated March 1, 1996).
4.7 Form of Warrant Certificate (incorporated herein by reference to
Exhibit 4.4 to Registration Statement on Form S-4, File No.
333-01309 dated March 1, 1996).
4.8 AmVestors Financial Corporation 1989 Non-Qualified Stock Option
Plan (incorporated herein by reference to Exhibit 4.5 to
Registration Statement on Form S-4, File No. 333- 01309 dated
March 1, 1996).
27.1 Financial Data Schedule.
- ----------
* The Company hereby agrees to furnish supplementally a copy of any omitted
schedles to this Agreement to the Securities and Exchange Commission upon its
request.
EXHIBIT 4.1
AMVESTORS FINANCIAL CORPORATION
Issuer
to
BOATMEN'S TRUST COMPANY
Trustee
----------
INDENTURE
Dated as of July 12, 1996
----------
$65,000,000
3% Convertible Subordinated Debentures Due 2003
<PAGE>
AMVESTORS FINANCIAL CORPORATION, AS ISSUER
TABLE OF CONTENTS
Page
PARTIES ................................................................ 1
RECITALS OF THE COMPANY ................................................ 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION ................ 1
SECTION 101. Definitions ...................................... 1
Accelerated Payment Date ............................. 1
Accrued Current Interest ............................. 2
Accrued Deferred Interest ............................ 2
Acquired Indebtedness ................................ 2
Act................................................... 2
Affiliate ............................................ 2
Board of Directors ................................... 2
Board Resolution ..................................... 2
Business Day ......................................... 2
Capital Stock ........................................ 2
Capitalized Lease Obligation ......................... 2
Closing Price ........................................ 3
Commission ........................................... 3
Common Stock ......................................... 3
Company .............................................. 3
Company Request ...................................... 3
Company Order ........................................ 3
Consolidated Total Assets ............................ 3
Conversion Agent ..................................... 4
Conversion Price ..................................... 4
Corporate Trust Office ............................... 4
Corporation .......................................... 4
Defaulted Interest ................................... 4
Disqualified Stock ................................... 4
Event of Default ..................................... 4
GAAP ................................................. 4
Holder ............................................... 4
Indebtedness ......................................... 4
Indenture ............................................ 5
Interest Payment Date ................................ 5
Interest Swap Obligation ............................. 5
Junior Securities .................................... 5
Lien ................................................. 5
Maturity ............................................. 5
Minimum Net Worth .................................... 6
Net Worth ............................................ 6
i
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Officers' Certificate.................................. 6
Opinion of Counsel..................................... 6
Outstanding ........................................... 6
Paying Agent .......................................... 7
Person ................................................ 7
Predecessor Security................................... 7
Put ................................................... 7
Put Option ........................................... 7
Redemption Date........................................ 7
Redemption Price....................................... 7
Regular Record Date.................................... 7
Repurchase Date........................................ 7
Repurchase Event....................................... 7
Repurchase Price....................................... 7
Responsible Officer.................................... 7
Securities ............................................ 8
Security Register...................................... 8
Security Registrar..................................... 8
Senior Indebtedness of the Company..................... 8
Special Record Date.................................... 8
Stated Maturity........................................ 8
Subsidiary ............................................ 8
Tender Offer .......................................... 8
Trading Day ........................................... 8
Trustee ............................................... 9
Trust Indenture Act.................................... 9
Vice President......................................... 9
Whole Subsidiary....................................... 9
SECTION 102. Compliance Certificates and Opinions............... 9
SECTION 103. Form of Documents Delivered to Trustee............. 9
SECTION 104. Acts of Holders.................................... 10
SECTION 105. Notices, Etc., to Trustee and Company.............. 11
SECTION 106. Notice to Holders; Waiver.......................... 11
SECTION 107. Language of Notices................................ 11
SECTION 108. Effect of Headings and Table of Contents........... 12
SECTION 109. Successors and Assigns............................. 12
SECTION 110. Separability Clause................................ 12
SECTION 111. Benefits of Indenture.............................. 12
SECTION 112. Governing Law...................................... 12
SECTION 113. Legal Holidays..................................... 12
SECTION 114. Record Date........................................ 13
ARTICLE TWO
FORM OF SECURITIES....................................................... 13
SECTION 201. Form Generally..................................... 13
SECTION 202. Form of Face of Security........................... 13
SECTION 203. Form of Reverse of Security........................ 15
SECTION 204. Form of Trustee's Certificate of Authentication.... 19
ii
<PAGE>
SECTION 205. Form of Election to Convert........................ 19
SECTION 206. Form of Transfer or Assignment by Holder........... 20
SECTION 207. Form of Election to Repurchase..................... 21
SECTION 208. Form of Election to Exercise Put Option............ 22
ARTICLE THREE
THE SECURITIES........................................................... 22
SECTION 301. Title and Terms.................................... 22
SECTION 302. Denominations...................................... 23
SECTION 303. Execution, Authentication, Delivery and Dating..... 23
SECTION 304. Temporary Securities............................... 24
SECTION 305. Registration, Registration of Transfer and
Exchange........................................... 24
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities... 26
SECTION 307. Payment of Interest; Interest Rights Preserved..... 26
SECTION 308. Persons Deemed Owners.............................. 28
SECTION 309. Cancellation....................................... 28
SECTION 310. Computation of Interest............................ 28
ARTICLE FOUR
SATISFACTION AND DISCHARGE............................................... 28
SECTION 401. Satisfaction and Discharge of Indenture............ 28
SECTION 402. Application of Trust Money......................... 30
SECTION 403. Reinstatement...................................... 30
ARTICLE FIVE
REMEDIES................................................................. 30
SECTION 501. Events of Default.................................. 30
SECTION 502. Acceleration of Maturity; Rescission and Annulment. 32
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee............................. 33
SECTION 504. Trustee May File Proofs of Claim................... 34
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities......................................... 34
SECTION 506. Application of Money Collected..................... 35
SECTION 507. Limitation on Suits................................ 35
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest and to Convert................ 36
SECTION 509. Restoration of Rights and Remedies................. 36
SECTION 510. Rights and Remedies Cumulative..................... 36
SECTION 511. Delay or Omission Not Waiver....................... 36
SECTION 512. Control by Holders................................. 36
SECTION 513. Waiver of Past Defaults............................ 37
SECTION 514. Determination of a Majority for Consent or Waiver.. 37
SECTION 515. Undertaking for Costs.............................. 37
SECTION 516. Waiver of Stay or Extension of Laws................ 38
iii
<PAGE>
ARTICLE SIX
THE TRUSTEE.............................................................. 38
SECTION 601. Certain Duties and Responsibilities................ 38
SECTION 602. Notice of Defaults................................. 39
SECTION 603. Certain Rights of Trustee.......................... 39
SECTION 604. Not Responsible for Recitals or Issuance of
Securities......................................... 40
SECTION 605. May Hold Securities................................ 40
SECTION 606. Money Held in Trust................................ 41
SECTION 607. Compensation and Reimbursement..................... 41
SECTION 608. Corporate Trustee Required; Eligibility............ 41
SECTION 609. Resignation and Removal; Appointment of Successor.. 42
SECTION 610. Acceptance of Appointment by Successor............. 43
SECTION 611. Conflicting Interest............................... 43
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business........................................... 43
SECTION 613. Preferential Collection of Claims Against the
Company............................................ 43
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE, AND COMPANY....................... 44
SECTION 701. Company to Furnish Trustee Names and Addresses of
Holders............................................ 44
SECTION 702. Preservation of Information; Communications to
Holders............................................ 44
SECTION 703. Reports by Company................................. 45
SECTION 704. Reports by Trustee to Holders...................... 45
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE..................... 46
SECTION 801. Company May Consolidate, Etc., Only on Certain
Terms.............................................. 46
SECTION 802. Successor Substituted for Company.................. 46
ARTICLE NINE
SUPPLEMENTAL INDENTURES.................................................. 47
SECTION 901. Supplemental Indentures Without Consent of Holders. 47
SECTION 902. Supplemental Indentures with Consent of Holders.... 47
SECTION 903. Execution of Supplemental Indentures............... 48
SECTION 904. Effect of Supplemental Indentures.................. 49
SECTION 905. Reference in Securities to Supplemental Indentures. 49
ARTICLE TEN
COVENANTS................................................................ 49
SECTION 1001. Payment of Principal, Premium and Interest........ 49
SECTION 1002. Maintenance of Office or Agency................... 49
SECTION 1003. Money for Security Payments to be Held in Trust... 50
SECTION 1004. Statements of Officers of Company as to Default... 51
iv
<PAGE>
SECTION 1005. Limitations on Dividends, Redemptions, Etc........ 51
SECTION 1006. Payment of Taxes and Other Claims................. 51
SECTION 1007. Limitations on Restricting Subsidiary Dividends... 52
SECTION 1008. Maintenance of Properties......................... 52
SECTION 1009. Maintenance of Insurance.......................... 53
SECTION 1010. Maintenance of Net Worth.......................... 53
ARTICLE ELEVEN
REDEMPTION OF SECURITIES................................................. 55
SECTION 1101. Redemption at Option of the Company............... 55
SECTION 1102. Redemption at Option of the Company (European
Call)............................................. 56
SECTION 1103. Put Option........................................ 56
SECTION 1104. Interest Installment Requirement.................. 56
SECTION 1105. Notice of Redemption.............................. 56
SECTION 1106. Deposit of Redemption Price....................... 57
SECTION 1107. Securities Payable on Redemption Date............. 57
SECTION 1108. Conversion Arrangements on Call for Redemption.... 58
ARTICLE TWELVE
CONVERSION OF SECURITIES................................................. 58
SECTION 1201. Conversion Privilege and Conversion Price......... 58
SECTION 1202. Exercise of Conversion Privilege.................. 59
SECTION 1203. Fractions of Shares............................... 61
SECTION 1204. Adjustment of Conversion Price.................... 61
SECTION 1205. Notice of Adjustments of Conversion Price......... 67
SECTION 1206. Notice of Certain Corporate Action................ 67
SECTION 1207. Company to Reserve Common Stock................... 68
SECTION 1208. Taxes on Conversions.............................. 68
SECTION 1209. Covenant as to Common Stock....................... 68
SECTION 1210. Cancellation of Converted Securities.............. 68
SECTION 1211. Provisions in Case of Consolidation, Merger or
Sale of Assets.................................... 68
SECTION 1212. Company to Cause Registration of Common Stock..... 69
SECTION 1213. Disclaimer by Trustee of Responsibility for
Certain Matters................................... 69
ARTICLE THIRTEEN
SUBORDINATION OF SECURITIES.............................................. 70
SECTION 1301. Agreements to Subordinate by Company.............. 70
SECTION 1302. Distribution on Dissolution, Liquidation and
Reorganization; Subrogation....................... 70
SECTION 1303. No Payment in Event of Default on Senior
Indebtedness...................................... 72
SECTION 1304. Payments Permitted................................ 72
SECTION 1305. Authorization to Trustee to Effect Subordination.. 72
SECTION 1306. Notices to Trustee................................ 72
SECTION 1307. Trustee as Holder of Senior Indebtedness of
Company........................................... 73
SECTION 1308. Modification of Terms of Senior Indebtedness of
Company........................................... 73
v
<PAGE>
SECTION 1309. Certain Conversions Not Deemed Payment............ 74
SECTION 1310. Article Applicable to Paying Agents............... 74
ARTICLE FOURTEEN
RIGHT TO REQUIRE REPURCHASE.............................................. 74
SECTION 1401. Right to Require Repurchase....................... 74
SECTION 1402. Notice; Method of Exercising Repurchase Right..... 74
SECTION 1403. Deposit of Repurchase Price....................... 75
SECTION 1404. Securities Not Repurchased on Repurchase Date..... 76
SECTION 1405. Securities Repurchased In Part.................... 76
SECTION 1406. Certain Definitions............................... 76
SECTION 1407. Repurchase Causing Default........................ 77
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
vi
<PAGE>
CROSS-REFERENCE TABLE*
Indenture
TIA Section Section
310(a)(1)...................................................................608
(a)(2)................................................................608
(a)(3)...............................................................N.A.
(a)(4)...............................................................N.A.
(a)(5)................................................................608
(b)....................................................608; 609; 610; 611
(c)..................................................................N.A.
311(a)......................................................................614
(b)...................................................................614
(c)..................................................................N.A.
312(a)......................................................................701
(b)...................................................................702
(c)...................................................................702
313(a)......................................................................704
(b)(1)...............................................................N.A.
(b)(2)................................................................704
(c)..............................................................106, 704
(d)...................................................................704
314(a)................................................................703, 1004
(b)..................................................................N.A.
(c)(1)................................................................102
(c)(2)................................................................102
(c)(3)...............................................................N.A.
(d)..................................................................N.A.
(e)...................................................................102
(f)..................................................................N.A.
315(a)......................................................................601
(b)...................................................................602
(c)...................................................................601
(d)...................................................................601
(e)...................................................................515
316(a)(last sentence).......................................................514
(a)(1)(A).............................................................512
(a)(1)(B).............................................................513
(a)(2)...............................................................N.A.
(b)..................................................................1001
(c)...................................................................114
vii
<PAGE>
317(a)(1)...................................................................503
(a)(2)................................................................504
(b)...................................................................607
318(a)......................................................................112
(b)..................................................................N.A.
(c)...................................................................112
- --------------------
* This Cross-Reference Table is not part of the Indenture. N.A. means not
applicable.
viii
<PAGE>
INDENTURE, dated as of July 12, 1996, between AMVESTORS
FINANCIAL CORPORATION, a corporation duly organized and existing under the laws
of the State of Kansas (herein called the "Company"), having its principal
executive office at 415 S.W. Eighth Avenue, Topeka, Kansas 66603, (913)
295-4410, and BOATMEN'S TRUST COMPANY, as Trustee (herein called the "Trustee"),
having its principal executive office at 510 Locust Street, Post Office Box
14737, St. Louis, Missouri 63178-4737, (314) 466-1354.
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of
its 3% Convertible Subordinated Debentures Due 2003 (herein called the
"Securities") of substantially the tenor and amount hereinafter set forth, and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture.
All things necessary to make the Securities, when executed by
the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities b y the Holders thereof, it is mutually covenanted and agreed,
for the equal and proportionate benefit of all Holders, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the singular;
(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP; and
(3) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
Certain terms, used principally in Article Five, are defined
in that Article.
"Accelerated Payment Date" has the meaning specified in
Section 1010.
1
<PAGE>
"Accrued Current Interest" means unpaid cash interest on the
principal amount of a Security calculated at the rate of 3% per annum from, and
including, the most recent Interest Payment Date, calculated on a compound
annual basis based on a 360-day year consisting of twelve 30-day months.
"Accrued Deferred Interest" means unpaid interest on the
principal amount of a Security calculated at the rate of 4.25% per annum from
the date of issuance of such Security, calculated on a compound annual basis
based on a 360-day year consisting of twelve 30-day months.
"Acquired Indebtedness" means Indebtedness of a Person
existing at the time such Person becomes a Subsidiary of the Company or assumed
in connection with the acquisition by the Company or a Subsidiary of the Company
of assets from such Person, and not incurred in connection with, or in
anticipation of, such Person becoming a Subsidiary of the Company or such
acquisition.
"Act," when used with respect to any Holder, has the meaning
specified in Section 104.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Board of Directors" means the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in the City of New
York, New York are authorized or obligated by law, regulation or executive order
to close.
"Capital Stock" means, with respect to any Person, any shares,
interests, participations or other ownership interests (however designated) of
the capital stock of a Person and any rights (other than debt securities
convertible into capital stock), warrants or options to purchase any of the
foregoing, including without limitation each class of common stock and preferred
stock of such Person if such Person is a corporation and each general and
limited partnership interest or other equity interest of such Person, if such
Person is a partnership.
"Capitalized Lease Obligation" means obligations under a lease
that are required to be capitalized for financial reporting purposes in
accordance with GAAP (including Statement of Financial Accounting Standards No.
13 of the Financial Accounting Standards Board as in effect from time to time)
2
<PAGE>
and the amount of Indebtedness represented by such obligations shall be the
capitalized amount of such obligations, as determined in accordance with GAAP.
"Closing Price" on any Trading Day with respect to the per
share price of Common Stock means the last reported sales price or, in case no
such reported sale takes place on such Trading Day, the average of the reported
closing bid and asked prices in either case on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the Nasdaq
National Market or the Nasdaq Small Capitalization Market, as the case may be,
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted on the Nasdaq National Market or the Nasdaq Small
Capitalization Market, the closing bid price in the over-the-counter market as
furnished by any New York Stock Exchange member firm that is selected from time
to time by the Company for that purpose and is reasonably acceptable to the
Trustee.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act of
1934, as amended, or, if at any time after the execution of this instrument such
Commission is not existing and performing the duties now assigned to it under
the Securities Exchange Act of 1934, as amended, then the body performing such
duties at such time.
"Common Stock" includes any stock of any class of the Company
which has no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding-up of
the Company and which is not subject to redemption by the Company. However,
subject to the provisions of Article Twelve, shares issuable on conversion of
Securities shall include only shares of the class designated as Common Stock of
the Company at the date of this Indenture or shares of any class or classes
resulting from any reclassification or reclassifications thereof and which have
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company
and which are not subject to redemption by the Company; provided, that if at any
time there shall be more than one such resulting class, the shares of each such
class then so issuable shall be substantially in the proportion which the total
number of shares of such class resulting from all such reclassifications bears
to the total number of shares of all such classes resulting from all such
reclassifications.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture and thereafter "Company"
shall mean such successor Person.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman of the Board,
President or a Vice President, and by its Treasurer, an Assistant Treasurer, its
Secretary or an Assistant Secretary, and delivered to the Trustee.
"Consolidated Total Assets" means, as of any date of
determination, the consolidated total assets of the Company and its
subsidiaries, determined in accordance with GAAP.
3
<PAGE>
"Conversion Agent" means any Person authorized by the Company
to deliver Common Stock on conversion of Securities.
"Conversion Price" is $17.125 per share, or at the current
adjusted conversion price if an adjustment has been made as provided in the
Indenture.
"Corporate Trust Office" means the principal office of the
Trustee at which at any particular time its corporate trust business shall be
administered.
"Corporation" means a corporation, association, company,
joint-stock company, limited liability company or business trust.
"Defaulted Interest" has the meaning specified in Section 307.
"Disqualified Stock" means any Capital Stock which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event, matures or in
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable, at the option of the Holder thereof, in whole or in part, on or
prior to the earlier of the maturity date of the Securities or the date on which
no Securities remain outstanding.
"Event of Default" has the meaning specified in Section 501.
"GAAP" means United States generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession, which are applicable to the circumstances from
time to time.
"Holder" means a Person in whose name a Security is registered
in the Security Register.
"Indebtedness" means, with respect to any Person, (i) all
liabilities, contingent or otherwise, of such Person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (b) evidenced by bonds, notes, debentures
or similar instruments or letters of credit or representing the balance deferred
and unpaid of the purchase price of any property or services (except any such
balance that constitutes a trade payable in the ordinary course of business that
is not overdue by more than 90 days or is being contested in good faith), (c)
evidenced by bankers' acceptances or similar instruments issued or accepted by
banks or Interest Swap Obligations or (d) for the payment of money relating to a
Capitalized Lease Obligation; (ii) reimbursement obligations of such Person with
respect to letters of credit (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (i) above)
entered into in the ordinary course of business of such Person) to the extent
such letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the tenth Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit; (iii) all liabilities of other Persons of the kind described
in the preceding clause (i) or (ii) that such Person has guaranteed or that is
4
<PAGE>
otherwise its legal liability (provided that the amount of liability
attributable to such guarantee or other legal liability shall be deemed to be
the maximum amount for which such Person could be liable under such guarantee or
otherwise); (iv) all obligations evidenced by Liens to which the property
(including, without limitation, leasehold interests and any other tangible or
intangible property rights) of such Person is subject, whether or not the
obligations secured thereby shall have been assumed by or shall otherwise be
such Person's legal liability (provided that, if the obligations have not been
assumed or become the legal liability of such Person, the amount of the
liability shall be deemed to be an amount not to exceed the fair market value of
the property or properties to which the Liens relate, as determined by such
Person in good faith and as set forth in an Officer's Certificate delivered to
the Trustee); and (v) any and all deferrals, renewals, extensions, refinancings
and refundings (whether direct or indirect) of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (i) through (iv) whether or not between or among the same parties.
"Indenture" means this instrument as originally executed or as
it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means June 15 or December 15 of each
year, as appropriate, and July 12, 2003 for any remaining Outstanding
Securities.
"Interest Swap Obligation" means any obligation of any Person
pursuant to any arrangement with any other Party whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a fixed or floating rate of interest on a
stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or floating rate of interest on the same notional
amount; provided, that the term "Interest Swap Obligation" shall also include
interest rate exchange, collar, cap, swap option or similar agreements intended
to provide interest or currency rate protection.
"Junior Securities" means (i) shares of Common Stock, (ii)
shares of any other class or classes of capital stock of the Company (iii) any
other non-debt securities of the Company (whether or not such other securities
are convertible into Junior Securities) and (iv) debt securities of the Company
(other than Senior Indebtedness and the Debentures) that are subordinated to the
Debentures pursuant to an express provision in either the instrument creating or
evidencing such debt securities or pursuant to which such debt securities are
outstanding.
"Lien" means any mortgage, lien, pledge, charge, security
interest, or other encumbrance of any kind, whether or not filed, recorded or
otherwise perfected under applicable law (including any conditional sale or
other title retention agreement and any lease deemed to constitute a security
interest and any option or other agreement to give any security interest).
"Maturity," when used with respect to any Security, means the
date on which the principal of such Security becomes due and payable as therein
or herein provided, whether at the Stated Maturity or the Accelerated Payment
Date, or by declaration of acceleration, call for redemption, repurchase or
otherwise.
5
<PAGE>
"Minimum Net Worth" means $147.5 million, plus the net
proceeds to the Company from any offering of Common Stock by the Company that is
consummated after the date of the Indenture.
"Net Worth" of a Person as of any date means the amount of
equity of the holders of Capital Stock of such Person which would appear on the
balance sheet of such Person as of such date, determined in accordance with GAAP
without giving effect to Statement of Financial Account Standards No. 115 ("SFAS
No. 115").
"Officers' Certificate" means a certificate signed by the
President or a Vice President, and by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary, of the Company, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who
may be counsel for the Company and who shall be reasonably acceptable to the
Trustee. Such counsel may be an employee of or counsel to the Company.
"Outstanding," when used with respect to Securities, means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any Paying
Agent (other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for the Holders
of such Securities in accordance with the provisions of Section 401; provided,
that, if such Securities are to be redeemed, notice of such redemption has been
duly given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made; and
(iii) Securities which have been replaced pursuant to Section
306 or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any such
Securities in respect of which there shall have been presented to the Trustee
proof satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes the pledgee's right so to
act with respect to such Securities and that the pledgee is not the Company or
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any other obligor upon the Securities or any Affiliate of the Company or of such
other obligor.
"Paying Agent" means any Person authorized by the Company to
pay the principal of (and premium, if any) or interest on any Securities on
behalf of the Company.
"Person" means any individual, Corporation, partnership, joint
venture, limited liability company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Put Date" has the meaning specified in Section 1103.
"Put Option" has the meaning specified in Section 1103.
"Redemption Date," when used with respect to any Security to
be redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price," when used with respect to any Security to
be redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the June 1 or December 1 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.
"Repurchase Date" is the date 30 days after the Company gives
notice of a repurchase event.
"Repurchase Event" has the meaning specified in Section 1406.
"Repurchase Price" equals 101% of the principal amount of a
Security to be purchased by the Company as a result a Repurchase Event, together
with any Accrued Current Interest to the Repurchase Date.
"Responsible Officer," when used with respect to the Trustee,
means the chairman or any vice-chairman of the board of directors, the chairman
or any vice-chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer, the
cashier, any assistant cashier, any trust officer or assistant trust officer,
the controller or any assistant controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer of the Trustee to whom such matter is referred because
of his knowledge of and familiarity with the particular subject.
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"Securities" has the meaning specified in the first recital of
this Indenture and more particularly means any Securities authenticated and
delivered under this Indenture.
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 305.
"Senior Indebtedness of the Company" means (a) the principal
of, and premium, if any, and unpaid interest (whether accruing before or after
filing of any petition in bankruptcy or any similar proceedings by or against
the Company and whether or not allowed as a claim in bankruptcy or any similar
proceeding), and all other amounts due on or in connection with the following,
whether heretofore or hereafter created, incurred, assumed or guaranteed: (i)
all Indebtedness for borrowed money created, incurred, assumed or guaranteed by
the Company (other than Indebtedness evidenced by the Securities and
Indebtedness which by the terms of the instrument creating or evidencing the
same is specifically stated to be not superior in right of payment to the
Securities); (ii) bankers' acceptances and reimbursement obligations under
letters of credit; (iii) obligations of the Company under interest rate and
currency swaps, caps, floors, collars or similar agreements or arrangements
intended to protect the Company against fluctuations in interest or currency
rates; (iv) any other Indebtedness evidenced by a note or written instrument;
(v) obligations of the Company under any agreement to lease, or lease of, any
real or personal property, which obligations are required to be capitalized on
the books of the Company in accordance with GAAP (other than leases which by
their terms are specifically stated to be not superior in right of payment to
the Securities); and (vi) guarantees by the Company of similar obligations of
others similar to those described in clauses (i) through (v) above; and (b) all
deferrals, modifications, renewals or extensions of such Indebtedness, and any
debentures, notes or other evidence of Indebtedness issued in exchange for such
Indebtedness or to refund, replace or refinance the same.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity," when used with respect to any Security or
any installment of interest thereon, means the date specified in such Security
as the fixed date on which the principal of or the installment of interest on
such Security is due and payable.
"Subsidiary" means a Person more than 50% of the outstanding
Voting Capital Stock of which is owned, directly or indirectly, by the Company
or by one or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "Voting Capital Stock" means
Capital Stock which originally has voting power for the election of directors
(or similar governing body), whether at all times or only so long as no senior
class of Capital Stock has such voting power by reason of any contingency.
"Tender Offer" has the meaning specified in Section 1204.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday, other than any day on which securities are not traded on the
applicable securities exchange or in the applicable securities market.
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"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act
of 1939, as amended and as in force at the date as of which this instrument was
executed, provided, however, that in the event the Trust Indenture Act of 1939
is amended after such date, "Trust Indenture Act" means, to the extent required
by any such amendment the Trust Indenture Act of 1939 as so amended.
"Vice President," when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president."
"Whole Subsidiary" or "Whole Subsidiaries" means a Subsidiary
or Subsidiaries which are wholly owned directly or indirectly by the Company.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
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Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which this certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company, stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The record ownership of Securities shall be proved by the
Security Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of any Holder shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
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transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing by hand-delivery, mail, overnight courier or facsimile to or with the
Trustee, addressed to it at the address of its Corporate Trust Office specified
in the first paragraph of this Indenture, Attention: Corporate Trust Department,
or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if made, given, furnished or filed in writing by hand-delivery, mail,
overnight courier or facsimile to the Company, addressed to it at the address of
its principal office specified in the first paragraph of this Indenture or at
any other address previously furnished in writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder affected by such event, at his address as it appears in the Security
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Any notice which is
mailed in the manner herein provided shall be conclusively presumed to have been
duly given or provided. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.
SECTION 107. Language of Notices.
Any request, demand, authorization, direction, notice,
consent, election or waiver required or permitted under this Indenture shall be
in the English language, except that, if the Company so elects, any published
notice may be in an official language of the country of publication.
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SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto (including,
without limitation, any Paying Agent or Registrar) and their successors
hereunder, the holders of Senior Indebtedness of the Company, and the Holders,
any benefit or any legal or equitable right, remedy or claim under this
Indenture.
SECTION 112. Governing Law.
This Indenture and the Securities shall be governed by and
construed in accordance with the Trust Indenture Act and the laws of the State
of Kansas as applied to agreements made or instruments entered into and, in each
case, performed in said state, without regard to principles of conflict of laws.
Under TIA Section 318(a) and (c) all prescribed indenture provisions are
specifically adopted in this Indenture, despite any language to the contrary.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date,
Repurchase Date, Accelerated Payment Date, Maturity or Stated Maturity of any
Security shall not be a Business Day, then (notwithstanding any other provision
of this Indenture or of the Securities) payment of interest or principal (and
premium, if any) or conversion of the Securities need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the Interest Payment Date, Redemption Date, Repurchase
Date, Accelerated Payment Date, Maturity or at the Stated Maturity, provided
that no interest shall accrue for the period from and after such Interest
Payment Date, Redemption Date, Repurchase Date, Accelerated Payment Date or
Stated Maturity, as the case may be.
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SECTION 114. Record Date.
The record date for purposes of determining the identity of
Holders entitled to vote or consent to any action by vote or consent authorized
or permitted under Sections 512 and 513 shall be determined as provided for in
TIA Section 316(c).
ARTICLE TWO
FORM OF SECURITIES
SECTION 201. Form Generally.
The Securities and the Trustee's certificate of authentication
shall be in substantially the forms set forth in this Article, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification and such legends (in addition to the legend set
forth in Section 202 below) or endorsements placed thereon as may be required to
comply with the rules of any securities exchange or as may, consistently
herewith, be determined by the officers executing such Securities, as evidenced
by their execution thereof. Any portion of the text of any Security may be set
forth on the reverse thereof, with an appropriate reference thereto on the face
of the Security.
The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Securities may be listed, all as determined by the officers executing such
Securities as evidenced by their execution thereof.
SECTION 202. Form of Face of Security.
THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY
HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR
OTHER JURISDICTION OF THE UNITED STATES. THIS SECURITY AND THE COMMON STOCK INTO
WHICH IT MAY BE CONVERTED MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT
TO AN EXEMPTION THEREFROM AND IS OTHERWISE SUBJECT TO CERTAIN CONDITIONS AND
RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BETWEEN THE COMPANY AND THE HOLDER.
UNTIL 40 DAYS AFTER THE TERMINATION OF THE OFFERING OF THIS SECURITY (THE
"RESTRICTED PERIOD"), THE OFFER, SALE, PLEDGE OR TRANSFER OF THIS SECURITY AND
THE COMMON STOCK INTO WHICH IT MAY BE CONVERTED IS SUBJECT TO CERTAIN CONDITIONS
AND RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BETWEEN THE COMPANY AND THE HOLDER, AND MAY NOT BE SOLD TO A "U.S.
PERSON" OR INTO THE UNITED STATES.
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FOLLOWING THE REGISTRATION OF THIS SECURITY (AND THE COMMON STOCK INTO WHICH IT
MAY BE CONVERTED) THE OFFER, SALE, PLEDGE OR TRANSFER OF THIS SECURITY AND THE
COMMON STOCK INTO WHICH IT MAY BE CONVERTED IS SUBJECT TO CERTAIN CONDITIONS AND
RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BETWEEN THE COMPANY AND THE HOLDER.
AMVESTORS FINANCIAL CORPORATION
3% Convertible Subordinated Debenture Due 2003
No.__________ $__________
AMVESTORS FINANCIAL CORPORATION, a Kansas corporation (herein
called the "Company," which term includes any successor corporation under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to __________ or its registered assigns, the principal sum of __________ United
States Dollars on July 12, 2003, and to pay interest thereon from July 12, 1996,
payable semi-annually on June 15 and December 15 in each year, commencing
December 15, 1996, at the rate of 3% per annum, on a compound annual basis based
on a 360-day year consisting of twelve 30-day months, until the principal hereof
is paid or made available for payment. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in
such Indenture, be paid to the Person in whose name this Security (or one or
more Predecessor Securities) is registered at the close of business on the
Regular Record Date for such interest, which shall be the June 1 or December 1
(whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly provided
for will forthwith cease to be payable to the Holder on such Regular Record Date
and may either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered on the Security Register maintained by the
Security Registrar at the close of business on a Special Record Date for the
payment of such Defaulted Interest to be fixed by the Trustee, notice whereof
shall be given to Holders not less than 10 days prior to such Special Record
Date, or be paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in said Indenture. Payment of the principal of (and premium, if
any) and interest on this Security will be made at the office or agency of the
Company maintained for that purpose in the City of Chicago, Illinois, the
borough of Manhattan, City of New York, New York, the City of St. Louis,
Missouri or such other office or agency of the Company as may be maintained for
that purpose, in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts;
provided, however, that at the option of the Company payment of interest may be
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
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IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
AMVESTORS FINANCIAL CORPORATION
By
--------------------------------------
Attest:
- ---------------------------------------
SECTION 203. Form of Reverse of Security.
AMVESTORS FINANCIAL CORPORATION
3% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2003
This Security is one of a duly authorized issue of Securities
of the Company designated as its 3% Convertible Subordinated Debentures Due 2003
(herein called the "Securities"), limited in aggregate principal amount to
$65,000,000, issued and to be issued under an Indenture, dated as of July 12,
1996 (herein called the "Indenture"), between the Company and Boatmen's Trust
Company, as Trustee (herein called the "Trustee," which term includes any
successor trustee under the Indenture), to which the Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee, the holders of Senior Indebtedness of the Company, and
the holders of the Securities (herein called the "Holders") and of the terms
upon which the Securities are, and are to be, authenticated and delivered.
Subject to and upon compliance with the provisions of the
Indenture, the Holder is entitled, at his option, at any time and from time to
time, on or before the close of business on July 12, 2003, or in case this
Security is called for redemption, then in respect of this Security until and
including, but (unless the Company defaults in making the payment due upon
redemption) not after, the close of business on the fifth (5th) day preceding
the Redemption Date, to convert this Security (or any portion of the principal
amount hereof which is $1,000 or an integral multiple thereof), at the principal
amount hereof, or of such portion, into fully paid and nonassessable shares of
Common Stock of the Company at the Conversion Price, by surrender of this
Security, duly endorsed or assigned to the Company or in blank, to the Company
at its office or agency in the City of Chicago, Illinois, the borough of
Manhattan, City of New York, New York, the City of St. Louis, Missouri, or such
other office or agency of the Company as may be maintained for that purpose,
accompanied by written notice to the Company that the Holder hereof elects to
convert this Security, or if less than the entire principal amount hereof is to
be converted, the portion hereof to be converted, and, in case such surrender
shall be made during the period from the close of business on any Regular Record
Date next preceding any Interest Payment Date to the opening of business on such
Interest Payment Date (unless this Security or the portion thereof being
converted matures prior to such Interest Payment Date or has been called for
redemption on a Redemption Date within such period), also accompanied by a wire
transfer or certified or bank check made payable to the Company in funds
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acceptable to the Company of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of this Security then being
converted. Subject to the aforesaid requirement for payment and, in the case of
a conversion after the Regular Record Date next preceding any Interest Payment
Date and on or before such Interest Payment Date, to the right of the Holder (or
of any Predecessor Security) of record at such Regular Record Date to receive an
installment of interest (with certain exceptions provided in the Indenture), no
payment or adjustment is to be made on conversion for Accrued Current Interest
and Accrued Deferred Interest or for dividends on the Common Stock issued on
conversion (with certain exceptions provided in the Indenture). No fractions of
shares or scrip representing fractions of shares will be issued on conversion,
but instead of such fractional shares the Company may either issue a number of
shares of Common Stock which reflects a rounding up to the next whole number or
pay a cash adjustment as provided in the Indenture. The Conversion Price is
subject to adjustment as provided in the Indenture. In addition, the Indenture
provides that in case of certain consolidations or mergers to which the Company
is a party or the transfer of all or substantially all of the assets of the
Company, the Indenture shall be amended, without the consent of any Holders, so
that this Security, if then outstanding, will be convertible thereafter, during
the period this Security shall be convertible as specified above, only into the
kind and amount of securities, cash and other property receivable upon the
consolidation, merger or transfer by a holder of the number of shares of Common
Stock into which this Security might have been converted immediately prior to
such consolidation, merger or transfer (assuming such holder of Common Stock
failed to exercise any rights of election and received per share the kind and
amount received per share by a plurality of non-electing shares).
In the event of conversion of this Security in part only, a
new Security or Securities for the unconverted portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
This Security will be redeemable, at the option of the
Company, in whole, but not in part, on any date on or after July 1, 1999 and
prior to Maturity at a Redemption Price (as expressed as a percentage of
principal amount) set forth below with respect to the indicated Redemption Date.
If redeemed during the twelve month period beginning July 1:
1999 103.00
2000 102.25
2001 101.50
2002 100.75
on July 12, 2003 100.00
In addition, at the time of such redemption the Holder will
receive Accrued Current Interest and Accrued Deferred Interest to the Redemption
Date. If the Holder converts Securities following notice of such redemption, the
Holder will receive Accrued Current Interest and Accrued Deferred Interest to
the date of conversion.
This Security may also be redeemed at the option of the
Company after August 12, 1996, in whole, but not in part, at its principal
amount plus Accrued Current Interest to the Redemption Date, if for 20
consecutive trading days immediately preceding the fifth day prior to notice of
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redemption, the average closing sale price of the Common Stock has equaled or
exceeded 135% of the Conversion Price, subject to adjustment in the case of the
same events which would result in an adjustment of the Conversion Price as
provided in Section 1204 of the Indenture. Interest installments whose Stated
Maturity is on or prior to such Redemption Date will be payable on the Interest
Payment Date for such installment to the Holder hereof (or of any Predecessor
Security) of record at the close of business on the Regular Record Date referred
to on the face hereof, all as provided in the Indenture.
This Security may be redeemed, in whole or in part, in
increments of $1,000 on September 30, 2001, at the option of the Holder hereof,
at 124.250% of the principal amount to be redeemed plus Accrued Current Interest
to September 30, 2001. To exercise this put option, the Holder must deliver this
Security, duly endorsed or assigned to the Company or in blank, to the Company
at its office or agency in the City of Chicago, Illinois, the borough of
Manhattan, City of New York, New York, the City of St. Louis, Missouri, or such
other office or agency of the Company as may be maintained for that purpose,
accompanied by written notice to the Company that the Holder elects this put
option, on or before June 30, 2001, but not prior to April 30, 2001.
The Indebtedness evidenced by this Security is, to the extent
provided in the Indenture, subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness of the Company, and this
Security is issued subject to the provisions of the Indenture with respect
thereto. Each Holder of this Security, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to effectuate the
subordination so provided and (c) appoints the Trustee his attorney-in-fact for
any and all such purposes.
If an Event of Default shall occur and be continuing, the
principal of all the Securities may be declared due and payable in the manner
and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of all the Holders, to waive compliance by the
Company with certain provisions of the Indenture and certain past defaults under
the Indenture and their consequences. Any such consent or waiver by the Holder
hereof shall be conclusive and binding upon such Holder and upon all future
Holders of this Security and of any Security issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of (and
premium, if any) and interest on this Security at the times, place and rate, and
in the coin or currency, herein prescribed or to convert this Security as
provided in the Indenture.
17
<PAGE>
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is registrable in
the Security Register, upon surrender of this Security for registration of
transfer at the office or agency of the Company in the City of Chicago,
Illinois, the borough of Manhattan, City of New York, New York, the City of St.
Louis, Missouri, or such other office or agency of the Company as may be
maintained for that purpose, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
The Securities are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities are exchangeable for a like aggregate principal amount of Securities
of a different authorized denomination, as requested by the Holder surrendering
the same.
With respect to the registration of any proposed transfer of
Securities, the Security Registrar shall register the transfer of such
Securities only if the Company in good faith does not believe that such transfer
violates any state or federal securities laws, and
(A) During the forty (40) days following the termination of the
offering of the Securities by the Company, the Company delivers to the
Security Registrar, after receipt of same from Purchaser: (x) a written
certification that neither record nor beneficial ownership of the
Securities or the underlying Common Stock shares have been offered or
sold in the United States or to, or for the account or benefit of, any
"U.S. person," and that Purchaser has not engaged in any activity for
the purpose of, or which may reasonably be expected to have had the
effect of, conditioning the market in the United States for the
Securities or the underlying Common Stock, (y) a written certification
of the proposed transferee that such transferee (or any account for
which such transferee is acquiring such Securities or underlying Common
Stock) is not a "U.S. person" and is not acquiring such Securities or
underlying Common Stock for the account or benefit of a "U.S. person,"
and, if requested by the Company following receipt of (x) and (y), (z)
a written opinion of United States counsel satisfactory to the Company
in form and substance satisfactory to the Company to the effect that
the offer, sale and transfer of the Securities or underlying Common
Stock are exempt from registration under the Securities Act; or
(B) After completion of the forty (40) days following the termination
of the offering of the Securities by the Company, unless registered
under the Securities Act of 1933, as amended, any proposed offer, sale
or transfer of any of the Securities (or underlying Common Stock) (x)
to, or for the account or benefit of, any "U.S. person" or in the
18
<PAGE>
United States shall be subject to the condition that the Purchaser must
deliver to the Company (i) a written opinion of United States counsel
satisfactory to the Company in form and substance satisfactory to the
Company to the effect that the offer, sale and transfer of such
Securities or underlying Common Stock shares are exempt from
registration under the Securities Act and such other documentation as
is reasonably related to the opinion, or (ii) such other documentation
for such exemption as the Company deems appropriate or (y) to a person
other than a "U.S. person" and outside the United States shall be
subject to the condition that the proposed transferee deliver a written
certification that such transferee (or any account for which such
transferee is acquiring such Securities or underlying Common Stock) is
not a "U.S. person" and is not acquiring such Securities or underlying
Common Stock for the account or benefit of a "U.S. person."
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
SECTION 204. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the
within-mentioned Indenture.
BOATMEN'S TRUST COMPANY
as Trustee
Dated: By:
------------------------------- -------------------------------------
Authorized Signatory
SECTION 205. Form of Election to Convert.
To AMVESTORS FINANCIAL CORPORATION
The undersigned Holder of this Security hereby irrevocably
exercises the option to convert this Security, or the portion below designated,
into shares of Common Stock of AMVESTORS FINANCIAL CORPORATION in accordance
with the terms of the Indenture referred to in this Security, and directs that
the shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned registered Holder hereof, unless a different name has been indicated
in the assignment below. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto. Any amount required to be paid by the undersigned on
account of interest accompanies this Security.
Dated:
-------------------------------
19
<PAGE>
Portion of Security to be
converted ($1,000 or an
integral multiple thereof):
$ Your Signature:
------------------------------------ ---------------------------
(Sign exactly as your name
appears on the face of this
Security)
If shares of Common Stock
are to be issued and
registered otherwise than
to the registration Holder
named above, please print
or typewrite name and
address, including zip
code, and social security
or other taxpayer
identification number.
------------------------------------------
------------------------------------------
------------------------------------------
Signature Guarantee:
------------------------------------------------------------
(Participant in recognized signature guarantee
medallion program or other assurance reasonably
acceptable to the Company and to the Security
Registrar, for example, from a major bank located in
the country of a foreign Holder)
NOTE: If the Holder is a corporation, such Holder must furnish a corporate
resolution, with its corporate seal attached. If the corporation is not
required by law to possess and use a seal, certification to that fact
should accompany this form.
SECTION 206. Form of Transfer or Assignment by Holder.
To assign this Security, fill in the form below: (I) or (We)
assign and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint __________ agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him or her.
Date:
--------------------------------
20
<PAGE>
Your Signature:
-------------------------------------
(Sign exactly as your name appears on
the face of this Security)
Signature Guarantee:
------------------------------------------------------------
(Participant in recognized signature guarantee
medallion program or other assurance reasonably
acceptable to the Company and to the Security
Registrar, for example, from a major bank located in
the country of a foreign Holder)
NOTE: If the Holder is a corporation, such Holder must furnish a corporate
resolution, with its corporate seal attached. If the corporation is not
required by law to possess and use a seal, certification to that fact
should accompany this form.
SECTION 207. Form of Election to Repurchase.
If you want to elect to have all or any part of this Security
repurchased by the Company pursuant to Article 14 of the Indenture check the
following box.
| |
If you want to have only part of the Security purchased by the
Company pursuant to Article 14 of the Indenture, state the amount you elect to
have repurchased:
$
--------------------------------
Date:
----------------------------
Your Signature:
-------------------------------------
(Sign exactly as your name appears on
the face of this Security)
Signature Guarantee:
------------------------------------------------------------
(Participant in recognized signature guarantee
medallion program or other assurance reasonably
acceptable to the Company and to the Security
Registrar, for example, from a major bank located in
the country of a foreign Holder)
NOTE: If the Holder is a corporation, such Holder must furnish a corporate
resolution, with its corporate seal attached. If the corporation is not
required by law to possess and use a seal, certification to that fact
should accompany this form.
21
<PAGE>
SECTION 208. Form of Election to Exercise Put Option.
To AMVESTORS FINANCIAL CORPORATION
The undersigned owner of this Security hereby exercises the
option to redeem this Security, or the portion below designated, at 124.250% of
the principal amount redeemed plus interest accrued and payable in accordance
with the terms of the Indenture referred to in this Security, and directs that
the check for payment be issued in the name of and delivered to the undersigned
registered Holder hereof.
Dated:
--------------------------------
Portion of Security to be
redeemed ($1,000 or an
integral multiple thereof):
$ Your Signature:
------------------------------------ ---------------------------
(Sign exactly as your name
appears on the face of this
Security)
Signature Guarantee:
------------------------------------------------------------
(Participant in recognized signature guarantee
medallion program or other assurance reasonably
acceptable to the Company and to the Security
Registrar, for example, from a major bank located in
the country of a foreign Holder)
NOTE: If the Holder is a corporation, such Holder must furnish a corporate
resolution, with its corporate seal attached. If the corporation is not
required by law to possess and use a seal, certification to that fact
should accompany this form.
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $65,000,000.
The Securities shall be known and designated as the "3%
Convertible Subordinated Debentures Due 2003" of the Company. Their Maturity
shall be July 12, 2003, and they shall bear interest at the rate of 3% per annum
from the date of original issue payable semi-annually on June 15 and December
15, commencing December 15, 1996, on a compound annual basis based on a 360-day
year, unless earlier converted, redeemed or repurchased.
The principal of (and premium, if any) and interest on the
Securities shall be payable at the office or agency of the Company in the City
of St. Louis, Missouri, or such other office or agency of the Company as may be
maintained for that purpose; provided, however, that at the option of the
Company payment of interest may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register.
The Securities shall be redeemable as provided in Article
Eleven.
The Securities shall be convertible as provided in Article
Twelve.
The Securities shall be subordinated in right of payment to
Senior Indebtedness of the Company, as provided in Article Thirteen.
The Securities shall be subject to repurchase by the Company,
at the option of the Holders, as provided in Article Fourteen.
SECTION 302. Denominations.
The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company, by
its Chairman of the Board or President or one of its Vice Presidents, under its
corporate seal reproduced thereon attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the Securities
may be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company, shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein executed by or on behalf of the Trustee by manual signature, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.
23
<PAGE>
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, mimeographed, photocopied,
written or otherwise produced, in any authorized denomination, substantially of
the tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers of the Company executing such Securities may determine, as
conclusively evidenced by their execution of such Securities. The execution by
the Company may be printed, lithographed, mimeographed, photocopied, written or
otherwise produced, on such temporary Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at any office or agency of the Company designated pursuant to Section
1002, without charge to the Holder. Upon surrender for cancellation of any one
or more temporary Securities the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office being
herein sometimes referred to as the "Security Register") in which, subject to
such reasonable regulations as it may prescribe, the Company shall provide for
the registration of Securities and of transfers of Securities. The Trustee is
hereby appointed "Security Registrar" for the purpose of registering Securities
and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at
an office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of any authorized denominations and of a like aggregate principal
amount.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denominations and of a like aggregate
principal amount, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
24
<PAGE>
Every Security presented or surrendered for registration of
transfer or for exchange or redemption or repurchase shall (if so required by
the Company or the Security Registrar) be duly endorsed, or be accompanied by a
written instrument of transfer in the form given in Section 205, 206, 207 or
208, duly executed, by the Holder thereof or his attorney or agent duly
authorized in writing. Additionally, if the Holder is a corporation, the Holder
must furnish a corporate resolution, with its corporate seal attached, that
authorizes the action to be taken and the person signing the form. If the
corporation is not required by law to possess and use a seal, certification to
that fact should accompany the form.
No service charge shall be made for any registration of
transfer, exchange or redemption or repurchase of Securities, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer,
exchange or redemption or repurchase of Securities, other than exchanges
pursuant to Section 304, 905, 1202 or 1302 not involving any transfer.
With respect to the registration of any proposed transfer of
Securities, the Security Registrar shall register the transfer of such
Securities only if the Company in good faith does not believe that such transfer
violates any state or federal securities laws, and
(A) During the forty (40) days following the termination of the
offering of the Securities by the Company, the Company delivers to the
Security Registrar, after receipt of same from Purchaser: (x) a written
certification that neither record nor beneficial ownership of the
Securities or the underlying Common Stock shares have been offered or
sold in the United States or to, or for the account or benefit of, any
"U.S. person," and that Purchaser has not engaged in any activity for
the purpose of, or which may reasonably be expected to have had the
effect of, conditioning the market in the United States for the
Securities or the underlying Common Stock, (y) a written certification
of the proposed transferee that such transferee (or any account for
which such transferee is acquiring such Securities or underlying Common
Stock) is not a "U.S. person" and is not acquiring such Securities or
underlying Common Stock for the account or benefit of a "U.S. person,"
and, if requested by the Company following receipt of (x) and (y), (z)
a written opinion of United States counsel satisfactory to the Company
in form and substance satisfactory to the Company to the effect that
the offer, sale and transfer of the Securities or underlying Common
Stock are exempt from registration under the Securities Act; or
(B) After completion of the forty (40) days following the termination
of the offering of the Securities by the Company, unless registered
under the Securities Act of 1933, as amended, any proposed offer, sale
or transfer of any of the Securities (or underlying Common Stock) (x)
to, or for the account or benefit of, any "U.S. person" or in the
United States shall be subject to the condition that the Purchaser must
deliver to the Company (i) a written opinion of United States counsel
satisfactory to the Company in form and substance satisfactory to the
Company to the effect that the offer, sale and transfer of such
Securities or underlying Common Stock shares are exempt from
registration under the Securities Act and such other documentation as
is reasonably related to the opinion, or (ii) such other documentation
for such exemption as the Company deems appropriate or (y) to a person
other than a "U.S. person" and outside the United States shall be
subject to the condition that the proposed transferee deliver a written
certification that such transferee (or any account for which such
25
<PAGE>
transferee is acquiring such Securities or underlying Common Stock) is
not a "U.S. person" and is not acquiring such Securities or underlying
Common Stock for the account or benefit of a "U.S. person."
The Company shall not be required to (i) issue, register the
transfer of, or exchange any Security during a period beginning at the opening
of business 15 days before the day of the mailing of a notice of redemption of
Securities and ending at the close of business on the day of such mailing, or
(ii) to register the transfer of or exchange of any Security selected for
redemption.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security has been acquired by a bona fide
purchaser (or any equivalent person under any applicable statute, rule,
regulation or interpretation then in effect), the Company shall execute and upon
Company Order the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of
any mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest.
26
<PAGE>
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date notwithstanding the fact that such Holder
was a Holder on such Regular Record Date, and such Defaulted Interest may be
paid by the Company, at its election, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each Security and the date of the
proposed payment, and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and no less than 10 days prior to the
date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date
and, in the name and at the expense of the Company, shall cause notice
of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be mailed, first-class postage prepaid, to
each Holder at his address as it appears in the Security Register, not
less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record
Date therefor having been so mailed, such Defaulted Interest shall be
paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on
such Special Record Date and shall no longer be payable pursuant to
the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice
given by the Company to the Trustee of the proposed payment pursuant
to this Clause, such manner of payment shall be deemed practicable by
the Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
In the case of any Security which is converted after any
Regular Record Date and on or prior to the next succeeding Interest Payment Date
(other than any Security whose Maturity is prior to such Interest Payment Date
and Securities called for redemption on a Redemption Date within such period),
the interest whose Stated Maturity is on such Interest Payment Date shall be
payable on such Interest Payment Date notwithstanding such conversion, and such
interest (whether or not punctually paid or duly provided for) shall be paid to
27
<PAGE>
the Person in whose name that Security (or one or more Predecessor Securities)
is registered at the close of business on such Regular Record Date, subject to
such Person's obligation under Section 1202 to pay to the Company an amount
equal to the interest payable on such Interest Payment Date on the principal
amount of Securities being converted. Except as otherwise expressly provided in
this Indenture, in the case of any Security which is converted, interest whose
Stated Maturity is after the date of conversion of such Security shall not be
payable.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered in the Security
Registrar as the owner of such Security for the purpose of receiving payment of
principal of (and premium, if any) and (subject to Section 307) interest on such
Security and for all other purposes whatsoever, whether or not any payment with
respect to such Security be overdue, and neither the Company, the Trustee nor
any agent of the Company or the Trustee shall be affected by notice to the
contrary.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption,
repurchase, registration of transfer or exchange or conversion shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly cancelled by it. The Company may at any time deliver to
the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Securities so delivered shall be promptly cancelled by the
Trustee when accompanied by a Company Order requesting the Trustee to cancel
such Securities. No Securities shall be authenticated in lieu of or in exchange
for any Securities cancelled as provided in this Section, except as expressly
permitted by this Indenture. All cancelled Securities held by the Trustee shall
be destroyed in accordance with the applicable record retention regulations and
a certificate of destruction delivered to the Company, unless by Company Order,
the Company directs that destroyed certificates be returned to it.
SECTION 310. Computation of Interest.
Interest on the Securities shall be computed on a compound
annual basis based on a 360-day year consisting of twelve 30-day months.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as
to any surviving rights of conversion, registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, on demand of and at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
28
<PAGE>
(1) either
(A) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been
mutilated, destroyed, lost or stolen and which have been
replaced or paid as provided in Section 306 and (ii)
Securities for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 1106) have been
delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to
the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at
their Stated Maturity within one year, or
(iii) are to be called for redemption within
one year from the date of the deposit referred to in
the following paragraph under arrangements
satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the
expense, of the Company
and the Company, in the case of (i), (ii) or (iii) above, has irrevocably
deposited or caused to be irrevocably deposited with the Trustee as trust funds
in trust, pursuant to a trust agreement, an amount sufficient, without
consideration of the reinvestment of interest and after payment of federal,
state and local taxes or other charges or assessments in respect thereof payable
by the Trustee, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certificate thereof, to pay and
discharge the entire indebtedness on such Securities not theretofore delivered
to the Trustee for cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of Securities which have
become due and payable) or to the Stated Maturity or Redemption Date, as the
case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company;
(3) no Event of Default under Sections 501(6) or (7) shall
have occurred or be continuing on the date of such deposit and no default or
Event of Default under Sections 501(6) or (7) shall occur on or before the 123rd
day after the date of such deposit;
(4) no default on any Senior Indebtedness of the Company shall
have occurred and be continuing; and
(5) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
29
<PAGE>
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 607 and
if money shall have been deposited with the Trustee pursuant to subclause (B) of
clause (1) of this Section, the obligations of the Trustee under Section 402 and
the last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section
1003, all money deposited with the Trustee pursuant to Section 401 shall be held
in trust and applied by it, in accordance with the provisions of the Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee. All moneys deposited with the Trustee pursuant to Section 401 (and held
by it or any Paying Agent) for the payment of Securities subsequently converted
shall be returned to the Company upon Company Request.
SECTION 403. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money in
accordance with Section 402 by reason of any order or judgment or any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 401 until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 402; provided,
however, that if the Company makes any payment of interest on or principal of
any Security following the reinstatement of its obligations, the Company shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Thirteen or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest upon any Security
when it becomes due and payable, and continuance of such default for a
period of 30 days from such date; or
(2) default in the payment of the principal of (or premium, if
any, on) any Security at its Maturity; or
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(3) default in the payment of the Repurchase Price in respect
of any Security on the Repurchase Date therefor in accordance with the
provisions of Article Fourteen and the continuance of such default for
a period of 10 days; or
(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere
in this Section specifically dealt with), and continuance of such
default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the Company by the Trustee or to
the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(5) a default under any mortgage, indenture or instrument
under which there may be issued, or by which there may be secured or
evidenced, any Indebtedness (other than non-recourse Indebtedness of
any Subsidiary) of the Company or any Subsidiary which default results
from the failure to pay an aggregate in excess of $1,000,000 in
principal of or interest on such Indebtedness either for borrowed
money or representing any Senior Indebtedness of the Company, which
results in such Indebtedness being declared due and payable prior to
the date on which it would otherwise become due and payable after the
expiration of any applicable grace period and the holders of such
Indebtedness take any action to collect such Indebtedness; provided,
however, that if such default under such mortgage, indenture or
instrument shall be remedied or cured by the Company, or waived by the
holders of such Indebtedness, then the Event of Default hereunder by
reason thereof shall be deemed likewise to have been thereupon
remedied, cured or waived without further action upon the part of
either the Trustee or any of the Holders; and provided, further, that
the Trustee (subject to Sections 601 and 602) shall not have any
rights, duties, liabilities or responsibilities with respect to such
default unless and until the Trustee shall have received written
notice thereof at the Corporate Trust Office from the Company, the
trustee under any such mortgage, indenture or instrument of
Indebtedness or the agent of any such holder or holders or the Holder
or Holders of any Outstanding Securities and provided, further, that
any such default by a Subsidiary which arises as a result of or in
connection with a decree or order contemplated by paragraph (6) of
this Section shall not constitute an Event of Default under this
paragraph (5) unless such decree or order also gives rise to an Event
of Default under paragraph (6) of this section; provided, however,
that notwithstanding anything in this clause to the contrary, any
action by or against a Subsidiary or its property shall not constitute
an Event of Default unless such Subsidiary or its property constitutes
15% or more of the Company's Consolidated Total Assets; or
(6) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company or any
Subsidiary in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other
similar law or (B) a decree or order adjudging the Company or any
Subsidiary a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any Subsidiary or under
any applicable federal or state law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
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official of the Company or any Subsidiary or of any substantial part
of their respective property, or ordering the winding up or
liquidation of their respective affairs, and the continuance of any
such decree or order for relief or any such other decree or order
unstayed and in effect for a period of 30 consecutive days; provided,
however, that notwithstanding anything in this clause to the contrary,
any action by or against a Subsidiary or its property shall not
constitute an Event of Default unless such Subsidiary or its property
(together with all other Subsidiaries and their property with respect
to which such a decree or order shall be continued or unstayed and in
effect for a period of 60 days within the 12 month period preceding
such decree or order with respect to such Subsidiary or its property)
constitutes 15% or more of the Company's Consolidated Total Assets; or
(7) the commencement by the Company or any Subsidiary of a
voluntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by any of them to the entry of decree or order for relief
in respect of the Company or in an involuntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against the Company or any
Subsidiary, or the filing by the Company or any Subsidiary of a
petition or answer or consent seeking reorganization or relief under
any applicable federal or state law, or the consent by the Company or
any Subsidiary to the filing of such petition or to the appointment of
or taking possession by a custodian, receiver, liquidator, assignee,
trustee, sequestrator or similar official or the Company or of
substantially all of the property of the Company or any Subsidiary, or
the making by the Company or any Subsidiary of an assignment for the
benefit of creditors, or the admission by the Company or any
Subsidiary in writing of their respective inability to pay their
respective debts generally as they become due, or the taking of
corporate action by the Company or any Subsidiary in furtherance of
any such action; provided, however, that notwithstanding anything in
this clause to the contrary, any action by or against a subsidiary or
its property shall not constitute an Event of Default unless such
Subsidiary or its property constitutes 15% or more of the Company's
Consolidated Total Assets.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Securities may declare the principal of all
the Securities to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), and upon any such declaration
such principal shall become immediately due and payable.
At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article provided, the Holders of
a majority in principal amount of the Outstanding Securities by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if
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(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, on) any
Securities which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate
borne by the Securities,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by
the Securities, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel;
and
(2) all Events of Default, other than the nonpayment of the
principal of Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if:
(1) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default continues
for a period of 30 days, or
(2) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof, the Company will,
upon demand of the Trustee, pay to it, for the benefit of the Holders of such
Securities, the whole amount then due and payable on such Securities for
principal (and premium, if any) and interest, and, to the extent that payment of
such interest shall be legally enforceable, interest on any overdue principal
(and premium, if any) and on any overdue interest, at the rate borne by the
Securities, and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon the
Securities, wherever situated.
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If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid
in respect of the Securities and to file such other papers or
documents as may be necessary or advisable in order to have
the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel) and of the Holders
allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other
property payable or deliverable on any such claims and to
distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan or reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery or judgment, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, shall be for
the ratable benefit of the Holders in respect of which such judgment has been
recovered.
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SECTION 506. Application of Money Collected.
Subject to Article Thirteen, any money collected by the
Trustee pursuant to this Article shall be applied in the following order, at the
date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal (or premium, if any) or interest, upon
presentation of the Securities and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the
Trustee under Section 607;
SECOND: To the payment of the amounts then due and
unpaid for principal of (and premium, if any) and interest on
the Securities in respect of which or for the benefit of which
such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable
on such Securities for principal (and premium, if any) and
interest, respectively; and
THIRD: The balance, if any, to the Company.
SECTION 507. Limitation on Suits.
No Holder shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice
to the Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal
amount of the Outstanding Securities shall have made written
request to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the
Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute
any such proceeding; and
(5) no direction inconsistent with such written
request has been given to the Trustee during such 60-day
period by the Holders of a majority in principal amount of the
Outstanding Securities;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders, or to obtain or to seek to obtain priority or preference over any other
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Holders or to enforce any right under this Indenture, except in the manner
herein provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest and to Convert.
Notwithstanding any other provision in this Indenture, the
Holder shall have the right, which is absolute and unconditional, to receive
payment of the principal, premium, if any, and interest on such Security on the
respective Maturities expressed in such Security and to convert such Security in
accordance with Article Twelve and to institute suit for the enforcement of any
such payment and right to convert, and such rights shall not be impaired without
the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 306, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy, to the extent permitted by law, shall be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
SECTION 512. Control by Holders.
The Holders of a majority in principal amount of the
Outstanding Securities shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee, provided that
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(1) such direction shall not be in conflict with any
rule of law or with this Indenture or with the Securities, and
(2) the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such
direction.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of
the Outstanding Securities, by notice to the Trustee (and without notice to any
other Holder) on behalf of the Holders of all the Securities, may waive any past
default (including without limitation an Event of Default) and rescind any
notice of an Event of Default hereunder and its consequences, except an uncured
default:
(1) in the payment of the principal of (or premium,
if any) or interest on any Security, or
(2) in respect of a covenant or provision hereof
which under Article Nine cannot be modified or amended without
the consent of the Holder of each Outstanding Security
affected.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
SECTION 514. Determination of a Majority for Consent or Waiver.
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company, or any Affiliate of the Company shall be deemed
not to be outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Securities that a Responsible Officer knows to be so owned shall be deemed
to be excluded for purposes of such determination.
SECTION 515. Undertaking for Costs.
All parties to this Indenture agree, and each Holder by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 25% in principal
amount of the Outstanding Securities, or to any suit instituted by any Holder
for the enforcement of the payment of the principal of (or premium, if any) or
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interest on any Security on or after the respective Stated Maturities expressed
in such Security (or, in the case of redemption, on or after the Redemption
Date) or for the enforcement of the right to convert any Security in accordance
with Article Twelve.
SECTION 516. Waiver of Stay or Extension of Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension of
law wherever enacted, now or at any time hereafter in force, which may affect
the covenants or the performance of this Indenture; and the Company (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law and covenants that it will not hinder, delay or impede
the execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
(a) the Trustee shall not be liable except for the performance
of such duties and only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(b) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture.
(c) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and shall in their
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(d) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own wilful misconduct, except that
(1) This Subsection shall not be construed to limit
the effect of Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer,
unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
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(3) the Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of a majority in
principal amount of the Outstanding Securities Relating to the
time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Indenture; and
(4) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers,
if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
(e) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section.
SECTION 602. Notice of Defaults.
If a default occurs and is continuing with respect to the
Securities and if it is known to the Trustee, then within 90 days after the
occurrence of such default hereunder (excluding from the calculation of such 90
day period any period, the continuance of which is required for such default to
become an Event of Default) as to which the Trustee has knowledge, the Trustee
shall transmit by mail to all Holders, as their names and addresses appear in
the Security Register, notice of such default hereunder known to Trustee, unless
such default shall have been cured or waived; provided, however, that, except in
the case of a default in the payment of the principal of (or premium, if any) or
interest on any Security, the Trustee shall be protected in withholding such
notice if and so long as the Board of directors, the executive committee or a
trust committee of directors or Responsible Officers of the Trustee in good
faith determine that the withholding of such notice is in the best interest of
the Holders. For the purpose of this Section, the term "default" means any event
which is, or after notice or lapse of time or both would become, an Event of
Default.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in
acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note,
other evidence of Indebtedness or other paper or document
believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or
Company Order and any resolution of the Board of Directors may
be sufficiently evidenced by a Board Resolution;
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(c) whenever in the administration of this Indenture
the Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the
written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in
good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Indenture at the request or direction of any of the Holders
pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of Indebtedness or other paper
or document, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as
it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Company,
personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys and the Trustee
shall not be responsible for any misconduct or negligence on
the part of any agent or attorney appointed with due care by
it hereunder.
SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except
the Trustee's certificates of authentication, shall be taken as the statements
of the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the use
or application by the Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar or any
other agent of the Company hereunder, in its individual or any other capacity,
may become the owner or pledgee of Securities and may otherwise deal with the
Company with the same rights it would have if it were not Trustee, Paying Agent,
Security Registrar or such other agent.
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SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed with the Company in writing.
SECTION 607. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time
reasonable compensation for all services rendered by it
hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of
an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the
Trustee in accordance with any provision of this Indenture
(including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be attributable to a
breach of any standard of care applicable to the Trustee; and
(3) to indemnify the Trustee for, and to hold it
harmless against, any loss, liability or expense incurred
without a breach of any standard of care applicable to the
Trustee, arising out of or in connection with the acceptance
or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its
powers or duties hereunder.
SECTION 608. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
a corporation organized and doing business under the laws of the United States
of America, any State thereof or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having a combined capital, surplus and
retained earnings of at least $50,000,000 and subject to supervision or
examination by federal or state authority. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b). No obligor upon the Securities or person directly or
indirectly controlling or controlled by, under common control with such obligor
shall serve as Trustee for the Securities. If at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section, it shall
resign immediately in the manner and with the effect hereinafter specified in
this Article.
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SECTION 609. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee under
Section 610.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of a majority in principal amount of the Outstanding Securities,
delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall cease to be eligible
under Section 608 and shall fail to resign after written
request therefor by the Company or by any such Holder, or
(2) the Trustee shall become incapable of
acting or shall be adjudged bankrupt or insolvent or a
receiver of the Trustee or of its property shall be appointed
or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 515, any Holder who has been a bona fide
Holder of a Security for at least six months, may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee.
(f) Each successor Trustee shall mail notice of its succession
to the Holders by mailing written notice of such event by first-class mail,
postage prepaid, to all Holders as their names and addresses appear in the
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Security Register. Each notice shall include the name of the successor Trustee
and the address of its Corporate Trust Office.
SECTION 610. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 611. Conflicting Interest.
If the Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and Section 609 of
this Indenture.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against the Company.
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein. The provisions of TIA Section 311(a) and (b) shall apply to the Company
as obligor on the Securities.
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ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE, AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
If the Trustee is not the Registrar of the Securities, then
the Company will furnish or cause to be furnished to the Trustee, in compliance
with TIA Section 312(a),
(a) semi-annually, not more than 15 days after each Regular
Record Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing,
within 5 Business Days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
provided, however, that so long as the Trustee is the Security Registrar, the
Company shall not be required to furnish any such list.
SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the most
recent list furnished to or maintained by the Trustee as provided in Section 701
and the names and addresses of Holders received by the Trustee in its capacity
as Security Registrar. The Trustee may destroy any list furnished to it as
provided in Section 701 upon receipt of a new list so furnished.
(b) In compliance with TIA Section 312(b), if three or more
Holders (herein referred to as "applicants") apply in writing to the Trustee,
and furnish to the Trustee reasonable proof that each such applicant has owned a
Security for a period of at least six months preceding the date of such
application, and such application states that the applicants desire to
communicate with other Holders with respect to their rights under this Indenture
or under the Securities and is accompanied by a copy of the form of proxy or
other communication which such applicants propose to transmit, then the Trustee
shall, within five Business Days after the receipt of such application, at its
election, either
(i) afford such applicants access to the information
preserved at the time by the Trustee in accordance with
Section 702(a), or
(ii) inform such applicants as to the approximate
number of Holders whose names and addresses appear in the
information preserved at the time by the Trustee in accordance
with Section 702(a), and as to the approximate cost to the
applicants of mailing to such Holders the form of proxy or
other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants
access to such information, the Trustee shall, upon the written request of such
applicants, mail to each Holder whose name and address appear in the information
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preserved at the time by the Trustee in accordance with Section 702(a) a copy of
the form of proxy or other communication which is specified in such request,
with reasonable promptness after a tender to the Trustee of the material to be
mailed and of payment by the applicants, or provision for the payment by the
applicants, of the reasonable expenses of mailing, unless within five days after
such tender the Trustee shall mail to such applicants, a written statement to
the effect that, in the opinion of the Trustee, such a mailing would be contrary
to the best interest of the Holders or would be in violation of applicable law.
Such written statement shall specify the basis of such opinion.
(c) In compliance with TIA Section 312(c), every Holder, by
receiving and holding the same, agrees with the Company and the Trustee that
neither the Company nor the Trustee nor any agent of any of them shall be held
accountable by reason of the disclosure of any such information as to the names
and addresses of the Holders in accordance with Section 702(b), regardless of
the source from which such information was derived, and that the Trustee shall
not be held accountable by reason of mailing any material pursuant to a request
made under Section 702(b).
SECTION 703. Reports by Company.
The Company shall file with the Trustee, within 15 days after
the Company is required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file with
the Commission pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934; or, if the Company is not required to file information,
documents or reports pursuant to either of said Sections, then it shall file
with the Trustee and the Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such of the supplementary and
periodic information, documents and reports which may be required pursuant to
Section 13 of the Securities Exchange Act of 1934 in respect of a security
listed and registered on a national securities exchange or on any national
automated quotation system as may be prescribed from time to time in such rules
and regulations. The Company shall comply with TIA Section 314(a).
SECTION 704. Reports by Trustee to Holders.
Every 12 months the Trustee shall mail to the Holders a brief
report of events if required in order to comply with TIA Section 313(a). The
Trustees shall also comply with TIA Section 313(b)(1) and (2). The Trustee shall
transmit all reports required by this Section 704 by mail to the Holders shown
in TIA Section 313(c).
A copy of each report shall, at the time of its mailing to
such Holders, be filed with each stock exchange on which the Securities are
listed, and also with the Commission. The Company shall notify the Trustee in
writing when the Securities are listed on any stock exchange.
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ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, unless:
(1) the Person formed by such consolidation or into
which the Company is merged or the Person which acquires by
conveyance, transfer or sale, or which leases, the properties
and assets of the Company substantially as an entirety shall
be a Corporation, partnership, limited liability company or
trust, organized and validly existing under the laws of the
United States of America, any State thereof or the District of
Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered by the successor
corporation to the Trustee, in form satisfactory to the
Trustee, the due and punctual payment of the principal of (and
premium, if any) and interest on all the Securities and the
performance of every covenant of this Indenture on the part of
the Company to be performed or observed and shall have
provided for conversion rights in accordance with Section
1211;
(2) immediately after giving effect to such merger,
consolidation, conveyance, transfer, sale or lease, no Event
of Default, and no event which, after notice or lapse of time
or both, would become an Event of Default, shall have occurred
and be continuing; and
(3) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, conveyance, transfer, sale or
lease complies with this Article and that all conditions
precedent herein provided for relating to such transaction
have been complied with.
For purposes of this Section and Section 802, a conveyance,
transfer, sale or lease of the properties and assets of the Company
"substantially as an entirety" shall mean a conveyance, transfer or lease of
properties and assets of the Company representing 80% or more of the fair value
(as determined in good faith by the Board of Directors) of all the Company's
properties and assets on the date of such conveyance, transfer, sale or lease.
SECTION 802. Successor Substituted for Company.
Upon any consolidation of the Company with, or merger of the
Company into, any other Person or any conveyance, transfer, sale or lease of the
properties and assets of the Company substantially as an entirety in accordance
with Section 801, the successor Person formed by such consolidation or into
which the Company is merged or to which such conveyance, transfer, sale or lease
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein, and thereafter, except in
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the case of a lease, the predecessor Person shall be relieved of all obligations
and covenants under this Indenture and the Securities.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when
authorized by Board Resolutions, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to
the Company and the assumption by any such successor of the
covenants of the Company herein and in the Securities; or
(2) to add to the covenants of the Company for the
benefit of the Holders, or to surrender any right or power
herein conferred upon the Company; or
(3) to secure the Securities; or
(4) to make provision with respect to the conversion
rights of Holders pursuant to the requirements of Section
1211; or
(5) to cure any ambiguity, to correct or supplement
any provision herein which may be inconsistent with any other
provision herein, or to make any other provisions with respect
to matters or questions arising under this Indenture which
shall not be inconsistent with the provisions of this
Indenture, provided such action pursuant to this Clause (5)
shall not adversely affect the interests of the Holders in any
material respect; or
(6) to comply with the Trust Indenture Act if the
Company reasonably determines that it is in the Company's best
interests to qualify this Indenture under the Trust Indenture
Act; or
(7) to provide for uncertificated Securities in
addition to or in place of certificated Securities.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities (including consents obtained in
connection with a tender offer or exchange offer for the Securities), by Act of
said Holders delivered to the Company, and the Trustee, the Company, when
authorized by Board Resolution, and the Trustee may enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
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of modifying in any manner the rights of the Holders under this Indenture and
any existing default and its consequences (including, without limitation, an
acceleration of the Securities) and compliance with any provision of this
Indenture or the Securities may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Securities (including
consents obtained in connection with a tender offer or exchange offer for the
Securities); provided, however, that no such supplemental indenture shall,
without the consent of the Holder of each Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of,
or any installment of interest on, any Security, or reduce the
principal amount thereof or the rate of interest thereon or
any premium payable upon the redemption thereof, or change the
coin or currency in which, any Security or any premium or the
interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the
Stated Maturity thereof (or, in the case of redemption, on or
after the Redemption Date or, in the case of a repurchase
pursuant to Article Fourteen, on or after 10 days following
the Repurchase Date), or adversely affect the right to convert
any Security as provided in Article Twelve (except as
permitted by Section 901(5)), or modify the provisions of this
Indenture with respect to the subordination of the Securities
in a manner adverse to the Holders, or
(2) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is
required for any such supplemental indenture, or the consent
of whose Holders is required for any waiver (of compliance
with certain provisions of this Indenture or certain defaults
hereunder and their consequences) provided for in this
Indenture, or
(3) modify any of the provisions of this Section or
Section 513, except to increase any such percentage or to
provide that certain other provisions of this Indenture cannot
be modified or waived without the consent of the Holder of
each Outstanding Security affected thereby; or adversely
modify or affect (in any manner adverse to the Holders) the
terms and conditions of the obligations of the Company under
Article Fourteen to repurchase the Securities.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and (subject to Section 601) shall be fully protected in relying
upon an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
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SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Company or the Trustee, bear a notation in form approved by the Trustee
as to any matter provided for in such supplemental indenture. If the Company
shall so determine, new Securities so modified as to conform, in the opinion of
the Company, to any such supplemental indenture may be prepared and executed by
the Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest.
The Company will pay the principal of, premium, if any, and
interest on the Securities in accordance with the terms of the Securities and
this Indenture. Principal, premium, if any, and interest shall be considered
paid on the date due if the Paying Agent (if other than the Company, or a
Subsidiary of the Company) holds as of 9:00 a.m. St. Louis time on the due date,
money deposited by or on behalf of the Company in immediately available funds
and designated for and sufficient to pay all principal, premium, if any, and
interest then due. Such Paying Agent shall return to the Company, no later than
three Business Days following the date of payment, any money (including Accrued
Current Interest and Accrued Deferred Interest) that exceeds such amount of
principal, premium, if any, and interest paid on the Securities. Holder
represented by definitive certificates must surrender such certificates to a
Paying Agent to collect principal payments.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in the borough of Manhattan, City of
New York, New York, the City of Chicago, Illinois, the City of St. Louis,
Missouri, or such location, an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange, where Securities may be surrendered for
conversion and where notices and demands to or upon the Company in respect of
the Securities relating thereto and this Indenture may be served. The Company
will give prompt written notice to the Trustee of the location, and any change
in the location, of such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee, and
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the Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company hereby initially designates the Corporate Trust
Office of the Trustee, located in the City of St. Louis, Missouri, as such
office of the Company. As of the date of this Indenture, the address of such
office is 510 Locust Street, Post Office Box 14737, St. Louis, Missouri
63178-4737. The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations.
SECTION 1003. Money for Security Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of, and premium, if any, or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal, and
premium, if any, or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it
will, prior to each due date of the principal of, and premium, if any, or
interest on any Securities, deposit with a Paying Agent a sum sufficient to pay
the principal, and premium, if any, or interest so becoming due on such
Securities, such sum to be held in trust for the benefit of the Persons entitled
to such principal premium or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of its action or failure
so to act.
The Company will cause each Paying Agent, other than the
Company or the Trustee, to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the
principal of (and premium, if any) or interest on Securities
in trust for the benefit of the Persons entitled thereto until
such sums shall be paid to such Persons or otherwise disposed
of as herein provided;
(2) give the Trustee notice of any default by the
Company (or any other obligor upon the Securities) in the
making of any payment of principal, and premium, if any, or
interest on the Securities; and
(3) at any time during the continuance of any such
Event of Default, upon the written request of the Trustee,
forthwith pay to the Trustee all sums so held in trust by such
Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company, or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
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such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of, and
premium, if any, or interest on any Security and remaining unclaimed for two
years after such principal, and premium, if any, or interest has become due and
payable shall be paid to the Company on Company Request, or if then held by the
Company shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company, as Trustee
thereof, shall thereupon cease.
SECTION 1004. Statements of Officers of Company as to Default.
The Company will deliver to the Trustee, within 120 days after
the end of each fiscal year of the Company ending after the date hereof, an
Officers' Certificate stating whether or not either signatory thereof knows of
any Event of Default that occurred during any such fiscal year and if so,
specifying the nature and status thereof of which such signatory has knowledge.
In no case, however, shall the Company fail to give written notice to the
Trustee of an Event of Default within 30 days of the occurrence of any such
Event of Default of which an officer of the Company has knowledge, so specifying
the nature and status thereof of which the officer of the Company has knowledge.
SECTION 1005. Limitations on Dividends, Redemptions, Etc.
The Company may not (1) declare or pay any dividend or make
any other distribution on any Junior Securities, (other than dividends or
distributions payable in Junior Securities), or (2) purchase, redeem or
otherwise acquire or retire for value any Junior Securities (other than Junior
Securities owned by the Company), except Junior Securities acquired upon
conversion thereof into other Junior Securities, or (3) permit a Subsidiary to
purchase, redeem or otherwise acquire or retire for value any Junior Securities
if, upon giving effect to such dividend, distribution, purchase, redemption,
retirement or other acquisition, a default in the payment of any interest upon
any Security when it becomes due and payable or a default in the payment of the
principal of, or premium, if any, on any Security at its Maturity shall have
occurred and be continuing.
SECTION 1006. Payment of Taxes and Other Claims.
The Company will pay or discharge, or cause to be paid or
discharged, before the same shall become delinquent, (1) all material taxes,
assessments and governmental charges levied or imposed upon it or upon its
income, profits or property, and (2) all material lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon its
property; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim the amount, applicability or validity of which is being contested in good
faith by appropriate proceedings.
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SECTION 1007. Limitations on Restricting Subsidiary Dividends.
The Company shall not and shall not permit any Subsidiary of
the Company to, create or otherwise cause to become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary of the
Company to (a) pay dividends or make any other distribution on its Capital
Stock, (b) pay any Indebtedness owed to the Company or any other Subsidiary of
the Company or (c) make loans, advances, or capital contributions to the Company
or any other Subsidiary of the Company except (i) as set forth in the instrument
evidencing or the agreement governing Acquired Indebtedness of any acquired
entity which becomes a Subsidiary of the Company, provided, that any restriction
or encumbrance under such instrument or agreement existed at the time of
acquisition, was not put in place in anticipation of such acquisition, and is
not applicable to any Person, other than the Person or property or assets of the
Person so acquired; (ii) by agreements and transactions permitted under Section
1005; (iii) customary provisions restricting subletting or assignment of any
lease or license of the Company or any Subsidiary of the Company; (iv) any
encumbrance or restriction arising under applicable law; (v) any encumbrance or
restriction arising under Indebtedness or other agreements existing on the date
of original issuance of the Securities; (vi) any restrictions, with respect to a
Subsidiary of the Company imposed pursuant to an agreement that has been entered
into for the sale or disposition of the stock, business, assets or properties of
such Subsidiary; (vii) any encumbrance or restriction arising under the terms of
purchase money obligations, but only to the extent such purchase money
obligations restrict or prohibit the transfer of the property so acquired;
(viii) any encumbrance or restriction arising under customary non-assignment
provisions in installment purchase contracts; (ix) any encumbrance or
restriction on the ability of any Subsidiary to transfer any of its property
acquired after the date hereof to the Company or any Subsidiary that is required
by a lender to, or purchaser of any Indebtedness of, such Subsidiary in
connection with a financing of the acquisition of such property (including with
respect to the purchase of asset portfolios and pursuant to the underwriting or
origination of mortgage loans) by such Subsidiary; (x) with respect to a special
purpose subsidiary which is engaged in the securitization of assets; and (xi)
any encumbrance or restriction pursuant to any agreement that extends,
refinances, renews or replaces any agreement described in the foregoing clauses
(i) through (x). The foregoing provision is not intended to prohibit any
encumbrance or restrictions on the ability of the insurance subsidiaries to pay
dividends arising out of reserves or changes in reserves on the Company's
annuity and life insurance policies.
SECTION 1008. Maintenance of Properties.
The Company will cause all its material properties (other than
properties obtained by the Company or any Subsidiary through foreclosure or
other resolution of any loan) used or useful in the conduct of its business to
be maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section shall prevent the Company from
discontinuing the operation and maintenance of any of its properties if such
discontinuance is, in the judgment of the Company, desirable in the conduct of
its business.
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SECTION 1009. Maintenance of Insurance.
The Company shall carry and maintain, and cause each of its
Subsidiaries to carry and maintain, insurance with financially sound and
reputable insurance companies or associations in such amounts and covering such
risks as is usually carried by similarly-situated companies engaged in similar
operations and owning similar properties in similar geographic areas in which
the Company or such Subsidiary operates, provided that such insurance is
generally available at commercially reasonable rates, and further provided that
the Company may self-insure, or insure through captive insurers or insurance
cooperatives to the extent consistent with prudent business practices. Such
insurance shall be in such amounts, contain such terms, be in such forms and be
for such periods as are customary for such similarly- situated companies in the
Company's industry and as are commercially reasonable. Such insurance may be
subject to such deductibles as are customary for such similarly-situated
companies in the Company's industry or insurance markets reasonably accessible
by the Company. The Company will provide and will cause each Subsidiary to
provide such information and documents reasonably requested by the Trustee from
time to time with respect to the Company's provision for insurance sufficient to
acknowledge that such insurance is in conformity with the requirements of this
Section 1009. The obligations evidenced by this covenant shall be interpreted to
reflect changes in insurance practices related to the method in which insurance
risks are covered in the North American and European markets or in any other
market in which the Company or its Subsidiaries, as the case may be, reasonably
places coverage.
SECTION 1010. Maintenance of Net Worth.
If the Company's Net Worth at the end of each of any two
consecutive fiscal quarters (the last day of such second fiscal quarter being
referred to as the "Acceleration Date"), is less than the Minimum Net Worth,
then the Company shall make an irrevocable, unconditional offer to all Holders
(an "Offer") to acquire, on or before the last day of the next following fiscal
quarter or, if the Acceleration Date is the last day of the Company's fiscal
year, the forty-fifth day after the last day of the next following fiscal
quarter (the "Accelerated Payment Date), the aggregate principal amount of all
Outstanding Securities, plus Accrued Current Interest and Accrued Deferred
Interest, if any, to and including such Accelerated Payment Date, which amounts
or portion thereof upon acceptance of such Offer by tender shall thereupon
become due and payable (the "Accelerated Payment").
For each fiscal quarter of the Company that its Net Worth is
less than or equal to the Minimum Net Worth, the Company shall deliver to the
Trustee an Officers' Certificate if such quarter is one of the first three
quarters of any fiscal year of the Company, within 45 days of the end of such
quarter and, if such quarter is the fourth quarter of any fiscal year of the
Company, within 90 days of the end of such fiscal year, stating that the Minimum
Net Worth has not been achieved.
The Trustee shall notify the Holders that it has received such
an Officer's Certificate from the Company within 10 days after it receives such
notice. Failure to give such notice shall not affect the obligations of the
Company pursuant to this Section 1010.
Notice of an Offer shall be sent, by first-class mail, by the
Company to each Holder at its registered address, with a copy to the Trustee,
not less than 30 days nor more than 60 days before the Accelerated Payment Date.
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The notice to the Holders shall contain all information, instructions and
materials required by applicable law or otherwise material to the decision of
Holders generally to tender Securities pursuant to the Offer. The Offer shall
remain open from the time of mailing until five Business Days before the
Accelerated Payment Date. The notice shall be accompanied by a copy of the
information regarding the Company required to be contained in a quarterly Report
on Form 10-Q (x) for the Company's first fiscal quarter if the Acceleration Date
is the end of the Company's second fiscal quarter, (y) for the Company's second
fiscal quarter if the Acceleration Date is the end of the Company's third fiscal
quarter or (z) for the Company's third fiscal quarter if the Acceleration Date
is the end of the Company's last fiscal quarter. If the Acceleration Date is the
end of the Company's first fiscal quarter, a copy of the information required to
be contained in an Annual Report to Shareholders pursuant to Rule 14a-3 under
the Exchange Act of the fiscal year ending immediately prior to such
Acceleration Date and in a quarterly Report on Form 10-Q for such first fiscal
quarter shall accompany the notice. If the Company is not subject to the filing
requirements of Section 13 or 15(d) of the Exchange Act at the Acceleration
Date, then the notice accompanying the Offer shall contain the correlative
information required to be furnished to the Holders pursuant to this provision.
The notice, which shall govern the terms of the Offer, shall state:
(1) that the Offer is being made pursuant to such
notice and this Section 1010;
(2) the amount of the Accelerated Payment, the
purchase price (including the amount of Accrued Current
Interest and Accrued Deferred Interest, if any) and the
Accelerated Payment Date;
(3) that the Company has elected to credit against
the Accelerated Payment and has delivered to the Trustee for
cancellation the Securities that are to be made the basis for
such credit;
(4) that any Security or portion thereof not tendered
or accepted for payment will continue to accrue interest if
interest is then accruing;
(5) that unless the Company defaults in depositing
U.S. legal tender with the Paying Agent in accordance with the
last paragraph of this Section 1010 or payment is otherwise
prevented, any Security, or portion thereof, accepted for
payment pursuant to the Offer shall cease to accrue interest
after the Accelerated Payment Date;
(6) that Holders electing to have a Security, or
portion thereof, purchased pursuant to an Offer will be
required to surrender the Security to the Paying Agent (which
may not for purposes of this Section 1010, notwithstanding any
other provision of this Indenture, be the Company, or any
Affiliate of the Company) at the address specified in the
notice prior to the close of business at least five Business
Days prior to the Accelerated Payment Date;
(7) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than five
Business Days prior to the Accelerated Payment Date, a
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telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the
Securities the Holder delivered for purchase and a statement
containing a facsimile signature that such Holder is
withdrawing his election to have such principal amount of
Securities purchased;
(8) that Holders whose Securities were purchased only
in part will be issued new Securities equal in principal
amount to the unpurchased portion of the Securities
surrendered.
Any such Offer shall comply with all applicable provisions of
federal and state laws regulating tender offers, if applicable, and any
provisions of this Indenture that conflict with such laws shall be deemed to be
superseded by the provisions of such laws.
On or before the close of business St. Louis, Missouri time on
an Accelerated Payment Date, the Company shall (i) accept for payment Securities
or portions thereof properly tendered pursuant to the Offer, (ii) deposit with
the Paying Agent U.S. legal tender sufficient to pay the purchase price of all
Securities or portions thereof so accepted and (iii) deliver to the Trustee
Securities so accepted together with an Officers' Certificate stating the
Securities or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail or deliver to Holders so accepted payment in an amount
equal to the Accelerated Payment for such Securities, and the Company shall
execute and the Trustee shall promptly authenticate and mail or deliver to such
Holders a new Security equal in principal amount to any unpurchased portion of
the Security surrendered. The Company will publicly announce the results of the
Offer on or as soon as practicable after the Accelerated Payment Date. If the
amount required to acquire all Securities tendered by Holders pursuant to the
Offer (the "Acceptance Amount") shall be less than the aggregate Accelerated
Payment amount, the excess of the aggregate Accelerated Payment amount over the
Acceptance Amount may be used by the Company for general corporate purposes
without restriction, unless otherwise restricted by the other provisions of this
Indenture.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Redemption at Option of the Company.
The Securities will be redeemable, at the option of the
Company, in whole, but not in part, on any date on or after July 1, 1999 and
prior to Maturity at a Redemption Price (as expressed as a percentage of
principal amount) set forth below with respect to the indicated Redemption Date.
If redeemed during the twelve month period beginning July 1:
1999 103.00
2000 102.25
2001 101.50
2002 100.75
on July 12, 2003 100.00
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In addition, at the time of such redemption a Holder will
receive Accrued Current Interest and Accrued Deferred Interest to the Redemption
Date. If a Holder converts Securities following notice of redemption, such
Holder will receive Accrued Current Interest and Accrued Deferred Interest to
the date of conversion.
SECTION 1102. Redemption at Option of the Company (European Call).
The Securities may be redeemed at the option of the Company
after August 15, 1996, in whole, but not in part, at a Redemption Price of their
principal amount plus Accrued Current Interest to the Redemption Date, if for 20
consecutive Trading Days immediately preceding the fifth day prior to notice of
redemption, the average Closing Price of the Common Stock has equaled or
exceeded 135% of the Conversion Price, subject to adjustment in the case of the
same events which would result in an adjustment of the Conversion Price as
provided in Section 1204 of this Indenture. Redemption of Securities under this
option shall be evidenced by a Board Resolution.
SECTION 1103. Put Option.
The Securities may be redeemed, in whole or in part, in
increments of $1,000 on a Redemption Date of September 30, 2001, at the option
of Holders thereof, at a Redemption Price of 124.250% of the principal amount to
be redeemed plus Accrued Current Interest to September 30, 2001 (the "Put
Option"). To exercise the Put Option, a Holder must deliver his Security, on or
before June 30, 2001 ("Put Date"), but not prior to April 30, 2001, at the
office of one of the Paying Agents designated in the Company Notice described
below. Along with the Security, a Holder must also deliver a duly completed
written notice, substantially in the form provided on the reverse side of the
Security, of such Holder's election to exercise the Put Option. Exercise of the
Put Option by the Holder will be irrevocable. However, Holders who exercise the
Put Option will retain the right to convert such Security into Common Stock,
provided that notice to such effect, in the form provided on the reverse side of
the Security, and the Holder's nontransferable receipt received from the Paying
Agent upon deposit of such Securities, are delivered on or prior to the Put Date
to the Paying Agent holding the Securities to be converted, as provided in this
Indenture.
SECTION 1104. Interest Installment Requirement.
Interest installments whose Stated Maturity is on or prior to
any Redemption Date will be payable on the Interest Payment Date for such
installment to the Holders of such Securities (or one or more Predecessor
Securities) of record at the close of business on the Regular Record Dates
referred to on the face of the Securities.
SECTION 1105. Notice of Redemption/Put.
Notice of redemption shall be given by first-class mail,
postage prepaid, mailed not less than 45 nor more than 60 days prior to the
Redemption Date in Sections 1101 and 1102 or not less than 75 nor more than 100
days prior to the Put Date in Section 1103 to the Paying Agent and to each
Holder eligible for redemption at the Paying Agent's and such Holder's
respective addresses appearing in the Security Register; provided that, if the
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Trustee is to give notice of redemption, the Company shall give reasonable
notice to the Trustee to permit the Trustee to give timely notice to the Paying
Agent and each Holder eligible for redemption.
All notices of redemption shall state:
(1) the Redemption Date or Put Date, as the case may be,
(2) the Redemption Price,
(3) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security to be redeemed and that interest
thereon will cease to accrue on and after said date,
(4) the Conversion Price, the date on which the right to
convert the principal of the Securities to be redeemed will terminate and the
place or places where such Securities may be surrendered for conversion, and
(5) the place or places where such Securities are to be
surrendered for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed under
Article Eleven shall be given by the Company or, at the Company's request, by
the Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
On or prior to the Redemption Date, the Company shall deposit
with the Trustee or with a Paying Agent at or prior to 9:00 a.m. St. Louis time
(or, if the Company is acting as its own Paying Agent, segregate and hold in
trust as provided in Section 1003) an amount of money, which shall be good funds
on the Redemption Date, sufficient to pay the Redemption Price and any interest
accrued but unpaid on all the Securities which are to be redeemed on that date,
other than any Securities called for redemption on that date which have been
converted prior to the date of such deposit.
If any Security called for redemption is converted, any money
deposited with the Trustee or with any Paying Agent or so segregated and held in
trust for the redemption of such Security shall (subject to any right of the
Holder of such Security or any Predecessor Security to receive interest as
provided in the last paragraph of Section 307) be paid to the Company upon
Company Request or, if then held by the Company, shall be discharged from such
trust.
SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price plus any interest accrued but unpaid, and from
and after such date (unless the Company shall default in the payment of the
Redemption Price or any interest accrued thereon) such Securities shall cease to
bear interest. Upon surrender of any such Security for redemption in accordance
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with said notice, such Security shall be paid by the Company at the Redemption
Price, together with any interest accrued but unpaid.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at the rate borne by
the Security.
SECTION 1108. Conversion Arrangements on Call for Redemption.
Notwithstanding anything to the contrary contained in this
Indenture, in connection with any redemption of Securities, the Company, by an
agreement with one or more investment bankers or other purchasers, may arrange
for such purchasers to purchase all Securities called for redemption (the
"Called Securities") which are either (i) surrendered for redemption or (ii) not
duly surrendered for redemption or conversion prior to the close of business on
the Redemption Date, and to convert the same into shares of Common Stock, by the
purchasers' depositing with the Trustee (acting as Paying Agent with respect to
the deposit of such amount and as Conversion Agent with respect to the
conversion of such Called Securities), in trust for the Holders of the Called
Securities, on or prior to the Redemption Date in the manner agreed to by the
Company and such purchasers, an amount sufficient to pay the Redemption Price,
payable by the Company on redemption of such Called Securities. In connection
with any such arrangement for purchase and conversion, the Trustee as Paying
Agent shall pay on or after the Redemption Date such amounts so deposited by the
purchasers in exchange for Called Securities surrendered for redemption prior to
the close of business on the Redemption Date and for all Called Securities
surrendered after such Redemption Date. Notwithstanding anything to the contrary
contained in this Article Eleven, the obligation of the Company to pay the
Redemption Price of such Called Securities shall be satisfied and discharged to
the extent such amount is so paid by such purchasers, provided, however, that
nothing in this Section 1108 shall in any way relieve the Company of the
obligation to pay such Redemption Price on all Called Securities to the extent
such amount is not so paid by said purchasers. For purposes of this Indenture,
any Called Securities surrendered by the Holders for redemption, and any Called
Securities not duly surrendered for redemption or conversion prior to the close
of business on the Redemption Date, shall be deemed acquired by such purchasers
from such Holders and surrendered by such purchasers for conversion and shall in
all respects be deemed to have been converted, all as of immediately prior to
the close of business on the Redemption Date, subject to the deposit by the
purchasers of the above amount as aforesaid. Nothing in this Section 1108 shall
in any way limit the right of any Holder to convert his Security pursuant to the
terms of this Indenture any time prior to the close of business on the fifth day
preceding the Redemption Date, or on or prior to the Put Date, as the case may
be.
ARTICLE TWELVE
CONVERSION OF SECURITIES
SECTION 1201. Conversion Privilege and Conversion Price.
Subject to and upon compliance with the provisions of this
Article, at the option of the Holder thereof, any Outstanding Security or any
portion of the principal amount thereof which is $1,000 or an integral multiple
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of $1,000 may be converted at the principal amount thereof, or of such portion
thereof, into fully paid and nonassessable shares of Common Stock of the
Company, obtained by dividing the principal amount of such Security to be
converted by the Conversion Price, determined as hereinafter provided, in effect
at the time of conversion. Such conversion right shall expire at the close of
business on July 12, 2003. In case a Security is called for redemption under
Section 1101 or Section 1102, such conversion right in respect of the Security
so called shall expire at the close of business on the fifth day preceding the
Redemption Date, unless (i) the Company defaults in making the payment due upon
redemption or (ii) the Company has made arrangements under Section 1108 to have
a standby purchaser, provided that, in the case of this clause (ii) such
arrangements shall suspend the expiration of conversion rights only with respect
to Securities to be purchased by such standby purchaser. The Conversion Price
shall be initially $17.125 per share of Common Stock. The Conversion Price shall
be reduced in certain instances as provided in paragraphs (1), (2), (3), (4),
(5) and (6) of Section 1204 and shall be increased in certain instances as
provided in paragraph (3) of Section 1204. Any Holder that elects to convert
Securities following notice of redemption pursuant to Section 1101, such Holder
will also receive Accrued Deferred Interest and Accrued Current Interest to the
date of such conversion.
In case the Company shall, by dividend or otherwise, declare
or make a distribution on its Common Stock referred to in paragraph (4) or (5)
of Section 1204, the Holder, upon the conversion thereof pursuant to this
Article subsequent to the close of business on the date fixed for the
determination of stockholders entitled to receive such distribution and prior to
the effectiveness of the Conversion Price adjustment in respect of such
distribution pursuant to paragraph (4) or (5) of Section 1204, shall also be
entitled to receive for each share of Common Stock into which such Security is
converted, the portion of the evidences of Indebtedness, shares of capital
stock, cash and assets so distributed applicable to one share of Common Stock,
provided that, at the election of the Company (whose election shall be evidenced
by a Board Resolution) with respect to all Holders so converting, the Company
may, in lieu of distributing to such Holder any portion of such distribution not
consisting of cash or securities of the Company, pay such Holder an amount in
cash equal to the fair market value thereof (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution). If any conversion of a Security described in the immediately
preceding sentence occurs prior to the payment date for a distribution to
holders of Common Stock which the Holder of the Security so converted is
entitled to receive in accordance with the immediately preceding sentence, the
Company may elect (such election to be evidenced by a Board Resolution) to
distribute to such Holder a due bill for the evidences of Indebtedness, shares
of capital stock, cash or assets to which such Holder is so entitled, provided
that such due bill (i) meets any applicable requirements of the principal
national securities exchange or other market on which the Common Stock is then
traded and (ii) requires payment or delivery of such evidences of Indebtedness,
shares of capital stock, cash or assets no later than the date of payment or
delivery thereof to holders of Common Stock receiving such distribution.
SECTION 1202. Exercise of Conversion Privilege.
In order to exercise the conversion privilege, the Holder of
any Security to be converted shall surrender such Security, duly endorsed or
assigned to the Company or in blank, at any office or agency maintained by the
Company pursuant to Section 1002, accompanied by written notice to the Company
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at such office or agency that the Holder elects to convert such Security or, if
less than the entire principal amount thereof is to be converted, the portion
thereof to be converted. Such notice shall also state the name or names (with
address and taxpayer identification number) in which the certificate or
certificates for shares of Common Stock issuable on such conversion shall be
issued. Each Security surrendered for conversion shall, unless the shares
issuable on conversion are to be issued in the same name as the registration of
such Security, be accompanied by instruments of transfer, in form satisfactory
to the Company and to the Conversion Agent, duly executed by the Holder or his
duly authorized attorney.
Securities surrendered for conversion during the period from
the close of business on any Regular Record Date next preceding any Interest
Payment Date to the opening of business on such Interest Payment Date (except
for Securities whose Maturity is prior to such Interest Payment Date and
Securities called for redemption on a Redemption Date within such period) shall
be accompanied by a certified or bank check or wire transfer of immediately
available funds made payable to the Company of an amount equal to the interest
payable on such Interest Payment Date on the principal amount of Securities
being surrendered for conversion. Upon receipt of any such check or wire
transfer, the Trustee shall forward such funds to the Company. Subject to the
aforesaid requirement for payment and, in the case of a conversion after the
Regular Record Date next preceding any Interest Payment Date and on or before
such Interest Payment Date, to the right of the Holder (or of any Predecessor
Security) of record at such Regular Record Date to receive an installment of
interest, no payment or adjustment is to be made on conversion for Accrued
Current Interest and Accrued Deferred Interest or for dividends on the Common
Stock issued on conversion (with certain exceptions provided in the Section
1101).
Securities shall be deemed to have been converted immediately
prior to the close of business on the last day prior to day of surrender of such
Securities for conversion in accordance with the foregoing provisions, and at
such time the rights of the Holders of such Securities as Holders shall cease,
and the Person or Persons entitled to receive the Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock at such time; provided, however, that any such surrender on
any date when the stock transfer books of the Company shall be closed shall
constitute the Person or Persons in whose name or names the certificate or
certificates for such shares are to be issued as the record Holder or Holders
thereof for all purposes at the opening of business at the next succeeding day
on which such stock transfer books are opened and the Securities surrendered
shall not be deemed to have been converted, in whole or in part as the case may
be, until such date for the purpose of determining whether any interest is
payable thereon. As promptly as practicable on or after the conversion date, the
Company shall issue and shall deliver at such office or agency a certificate or
certificates for the number of full shares of Common Stock issuable upon
conversion, together with payment in lieu of any fraction of a share, as
provided in Section 1203.
In the case of any Security which is converted in part only,
upon such conversion the Company shall execute and the Trustee shall
authenticate and deliver to the Holder thereof, at the expense of the Company, a
new Security or Securities of authorized denominations in aggregate principal
amount equal to the unconverted portion of the principal amount of such
Security.
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SECTION 1203. Fractions of Shares.
No fractional shares of Common Stock shall be issued upon
conversion of Securities. If more than one Security shall be surrendered for
conversion at one time by the same Holder, the number of full shares which shall
be issuable upon conversion thereof shall be computed on the basis of the
aggregate principal amount of the Securities (or specified portions thereof) so
surrendered. Instead of any fractional share of Common Stock which would
otherwise by issuable upon conversion of any Security or Securities (or
specified portions thereof), the Company may either issue a number of shares of
Common Stock which reflects a rounding up to the next whole number or pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
of the Closing Price per share of the Common Stock at the close of business on
the last day prior to the day of conversion (or, if such day is not a Trading
Day, on the Trading Day immediately preceding such day).
SECTION 1204. Adjustment of Conversion Price.
(1) In case the Company shall pay or make a dividend or other
distribution on its Common Stock exclusively in Common Stock or shall pay or
make a dividend or other distribution on any other class of Capital Stock of the
Company which dividend or distribution includes Common Stock, the Conversion
Price in effect at the opening of business on the day following the date fixed
for the determination of stockholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such Conversion Price by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day following
the date fixed for such determination. For the purposes of this paragraph (1),
the number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of Common
Stock.
(2) In case the Company shall issue or distribute Common Stock
pursuant to an offering effected at a discount of more than 25% from the
then-current market price per share (determined as provided in paragraph (8) of
this Section, provided, however, that such discount calculation shall exclude
all underwriting discounts, commissions and fees, transaction costs and other
similar charges) or pay or make a dividend or other distribution on its Common
Stock consisting exclusively of, or shall otherwise issue to holders of its
Common Stock, rights entitling the holders thereof to subscribe for or purchase
shares of Common Stock at a price per share less than the then-current market
price per share (determined as provided in paragraph (8) of this Section,
provided, however, that in the case of issuances to other than the Company's
stockholders generally, the current market price shall be the Closing Price of
the Common Stock on the date such rights or warrants are actually issued) of the
Common Stock on the date fixed for the determination of stockholders entitled to
receive such rights or warrants or, in the case of issuances to other than the
Company's stockholders generally, the date such rights or warrants are actually
issued, then the Conversion Price in effect at the opening of business on the
day following the date fixed for such determination or, in the case of issuances
to other than the Company's stockholders generally, the date such rights or
warrants are actually issued, shall be reduced by multiplying such Conversion
Price by a fraction of which the numerator shall be the number of shares of
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Common Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock which the aggregate of
the offering price of the total number of shares of Common Stock so offered for
subscription or purchase would purchase at such current market price and the
denominator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination plus the number of
shares of Common Stock so offered for subscription or purchase, such reduction
to become effective immediately after the opening of business on the day
following the date fixed for such determination or, in the case of issuances to
other than the Company's stockholders generally, the date such rights or
warrants are actually issued. For the purposes of this paragraph (2), the number
of shares of Common Stock at any time outstanding shall not include shares held
in the treasury of the Company but shall include shares issuable in respect of
scrip certificates issued in lieu of fractions of shares of Common Stock.
(3) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the Conversion Price
in effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately reduced, and,
conversely, in case outstanding shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock, the Conversion Price in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such reduction
or increase, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such subdivision or
combination becomes effective.
(4) Subject to the last sentence of this paragraph (4), in
case the Company or any Subsidiary not a Whole Subsidiary shall, by dividend or
otherwise, distribute to holders of Common Stock generally or to holders (other
than the Company or Whole Subsidiaries) of Capital Stock of any Subsidiary not a
Whole Subsidiary, evidences of Indebtedness of the Company or assets including
shares of any class of Capital Stock, cash or other securities, but excluding
any rights or warrants referred to in paragraph (2) of this Section, excluding
any dividend or distribution paid exclusively in cash out of retained or current
earnings and excluding any dividend or distribution referred to in paragraph (1)
of this Section, the Conversion Price shall be reduced so that the same shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to the effectiveness of the Conversion Price reduction
contemplated by this paragraph (4) by a fraction of which the numerator shall be
the current market price per share (determined as provided in paragraph (8) of
this Section) of the Common Stock on the date of such effectiveness less the
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution), on the date of such
effectiveness, of the portion of the evidences of Indebtedness, shares of
Capital Stock, cash and assets so distributed (other than to the Company or
Whole Subsidiaries) applicable to one share of Common Stock and the denominator
shall be such current market price per share of the Common Stock, such reduction
to become effective immediately prior to the opening of business on the day
following the later of (a) the date fixed for the payment of such distribution
and (b) the date 20 days after the notice relating to such distribution is given
pursuant to Section 1206(a) (such later date of (a) and (b) being referred to as
the "Reference Date"). If the Board of Directors determines the fair market
value of any distribution for purposes of this paragraph (4) by reference to the
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actual or when issued trading market for any securities comprising such
distribution, it must in doing so consider the prices in such market over the
same period used in computing the current market price per share pursuant to
paragraph (8) of this Section. For purposes of this paragraph (4), any dividend
or distribution that is governed by this paragraph (4) that includes shares of
Common Stock, rights or warrants to subscribe for or purchase shares of Common
Stock or other securities convertible into or exchangeable for shares of Common
Stock shall be deemed instead to be (a) a dividend or distribution of the
evidences of Indebtedness, cash, assets or shares of Capital Stock other than
such shares of Common Stock, such rights or warrants or such other convertible
or exchangeable securities (making any Conversion Price reduction required by
this paragraph (4)) immediately followed by (b) in the case of such shares of
Common Stock or such rights or warrants to subscribe for or purchase shares of
Common Stock, a dividend or distribution thereof (making any further Conversion
Price reduction required by paragraph (1) or (2) of this Section, except (i) the
Reference Date of such dividend or distribution as defined in this paragraph (4)
shall be substituted as "the date fixed for the determination of stockholders
entitled to receive such distribution" and "the date fixed for such
determination" within the meaning of paragraphs (1) and (2) of this Section and
(ii) any shares of Common Stock included in such dividend or distribution shall
not be deemed "outstanding at the close of business on the date fixed for such
determination" within the meaning of paragraph (1) of this Section) or (c) in
the case of such other securities convertible into or exchangeable for shares of
Common Stock, a dividend or distribution of such number of shares of Common
Stock as would then be issuable upon the conversion or exchange thereof, whether
or not the conversion or exchange of such securities is subject to any
conditions (making any further Conversion Price reduction required by paragraph
(1) of this Section, except (i) the Reference Date of such dividend or
distribution as defined in this paragraph (4) shall be substituted as "the date
fixed for the determination of stockholders entitled to receive such
distribution" and "the date fixed for such determination" and (ii) the shares of
Common Stock deemed to constitute such dividend or distribution shall not be
deemed "outstanding at the close of business on the date fixed for such
determination," each within the meaning of paragraph (1) of this Section).
(5) In case the Company or any Subsidiary not a Whole
Subsidiary shall, by dividend or otherwise, at any time distribute to holders of
Common Stock generally or to holders (other than the Company or Whole
Subsidiary) of Capital Stock of any Subsidiary not a Whole Subsidiary cash
(excluding any cash that is distributed as part of a distribution referred to in
paragraph (4) of this Section for which adjustment is made pursuant to such
paragraph (4) of this Section) in an aggregate amount that, together with (i)
the aggregate amount of any other distributions to holders of Common Stock
generally and to holders (other than the Company or Whole Subsidiary) of Capital
Stock of any Subsidiary not a Whole Subsidiary made exclusively in cash within
the 12 months preceding the date of payment of such distribution and in respect
of which no Conversion Price adjustment pursuant to this Section has been made
and (ii) the aggregate of any cash plus the fair market value (as determined by
the Board of Directors, whose determination shall be conclusive and described in
a Board Resolution) of consideration payable in respect of all Tender Offers by
the Company or a Subsidiary not a Whole Subsidiary for all or any portion of the
Company's Common Stock consummated within the 12 months preceding the date of
payment of such distribution and in respect of which no Conversion Price
adjustment pursuant to paragraph (6) of this Section has been made, exceeds
12.5% of the product of the current market price per share (determined as
provided in paragraph (8) of this Section) of the Common Stock on the date fixed
for stockholders entitled to receive such distribution multiplied by the number
of shares of Common Stock outstanding on such date, the Conversion Price shall
be reduced so that the same shall equal the price determined by multiplying the
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Conversion Price in effect immediately prior to the effectiveness of the
Conversion Price reduction contemplated by this paragraph (5) by a fraction of
which the numerator shall be the current market price per share (determined as
provided in paragraph (8) of this Section) of the Common Stock on the date of
such effectiveness less the amount of cash so distributed applicable to one
share of Common Stock and the denominator shall be such current market price per
share of the Common Stock, such reduction to become effective immediately prior
to the opening of business on the later of (a) the day following the date fixed
for the payment of such distribution and (b) the date 20 days after the notice
relating to such distribution is given pursuant to Section 1206(a).
(6) In case a Tender Offer shall expire and such Tender Offer
shall involve an aggregate consideration having a fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution) on the last time (the "Expiration Time")
tenders may be made pursuant to such Tender Offer (as it may be amended) that,
together with (i) the aggregate of the cash plus the fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution), as of the expiration of such Tender Offer,
of consideration payable in respect of any Tender Offer by the Company or a
Subsidiary not a Whole Subsidiary for all or any portion of the Company's Common
Stock expiring within the 12 months preceding the consummation of such Tender
Offer and in respect of which no Conversion Price adjustment pursuant to this
paragraph (6) has been made and (ii) the aggregate amount of any distributions
to holders of the Company's Common Stock generally and to holders (other than
the Company or any Subsidiary which is not a Whole Subsidiary) of capital stock
of any Subsidiary not a Whole Subsidiary made exclusively in cash within the 12
months preceding the expiration of such Tender Offer and in respect of which no
Conversion Price adjustment pursuant to this Section has been made, exceeds
12.5% of the product of the current market price per share (determined as
provided in paragraph (8) of this Section) of the Common Stock on the Expiration
Time multiplied by the number of shares of Common Stock outstanding (including
any tendered shares) on the Expiration Time, the Conversion Price shall be
reduced so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the Expiration Time by a
fraction of which the numerator shall be (i) the product of the current market
price per share (determined as provided in paragraph (8) of this Section) of the
Common Stock on the Expiration Time multiplied by the number of shares of Common
Stock outstanding (including any tendered shares) on the Expiration Time minus
(ii) the fair market value (determined as aforesaid) of the aggregate
consideration payable to holders of Common Stock or holders of Capital Stock of
a Subsidiary (other than the Company or any Subsidiary which is not a Whole
Subsidiary) based on the acceptance (up to any maximum specified in the terms of
the tender offer) of all shares validly tendered and not withdrawn as of the
Expiration Time pursuant to the Tender Offer referred to in this paragraph in
the definition of "Expiration Time" (the shares deemed so accepted, up to any
such maximum, being referred to as the "Purchased Shares") and the denominator
shall be the product of (i) such current market price per share (determined as
provided in paragraph (8) of this Section) on the Expiration Time multiplied by
(ii) such number of outstanding shares on the Expiration Time less the number of
Purchased Shares, such reduction to become effective immediately prior to the
opening of business on the day following the Expiration Time. "Tender Offer,"
wherever used herein, means a tender offer by the Company or any Subsidiary not
a Whole Subsidiary for Common Stock.
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(7) The reclassification of Common Stock into other
securities, including Common Stock (other than any reclassification upon a
consolidation or merger to which Section 1211 applies) shall be deemed to
involve (a) a distribution of such securities other than Common Stock to all
holders of Common Stock (and the effective date of such reclassification shall
be deemed to be "the Reference Date" within the meaning of paragraph (4) of this
Section), and (b) a subdivision or combination, as the case may be, of the
number of shares of Common Stock outstanding immediately prior to such
reclassification into the number of shares of Common Stock outstanding
immediately thereafter (and the effective date of such reclassification shall be
deemed to be "the day upon which such subdivision becomes effective" or "the day
upon which such combination becomes effective," as the case may be, and "the day
upon which such subdivision or combination becomes effective" within the meaning
of paragraph (3) of this Section). Rights or warrants issued by the Company to
holders of Common Stock generally entitling the holders thereof to subscribe for
or purchase shares of Common Stock, which rights or warrants (i) are deemed to
be transferred with such shares of Common Stock, (ii) are not exercisable and
(iii) are also issued in respect of future issuances of Common Stock, in each
case in clauses (i) through (iii) until the occurrence of a specified event or
events ("Trigger Event), shall for purposes of this Section 1204 not be deemed
issued until the occurrence of the earliest Trigger Event.
(8) Unless otherwise expressly specified, for the purpose of
any computation under this paragraph and paragraphs (2), (4) and (5) of this
Section, the current market price per share of Common Stock on any date shall be
deemed to be the average of the daily Closing Prices for the 5 consecutive
Trading Days selected by the Company commencing not more than 20 Trading Days
before, and ending not later than, the date in question provided, however, that
(i) if the "ex" date for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the Conversion Price
pursuant to paragraph (1), (2), (3), (4), (5) or (6) above occurs on or after
the 20th Trading Day prior to the day in question and prior to the "ex" date for
the issuance or distribution requiring such computation, the Closing Price for
each Trading Day prior to the "ex" date for such other event shall be adjusted
by multiplying such Closing Price by the same fraction by which the Conversion
Price is so required to be adjusted as a result of such other event, (ii) if the
"ex" date for any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the Conversion Price pursuant to
paragraph (1), (2), (3), (4), (5) or (6) above occurs on or after the "ex" date
for the issuance or distribution requiring such computation and on or prior to
the day in question, the Closing Price for each Trading Day on and after the
"ex" date for such other event shall be adjusted by multiplying such Closing
Price by the reciprocal of the fraction by which the Conversion Price is so
required to be adjusted as a result of such other event, and (iii) if the "ex"
date for the issuance or distribution requiring such computation is on or prior
to the day in question, after taking into account any adjustment required
pursuant to clause (ii) of this proviso, the Closing Price for each Trading Day
on or after such "ex" date shall be adjusted by adding thereto the amount of any
cash and the fair market value on the day in question (as determined by the
Board of Directors in a manner consistent with any determination of such value
for purposes of paragraph (4) or (5) of this Section, whose determination shall
be conclusive and described in a Board Resolution) of the evidences of
Indebtedness, shares of Capital Stock or assets being distributed applicable to
one share of Common Stock, as of the close of business on the day before such
"ex" date. For the purpose of any computation under paragraph (6) of this
Section, the current market price per share of Common Stock, on any date shall
be deemed to be the average of the daily Closing Prices for the 5 consecutive
Trading Days selected by the Company commencing on or after the latest (the
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"Commencement Date") of (i) the date 20 Trading Days before the date in
question, (ii) the date of commencement of the tender offer requiring such
computation and (iii) the date of the last amendment, if any, of such tender
offer involving a change in the maximum number of shares for which tenders are
sought or a change in the consideration offered, and ending not later than the
Expiration Time of such tender offer; provided, however, that if the "ex" date
for any event (other than the tender offer requiring such computation) that
requires an adjustment to the Conversion Price pursuant to paragraph (1), (2),
(3), (4), (5) or (6) above occurs on or after the Commencement Date and prior to
the Expiration Time for the tender offer requiring such computation, the Closing
Price for each Trading Day prior to the "ex" date, for such other event shall be
adjusted by multiplying such Closing Price by the same fraction by which the
Conversion Price is so required to be adjusted as a result of such other event.
For purposes of this paragraph, the term "ex" date, (i) when used with respect
to any issuance or distribution, means the first date on which the Common Stock
trades regular way on the relevant exchange or in the relevant market from which
the Closing Price was obtained without the right to receive such issuance or
distribution, (ii) when used with respect to any subdivision or combination of
shares of Common Stock, means the first date on which the Common Stock trades
regular way on such exchange or in such market after the time at which such
subdivision or combination becomes effective, and (iii) when used with respect
to any Tender Offer means the first date on which the Common Stock trades
regular way on such exchange or in such market after the Expiration Time of such
Tender Offer.
(9) The Company may, but shall not be required to, make such
reductions in the Conversion Price, in addition to those required by paragraphs
(1), (2), (3), (4), (5) and (6) of this Section, as it considers to be advisable
in order that any event treated for Federal income tax purposes as a dividend of
stock or stock rights shall not be taxable to the recipients.
(10) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Conversion Price; provided, however, that any adjustments which by reason of
this paragraph (10) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(11) Notwithstanding any other provision of this Section 1204,
no adjustment to the Conversion Price shall reduce the Conversion Price below
the then par value per share of the Common Stock, and any such purported
adjustment shall instead reduce the Conversion Price to such par value. The
Company hereby covenants not to take any action (i) to increase the par value
per share of the Common Stock other than in connection with one or more reverse
stock splits or (ii) that would or does result in any adjustment in the
Conversion Price that, if made without giving effect to the previous sentence,
would cause the Conversion Price to be less than the then par value per share of
the Common Stock; provided, that the covenant in this sentence shall be
suspended if within 10 days of determining in good faith that such action would
result in such adjustment (but not later than the Business Day following the
effectiveness of such adjustment), the Company gives a notice under Section 1104
and effects the redemption referred to in such notice on the Redemption Date
referred to therein, but shall be retroactively reinstated if such notice or
redemption does not occur.
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SECTION 1205. Notice of Adjustments of Conversion Price.
Whenever the Conversion Price is adjusted as herein provided:
(a) the Company shall compute the adjusted Conversion Price in
accordance with Section 1204 and shall prepare a certificate signed by the
Treasurer of the Company setting forth the adjusted Conversion Price and showing
in reasonable detail the facts upon which such adjustment is based, and such
certificate shall forthwith be filed (with a copy to the Trustee) at each office
or agency maintained for the purpose of conversion of Securities pursuant to
Section 1002; and
(b) a notice stating that the Conversion Price has been
adjusted and setting forth the adjusted Conversion Price shall forthwith be
required, and as soon as practicable after it is required, such notice shall be
mailed by the Company to all Holders at their last addresses as they shall
appear in the Security Register.
SECTION 1206. Notice of Certain Corporate Action.
In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable (i) otherwise than exclusively in cash
or (ii) exclusively in cash in an amount that would require a Conversion Price
adjustment pursuant to paragraph (5) of Section 1204; or
(b) the Company shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any shares
of Capital Stock of any class or of any other rights (excluding rights, warrants
or options issuable in connection with any employee benefit plan); or
(c) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding shares of Common
Stock), or of any consolidation or merger to which the Company is a party and
for which approval of any stockholders of the Company is required, or of the
sale or transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(e) the Company or any Subsidiary of the Company shall
commence a Tender Offer (or shall amend any such Tender Offer);
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Securities pursuant to Section 1002, and shall
cause to be mailed to all Holders at their last addresses as they shall appear
in the Security Register, at least 20 days (or 10 days in any case specified in
clause (a), (b) or (e) above) prior to the applicable record, effective or
expiration date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution or granting
of rights or warrants, or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such dividend,
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distribution, rights or warrants are to be determined, or (y) the date on which
such reclassification, consolidation, merger, sale, offer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up, or (z) the date on which such Tender
Offer commenced, the date on which such Tender Offer is scheduled to expire
unless extended, the consideration offered and the other material terms thereof
(or the material terms of any amendment thereto).
SECTION 1207. Company to Reserve Common Stock.
The Company shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued Common Stock,
for the purpose of effecting the conversion of Securities, the full number of
shares of Common Stock then issuable upon the conversion of all Outstanding
Securities.
SECTION 1208. Taxes on Conversions.
The Company will pay any and all taxes that may be payable in
respect to the issue or delivery of shares of Common Stock on conversion of
Securities pursuant hereto. The Company shall not, however, be required to pay
any tax which may be payable in respect of any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that of the Holder
of the Security or Securities to be converted, and no such issue or delivery
shall be made unless and until the Person requesting such issue has paid to the
Company the amount of any such tax, or has established to the satisfaction of
the Company that such tax has been paid.
SECTION 1209. Covenant as to Common Stock.
The Company covenants that all shares of Common Stock which
may be issued upon conversion of Securities will upon issue be fully paid and
nonassessable and, except as provided in Section 1208, the Company will pay all
taxes, liens and charges with respect to the issue thereof.
SECTION 1210. Cancellation of Converted Securities.
All Securities delivered for conversion shall be delivered to
the Trustee to be cancelled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 309.
SECTION 1211. Provisions in Case of Consolidation, Merger or Sale of Assets.
Subject to any applicable right of each Holder of Securities
to cause the Company to purchase his Securities upon a Repurchase Event pursuant
to the provisions of Article Fourteen of this Indenture, in case of any
consolidation of the Company with, or merger of the Company into, any other
Person, any merger of another Person into the Company (other than a merger which
does not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the Company) or any sale or transfer of
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all or substantially all of the assets of the Company, the Person formed by such
consolidation or resulting from such merger or which acquires such assets, as
the case may be, shall execute and deliver to the Trustee a supplemental
indenture providing that the Holder of each Security then outstanding and such
Person shall have the right thereafter, during the period such Security shall be
convertible as specified in Section 1201, to convert such Security only into the
kind and amount of securities, cash and other property receivable, if any, upon
such consolidation, merger, sale or transfer by a holder of the number of shares
of Common Stock of the Company into which such Security might have been
converted immediately prior to such consolidation, merger, sale or transfer,
assuming such holder of Common Stock of the Company (i) is not a Person with
which the Company consolidated or into which the Company merged or which merged
into the Company or to which such sale or transfer was made, as the case may be
("constituent Person"), or an Affiliate of a constituent Person and (ii) failed
to exercise his rights of election, if any, as to the kind or amount of
securities, cash and other property receivable upon such consolidation, merger,
sale or transfer (provided that if the kind or amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer is
not the same for each share of Common Stock of the Company held immediately
prior to such consolidation, merger, sale or transfer by other than a
constituent Person or an Affiliate thereof and in respect of which such rights
of election shall not have been exercised ("non-electing share"), then for the
purpose of this Section the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the nonelecting shares). Such supplemental indenture
shall provide for adjustments which, for events subsequent to the effective date
of such supplemental indenture, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article. The above
provisions of this Section shall similarly apply to successive consolidations,
mergers, sales or transfers.
SECTION 1212. Company to Cause Registration of Common Stock.
The Company has agreed to file a registration statement with
the Commission which, when and if it becomes effective, would allow the resale
by the Holders from time-to-time of the Common Stock (into which the Securities
can be converted) on the New York Stock Exchange, in other permitted public
sales or in privately negotiated transactions. This registration statement will,
when and if it becomes effective, also allow the resale by the Holders from
time-to-time of the Securities.
SECTION 1213. Disclaimer by Trustee of Responsibility for Certain Matters.
Subject to Section 601, the Trustee shall not at any time be
under any duty or responsibility to any Holder to determine whether any facts
exist which may require any adjustment of the Conversion Price, or with respect
to the nature or extent of any such adjustment when made, or with respect to the
method employed, or herein or in any supplemental indenture provided to be
employed, in making the same. The Trustee shall not be accountable with respect
to the validity, value, kind or amount of any shares of Common Stock, or of any
securities or property, which may at any time be issued or delivered upon the
conversion of any Security, and it makes no representation with respect thereto.
The Trustee shall not be responsible for any failure of the Company to issue,
transfer or deliver any shares of Common Stock or stock certificates or other
securities or property upon the surrender of any Security for the purpose of
conversion or, subject to Section 601, to comply with any of the covenants of
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the Company contained in this Article. Each Conversion Agent other than the
Company shall have the same protection under this Section as the Trustee.
ARTICLE THIRTEEN
SUBORDINATION OF SECURITIES
SECTION 1301. Agreements to Subordinate by Company.
The Company, for itself, its successors and assigns, covenants
and agrees, and each Holder, by his or its acceptance thereof, likewise
covenants and agrees, that payment by the Company of the principal of and
premium, if any, and interest on, or the Repurchase Price or Redemption Price
of, each and all of the Securities is hereby expressly subordinated, to the
extent and in the manner hereinafter set forth, in right of payment to the prior
payment in full of all Senior Indebtedness of the Company, and that each Holder
of Senior Indebtedness, whether now outstanding or hereafter created, incurred
or assumed, shall be deemed to have acquired Senior Indebtedness in reliance
upon the covenants and provisions contained in this Indenture and the
Securities.
SECTION 1302. Distribution on Dissolution, Liquidation and Reorganization;
Subrogation.
Upon any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the Company, whether
voluntary or involuntary in bankruptcy, insolvency, reorganization or
receivership proceedings or upon an assignment for the benefit of creditors or
any other marshaling of the assets and liabilities of the Company or otherwise,
(a) the holders of all Senior Indebtedness of the Company
shall be entitled to receive payment in full in cash of the principal thereof,
premium, if any, and the interest and any other amounts due thereon before the
Holders of the Securities are entitled to receive any payment upon the principal
of, or premium, if any, or interest or other amounts due on Indebtedness
evidenced by the Securities or on account of any other monetary claims,
including such monetary claims as may result from acceleration, rights of
repurchase, redemption or rescission, under or in respect of the Securities; and
(b) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, by setoff or
otherwise, to which the Holders of the Securities or the Trustee would be
entitled except for the provisions of this Article Thirteen shall be paid by the
liquidating trustee or agent or other Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee
or otherwise, directly to the holders of Senior Indebtedness of the Company or
their representative or representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Senior Indebtedness
of the Company may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the principal of, premium, if any, and interest
on the Senior Indebtedness of the Company, held or represented by each, to the
extent necessary to make payment in full in cash of all Senior Indebtedness of
the Company remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness of the Company; and
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(c) in the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, shall be received by the Holders or by
the Trustee before all Senior Indebtedness of the Company is paid in full in
cash, such payment or distribution shall be paid over to the holders of such
Senior Indebtedness of the Company, or their representative or representatives
or to the trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness of the Company may have been issued,
ratably as aforesaid, for application to the payment of all Senior Indebtedness
of the Company remaining unpaid until all such Senior Indebtedness of the
Company shall have been paid in full in cash, after giving effect to any
concurrent payment or distribution to the holders of such Senior Indebtedness of
the Company.
Subject to the payment in full in cash of all Senior
Indebtedness of the Company, the Holders shall be subrogated to the rights of
the holders of Senior Indebtedness of the Company to receive payments or
distributions of cash, property or securities of the Company applicable to
Senior Indebtedness of the Company until the principal of, premium, if any, and
interest on the Securities shall be paid in full and no such payments or
distributions to the Holders of cash, property or securities otherwise
distributable to the Senior Indebtedness of the Company shall, as between the
Company, its creditors other than the holders of Senior Indebtedness of the
Company and the Holders, be deemed to be a payment by the Company to or on
account of the Securities. It is understood that the provisions of this Article
Thirteen are and are intended solely for the purpose of defining the relative
rights of the Holders, on the one hand, and the holders of Senior Indebtedness
of the Company, on the other hand. Nothing contained in this Article Thirteen or
elsewhere in this Indenture or in the Securities is intended to or shall impair,
as between the Company, its creditors other than the holders of Senior
Indebtedness of the Company and the Holders, the obligations of the Company,
which are unconditional and absolute, to pay to the Holders the principal of,
premium, if any, and interest on the Securities as and when the same shall
become due and payable in accordance with their terms, or to affect the relative
rights of the Holders and creditors of the Company other than the holders of
Senior Indebtedness of the Company, nor shall anything herein or in the
Securities prevent the Trustee or any Holder from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article Thirteen of the holders of Senior
Indebtedness of the Company in respect of cash, property or securities of the
Company received upon the exercise of any such remedy. Upon any payment or
distribution of assets of the Company referred to in this Article Thirteen, the
Trustee, subject to the provisions of Section 601, shall be entitled to rely
upon a certificate of the liquidating trustee or agent or other Person making
any distribution to the Trustee for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of Senior Indebtedness
of the Company and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article Thirteen.
The Trustee, however, shall not be deemed to owe any fiduciary
duty to the holders of Senior Indebtedness of the Company. The Trustee shall not
be liable to any such holder if it shall pay over or distribute to or on behalf
of Holders or the Company moneys or assets to which any holder of Senior
Indebtedness of the Company shall be entitled by virtue of this Article
Thirteen.
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If the Trustee or any Holder does not file a proper claim or
proof of debt in the form required in any proceeding referred to above prior to
30 days before the expiration of the time to file such claim in such proceeding,
then the holder of any Senior Indebtedness of the Company is hereby authorized,
and has the right, to file an appropriate claim or claims for or on behalf of
such Holder.
SECTION 1303. No Payment in Event of Default on Senior Indebtedness.
No payment by the Company on account of principal, premium, if
any, or interest on the Securities, no payment in respect of the Redemption
Price or any Repurchase Price nor any other payment or distribution of any
assets of the Company of any kind or character, whether in cash, properties or
securities, shall be made by the Company on account of the Securities, if (i)
there is an event of default on or under any Senior Indebtedness with respect to
the payment of all or any portion of any Senior Indebtedness; or (ii) there
shall exist a non-monetary default with respect to any Senior Indebtedness; and,
in such event, such default shall not have been cured or waived or shall not
have ceased to exist, the Trustee and the Company shall have received written
notice from the holder of such Senior Indebtedness or if there is more than one
holder of such Senior Indebtedness from the trustee, representative or agent of
the holders of such Senior Indebtedness stating that no payment shall be made
with respect to the Securities and such default would permit the maturity of
such Senior Indebtedness to be accelerated, provided that no such default will
prevent any payment on or in respect of, the Securities for more than 120 days
unless the maturity of such Senior Indebtedness has been accelerated.
SECTION 1304. Payments Permitted.
Nothing contained in this Indenture or in any of the
Securities shall (a) affect the obligation of the Company to make, or prevent
the Company from making, at any time except as provided in Sections 1302 and
1303, payments of principal of, premium, if any, or interest on the Securities
which is scheduled to be paid or (b) prevent the application by the Trustee of
any moneys deposited with it hereunder to the payment of or on account of the
principal of, premium, if any, or interest on the Securities, unless the Trustee
shall have received at its Corporate Trust Office written notice from the
Company of any event prohibiting the making of such payment more than one
Business Day prior to the date fixed for such payment.
SECTION 1305. Authorization to Trustee to Effect Subordination.
Each Holder by his acceptance thereof authorizes and directs
the Trustee in his behalf to take such action as may be necessary or appropriate
to effectuate the subordination as provided in this Article Thirteen and
appoints the Trustee his attorney-in-fact for any and all such purposes.
SECTION 1306. Notices to Trustee.
Notwithstanding the provisions of this Article or any other
provisions of this Indenture, neither the Trustee nor any Paying Agent (other
than the Company) shall be charged with knowledge of the existence of any Senior
Indebtedness of the Company or of any event which would prohibit the making of
any payment of moneys to or by the Trustee, unless and until the Trustee or such
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Paying Agent shall have received (in the case of the Trustee, at its Corporate
Trust Office) written notice thereof from the Company or from the holder of any
Senior Indebtedness of the Company or from the trustee for any such holder,
together with proof satisfactory to the Trustee of such holding of Senior
Indebtedness of the Company or of the authority of such trustee; provided,
however, that if at least one Business Day prior to the date upon which by the
terms hereof any such moneys may become payable for any purpose (including,
without limitation, the payment of either the principal of, premium, if any, or
interest on any Security) the Trustee shall not have received with respect to
any such moneys the notice provided for in this Section 1306, then, anything
herein contained to the contrary notwithstanding, the Trustee shall have the
full power and authority to receive such moneys and to apply the same to the
purpose for which they were received, and shall not be affected by any notice to
the contrary, which may be received by it on or after such one Business Day
prior to such date. The Trustee shall be entitled to rely on the delivery to it
of a written notice by a Person representing himself to be a holder of Senior
Indebtedness of the Company (or on behalf of such holder) to establish that such
a notice has been given by a holder of Senior Indebtedness of the Company or a
trustee on behalf of any such holder. In the event that the Trustee or
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of Senior Indebtedness of the Company to
participate in any payment or distribution pursuant to this Article Thirteen,
the Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Indebtedness of the
Company held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article Thirteen and, if such evidence is not
furnished, the Trustee may defer any payment to such person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 1307. Trustee as Holder of Senior Indebtedness of Company.
The Trustee shall be entitled to all the rights set forth in
this Article Thirteen in respect of any Senior Indebtedness of the Company at
any time held by it to the same extent as any other holder of Senior
Indebtedness of the Company and nothing in Section 612 or elsewhere in this
Indenture shall be construed to deprive the Trustee of any of its rights as such
holder.
SECTION 1308. Modification of Terms of Senior Indebtedness of Company.
Any renewal or extension of the time of payment of any Senior
Indebtedness of the Company or the exercise by the holders of Senior
Indebtedness of the Company of any of their rights under any instrument creating
or evidencing Senior Indebtedness of the Company, including without limitation
the waiver of default thereunder, may be made or done all without notice to or
assent from the Holders or the Trustee.
No compromise, alteration, amendment, modification, extension,
renewal or other change of, or waiver, consent or other action in respect of,
any liability or obligation under or in respect of, or of any of the terms,
covenants or conditions of any indenture or other instrument under which any
Senior Indebtedness of the Company is outstanding or of such Senior Indebtedness
of the Company, whether or not such release is in accordance with the provisions
of any applicable document, shall in any way alter or affect any of the
provisions of this Article Thirteen or of the Securities relating to the
subordination thereof.
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SECTION 1309. Certain Conversions Not Deemed Payment.
For the purposes of this Article only, (1) the issuance and
delivery of Junior Securities upon conversion of Securities in accordance with
Article Twelve shall not be deemed to constitute a payment or distribution on
account of the principal of (or premium, if any) or interest on Securities or on
account of the purchase of other acquisition of Securities unless (i) such
conversion would result in a change of control for purposes of Section 382 of
the Internal Revenue Code and the rules and regulations promulgated thereunder
and (ii) such change in control would result in the loss of, or a limitation on,
the annual availability of net operating losses to the Company for tax purposes,
and (2) the payment, issuance or delivery of cash, property or securities (other
than Junior Securities) upon conversion of a Security shall be deemed to
constitute payment on account of the principal of such Security.
SECTION 1310. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee
shall have been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article Thirteen shall in such case (unless the
context otherwise requires) be construed as extending to and including such
Paying Agent within its meaning as fully for all intents and purposes as if such
Paying Agent were named in this Article in addition to or in place of the
Trustee; provided, however, that Section 1307 shall not apply to the Company or
any Affiliate of the Company if it or such Affiliate acts as Paying Agent.
ARTICLE FOURTEEN
RIGHT TO REQUIRE REPURCHASE
SECTION 1401. Right to Require Repurchase.
In the event that there shall occur a Repurchase Event, then
each Holder shall have the right, at such Holder's option to require the Company
to purchase, and upon the exercise of such right, the Company shall, subject to
the provisions of Section 1303, purchase, all or any part of such Holder's
Securities on the date (the "Repurchase Date") that is 30 days after the date
the Company gives notice of the Repurchase Event as contemplated in Section
1402(a) at a price (the "Repurchase Price") equal to 101% of the principal
amount thereof, together with Accrued Current Interest to the Repurchase Date.
Such right to require the repurchase of Securities shall not continue after a
discharge of the Company from its obligations with respect to the Securities in
accordance with Article Four.
SECTION 1402. Notice; Method of Exercising Repurchase Right.
(a) On or before the 15th day after the Repurchase Event, the
Company, or, upon Company Request transmitted to the Trustee within 5 days of
such Repurchase Event, the Trustee (in the name and at the expense of the
Company), shall give notice of the occurrence of the Repurchase Event and of the
repurchase right set forth herein arising as a result thereof by first-class
mail, postage prepaid, to each Holder at such Holder's address appearing in the
Security Register. The Company shall also deliver a copy of such notice of a
repurchase right to the Trustee.
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Each notice of a repurchase right shall state:
(1) the Repurchase Date,
(2) the date by which the repurchase right must be exercised,
(3) the Repurchase Price, and
(4) the instructions a Holder must follow to exercise a
repurchase right.
No failure of the Company to give the foregoing notice shall
limit any Holder's right to exercise a repurchase right. The Trustee shall have
no affirmative obligation to determine if there shall have occurred a Repurchase
Event.
(b) To exercise the repurchase right, a Holder shall deliver
to the Company (or an agent designated by the Company for such purpose in the
notice referred to in (a) above) and to the Trustee on or before the fifteenth
(15th) day prior to the Repurchase Date (i) written notice of the Holder's
exercise of such right, which notice shall set forth the name of the Holder, the
principal amount of the Security or Securities (or portion of a Security) to be
repurchased, and a statement that an election to exercise the repurchased right
is being made thereby, and (ii) the Security or Securities with respect to which
the repurchase right is being exercised, duly endorsed for transfer to the
Company. Such written notice shall be irrevocable following the close of
business on the fifth (5th) day prior to the Repurchase Date; provided, however
that the Company, in its sole and absolute discretion, may consent to the
withdrawal of any Securities after such date and prior to the Repurchase Date.
If the Repurchase Date falls between the close of business on any Regular Record
Date and the opening of business on the next succeeding Interest Payment Date
(except for Securities whose Maturity is prior to such Interest Payment Date and
Securities called for redemption on a Redemption Date within such period),
Securities to be repurchased must be accompanied by a certified or bank check or
wire transfer of immediately available funds made payable to the Company from
the Holder of an amount equal to the interest payable thereon which the
registered Holder thereof is to receive on such Interest Payment Date. Upon
receipt of any such funds, the Trustee shall forward such funds to the Company.
(c) In the event a repurchase right shall be exercised in
accordance with the terms hereof, the Company shall on the Repurchase Date pay
or cause to be paid in cash to the Holder thereof the Repurchase Price of the
Security or Securities as to which the repurchase right had been exercised. In
the event that a repurchase right is exercised with respect to less than the
entire principal amount of a surrendered Security, the Company shall execute and
deliver to the Trustee and the Trustee shall authenticate for issuance in the
name of the Holder a new Security or Securities in the aggregate principal
amount of the unrepurchased portion of such surrendered Security.
SECTION 1403. Deposit of Repurchase Price.
On or before the Repurchase Date, the Company shall deposit
with the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 1003) an amount
of money, which shall be good funds on the Repurchase Date, sufficient to pay
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the Repurchase Price of the Securities which are to be repurchased on the
Repurchase Date.
SECTION 1404. Securities Not Repurchased on Repurchase Date.
If any Security surrendered for repurchase shall not be so
paid on the Repurchase Date, the principal shall, until paid, bear interest to
the extent permitted by applicable law from the Repurchase Date at a rate per
annum borne by such Security.
SECTION 1405. Securities Repurchased In Part.
Any Security which is to be repurchased only in part shall be
surrendered at any office or agency of the Company designated for that purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities of any authorized denomination as requested
by such Holder, in aggregate principal amount equal to and in exchange for the
unrepurchased portion of the principal of the Security so surrendered.
SECTION 1406. Certain Definitions.
For purposes of this Article:
(a) "Fundamental Change" means the occurrence of (A) any
transaction or event in connection with which all or substantially all of the
Common Stock shall be exchanged for, converted into, acquired for or constitute
the right to receive consideration (whether by means of an exchange offer,
liquidation, tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock which is (or, upon consummation of or immediately following such
transaction or event, will be) listed on a national securities exchange or
approved for quotation in any Nasdaq National Market or any similar system of
automated dissemination of quotations of securities prices, or (B) any sale,
conveyance, transfer or other disposition ("Transfer") or 50% or more of the
Consolidated Total Assets during any twelve month period; provided that this
subsection (B) shall not apply to any Transfer to a Whole Subsidiary; provided
further the ceding of assets pursuant to a reinsurance treaty, and the granting
of liens, charges or encumbrances shall not constitute a Transfer subject to
this subsection (B). For purposes of the definition of a "Fundamental Change",
(i) "substantially all of the Common Stock" shall mean at least 85% of the
Common Stock outstanding immediately prior to the transaction or event giving
rise to a Fundamental Change and (ii) consideration shall be "substantially all
common stock" if at least 80% of the fair value (as determined in good faith by
the Board of Directors) of the total consideration is attributable to Common
Stock.
(b) A "Repurchase Event" shall have occurred if a Fundamental
Change shall have occurred unless (i) the current market price of the Common
Stock per share (which shall be deemed to be the average of the daily Closing
Prices of the Common Stock for the 5 consecutive Trading Days before the
Fundamental Change) is at least equal to the Conversion Price per share of the
Securities in effect immediately preceding the time of such Fundamental Change
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or (ii) (A) the consideration, in the transaction or event giving rise to a
Fundamental Change, to the holders of Common Stock consists of (w) cash, (x)
securities (other than common stock) that are, or immediately upon issuance will
be, listed on a national securities exchange or quoted on the Nasdaq National
Market or similar system of automated dissemination of quotations of securities
prices and (y) common stock that is, or immediately upon issuance will be,
listed on a national securities exchange or approved for quotation on the Nasdaq
National Market or similar system of automated dissemination of quotations of
securities prices, or (z) any combination of cash and such securities including
common stock, and (B) the aggregate fair market value of such consideration
(which, in the case of such securities, shall be equal to the average of the
daily closing prices of such securities during the 10 consecutive trading days
commencing with the sixth trading day following consummation of such transaction
or event) is at least 105% of the Conversion Price of the Securities in effect
on the date immediately preceding the closing date of such transaction or event.
SECTION 1407. Repurchase Causing Default.
The right to require the Company to repurchase the Securities
as a result of the occurrence of a Repurchase Event could create an event of
default under Senior Indebtedness, as a result of which any repurchase could,
absent a waiver, be blocked by the subordination provisions of the Securities.
Failure by the Company to repurchase the Securities when required will result in
an Event of Default with respect to the Securities, whether or not such
repurchase is permitted by the subordination provisions. The Company's ability
to pay cash to the Holders upon a repurchase may be limited by certain financial
covenants contained in the Senior Indebtedness. In the event a Repurchase Event
occurs and the Holders exercise their rights to require the Company to
repurchase Securities, the Company intends to comply with tender offer rules
under the Exchange Act, including Rules 13e-4 and 14e-1, as then in effect, if
applicable, with respect to any such purchase. This right to require repurchase
would not necessarily afford Holders protection in the event of highly leveraged
or other transactions involving the Company that may impair the Holders.
This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
AMVESTORS FINANCIAL CORPORATION
By
--------------------------------------
Name: Mark V. Heitz
Title: President
BOATMEN'S TRUST COMPANY
By
--------------------------------------
Name: Jerry Rector
Title: Vice President
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EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of July 12, 1996 by and among AmVestors Financial Corporation, a Kansas
corporation (the "Company"), and The Robinson-Humphrey Company, Inc. ("R-H"), on
behalf of the Persons (individually a "Purchaser" and collectively the
"Purchasers") who purchase the Company's 3% Convertible Subordinated Debentures
due 2003 (the "Debentures") pursuant to Purchase Agreements (as defined below).
This Agreement is made pursuant to the various Purchase Agreements,
executed from time-to-time (the "Purchase Agreement"), by and between the
Company and the Purchasers. The execution and delivery of this Agreement is a
condition to the obligations of the Purchasers set forth in Section 2 of the
Purchase Agreement.
The parties hereto deem it to be in their respective best interests to set
forth the rights of the Holders (as defined below) in connection with public
offerings and sales of the Transfer Restricted Securities (as defined below). In
consideration of the premises and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged by all parties hereto, the
parties, intending to be legally obligated, hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
"Act": The Securities Act of 1933, as amended.
"Broker-Dealer": Any broker or dealer registered as such under the Exchange
Act.
"Closing Date": The date of this Agreement.
"Commission" or "SEC": The United States Securities and Exchange
Commission.
"DTC": The Depository Trust Company.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Holders": As defined in Section 2(b) hereof.
"Indenture": The Indenture, dated as of July 12, 1996, among the Company
and Boatmen's Trust Company, as trustee (the "Trustee") pursuant to which the
Debentures are to be issued, as such Indenture is amended or supplemented from
time to time in accordance with the terms thereof.
"Person": An individual, partnership, corporation, trust or unincorporated
organization, or a government or an agency, authority or political subdivision
thereof.
"Preliminary Prospectus": The prospectus filed as a part of the Resale
Registration Statement prior to the time that the Resale Registration Statement
becomes effective under the Act.
"Prospectus": The prospectus included in the Resale Registration Statement,
as amended or supplemented, including post-effective amendments, therein.
"Purchaser": As defined in the preamble hereto.
"Registration Expenses": Includes (i) all registration, qualification and
filing fees, (ii) fees and expenses of compliance with securities or blue sky
laws (including fees and disbursements of counsel in connection with blue sky
qualifications of the Transfer Restricted Securities), (iii) printing expenses,
messenger and delivery services and telephone charges incurred by the Company,
(iv) internal expenses (including, without limitation, all salaries and expenses
of officers and employees performing legal or accounting duties), (v) fees and
disbursements of counsel for the Company and customary fees and expenses for
independent certified public accountants retained by the Company (including the
expenses of any comfort letters or costs associated with the delivery by
independent certified public accountants of comfort letters customarily
requested by underwriters), (vi) fees and expenses of listing the Debentures and
the Underlying Common Stock on any securities exchange on which the Company's
Common Stock is then listed and (vii) fees and disbursements of underwriters
customarily paid by issuers or sellers of securities.
"Resale Filing Deadline": As defined in Section 3 hereof.
"Resale Registration Statement": The registration statement of the Company
filed with the SEC relating to the registration for resale of Transfer
Restricted Securities, which is to be filed pursuant to the provisions of this
Agreement, including the Prospectus included therein, all amendments and
supplements thereto (including post-effective amendments) and all exhibits and
material incorporated by reference therein.
"Transfer Restricted Securities": Each Debenture and share of Underlying
Common Stock, as applicable, until the earliest to occur of (a) the date on
which such Debenture or Underlying Common Stock has been effectively registered
under the Act and disposed of in accordance with the Resale Registration
Statement or such other applicable registration statement, (b) the date on which
such Debenture or Underlying Common Stock is sold pursuant to Rule 144 (or any
similar provisions then in force) under the Act, (c) the date on which such
Debenture has been converted or redeemed as provided in the Indenture, or (d)
the date on which such Debenture or share of Underlying Common Stock become
freely tradable by non-affiliates without registration under the Act as
evidenced by a published position of the Commission or decision of a court
(which addresses the matter adequately in the view of Company counsel) or as
otherwise stated in a written opinion of counsel for the Company.
"Underlying Common Stock": The shares of Company Common Stock into which
the Debentures may be converted as provided in the Indenture.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the benefits
of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to be a
holder of Transfer Restricted Securities (each, a "Holder") whenever such Person
owns Transfer Restricted Securities, whether directly or through the DTC
book-entry system.
SECTION 3. RESALE REGISTRATION STATEMENT
(a) Registration. Subject to the conditions of Section 3(c), the Company
agrees to:
(i) file a single registration statement on Form S-3, if the use of
such form is then available pursuant to Rule 415 under the Act (the "Resale
Registration Statement"), and on Form S-2 if the failure to qualify for Form S-3
is the result of actions or inactions of the Company which result in the failure
of the Company to meet the conditions set forth in Section I.A.3 or I.A.5. of
the General Instructions for Form S-3, such form to be filed by the Company on
or prior to the 40th day after the Closing Date (the "Resale Filing Deadline"),
which Resale Registration Statement shall provide for resales of all Transfer
Restricted Securities for which the information required pursuant to Section
3(b) hereof has been timely provided;
(ii) use reasonable efforts to cause the Resale Registration Statement
to be declared effective by the Commission; and
(iii) use reasonable efforts to keep the Resale Registration Statement
continuously effective until the earlier of (x) a period of at least three years
following the Closing Date, or such lesser period of time provided for in Rule
144(k) under the Act (or any similar provision then in force); or (y) the date
on which all Transfer Restricted Securities have been sold and this Registration
Rights Agreement is not herein assigned therewith as provided herein or
otherwise no more Transfer Restricted Securities exist.
(b) Provision by Holders of Certain Information in Connection with the
Resale Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in the Resale Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 10 business days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with the Resale Registration Statement, Preliminary Prospectus or
Prospectus. With respect to the Purchasers, all such requests by the Company
shall be made within twenty (20) days of the Closing Date. Each Holder as to
which the Resale Registration Statement is being effected agrees to furnish
promptly to the Company all information required to be disclosed in order to
make the information previously furnished to the Company by such Holder not
materially misleading.
(c) Conditions to Registration. The Company may delay, suspend or withdraw
the registration of the Transfer Restricted Securities required pursuant to
Section 3(a) for a period not exceeding ninety (90) days if the Company shall in
good faith determine that any such registration would require the Company to
take actions that might reasonably be expected to have a detrimental effect on
any proposal, negotiations or plan by the Company or any of its subsidiaries to
engage in any acquisition or disposition of assets or any merger, consolidation,
tender offer, reorganization or similar transaction, or any other material
corporate event contemplated by the Company or any of its subsidiaries that
would require disclosure. In addition, the Company shall not be required to
register Transfer Restricted Securities on a date which, under the general rules
and regulations of the SEC as advised by counsel, the inclusion therein, by
incorporation or by reference, of financial statements of the Company contained
in the annual or quarterly report of the Company most recently filed with the
SEC would not be permitted or advisable, provided that this exception shall not
permit delay or suspension of registration beyond the filing of the next
required annual or quarterly filing under the Exchange Act.
SECTION 4. REGISTRATION PROCEDURES
(a) General Provisions. In connection with the Resale Registration
Statement and any Prospectus required by this Agreement, the Company agrees to:
(i) prepare and file with the SEC such amendments and post-effective
amendments to the Resale Registration Statement as may be necessary to keep the
Resale Registration Statement effective for the time required under Section
3(a)(iii); and cause the Prospectus to be supplemented as required by the SEC,
and as so supplemented, to be filed pursuant to Rule 424 of the Act; and comply
with the provisions of the Act applicable to the Company with respect to the
disposition of all securities covered by the Resale Registration Statement
during the applicable period in accordance with the intended method or methods
of distribution by the selling Holders thereof set forth in the Resale
Registration Statement or supplement to the Prospectus;
(ii) provide copies of any document which is to be incorporated by
reference into the Resale Registration Statement or Prospectus to the selling
Holders covered thereby and the underwriter(s), if any, after the filing of such
document;
(iii) furnish to each selling Holder and each underwriter, if any,
without charge, a reasonable number of copies of the then effective Resale
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(iv) deliver to each selling Holder and the underwriter(s), if any,
without charge, as many copies of the then effective Prospectus (including each
prospectus subject to completion), and any amendment or supplement thereto, as
such Persons may reasonably request;
(v) register or qualify, or cooperate with the selling Holders, the
underwriter(s), if any, and their respective counsel in connection with the
registration or qualification of, such Transfer Restricted Securities for offer
and sale under the securities or blue sky laws of such U.S. jurisdictions as any
selling Holder or underwriter reasonably requests in writing and do any and all
other acts or things reasonably necessary or advisable to enable the disposition
in such jurisdictions of the Transfer Restricted Securities covered by the then
effective Resale Registration Statement; provided, however, that the Company
will not be required to (A) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify, but for this paragraph, (B) subject
itself to general taxation in any such jurisdiction, or (C) consent to any
general service of process in any such jurisdiction;
(vi) cooperate with the selling Holders and the underwriter(s), if
any, to facilitate the preparation and delivery of certificates representing
Transfer Restricted Securities to be sold; and enable such Transfer Restricted
Securities to be in such denominations and registered in such names as the
underwriter(s) may request;
(vii) cause all Underlying Common Stock covered by the Resale
Registration Statement to be listed on each securities exchange on which the
Company's Common Stock is then listed;
(viii) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC, and make generally available to the
Holders earnings statements satisfying the provisions of Section 11(a) of the
Act;
(ix) furnish to each Purchaser as soon as practicable after available,
one copy of its Annual Report to Shareholders and all other communications sent
to shareholders.
(x) to the extent required by the TIA, cause the Indenture to be
qualified under the TIA not later than the effective date of the first
Registration Statement required by this Agreement and, in connection therewith,
cooperate with the Trustee and the Holders of Debentures to effect such changes
to the Indenture as may be required for such Indenture, if any, to be so
qualified in accordance with the terms of the TIA; and execute, use all
reasonable efforts to cause the Trustee to execute, all documents that may be
required to effect such changes and all other forms and documents required to be
filed with the Commission to enable such Indenture to be so qualified in a
timely manner.
(b) Disposition Notice; Blocking Notice; Amendment Notice. At least ten
(10) business days prior to any disposition of Transfer Restricted Securities,
the Holder thereof shall advise the Company of the dates on which such
disposition is expected to commence and terminate, the number of Transfer
Restricted Securities expected to be sold, the method of disposition, and such
other information as the Company may reasonably request in order to supplement
the Prospectus in accordance with the rules and regulations of the Commission.
Such sales of securities under the Registration Statement will not be allowed
until such Holder has complied with such request. The Company may suspend such
sale under the Resale Registration Statement and notify such Holder in writing
that it may not sell Transfer Restricted Securities pursuant to the Resale
Registration Statement or Prospectus (a "Blocking Notice") if the Company's
management determines in its reasonable good faith judgment that such Holder has
not complied with such request, or that the Company's obligation to ensure that
the Resale Registration Statement and Prospectus are current and complete would
require the Company to take actions that might reasonably be expected to (i)
have a detrimental effect on any proposal, negotiations or plan by the Company
or any of its subsidiaries to engage in any acquisition or disposition of assets
or any merger, consolidation, tender offer, reorganization or similar
transaction, (ii) have a detrimental effect on a public offering by the Company,
provided that such suspension may not exceed ninety (90) days, (iii) have a
detrimental effect on any other material corporate event contemplated by the
Company or any of its subsidiaries that would require the disclosure of
information, provided that such suspension may not exceed ninety (90) days; or
(iv) occur on a date which, under the general rules and regulations of the SEC,
the inclusion therein by incorporation or by reference, of financial statements
of the Company contained in the annual or quarterly report of the Company most
recently filed with the SEC would not be permitted or advisable, provided that
this exception shall not permit delay or suspension beyond the filing of the
next required annual or quarterly filing under the Exchange Act. In no event
shall the Company be able to suspend such a sale by such holder for more than a
continuous 90-day period from the date such holder initially indicated for the
commencement of such disposition, without allowing an intervening 30-day period
for such holder to make such sale, or offering to buy such Transfer Restricted
Security from such holder at the market price.
Each Holder of Transfer Restricted Securities agrees by acquisition of a
Transfer Restricted Security that, upon receipt of a Blocking Notice or notice
from the Company of the existence of any fact or the happening or any event that
makes any statement of a material fact made in the Resale Registration
Statement, the Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making of any
additions to or changes in the Resale Registration Statement or the Prospectus
in order to make the statements therein not misleading (an "Amendment Notice"),
such Holder shall not dispose of, sell or offer for sale Transfer Restricted
Securities under the Resale Registration Statement until such Holder receives
(i) copies of the supplemented or amended Prospectus or until counsel for the
Company shall have determined that such disclosure is not required due to
subsequent events; (ii) notice in writing (the "Advice") from the Company that
the use of the Prospectus may be resumed, and (iii) copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus.
If so directed by the Company in connection with a Blocking Notice or an
Amendment Notice, each Holder will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Transfer Restricted Securities that
was current immediately prior to the time of receipt of such notice. In the
event the Company shall give any such notice, the time period regarding the
effectiveness of the Resale Registration Statement set forth in Section 3, shall
be extended by the number of days during the period from and including the date
of the giving of such notice to and including the date when each selling Holder
covered by the Resale Registration Statement shall have received the copies of
the supplemented or amended Prospectus, the Advice and any additional or
supplemental filings that are incorporated by reference in the Prospectus.
SECTION 5. REGISTRATION EXPENSES
The Company shall pay all Registration Expenses, provided, however, that
the Company will not bear certain personal expenses of a Holder who sells
Transfer Restricted Securities, including, legal fees and expenses, underwriting
discounts, commissions, messenger and delivery service charges, and telephone
expenses incurred by such selling Holders.
SECTION 6. INDEMNIFICATION
(a) Indemnification by the Company. The Company will indemnify and hold
harmless each Holder, its partners, directors, officers and employees and each
Person, if any, who "controls" such Holder (within the meaning of the Act)
against all losses, claims, damages, or liabilities, joint or several, or
actions in respect thereof to which such Holder or other Person entitled to
indemnification hereunder may become subject under the Act, or otherwise,
insofar as such losses, claims, damages, liabilities, or actions in respect
thereof arise out of, or are based upon, any untrue statement or alleged untrue
statement of any material fact contained in such Resale Registration Statement,
any related Preliminary Prospectus, or any related Prospectus or any amendment
or supplement thereto, or arise out of, or are based upon, the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
such Holder or other Person entitled to indemnification hereunder for any legal
or other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the Company will not be so liable to the extent that any such loss, claim,
damage, liability, or action arises out of, or is based solely upon, an untrue
statement or alleged untrue statement of a material fact or an omission or
alleged omission to state a material fact in such Resale Registration Statement,
such Preliminary Prospectus, or such Prospectus, or any such amendment or
supplement thereto in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of a Holder or an underwriter
specifically for use therein; and provided further, that the Company will not be
liable, and this indemnification agreement shall not apply, in any such case to
the extent that any such loss, claim, damage, liability or action is
attributable to the failure of such Holder (or underwriter or agent acting on
its behalf) to deliver a Preliminary Prospectus or Prospectus (or amendment or
supplement thereto), including one that corrects a material misstatement or
omission contained in the Preliminary Prospectus or other Prospectus (or
amendment or supplement thereto), which have been provided by the Company to
such Holder (or underwriter or agent acting on its behalf). The Company will
also indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each Person who controls such Persons (within the
meaning of the Act) to the same extent as provided above with respect to the
indemnification of the Holders, if so requested.
(b) Indemnification by the Holder. With respect to information furnished to
the Company by or on behalf of a Holder specifically for use in the Resale
Registration Statement, any related Preliminary Prospectus, or any related
Prospectus or any supplement or amendment thereto, such Holder will severally
indemnify and hold harmless the Company, and its directors, officers and
employees and each Person, if any, who "controls" the Company (within the
meaning of the Act) against any losses, claims, damages, or liabilities, joint
or several, or actions in respect thereof to which the Company or such other
Person entitled to indemnification hereunder may become subject under the Act,
or otherwise, insofar as such losses, claims, damages, liabilities, or actions
in respect thereof arise out of, or are based upon, any untrue statement or
alleged untrue statement of any material fact contained in such Resale
Registration Statement, such Preliminary Prospectus, or such Prospectus, or any
such amendment or supplement thereto, or arise out of, or are based upon, the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company and such other Persons for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action, in each case to
the extent, but only to the extent, that any such loss, claim, damage,
liability, or action, arises out of, or is based solely upon, an untrue
statement or alleged untrue statement of a material fact or an omission or
alleged omission to state a material fact in such Resale Registration Statement,
such Preliminary Prospectus, or such Prospectus or any such amendment or
supplement thereto in reliance upon, and in conformity with, such written
information. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, to the same extent as provided
above with respect to the information so furnished in writing by such Persons
specifically for inclusion in any Prospectus or Resale Registration Statement.
Each Holder will severally indemnify and hold harmless the Company, and its
directors, officers and employees and each Person, if any, who "controls" the
Company (within the meaning of the Act) against any losses, claims, damages, or
liabilities, joint or several, or actions in respect thereof to which the
Company or such other Person entitled to indemnification hereunder may become
subject under the Act, or otherwise, insofar as such losses, claims, damages,
liabilities, or actions in respect thereof arise is attributable to the failure
of such Holder (or underwriter or agent acting on its behalf) to deliver a
Preliminary Prospectus or Prospectus (or amendment or supplement thereto),
including one that corrects a material misstatement or omission contained in the
Preliminary Prospectus or other Prospectus (or amendment or supplement thereto),
which have been provided by the Company to such Holder (or underwriter or agent
acting on its behalf). Each Holder will also severally indemnify underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each Person
who controls such Persons (within the meaning of the Act) to the same extent as
provided above with respect to the indemnification of the Company, if so
requested; provided, however that the amount of liability of each Holder
pursuant to the indemnification set forth in this paragraph 6(b) shall not
exceed the principal amount of Debentures purchased by such Holder.
(c) Notice. Promptly after receipt by an indemnified party of notice of any
claim or the commencement of any action, the indemnified party will, if a claim
in respect thereof is to be made against the indemnifying party, notify the
indemnifying party in writing of the claim or the commencement of that action;
provided, however, that the failure to notify the indemnifying party will not
relieve it from any liability which it may have to the indemnified party except
to the extent it was damaged or suffered any loss or incurred any additional
expense as a result thereof. If any such claim or action is brought against an
indemnified party, and it notifies the indemnifying party thereof, the
indemnifying party will be entitled to assume the defense thereof with counsel
reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, (A) the indemnifying party will not be liable
to the indemnified party for any legal or other expense subsequently incurred by
the indemnified party in connection with the defense thereof, (B) the
indemnifying party will not be liable for the costs and expenses of any
settlement of such claim or action unless such settlement was effected with the
consent of the indemnifying party or the indemnified party waived any rights to
indemnification hereunder in writing, in which case the indemnified party may
effect a settlement without consent, and (C) the indemnified party will be
obligated to cooperate with the indemnifying party in the investigation and
defense of such claim or action; provided, however, that the Holders and their
respective controlling Persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by such Holders against
the Company may employ their own counsel if they have been advised by counsel in
writing that, in its reasonable judgment, it is advisable for such Holders and
their controlling Persons to be represented by separate counsel due to the
presence of conflicts of interest and in that event the reasonable fees and
expenses of such separate counsel will also be paid by the Company; provided,
that the Company shall not be liable for the reasonable fees and expenses of
more than one separate counsel at any time and for all such indemnified parties.
The indemnifying party shall not consent to entry of any judgment or enter into
any settlement without the written consent of the indemnified party (which
consent shall not be unreasonably withheld), unless such judgment or settlement
provides solely for money damages or other money payments for which the
indemnifying party makes provision for full payment or includes as an
unconditional term thereof the giving by the claimant or plaintiff to the
indemnified party of a release from all liability.
(d) Contribution. If for any reason the indemnification provided for in the
preceding paragraphs (a) and (b) is unavailable to an indemnified party or
insufficient to hold it harmless as contemplated by the preceding paragraphs (a)
and (b), then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by the indemnifying party and the indemnified party, but also
the relative fault of the indemnifying party and the indemnified party, as well
as any other relevant equitable considerations. The relative fault of the
Company on the one hand, and of the Indemnified Holder on the other, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Indemnified holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f)) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
SECTION 7. RULE 144A
The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding, to make available to any Holder or
beneficial owner of Transfer Restricted Securities in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Securities
from such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144A.
SECTION 8. MISCELLANEOUS
(a) Compliance with Securities Laws. Each selling Holder (and underwriter
or agent acting on its behalf) shall deliver each Preliminary Prospectus or
Prospectus (or amendment or supplement thereto), including any that correct a
material misstatement or omission contained in a Preliminary Prospectus or other
Prospectus (or amendment or supplement thereto), which have been provided by the
Company to such Holder (or underwriter or agent acting on its behalf), as
required by the Act. Each selling Holder (and underwriter or agent acting on its
behalf) and the Company shall otherwise comply with all requirements under the
Act and all applicable securities or blue sky laws of U.S. jurisdictions.
(b) Information Confidential. No Holder may use any confidential
information received by it pursuant to this Agreement (including the fact of
receipt of a Blocking Notice) in violation of the Exchange Act or reproduce,
disclose, or disseminate such information to any other Person (other than its
employees or agents having a need to know the contents of such information, and
its attorneys who are advised of and agree to abide by this confidentiality
provision), except to the extent reasonably related to the exercise of rights
under this Agreement, unless such information has been made available to the
public generally (other than by such recipient in violation of this Section
7(b)) or such recipient is required to disclose such information by a
governmental body or regulatory agency or by law in connection with a
transaction that is not otherwise prohibited hereby.
(c) Amendments. The provisions of this Agreement, including the provisions
of this Section 7(c), may not be amended, modified or supplemented except in
writing signed by each of the parties hereto.
(d) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, registered first-class
mail, telex, telecopier, or air-courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the Indenture;
and
(ii) if to the Company:
AmVestors Financial Corporation
415 S.W. Eighth Avenue
P.O. Box 2039
Topeka, Kansas 66601
Telecopier No.: (913) 232-5827
Attention: Mark V. Heitz
With a copy to:
Bryan Cave LLP
One Metropolitan Square
211 N. Broadway, Suite 3600
St. Louis, Missouri 63102
Telecopier No.: (314) 259-2020
Attention: J. Mark Klamer
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if sent via a reliable overnight delivery service.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall not be assignable by the
Holder unless (i) it is not selling the Transfer Restricted Securities in a
transaction pursuant to the Resale Registration Statement or pursuant to Rule
144 under the Securities Act, (ii) the assignee signs a counterpart of this
Agreement agreeing to be bound by the terms hereof, and (iii) the assignee may
be added to the Resale Registration Statement without filing a post-effective
amendment. This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of each of the parties.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws (and not the conflict of law
rules) of the State of Kansas.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement, together with the other Offering
Agreements (as defined in the Purchase Agreement), is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to its
subject matter.
(k) The Company will not, on or after the date of this Agreement enter into
any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders under this Agreement or otherwise conflicts with
the provisions hereof. The rights granted to the Holders hereunder do not in any
way breach or conflict with and are not inconsistent with the rights granted to
the holders of the Company's securities under any agreement in effect on the
date hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first written above.
AMVESTORS FINANCIAL CORPORATION
By:
--------------------------------------
Mark V. Heitz
President
THE ROBINSON-HUMPHREY COMPANY, INC.
By:
--------------------------------------
Name:
Title:
EXHIBIT 4.4
PURCHASE AGREEMENT
This Purchase Agreement is made as of July 12, 1996, by and
between the purchaser whose name and address are shown on the signature page
hereof (the "Purchaser") and AmVestors Financial Corporation (the "Company"), a
corporation organized under the laws of the State of Kansas in the United States
of America, with its principal offices at 415 S.W. Eighth Avenue, Topeka, Kansas
66603.
WHEREAS, the Company has entered into a Placement Agreement
dated as of July 12, 1996 (the "Placement Agreement"), with The
Robinson-Humphrey Company, Inc. ("Robinson-Humphrey"), a Delaware corporation,
pursuant to which Robinson-Humphrey will act as placement agent in connection
with the offering ("Offering") of the Company's 3% Convertible Subordinated
Debentures due 2003 (the "Debentures");
WHEREAS, the aggregate principal amount of Debentures being
offered is US $65,000,000, which amount may be increased, or decreased to an
amount not less than $50,000,000, by agreement of the Company and
Robinson-Humphrey;
WHEREAS, the completion of the purchase and sale of the
Debentures between the Company and the several Purchasers (the "Closing"), and
the termination of the Offering, is scheduled to take place on the 12th day of
July, 1996, or such later date (the "Closing Date") as is agreed upon by the
Company and Robinson-Humphrey;
WHEREAS, the Purchaser has received a copy of the Confidential
Offering Memorandum of the Company dated June 1, 1996, including Appendix A
thereto (collectively, the "Offering Memorandum") relating to the Debentures,
and a copy of a Terms Supplement to such Offering Memorandum dated June 26, 1996
("Terms Supplement");
WHEREAS, the Company and the Purchaser intend that any blanks
in the form of this Purchase Agreement shall be filled with the terms set forth
in the Offering Memorandum and Terms Supplement;
WHEREAS, the Debentures will be issued under an indenture
dated as of the Closing Date (the "Indenture") between the Company and the
Boatmen's Trust Company, as trustee (the "Trustee");
WHEREAS, the Purchaser wishes to have the benefit of a
registration agreement substantially in the form set forth in Appendix A of the
Offering Memorandum ("Registration Agreement") and herein authorizes
Robinson-Humphrey to execute such Registration Agreement on its behalf as of the
Closing Date;
WHEREAS, the Purchaser wishes to have the benefit of a
custodian agreement substantially in the form set forth in Appendix A of the
Offering Memorandum ("Custodial Agreement") pursuant to which the Company
intends to select Boatmen's Trust Company or other qualified financial
institution (the "Custodian") to accept delivery of, and to hold as specified
therein, the Debenture being purchased by Purchaser ("Custodian Agreement"), and
herein authorizes Robinson-Humphrey to execute such Custodian Agreement on its
behalf as of the Closing Date;
WHEREAS, Purchaser wishes to buy from the Company the
aggregate principal amount of Debentures for the purchase price set forth on the
signature page of this Purchase Agreement, and the Company, subject to its right
to reduce such amount in its sole discretion, desires to sell to the Purchaser
such aggregate principal amount of Debentures;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in this Purchase Agreement, the parties agree as
follows:
Section 1. Authorization of Sale of the Debentures. Subject to
the terms and conditions of this Purchase Agreement and the Placement Agreement,
the Company has authorized the sale of the Debentures.
Section 2. Agreement to Sell and Purchase the Debentures.
Subject to the terms and conditions of this Purchase Agreement, the Indenture,
the Registration Rights Agreement, and the Placement Agreement, the Company
agrees to sell and Purchaser agrees to buy the aggregate principal amount of
Debentures set forth on the signature page of this Purchase Agreement, or such
lesser amount as determined by the Company in its sole discretion, provided that
the Company shall also have the right to reject any order in whole. The terms of
the Debentures will be as set forth in the Offering Memorandum, the Terms
Supplement, and the Indenture. Purchaser shall pay the aggregate amount set
forth on the signature page hereof (the "Purchase Price") by wire transfer of
immediately available funds, to the account of the Company as set forth in the
Terms Supplement not later than 4:00 p.m. Eastern Time, on the day preceding the
Closing Date. If no Debentures are sold to such Purchaser, or if the aggregate
amount of Debentures sold to such Purchaser is less than such amount set forth
on the signature page of this Purchase Agreement, the Company will wire transfer
such aggregate or excess amount pursuant to the wire transfer instructions
specified in the signature page hereof, or in the absence of such instructions,
shall contact Purchaser for instructions as to how to return any excess amount
The amounts sent in by the Purchaser shall be placed into an
interest-bearing account at the financial institution set forth in the Terms
Agreement. Any interest actually earned on such amounts prior to but not
including the Closing Date will be paid to the Purchaser. The Company shall have
no responsibility for the safe-keeping of any amounts held in such account and
shall not guarantee any interest on such amounts.
The Company represents to Purchaser that, contemporaneously
with the execution by the Company of this Purchase Agreement, the Company will
be executing substantially identical agreements (except for the name and address
of the Purchaser, the principal amount of Debentures purchased, and the
aggregate principal amount therefor) with certain other investors (the "Other
Purchasers") for an aggregate principal amount of up to $60 million (which
amount may be increased, or decreased to no less than $50 million, by the
Company and Robinson-Humphrey). Purchaser and Other Purchasers are hereinafter
sometimes referred to as the "Purchasers," and this Purchase Agreement and such
other Purchase Agreements are hereinafter sometimes referred to as the "Purchase
Agreements."
Section 3. Issuance of the Certificates Representing the
Debentures. At the Closing, the Company will cause to be delivered to the
Custodian, one certificate for the Debentures registered in the name of
Purchaser as set forth on the signature page hereof (or in such name as
designated by Purchaser on the signature page hereof). The obligations of the
Company to sell the Debentures and to deliver such certificate to the Custodian
at the Closing shall be subject to, in addition to other terms and conditions
set forth herein, the following conditions: (a) receipt by the Company of funds
as set forth in Section 2 above in the full amount of the Purchase Price for the
Debentures, and (b) the accuracy, as of the Closing Date, of the representations
and warranties made by Purchaser herein and compliance, as of the Closing Date,
with the covenants made by Purchaser herein, which accuracy and compliance shall
be deemed to be confirmed by the delivery of the Purchase Price. Purchaser's
obligation to pay for the Debentures shall be subject to the following
conditions: (a) compliance with the conditions to Closing set forth in Section 5
of the Placement Agreement, and (b) accuracy, as of the Closing Date, of the
representations and warranties made by the Company herein and compliance, as of
the Closing Date, with the covenants made by the Company herein, which accuracy
and compliance shall be deemed confirmed by the delivery of the certificates
evidencing the Debentures.
Section 4. Representations, Warranties and Covenants of the
Company. The Company hereby represents and warrants to, and covenants with,
Purchaser as follows:
4.1. Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Kansas in the United States of America and has all requisite
corporate power and authority to own and lease its properties and to conduct its
business as presently conducted and as described in the Offering Memorandum. The
Company is duly qualified to do business and is in good standing in every
jurisdiction where such qualification is required by controlling law and where
the failure to so qualify is reasonably likely to have a material adverse effect
on the Company and its subsidiaries, taken as a whole. Each of the Company's
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation or
charter and has all requisite corporate power and authority to own and lease its
properties and to conduct its business as presently conducted and as described
in the Offering Memorandum. Each of the Company's subsidiaries is duly qualified
to do business and is in good standing in every jurisdiction where such
qualification is required by controlling law and where the failure to so qualify
is reasonably likely to have a material adverse effect on the Company and its
subsidiaries, taken as a whole. Each Company subsidiary that is in the business
of underwriting, insuring or reinsuring insurance policies ("Insurance
Subsidiary") is (i) duly licensed or authorized as an insurance company in its
jurisdiction of incorporation and (ii) duly licensed or authorized as an
insurance company in each other jurisdiction where it is required to be so
licensed or authorized, except where the failure to be so licensed or authorized
is reasonably likely to have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
4.2. Authorized Capital Stock. The authorized capital stock of
the Company is as set forth in the Offering Memorandum. The description of the
issued and outstanding shares of capital stock of the Company as presented in
the Offering Memorandum is correct as of the date set forth therein. All issued
and outstanding shares of Company capital stock have been duly and validly
authorized and issued, are fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and have not been issued
in violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right. All of the outstanding
shares of capital stock of the Company's subsidiaries have been duly and validly
authorized and issued and are fully paid and non-assessable. All of the
outstanding capital stock of the Company's subsidiaries, except for eight
directors qualifying shares for American Investors Life Insurance Company, Inc.,
is owned directly by the Company or indirectly through a subsidiary all of the
outstanding capital stock of which subsidiary is owned directly by the Company
free and clear and without notice of any lien, security interest, mortgage,
pledge, charge, encumbrance or other restriction of any nature whatsoever.
4.3. Due Execution, Delivery and Performance of the Placement
Agreement and the Purchase Agreements. The execution, delivery and performance
of the Indenture, the Placement Agreement, the Registration Rights Agreement,
and the Purchase Agreements by the Company (a) have been duly authorized by all
requisite corporate action of the Company and (b) will not violate (i) the
Certificate of Incorporation, Bylaws or other governing instruments of the
Company or its subsidiaries or (ii) any provision of any indenture, mortgage,
agreement, contract, or other instrument to which the Company or any of its
subsidiaries is bound, or be in conflict with, or result in a breach of or
constitute (upon notice or lapse of time or both) a default under any such
indenture, mortgage, agreement, contract, or other instrument or result in the
creation or imposition of any lien, security interest, mortgage, pledge, charge
or other encumbrance of any nature whatsoever upon any of the properties or
assets of the Company or any of its subsidiaries (except for such violation,
breach, default, creation or imposition, in (b)(ii) above which is not
reasonably likely to have a material adverse effect on the Company and its
subsidiaries, taken as a whole). Upon execution and delivery, the Indenture, the
Registration Rights Agreement, and the Purchase Agreements will constitute
legal, valid and binding obligations of the Company, enforceable in accordance
with their respective terms, except insofar as the enforcement thereof may be
limited by bankruptcy law or other laws relating to or affecting the enforcement
of creditors' rights generally or by general equitable principles or public
policy (regardless of whether such enforceability is considered in a proceeding
in equity or at law) and except as rights to indemnity or contribution may be
limited under applicable law.
4.4. Issue and Delivery of Debentures and Underlying Common
Stock. The Debentures to be purchased from the Company hereunder and the no par
value Common Stock into which the Debentures may be converted (the "Underlying
Common Stock") have been duly authorized for offer, issuance and sale to
Purchaser pursuant to this Agreement. At and as of the Closing Date, each of the
Debentures will have been duly executed by the Company and, when duly
authenticated by the Trustee under the Indenture and delivered against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and will constitute valid and legally binding obligations of the
Company and its subsidiaries entitled to the benefits of the Indenture and
enforceable in accordance with their terms, except insofar as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally. No preemptive right,
co-sale right, registration right, right of first refusal or other similar right
exists with respect to any of the Debentures or the issuance and sale thereof,
other than those that have been expressly disclosed and waived in writing(s)
delivered to Robinson-Humphrey prior to the date hereof, and contemplated by
this Purchase Agreement or the Registration Rights Agreement. When issued,
executed and delivered by the Company and authenticated by the Trustee, the
Debentures (and the Underlying Common Stock upon proper conversion) will be
issued to Purchaser free and clear of any security interests, pledges,
hypothecations, liens, encumbrances or claims of any type or nature. The shares
of Underlying Common Stock have been duly and validly authorized and upon
issuance and delivery pursuant to a proper conversion of the Debentures in the
manner herein described, will be validly issued, fully paid and nonassessable.
No further approval or authorization by the Boards of Directors of the Company
and its subsidiaries or any other Person is required for the issuance and sale
or transfer of the Debentures or the shares of Underlying Common Stock upon
conversion.
4.5. Offering Memorandum and Additional Information. The
Company has furnished, and Purchasers acknowledged receipt of, the documents
shown below except, in each case, for any exhibits, which will be furnished to
any Purchaser upon request:
(a) the Offering Memorandum, including Appendix A; and
(b) the Terms Supplement.
The Offering Memorandum (including Appendix A), Terms
Supplement, and any supplement or amendment to the Offering Memorandum or Terms
Supplement, when combined with the documents incorporated by reference therein
(except as amended, supplemented or superseded by the Offering Memorandum
(including Appendix A), the Terms Supplement, and any amendment to either), when
considered as a whole, do not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they are made, not misleading, of which the
Company has knowledge, or in the exercise of reasonable care the Company could
have known.
4.6. Legal Proceedings. There are no actions, suits,
investigations or proceedings pending other than as disclosed in the Offering
Memorandum (including the documents incorporated therein and provided to the
Purchasers) to which the Company or any of its subsidiaries is a party before or
by any federal, state or foreign court or governmental agency or body, tribunal,
commission, board, agency or instrumentality, or before any arbitrator which is
reasonably like to have, individually or in the aggregate, a material adverse
effect on the business, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole; and to the knowledge of the
Company, no actions, suits, investigations or proceedings are threatened by any
person, corporation or governmental agency or body; nor is there any judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against the
Company or any of the Company subsidiaries having, or which, insofar as can
reasonably be foreseen, in the future may have, individually or in the
aggregate, a material adverse effect on the business, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole.
4.7. No Material Adverse Change. Subsequent to the respective
dates as of which information is given in the Offering Memorandum, and except as
specifically described therein, there has not been any material adverse change
in the results of operations, condition (financial or otherwise) earnings,
operations or business, of the Company and its subsidiaries, taken as a whole.
There are no conditions that would constitute a Default or Event of Default
under the Indenture or any other indebtedness of the Company or any of its
subsidiaries, provided that is understood that the indebtedness which is to be
paid out of the proceeds of the sale of the Debentures would be in default as a
result of the sale of the Debentures were such indebtedness not to be repaid out
of such proceeds.
4.8. Law and Regulation.
(a) The Company and its subsidiaries are in compliance with,
and conduct their respective businesses in conformity with all
applicable laws and governmental regulations governing the businesses
conducted by the Company and its subsidiaries, as the case may be,
except for failures to comply or conform which would not have a
material adverse effect on the business, financial condition or results
of operations of the Company and its subsidiaries, taken as a whole.
(b) The Company and each of its subsidiaries has all permits,
licenses and governmental authorizations, consents and approvals
(including, in the case of the Company Insurance Subsidiaries,
insurance licenses), the use and exercise of which are necessary for
the conduct of its business as now conducted, other than such permits,
licenses and governmental authorizations, consents and approvals, the
absence of which would not be reasonably likely to have, individually
or in the aggregate, a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. All such permits, licenses and
governmental authorizations, consents and approvals are in full force
and effect, and there is no proceeding or investigation pending, or to
the knowledge of the Company threatened, which would reasonably be
expected to lead to the revocation, amendment, failure to renew,
limitation, suspension or restriction of any such permit, license or
governmental authorization, consent or approval, except in each case as
such would not be reasonably likely to have, individually or in the
aggregate, a material adverse effect on the business, financial
condition or results of operations of the Company and its subsidiaries,
taken as a whole. Since January 1, 1993, neither the Company nor any of
its subsidiaries has received any notification or communication from
any agency or department of federal, state or local government or any
other regulatory authority or the staff thereof (i) asserting that the
Company or any of its subsidiaries is not in compliance with any of the
laws, ordinances, rules, regulations, decrees and orders of any
governmental agency or authority enforces, where such noncompliance is
reasonably likely to have, individually or in the aggregate, a material
adverse effect on the business, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole, or
(ii) requiring the Company or any of its subsidiaries to enter into or
consent to the issuance of a cease and desist order, formal agreement,
directive, commitment or memorandum of understanding, or to adopt any
Board resolution or similar undertaking, which restricts materially the
conduct of its business or in any manner materially relates to the
adequacy of its capital, its credit or reserve policies, its management
or the payment of dividends.
4.9. Accounting Matters. Deloitte & Touche LLP ("D&T"), which
has audited the consolidated balance sheets of each of the Company and Financial
Benefit Group, Inc. ("FBG") as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity and cash flows of the
Company and FBG for the three years ended December 31, 1995 which are included
or incorporated by reference in the Offering Memorandum, are independent public
accountants as required by the Securities Act of 1933, as amended ("Securities
Act") and the Securities Act Regulations.
The financial statements included or incorporated by reference
in the Offering Memorandum comply as to form in all material respects with
applicable accounting requirements of the Securities Act, the Securities Act
Regulations, the Exchange Act, and the Exchange Act Regulations, including SEC
Regulation S-X (as and if such financial statements were filed with or
incorporated by reference in a registration statement under the Securities Act),
and said financial statements present fairly the financial position of the
Company and its subsidiaries on a consolidated basis as of the dates indicated
and the results of their operations for the periods specified; except as
otherwise stated in the Offering Memorandum, such financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis and such financial statements are consistent in all material
respects with financial statements and other reports filed by the Company and
its subsidiaries with the Commission; the supporting schedules included are
incorporated by reference in the Offering Memorandum and present fairly the
information required to be stated therein. The selected and financial and
statistical data included in the Offering Memorandum present fairly the
information shown therein and have been compiled on a basis consistent with the
audited financial statements presented therein.
4.10. Regulations G, T, U and X. The issuance, sale and
delivery of the Debentures, and the application of the proceeds thereof by the
Company and its subsidiaries as set forth in the Offering Memorandum, will not
be subject to or violate Regulations G, T, U or X (the "Margin Regulations")
promulgated by the Board of Governors of the Federal Reserve System (the
"Federal Reserve").
4.11. Solvency. The Company and the subsidiaries, considered
as one enterprise immediately after the Closing, after giving effect to the
issuance and delivery of the Debentures, the repayment of all borrowings under
the Credit Agreement with First National Bank of Chicago, Fleet National Bank
and Boatmen's First National Bank of Kansas City, dated as of April 8, 1996
("First Chicago Credit Agreement"), and the application of the net proceeds of
the Debentures as described in the Offering Memorandum, will be Solvent. As used
herein, the term "Solvent" means, with respect to any Person on a particular
date, that on such date (A) the present fair market value (or fair salable
value) of the assets of such Person is more than the amount required to pay the
probable liabilities of such Person on its total existing debts and liabilities
(including contingent liabilities) as they become absolute and matured, (B) such
Person is able to realize upon its assets and pay its debts and other
liabilities, contingent obligations and commitments, as they mature in the
normal course of business, (C) assuming the sale of the Debentures as
contemplated hereby and the application of the net proceeds thereof as described
in the Offering Memorandum, such Persons are not incurring debts or liabilities
beyond their ability to pay such debts and liabilities as they mature, and (D)
such entity is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which its property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such person is engaged. In addition, neither
the Company nor any of its subsidiaries is or will as a result of the issuance
and delivery of the Debentures the repayment of all outstanding obligations
under the First Chicago Credit Agreement, and the application of the proceeds of
the Debentures as described in the Offering Memorandum, be insolvent within the
meaning of the United States Bankruptcy Code, as amended (the "Bankruptcy Code")
or applicable state law and that none of the transactions contemplated herein or
in the Offering Memorandum were undertaken with a view or any intent to hinder,
delay or defraud creditors. In computing the amount of contingent liabilities at
any time, it is intended that such liabilities will be computed at the amount
that in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability.
4.12. SEC Reports; Financial Statements. The Company and each
of its subsidiaries with such obligations have timely filed all reports required
to be filed by it with the Securities and Exchange Commission (the "SEC") since
January 1, 1995, pursuant to the federal securities laws and the SEC rules and
regulations thereunder, all of which as of their respective dates, compiled in
all material respects with applicable requirements of the Exchange Act
(collectively, the "Company SEC Reports"). None of the Company SEC Reports,
including, without limitation, any financial statements or schedules included
therein, as of their respective dates contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.13. Statutory Statements. Each of the Company Insurance
Subsidiaries has filed all annual or quarterly statements, together with all
exhibits and schedules thereto, required to be filed with or submitted to the
appropriate-regulatory authorities of the jurisdiction in which it is domiciled
on forms prescribed or permitted by such authority (collectively, the "SAP
Statements"). All financial statements included in the SAP Statements and
prepared on a statutory basis, including the notes thereto, have been prepared
in accordance with accounting practices prescribed or permitted by applicable
state regulatory authorities in effect as of the date of the respective
statements, except in each case as would not be reasonably likely to have,
individually or in the aggregate, a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
4.14. Regulatory Filings. The Company and its subsidiaries
have filed all reports, statements, documents, registrations, filings or
submissions required to be filed by any of them with any governmental agency or
authority, except where the failure to file is not reasonably likely to have,
individually or in the aggregate, a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, and all such reports, statements, documents,
registrations, filings or submissions were in conformance will applicable
requirements, except in each case as would not be reasonably likely to have,
individually or in the aggregate, a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
4.15. Reserves. The aggregate reserves of the Company
Insurance Subsidiaries as recorded in the 1995 SAP Statements have been
determined in accordance with generally accepted actuarial principles
consistently applied (except as set forth therein), have been determined using
prescribed morbidity and mortality tables and interest rates, are in accordance
with the nature of the benefits specified in the related contract or policy of
insurance, and were adequate to cover the obligations of the Company Insurance
Subsidiaries as of December 3 1, 1995. The insurance reserving practices and
policies of the Company Insurance Subsidiaries have not changed, in any material
respect, since December 31, 1995, and the results of the application of such
practices and policies are reflected in the 1995 SAP Statements. All reserves of
the Company Insurance Subsidiaries set forth in the 1995 SAP Statements are
fairly stated in accordance with sound actuarial principles and meet the
requirements of the insurance laws of the applicable insurance authorities.
4.16. Related Party Transactions. All transactions involving
the Company or any of its subsidiaries that are required to be disclosed in the
Company SEC Reports in accordance with Item 404 of Regulation S-K have been so
disclosed, and since December 31, 1995, neither the Company nor any of its
subsidiaries has entered into any transactions that would be required to be
disclosed in future public filings under the Exchange Act pursuant to such Item
which have not already been disclosed in the Company SEC Reports filed prior to
the date hereof.
4.17. Rating Agency. From December 31, 1995, through the date
of this Agreement, no rating agency has (i) imposed conditions (financial or
otherwise) on retaining any rating assigned to the Company or any Company
Insurance Subsidiary or (ii) threatened to downgrade any rating assigned to the
Company or any Company Insurance Subsidiary. Neither the Company nor any Company
Insurance Subsidiary has any knowledge of any facts existing as of the date of
this Agreement which can be reasonably expected to result in a downgrade in any
rating assigned to the Company or any Company Insurance Subsidiary by any rating
agency.
4.18. Licensed Agents. Since December 31, 1995, each person
who wrote, sold or produced business for the Company or any Company Insurance
Subsidiary was duly licensed as an insurance agent at the time such person
wrote, sold or produced such business (for the type of business written, sold,
or produced by such insurance agent) in the particular jurisdiction in which
such agent wrote, sold or produced such business, except in each case as would
not be reasonably likely to have, individually or in the aggregate, a material
adverse effect on the business, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole.
4.19. Representations, Warranties and Covenants at Closing.
Any certificates signed by any officer of the Company or its subsidiaries, and
delivered to the Purchasers or to counsel for the Purchasers pursuant to the
terms of this Agreement shall be deemed a representation and warranty by the
Company to the Purchaser as to the matters covered thereby.
Section 5. Representation, Warranties and Covenants of
Purchaser. Purchaser hereby represents, warrants and covenants to the Company as
follows:
5.1. Compliance with United States Securities Laws. Purchaser
understands and acknowledges that the Debentures and Underlying Common Stock
have not been registered under the Securities Act, and that the Debentures and
Underlying Common Stock may not be offered or sold in the United States or to,
or for the account or benefit of, any "U.S. person" (as defined in Regulation S
under the Securities Act, which definition is set out on as Exhibit I of the
Offering Memorandum), unless such Debentures or Underlying Common Stock are
registered under the Securities Act or such offer or sale is made pursuant to an
exemption from the registration requirements of the Securities Act. The
Debentures and Underlying Common Stock are being offered and sold pursuant to
the terms of Regulation S under the Securities Act, which permits securities to
be sold to non-"U.S. persons" in transactions consummated outside of the United
States, subject to certain terms and conditions, and such other exemptions as
may be available under the Securities Act, without registering the Debentures or
Underlying Common Stock under the Securities Act. Purchaser further represents
that he has received the Offering Memorandum, including Appendix A, and Terms
Supplement, and has read and understands the investor notices and legends, and
the section entitled "Plan of Offering and Restrictions on Resale" set forth in
the Offering Memorandum.
5.2. Status of Purchaser. Purchaser is purchasing the
Debentures and the Underlying Common Stock for its own account or for persons or
accounts as to which it exercises investment discretion. Neither Purchaser nor
such person or account over which the Purchaser exercises such discretion, is a
"U.S. person" within the meaning of Regulation S under the Securities Act.
Purchaser has received this Offering Memorandum, the Terms Supplement and any
oral or other communications regarding the Offering outside the United States.
Purchaser has executed this Purchase Agreement outside the United States. Such
Purchaser is an "accredited investor" (as defined in Rule 501(a) under the
Securities Act) and is knowledgeable, sophisticated and experienced in making,
and is qualified to make, decisions with respect to investments in restricted
securities and has requested, received, reviewed and considered all information
it deems relevant in making a decision to execute this Purchase Agreement and to
purchase the Debentures. Purchaser has agreed to purchase the Debentures and the
Underlying Common Stock shares for investment and not with a view to
distribution. To the extent that the instrument representing the Debentures or
the certificate representing the Underlying Common Stock shares is registered in
the name of Purchaser's nominee, Purchaser confirms that such nominee is acting
as custodian for Purchaser of the securities represented thereby.
5.3. Restrictions on Re-Sale.
(a) General. Purchaser understands that the Debentures (and
the Underlying Common Stock) have not been registered under the Securities Act,
and may not be offered or sold in the United States or to "U.S. Persons" (as
defined in Regulation S) unless the Debentures (and Underlying Common Stock) are
registered under the Securities Act, or an exemption from the registration
requirements of the Securities Act is available. Purchaser further understands
that the Debentures and the Underlying Common Stock are only transferable on the
books and records of the Company and its Transfer Agent and Registrar and that
the Company and the Transfer Agent and Registrar will not register any transfer
of the Debentures or Underlying Common Stock which the Company in good faith
believes (i) violates the restrictions set forth in this Section 5 or violate
any state or federal securities laws, or (ii) does not comply with the
requirements set forth herein. Purchaser will not, directly or indirectly,
voluntarily offer, sell, pledge, transfer or otherwise dispose of (including
lessening the economic risk of owning the Debentures or Underlying Common Stock
through short sales, hedging transactions, or the purchase or sale of derivative
securities in a manner violative of Regulation S or otherwise of the Securities
Act or Exchange Act), or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of, its rights under this Purchase Agreement or the
Debentures or the Underlying Common Stock shares otherwise than in compliance
with the Securities Act, any applicable state securities or blue sky laws and
any applicable securities laws of jurisdictions outside the United States, and
the rules and regulations promulgated thereunder.
(b) Restrictions.
(i) For a period of forty (40) days following
the termination of the Offering, Purchaser shall not engage in any activity for
the purpose of, or which may reasonably be expected to have the effect of,
conditioning the market in the United States for the Debentures or the
Underlying Common Stock or offer or sell the Debentures or the Underlying Common
Stock in the United States or to, or for the account or benefit of, a "U.S.
person," as defined in Regulation S under the Securities Act. Purchaser shall
not deliver the Offering Memorandum or Purchase Agreement to any person (other
than its professional advisers). Unless registered under the Securities Act, any
proposed offer, sale or transfer of any of the Debentures (and the Underlying
Common Stock) purchased by the Purchaser pursuant to this Purchase Agreement
during the forty (40) days following the termination of the Offering shall be
subject to the conditions that Purchaser must deliver to the Company: (x) a
written certification that neither record nor beneficial ownership of the
Debentures or the Underlying Common Stock shares have been offered or sold in
the United States or to, or for the account or benefit of, any "U.S. person,"
and that Purchase has not engaged in any activity for the purpose of, or which
may reasonably be expected to have had the effect of, conditioning the market in
the United States for the Debentures or the Underlying Common Stock, (y) a
written certification of the proposed transferee that such transferee (or any
account for which such transferee is acquiring such Debentures or Underlying
Common Stock) is not a "U.S. person" and is not acquiring such Debentures or
Underlying Common Stock for the account or benefit of a "U.S. person," and, if
requested by the Company following receipt of (x) and (y), (z) a written opinion
of United States counsel satisfactory to the Company in form and substance
satisfactory to the Company to the effect that the offer, sale and transfer of
the Debentures or Underlying Common Stock are exempt from registration under the
Securities Act.
(ii) After completion of the forty (40) days
following the termination of the Offering, unless registered under the
Securities Act, any proposed offer, sale or transfer of any of the Debentures
(or Underlying Common Stock) (x) to, or for the account or benefit of, any "U.S.
person" or in the United States shall be subject to the condition that the
Purchaser must deliver to the Company (i) a written opinion of United States
counsel satisfactory to the Company in form and substance satisfactory to the
Company to the effect that the offer, sale and transfer of such Debentures or
Underlying Common Stock shares are exempt from registration under the Securities
Act and such other documentation as is reasonably related to the opinion, or
(ii) such other documentation for such exemption as the Company deems
appropriate or (y) to a person other than a "U.S. person" and outside the United
States shall be subject to the condition that the proposed transferee deliver a
written certification that such transferee (or any account for which such
transferee is acquiring such Debentures or Underlying Common Stock) is not a
"U.S. person" and is not acquiring such Debentures or Underlying Common Stock
for the account or benefit of a "U.S. person."
(iii) Following registration under the
Securities Act pursuant to the Registration Agreement, the Purchaser will be
subject to the restrictions and conditions set forth in the Registration
Agreement and in Section 5.3(d).
(c) Status under Securities Act. Purchaser understands that if
Purchaser re-offers all or part of the Debentures or Underlying Common Stock in
the United States, Purchaser (and/or certain persons who participate in any such
re-offer) may be deemed, under certain circumstances, to be an "underwriter" as
defined in Section 2(11) of the Securities Act. If Purchaser plans to make any
such re-offer, it will consult with its counsel prior to any such re- offer in
order to determine its liabilities and obligations under the Securities Act and
any applicable state securities or blue sky laws.
(d) Registration. Purchaser further understands that the
Company has agreed to file a registration statement pursuant to the Registration
Agreement for the resale of the Debentures and the Underlying Common Stock under
the Securities Act as contemplated in Section 7 hereof. After registration of
the Debentures and the Underlying Common Stock under the Securities Act,
Purchaser agrees to comply with the prospectus delivery requirements of the
Securities Act in connection with any sale or other disposition of the
Debentures and the Underlying Common Stock. Purchaser agrees that Purchaser or
its broker will deliver to each transferee a copy of a current prospectus
regarding the Debentures or the Underlying Common Stock, as applicable, until
the Company gives written notice to the Purchaser that delivery of a current
prospectus is no longer required. Although it is intended that prospectus
regarding the Debentures and the Underlying Common Stock will be kept current
through periodic filings by the Company under the Exchange Act and other filings
under the Securities Act, Purchaser agrees to confirm with the Company prior to
the use of any such prospectus that such prospectus is current and complete and
that the Debentures and the Underlying Common Stock, as applicable, may be
lawfully sold pursuant to such prospectus. Purchaser understands that there are
other important provisions, details, covenants, restrictions and conditions with
respect to these matters set forth in the Registration Agreement and has read
and understood such provisions, details, covenants, restrictions and conditions.
(e) Legend Requirement. Purchaser hereby agrees that
the Debentures and the Underlying Stock will bear the following
legends.
THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
SECURITY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") OR WITH ANY SECURITIES
REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED
STATES. THIS SECURITY AND THE COMMON STOCK INTO WHICH IT MAY BE
CONVERTED MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO
AN EXEMPTION THEREFROM AND IS OTHERWISE SUBJECT TO CERTAIN CONDITIONS
AND RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT AND REGISTRATION
RIGHTS AGREEMENT BETWEEN THE COMPANY AND THE HOLDER.
UNTIL 40 DAYS AFTER THE TERMINATION OF THE OFFERING OF THIS SECURITY
(THE "RESTRICTED PERIOD"), THE OFFER, SALE, PLEDGE OR TRANSFER OF THIS
SECURITY AND THE COMMON STOCK INTO WHICH IT MAY BE CONVERTED IS SUBJECT
TO CERTAIN CONDITIONS AND RESTRICTIONS SET FORTH IN THE PURCHASE
AGREEMENT AND REGISTRATION RIGHTS AGREEMENT BETWEEN THE COMPANY AND THE
HOLDER, EACH DATED JULY 12, 1996 AND MAY NOT BE SOLD TO A U.S. PERSON
OR INTO THE UNITED STATES.
FOLLOWING THE REGISTRATION OF THIS SECURITY (AND THE COMMON STOCK INTO
WHICH IT MAY BE CONVERTED) THE OFFER, SALE, PLEDGE OR TRANSFER OF THIS
SECURITY AND THE COMMON STOCK INTO WHICH IT MAY BE CONVERTED IS SUBJECT
TO CERTAIN CONDITIONS AND RESTRICTIONS SET FORTH IN THE PURCHASE
AGREEMENT AND REGISTRATION RIGHTS AGREEMENT, EACH DATED JULY 12, 1996
BETWEEN THE COMPANY AND THE HOLDER.
5.4. Due Execution, Delivery and Performance of the Purchase
Agreement and Other Obligations. Purchaser has full right, power, authority and
capacity to enter into this Purchase Agreement and to consummate the
transactions contemplated hereby; if Purchaser is a company or corporation, the
execution, delivery and performance of this Purchase Agreement by Purchaser have
been duly authorized by all requisite corporate action of Purchaser. Upon the
execution and delivery of this Purchase Agreement by Purchaser, this Purchase
Agreement shall constitute the legal, valid and binding obligations of
Purchaser, enforceable against Purchaser in accordance with its terms except
insofar as the enforcement thereof may be limited by bankruptcy law or other
laws relating to or affecting the enforcement of creditors' rights generally or
by general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and except as rights to
indemnity and contribution may be limited under applicable law.
5.5. Representations, Warranties and Covenants at Closing.
Each of the representations and warranties contained in this Section 5 hereof is
true and correct as of the date of this Purchase Agreement and will be true and
correct as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date. Each
of the covenants contained in this Section 5 will have been performed as of the
Closing Date if performance is required as of the Closing Date by this Section
5.
Section 6. Survival of Representations, Warranties, Covenants
and Agreements. Notwithstanding any investigation made by either party to this
Purchase Agreement, all representations, warranties, covenants and agreements
made by the Company and Purchaser herein shall survive the execution of this
Purchase Agreement, the delivery of stock certificates representing the
Debentures and the receipt of payment for the Debentures. Each of the Company's
representations and warranties will survive for a period of one year after the
discovery by the Purchaser of a violation thereof, or after such discover should
have been made by the exercise of reasonable diligence. In no event shall the
Company's representations or warranties survive for a period more than three
years after the termination of the offering.
Section 7. Registration Rights; Compliance with the Securities
Act.
7.1. Registration Rights Agreement. By execution of this
Purchase Agreement, Purchaser agrees to the terms and conditions of that certain
Registration Rights Agreement to be entered into by and among, the Company and
Robinson-Humphrey on behalf of all Purchasers. Purchaser hereby irrevocably
authorizes Robinson-Humphrey, as its attorney-in- fact, to execute the
Registration Rights Agreement on such Purchaser's behalf. In addition, the
Purchaser hereby agrees that Robinson-Humphrey's sole action or responsibility
in connection with this Registration Rights Agreement is to execute such
Agreement on behalf of the purchaser and that Robinson-Humphrey has no further
or additional obligations with respect to the matters contemplated in such
Registration Rights Agreement. The Purchaser hereby agrees to hold harmless
Robinson-Humphrey for any losses, liabilities or costs in connection with any
matter contemplated in the Registration Rights Agreement and that
Robinson-Humphrey shall not be in any manner liable or responsible for any
matter contemplated in the Registration Rights Agreement.
7.2. Custodial Agreement. By execution of this Purchase
Agreement, Purchaser agrees to the terms and conditions of that certain
Custodial Agreement to be entered into by and among, the Boatmen's Trust
Company, as custodian ("Custodian") and Robinson-Humphrey, on behalf of all
Purchasers. Purchaser hereby irrevocably authorizes Robinson-Humphrey, as its
attorney-in-fact, to execute the Custodial Agreement on such Purchaser's behalf.
In addition, the Purchaser hereby agrees that Robinson-Humphrey's sole action or
responsibility in connection with this Custodial Agreement is to execute such
Agreement on behalf of the Purchaser and that Robinson-Humphrey has no further
or additional obligations with respect to the matters contemplated in such
Custodial Agreement. The Purchaser hereby agrees to hold harmless
Robinson-Humphrey for any losses, liabilities or costs in connection with any
matter contemplated in the Custodial Agreement and that Robinson-Humphrey shall
not be in any manner liable or responsible for any matter contemplated in the
Custodial Agreement.
Section 8. Placement Fee. Purchaser acknowledges that the
Company has advised it that the Company intends to pay to The Robinson-Humphrey
Company, Inc., as placement agent, a fee in respect of this transaction equal to
four and one-half percent (4.5%) of the gross proceeds of the Offering. The
parties hereto hereby represent that there are no other brokers or finders
entitled to compensation in connection with the transactions contemplated
hereby.
Section 9. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be by hand-delivery, by
first-class air mail, postage prepaid, or sent by facsimile transmission with a
confirmation copy sent by first-class mail, or by reliable air-courier
guaranteeing overnight or second-day delivery and shall be deemed given when so
mailed:
(a) if to the Company, to 415 S.W. Eighth Avenue, Topeka,
Kansas 66603, Attention: Ralph W. Laster, Jr., or to such other person
at such other place as the Company shall designate to the Purchaser in
writing;
(b) if to Purchaser, at its address as set forth on the
signature page of this Agreement, or at such other address or addresses
as Purchaser may have furnished to the Company; or
(c) if to any transferee or transferees of Purchaser, at such
address or addresses as shall have been furnished to the other parties
hereto at the time of the transfer or transfers, or at such other
address or addresses as may have been furnished by such transferee or
transferees to the other parties hereto in writing.
Section 10. Amendments. No amendment, interpretation or waiver
of any of the provisions of this Purchase Agreement shall be effective unless
made in writing and signed by the parties to this Purchase Agreement.
Section 11. Headings. The headings of the sections,
subsections and subparagraphs of this Purchase Agreement are used for
convenience only and shall not affect the meaning or interpretation of the
contents of this Purchase Agreement.
Section 12. Enforcement. The failure to enforce or to require
the performance at any time of any of the provisions of this Purchase Agreement
shall in no way be construed to be a waiver of such provisions, and shall not
affect either the validity of this Purchase Agreement or any part hereof or the
right of any party thereafter to enforce each and every provision in accordance
with the terms of this Purchase Agreement.
Section 13. Governing Law. This Purchase Agreement and the
relationships of the parties in connection with the subject matter of this
Purchase Agreement shall be governed by and determined in accordance with the
laws of the State of Kansas in the United States of America.
Section 14. Severability. If any severable provision of this
Purchase Agreement is held to be invalid or unenforceable by any judgment of a
tribunal of competent jurisdiction, the remainder of this Purchase Agreement
shall not be affected by such judgment, and the Purchase Agreement shall be
carried out as nearly as possible according to its original terms and intent.
Section 15. Counterparts. This Purchase Agreement may be
executed in counterparts, all of which shall constitute one agreement, and each
such counterpart shall be deemed to have been made, executed and delivered on
the date set out at the head of this Purchase Agreement without regard to the
dates or times when such counterparts may actually have been made, executed or
delivered.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives the day and
year first above written.
AMVESTORS FINANCIAL CORPORATION
By:
----------------------------------------
Name: Mark V. Heitz
Title: President
Print or Type:
Name of Purchaser
(Institution):
---------------------------------------------------------
Name of Individual representing
Purchaser:
-------------------------------------------------------------
Title of Individual representing
Purchaser:
-------------------------------------------------------------
Signature of Purchaser (Individual
Representing Purchaser):
-----------------------------------------------
Address:
------------------------------------------------------------------------
Telephone:
----------------------------------------------------------------------
Telex:
--------------------------------------------------------------------------
Facsimile:
----------------------------------------------------------------------
Aggregate Principal Amount of Debentures:$ *
--------------------------------------
Total Purchase Price:$
----------------------------------------------------------
* Amount may not be less than $500,000 or more than $10,000,000
NOTICE: The final terms of the Company's _____ % Convertible Subordinated
Debentures due 2003, are included in the "Terms Supplement" provided by the
Company. The Terms Supplement addressed to Purchaser will also set forth as to
Purchaser the aggregate number of Debentures the Company agrees to sell to
Purchaser and the total Purchase Price therefor. If there is any discrepancy
between the principal amount of Debentures and total Purchase Price indicated on
this Purchase Agreement and the principal amount of Debentures and total
Purchase Price indicated on the Terms Supplement to Purchaser, the Terms
Supplement shall govern and supersede the information shown above on this
Purchase Agreement. As indicated in Section 2 hereof, the Aggregate Principal
Amount of Debentures indicated above and in the Terms Supplement is subject to
reduction or rejection in the sole discretion of the Company.
Information for registering the Debenture Certificate with
Transfer Agent:
The exact name in which your
Debentures are to be registered; you may
use a nominee name if appropriate:
--------------------------------------
The relationship between Purchaser and
registered holder, if different:
--------------------------------------
The mailing address of the
registered holder:
--------------------------------------
The Tax Identification Number
of the registered holder:
--------------------------------------
Wire Transfer Instructions:
--------------------------------------
If the Company in its sole discretion rejects any or all of
the Aggregate Principal Amount of Debentures indicated above, or if any interest
is owing pursuant to Section 2 hereof, such amounts should be sent to Purchaser
pursuant to the following wire transfer instructions:
Please provide all of the information requested on the
following pages, together with an executed Terms Supplement, Form W-8 and
signature page of this Purchase Agreement to The Robinson-Humphrey Company, Inc.
via facsimile and overnight courier at the facsimile number and address set
forth in the Terms Supplement.
Portfolio Manager:
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Telephone:
----------------------------------------------------------------------
Facsimile:
----------------------------------------------------------------------
Principal Operations Contact:
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Telephone:
----------------------------------------------------------------------
Facsimile:
----------------------------------------------------------------------
Person to Receive Confirmation of Closing:
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Telephone:
----------------------------------------------------------------------
Facsimile:
----------------------------------------------------------------------
Person to Receive Deposit Receipt from Custodian:
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Telephone:
----------------------------------------------------------------------
Facsimile:
----------------------------------------------------------------------
Person to Receive Deposited Debenture
Certificates from Custodian following
Registration of Debentures under the
Securities Act of 1933:
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Telephone:
----------------------------------------------------------------------
Facsimile:
----------------------------------------------------------------------
<PAGE>
Addendum 1
AMVESTORS FINANCIAL CORPORATION
PURCHASER QUESTIONNAIRE
AmVestors Financial Corporation
415 S.W. Eighth Avenue
Topeka, Kansas 66603
Gentlemen:
In connection with the proposed sale of AmVestors Financial
Corporation's (the "Company") _____ % Convertible Subordinated Debentures due
2003 (the "Debentures"), as described in the Company's Confidential Offering
Memorandum, dated as of June 1, 1996, and pursuant to that certain Purchase
Agreement, dated as of June ____ , 1996, among the Company and the Purchaser
named therein (the "Purchase Agreement"), and for use in the Registration
Statement described in the Purchase Agreement, and prospectus in respect of the
Debentures and the Common Stock into which the Debentures may be converted (the
"Underlying Common Stock"), the undersigned, as a proposed selling shareholder,
advises you as follows:
1. Our name as it should appear in the Registration Statement,
and our address (including zip code) are as follows:
2. We are a corporation ( ) partnership ( ) sole
proprietorship ( ) individual ( ) (check one).
3. Except as indicated below, neither we nor any of our
directors, officers or partners have (or have had within the last three years) a
material relationship (as "material" is defined in Regulation C under the
Securities Act of 1933) with the Company; and neither we nor any "group" (as
that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) of
which we are a member are the beneficial owner (determined in accordance with
Rule 13d-3 under such Act), of more than 5% of any class of voting securities of
the Company (including for purposes hereof the common stock underlying the
Debentures to be purchased pursuant to the Purchase Agreement), nor do we have
any knowledge that more than 5% of any class of voting securities of the Company
is held subject to any voting trust or other similar agreement.
(State "No Exceptions" or give details.)
4. The total number of shares of Common Stock we own
beneficially (determined in accordance with Rule 13d-3 under the Securities
Act), including the shares of Underlying Common Stock into which the Debentures
purchased pursuant to the Purchase Agreement may be converted are as follows:
Name in Which Registered Amount Owned
- ------------------------------------------- ----------------------------------
- ------------------------------------------- ----------------------------------
- ------------------------------------------- ----------------------------------
5. In addition, pursuant to options, warrants, or similar
rights, we have the right to acquire beneficial ownership of the following
shares of Common Stock:
Name of Optionee Number of Shares
or Warrantholder Covered by Option or Warrant
- ------------------------------------------- ----------------------------------
- ------------------------------------------- ----------------------------------
- ------------------------------------------- ----------------------------------
6. We hereby request that the Debentures and the Underlying
Common Stock be qualified for sale in the following states:
7. We will notify you (i) immediately in the event of any
development before the effective date of the Registration Statement which makes
untrue or incomplete any of the above statements as of such effective date, and
(ii) 10 business days prior to the date that we intend to sell Debentures or
Underlying Common Stock.
8. Upon request, we will furnish to you as soon as practicable
all information required to be included in any registration statement to be
filed with the Securities and Exchange Commission in connection with the
Debentures or the shares of Underlying Common Stock.
Dated: June ___, 1996 Very truly yours,
-----------------------------------------
(Name of Purchaser)
-----------------------------------------
(Authorized Signature and Title)
EXHIBIT 4.5
CUSTODIAL AGREEMENT
This CUSTODIAL AGREEMENT, dated as of July 12, 1996, (the "Custodial
Agreement") is entered into by and among BOATMEN'S TRUST COMPANY, as custodian
(the "Custodian") and THE ROBINSON-HUMPHREY COMPANY, INC. ("Robinson-Humphrey")
on behalf of those entities set forth on Exhibit 1 hereto (the "Purchasers").
WHEREAS, each of the Purchasers have entered into a Purchase Agreement
with AmVestors Financial Corporation (the "Company") as of even date herewith
(the "Purchase Agreement");
WHEREAS, each of the Purchasers have previously received a copy of this
Custodial Agreement substantially in the form hereof;
WHEREAS, each of the Purchasers has stated its desire in the Purchase
Agreement to have the benefit of this Custodial Agreement, whereby Boatmen's
Trust Company will accept delivery of, and to hold as specified herein the
Debentures (as defined below) purchased by such Purchaser;
WHEREAS, pursuant to the Purchase Agreement, each of the Purchasers,
among other things, (i) purchased that certain principal amount of 3%
Convertible Subordinated Debentures of the Company as set forth on Exhibit 1
hereto, (ii) agreed to the terms and conditions of this Custodial Agreement; and
(iii) irrevocably authorized Robinson-Humphrey, as its attorney-in-fact, to
execute this Custodial Agreement on such Purchaser's behalf; and
WHEREAS, Boatmen's Trust Company also acts as (i) transfer agent
("Transfer Agent") with respect to the Debentures and Company common stock and
(ii) Trustee ("Trustee") under that certain Indenture, dated as of even date
herewith with respect to the Debentures;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Custodial Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. Appointment of Custodian.
Robinson-Humphrey, on behalf of each of the Purchasers, hereby
constitutes and appoints Boatmen's, as the Custodian for the Deposited
Certificates (as defined below).
2. Delivery to Custodian; Custodial Arrangements.
(a) Pursuant to the terms of the Purchase Agreement, each of Purchasers
has instructed the Company to cause the certificates representing the principal
amount of Debentures shown opposite of such Purchaser's name on Exhibit 1
attached hereto (the "Deposited Certificates") to be delivered directly to the
Custodian at the closing ("Closing") of the purchase and sale of the Debentures.
Such Deposited Certificates shall be registered in the name of the Purchaser or
its nominee ("Nominee") as specified as the "Registered Name" on Exhibit 1
hereto.
(b) Upon receipt of such Deposited Certificates, the Custodian shall
issue a nontransferable deposit receipt (the "Deposit Receipt") substantially in
the form attached hereto as Exhibit 4, to each Purchaser who has deposited such
certificates representing the Debentures to the address specified as "Address
for Deposit Receipt Delivery" on Exhibit 1 attached hereto;
(c) The Custodian shall hold the such Deposited Certificates and any
related stock powers, if any, in safekeeping. The Custodian is hereby authorized
to accept instructions as specified below with respect to the Deposited
Certificates from the Purchaser, the Nominee or any Responsible Officer of the
Purchaser or the Nominee for such Purchaser's Deposited Certificates.
"Responsible Officer" shall include the Chairman of the Board, the President,
and any Vice President or Trust Officer or person of similar capacity of the
Purchaser or its Nominee, together with any officer or official of Purchaser or
its Nominee designated as a Responsible Officer of Purchaser or its Nominee, as
applicable, by a writing delivered to the Custodian executed by the Chairman of
the Board, the President or any Vice President or Trust Officer of Purchaser or
its Nominee, as applicable.
(d) As soon as practicable following the receipt of notice from the
Company that a registration statement covering the Debentures and the Underlying
Common Stock has been declared effective by the United States Securities and
Exchange Commission, the Custodian shall deliver to each of the Purchasers or
its Nominee all of Deposited Certificates registered in such Purchaser's name to
the address specified as "Address for Final Certificate Delivery" on Exhibit 1
attached hereto, in which case the delivered certificate would bear the
following legend.
FOLLOWING THE REGISTRATION OF THIS SECURITY (AND THE COMMON STOCK INTO
WHICH IT MAY BE CONVERTED) THE OFFER, SALE, PLEDGE OR TRANSFER OF THIS
SECURITY AND THE COMMON STOCK INTO WHICH IT MAY BE CONVERTED IS SUBJECT
TO CERTAIN CONDITIONS AND RESTRICTIONS SET FORTH IN THE PURCHASE
AGREEMENT AND REGISTRATION RIGHTS AGREEMENT BETWEEN THE COMPANY AND THE
HOLDER.
(e) At any time prior to the expiration of the forty (40) day period
following the date of Closing, any of the Purchasers may request that the
Custodian deliver such Purchaser's Deposited Certificates to (x) such Purchaser
or its Nominee, (y) the Trustee or (z) the Transfer Agent for further transfer,
by providing (i) a written request in the form of Exhibit 2 executed by a
Responsible Officer and (ii) the Deposit Receipt, in which case the delivered
certificate would bear the following legend. The information set forth in
Exhibit 2 is separate from any information that the Transfer Agent may require
to transfer the Debenture Certificates in the Debenture Register of the Transfer
Agent, or the Trustee may require to effect a Conversion or Redemption. If the
Purchaser or Nominee is a corporation, then a corporate resolution authorizing
the Responsible Officer to sign on behalf of such corporation shall be attached
to Exhibit 2.
THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY
HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR WITH THE SECURITIES REGULATORY AUTHORITY OF ANY STATE OR
OTHER JURISDICTION OF THE UNITED STATES. THIS SECURITY AND THE COMMON STOCK INTO
WHICH IT MAY BE CONVERTED MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT
TO AN EXEMPTION THEREFROM AND IS OTHERWISE SUBJECT TO CERTAIN CONDITIONS AND
RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BETWEEN THE COMPANY AND THE HOLDER.
UNTIL 40 DAYS AFTER THE TERMINATION OF THE OFFERING OF THIS SECURITY (THE
"RESTRICTED PERIOD"), THE OFFER, SALE, PLEDGE OR TRANSFER OF THIS SECURITY AND
THE COMMON STOCK INTO WHICH IT MAY BE CONVERTED IS SUBJECT TO CERTAIN CONDITIONS
AND RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BETWEEN THE COMPANY AND THE HOLDER, AND MAY NOT BE SOLD TO A "U.S.
PERSON" OR INTO THE UNITED STATES.
FOLLOWING THE REGISTRATION OF THIS SECURITY (AND THE COMMON STOCK INTO WHICH IT
MAY BE CONVERTED) THE OFFER, SALE, PLEDGE OR TRANSFER OF THIS SECURITY AND THE
COMMON STOCK INTO WHICH IT MAY BE CONVERTED IS SUBJECT TO CERTAIN CONDITIONS AND
RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BETWEEN THE COMPANY AND THE HOLDER.
(f) At any time following the expiration of the forty (40) day period
following the date of Closing and prior to the delivery of the Deposited
Certificates to the Purchasers as provided in Section 2(d) above, any of the
Purchasers may request that the Custodian deliver such Purchaser's Deposited
Certificates to (x) such Purchaser or its Nominee, (y) the Trustee or (z) the
Transfer Agent for further transfer, by providing (i) a written request in the
form of Exhibit 3 executed by a Responsible Officer and (ii) the Deposit
Receipt, in which case the delivered certificate would bear the following
legend. The information set forth in Exhibit 3 is separate from any information
that the Transfer Agent may require to transfer the Debenture certificates in
the Debenture Register of the Transfer Agent, or the Trustee may require to
effect a Conversion or Redemption. If the Purchaser or Nominee is a corporation,
then a corporate resolution authorizing the Responsible Officer to sign on
behalf of such corporation shall be attached to Exhibit 3.
THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY
HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR WITH THE SECURITIES REGULATORY AUTHORITY OF ANY STATE OR
OTHER JURISDICTION OF THE UNITED STATES. THIS SECURITY AND THE COMMON STOCK INTO
WHICH IT MAY BE CONVERTED MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT
TO AN EXEMPTION THEREFROM AND IS OTHERWISE SUBJECT TO CERTAIN CONDITIONS AND
RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BETWEEN THE COMPANY AND THE HOLDER.
FOLLOWING THE REGISTRATION OF THIS SECURITY (AND THE COMMON STOCK INTO WHICH IT
MAY BE CONVERTED) THE OFFER, SALE, PLEDGE OR TRANSFER OF THIS SECURITY AND THE
COMMON STOCK INTO WHICH IT MAY BE CONVERTED IS SUBJECT TO CERTAIN CONDITIONS AND
RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BETWEEN THE COMPANY AND THE HOLDER.
3. Ownership of Securities.
Each of the Purchasers or its Nominee, as applicable, shall have the
full and unqualified right and power to exercise any rights to vote, or give
consents, or to take any other action in respect of, the Debentures owned by it
that are held by the Custodian, and the Custodian shall have no duty to exercise
any such rights, or give consents or take any such action. Purchaser or its
Nominee shall have the sole right to receive and retain any dividends or
distributions with respect to the Debentures and the Underlying Common Stock.
The Custodian shall have no duty to notify Purchaser or its Nominee regarding
the foregoing.
4. Performance of Duties; Indemnification.
(a) The Custodian undertakes to perform only such duties as are
expressly set forth herein. Each Purchaser agrees that the Custodian shall not
be responsible for obtaining any securities that are not delivered to it; that
the Custodian shall not be in any manner liable or responsible for the
sufficiency, correctness, genuineness, or validity of any instruments deposited
with it, or the form of execution thereof or the identity, authority or rights
of any person executing or depositing them; that the Custodian is under no
obligation to ascertain the terms and conditions of any such instruments or to
comply in any respect with the terms thereof other than expressly provided
herein; and that the Custodian shall not be liable for any loss which may occur
by reason of forgeries, false representations, or the exercise of discretion by
the Custodian in any particular manner, or for any other reason, except in
connection with the Custodian's gross negligence or willful misconduct.
(b) In the absence of gross negligence or willful misconduct on the part
of the Custodian, the Custodian may act upon any instrument or other writings
believed by the Custodian to be genuine and to be signed or presented or caused
to be signed by the proper person. Each Purchaser hereby agrees to hold the
Custodian free and harmless from and against any and all losses, costs,
expenses, damages, judgments or liabilities of any kind or nature (including
counsel fees and the costs of investigating or defending any action instituted
against them) which the Custodian may incur or sustain as a result of any action
taken by the Custodian in good faith hereunder, except in connection with the
Custodian's gross negligence or willful misconduct.
(c) The Custodian shall receive a fee, payable by the Company, in the
amount of $1,000 for the first year following the date of this Custodial
Agreement and one-twelfth (1/12th) of such amount for each month thereafter, as
full compensation for the services to be provided by it hereunder.
(d) The Custodian shall not be required to take any action hereunder
which, in the opinion of its counsel, would be contrary to law or would involve
it in personal liability.
5. Resignation of Custodian.
The Custodian may resign as Custodian at any time at which time the
Custodian shall deliver all of the Deposited Certificates in the manner
specified in Section 2(d) whether or not the Registration Statement is in
effect.
6. Hold Harmless of Robinson-Humphrey.
Each of Purchasers has agreed in the Purchase Agreement and the
Custodian agrees hereby that (i) Robinson-Humphrey's sole action or
responsibility in connection with this Custodial Agreement is to execute this
Custodial Agreement on behalf of the Purchasers and to transcribe and assimilate
certain information set forth in Exhibit 1 hereto and that Robinson- Humphrey
has no further or additional obligations with respect to the matters
contemplated herein and (ii) each such Purchaser and the Custodian shall hold
harmless Robinson-Humphrey for any losses, liabilities or costs in connection
with any matter contemplated herein and that Robinson-Humphrey shall not be in
any manner liable or responsible for any matter contemplated herein, provided
that nothing contained herein shall obligate the Custodian to indemnify or
reimburse Robinson-Humphrey for any losses or liabilities that Robinson-
Humphrey may incur as a result of Robinson-Humphrey's actions hereunder.
7. Amendments.
No amendment, interpretation or waiver of any of the provisions of this
Custodial Agreement shall be effective unless made in writing and signed by the
parties to this Custodial Agreement.
8. Headings.
The headings of the sections, subsections and subparagraphs of this
Custodial Agreement are used for convenience only and shall not affect the
meaning or interpretation of the contents of this Custodial Agreement.
9. Enforcement.
The failure to enforce or to require the performance at any time of any
of the provisions of this Custodial Agreement shall in no way be construed to be
a waiver of such provisions, and shall not affect either the validity of this
Custodial Agreement or any part hereof or the right of any party thereafter to
enforce each and every provision in accordance with the terms of this Custodial
Agreement.
10. Governing Law.
This Custodial Agreement and the relationships of the parties in
connection with the subject matter of this Custodial Agreement shall be governed
by and determined in accordance with the laws of the State of Missouri in the
United States of America.
11. Miscellaneous.
All notices and communications required or permitted hereunder shall be
in writing and shall be deemed to be duly given, if delivered in person or
mailed first class or certified registered mail, postage prepaid, addressed as
follows:
If to The Company:
AmVestors Financial Corporation
415 S.W. Eighth Avenue
P.O. Box 2039
Topeka, Kansas 66601
Telecopier No: (913) 232-5827
Attention: Mark V. Heitz
with a copy to:
Bryan Cave LLP
One Metropolitan Square
211 N. Broadway, Suite 3600
St. Louis, Missouri 63102
Telecopier No: (314) 259-2020
Attention: J. Mark Klamer
If to the Custodian:
Boatmen's Trust Company
510 Locust Street
St. Louis, Missouri 63101
Telecopier No: (314) 466-2469
Attention: Corporate Trust Department
If to the Purchasers:
To each of them at the respective addresses specified
under "Notices Address" on Exhibit 1 hereto,
or at such other address as any of the above may have furnished to the other
parties in writing.
IN WITNESS WHEREOF, the Custodian and Robinson-Humphrey, on behalf of
the Purchasers, have executed this Agreement effective as of the date first
above written.
BOATMEN'S TRUST COMPANY,
as Custodian
By:
-----------------------------------------
Name: Jerry Rector
Title: Vice President
THE ROBINSON-HUMPHREY COMPANY, INC.,
on behalf of the Purchasers set
forth on Exhibit 1 hereto
By:
-----------------------------------------
Name:
Title:
<PAGE>
EXHIBIT 1
TO CUSTODIAL AGREEMENT
<TABLE>
<CAPTION>
Principal Amount of Certificate Address for Deposit Address for Final Notice
Name of Purchaser Debentures Placed in Custody Number Registered Name Receipt Delivery Certificate Delivery Address
- ----------------- ---------------------------- ----------- --------------- ------------------- -------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT 2
Delivery Request Letter During 40-day Restricted Period
Boatmen's Trust Company
510 Locust Street
St. Louis, Missouri 63101
Attention: Corporate Trust Department
The undersigned hereby requests that the Deposited Certificate
registered in the name of the Registered Holder listed below held by you as
Custodian be released to the person specified below. The undersigned hereby
acknowledges that it understands that the certificate to be released pursuant to
this request will bear the legend set forth below and in Section 2(e) of the
Custodial Agreement between Boatmen's Trust Company and The Robinson-Humphrey
Company, Inc. on behalf of the Purchasers. Also enclosed is the Deposit Receipt
received from the Custodian with respect to the Deposited Certificate. Purchaser
understands that the information in this letter is separate from any information
that the Transfer Agent may require to transfer the Debenture certificates or
the Trustee may require to effect a Conversion or Redemption. Also, if the
Purchaser or the Registered Holder is a corporation, then also attached is a
corporate resolution granting such person the authority to sign on behalf of
such corporation.
Name of Purchaser:
----------------------------------------
Name of Registered Holder
of Deposited Certificate:
----------------------------------------
Principal Amount of Debentures:
----------------------------------------
Deposit Receipt Number:
----------------------------------------
Please Deliver the Deposited Certificate to:
Check
One Name Address
(i) The Purchaser
- ------------ --------------------------
--------------------------
--------------------------
(ii) Registered Holder
- ------------ --------------------------
--------------------------
--------------------------
(iii) Boatmen's Trust Company, Boatmen's Trust Company
- ------------ as Trustee 510 Locust Street
St. Louis, Missouri 63101
Attention:
(iv) Boatmen's Trust Company, Boatmen's Trust Company
- ------------ as Transfer Agent 510 Locust Street
St. Louis, Missouri 63101
Attention:
THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY
HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR WITH THE SECURITIES REGULATORY AUTHORITY OF ANY STATE OR
OTHER JURISDICTION OF THE UNITED STATES. THIS SECURITY AND THE COMMON STOCK INTO
WHICH IT MAY BE CONVERTED MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT
TO AN EXEMPTION THEREFROM AND IS OTHERWISE SUBJECT TO CERTAIN CONDITIONS AND
RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BETWEEN THE COMPANY AND THE HOLDER.
FOLLOWING THE REGISTRATION OF THIS SECURITY (AND THE COMMON STOCK INTO WHICH IT
MAY BE CONVERTED) THE OFFER, SALE, PLEDGE OR TRANSFER OF THIS SECURITY AND THE
COMMON STOCK INTO WHICH IT MAY BE CONVERTED IS SUBJECT TO CERTAIN CONDITIONS AND
RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BETWEEN THE COMPANY AND THE HOLDER.
Very truly yours,
Dated: PURCHASER OR REGISTERED HOLDER
-----------------------
Signature of Responsible
Officer:
------------------------------------
Name of Responsible Officer
signing on behalf of Purchaser
or Registered Holder
------------------------
Title of Responsible Officer:
---------------
Signature Guarantee by Major Bank
Name of Institution:
--------------------------
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
<PAGE>
EXHIBIT 3
Delivery Request Following 40-Day Period and
Prior to Effective Registration Statement
Boatmen's Trust Company
510 Locust Street
St. Louis, Missouri 63101
Attention: Corporate Trust Department
The undersigned hereby requests that the Deposited Certificate
registered in the name of the Registered Holder listed below held by you as
Custodian be released to the person specified below. The undersigned hereby
acknowledges that it understands that the certificate to be released pursuant to
this request will bear the legend set forth below and in Section 2(f) of the
Custody Agreement between Boatmen's Trust Company and The Robinson-Humphrey
Company, Inc. on behalf of the Purchaser. Also enclosed in the Deposit Receipt
received form the Custodian with respect to the Deposited Certificate. Purchaser
understands that the information in this letter is separate from any information
that the Transfer Agent may require to transfer the Debenture certificates or
the Trustee may require to effect a Conversion or Redemption. Also, if the
Purchaser or the Registered Holder is a corporation, then also attached is a
corporate resolution granting such person the authority to sign on behalf of
such corporation.
Name of Purchaser:
------------------------------------------------------
Name of Registered Holder
of Deposited Certificate:
-----------------------------------------------
Principal Amount of Debentures:
-----------------------------------------
Deposit Receipt Number:
-------------------------------------------------
Please Deliver the Deposited Certificate to:
Check
One Name Address
(i) The Purchaser
- ------------ --------------------------
--------------------------
--------------------------
(ii) Registered Holder
- ------------ --------------------------
--------------------------
--------------------------
(iii) Boatmen's Trust Company, Boatmen's Trust Company
- ------------ as Trustee 510 Locust Street
St. Louis, Missouri 63101
Attention:
(iv) Boatmen's Trust Company, Boatmen's Trust Company
- ------------ as Transfer Agent 510 Locust Street
St. Louis, Missouri 63101
Attention:
THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY
HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR WITH THE SECURITIES REGULATORY AUTHORITY OF ANY STATE OR
OTHER JURISDICTION OF THE UNITED STATES. THIS SECURITY AND THE COMMON STOCK INTO
WHICH IT MAY BE CONVERTED MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT
TO AN EXEMPTION THEREFROM AND IS OTHERWISE SUBJECT TO CERTAIN CONDITIONS AND
RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BETWEEN THE COMPANY AND THE HOLDER.
UNTIL 40 DAYS AFTER THE TERMINATION OF THE OFFERING OF THIS SECURITY (THE
"RESTRICTED PERIOD"), THE OFFER, SALE, PLEDGE OR TRANSFER OF THIS SECURITY AND
THE COMMON STOCK INTO WHICH IT MAY BE CONVERTED IS SUBJECT TO CERTAIN CONDITIONS
AND RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BETWEEN THE COMPANY AND THE HOLDER AND MAY NOT BE SOLD TO A U.S.
PERSON OR INTO THE UNITED STATES.
FOLLOWING THE REGISTRATION OF THIS SECURITY (AND THE COMMON STOCK INTO WHICH IT
MAY BE CONVERTED) THE OFFER, SALE, PLEDGE OR TRANSFER OF THIS SECURITY AND THE
COMMON STOCK INTO WHICH IT MAY BE CONVERTED IS SUBJECT TO CERTAIN CONDITIONS AND
RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BETWEEN THE COMPANY AND THE HOLDER.
Very truly yours,
Dated: PURCHASER OR REGISTERED HOLDER
--------------------------
Signature of Responsible
Officer:
------------------------------------
Name of Responsible Officer
signing on behalf of Purchaser
or Registered Holder
------------------------
Title of Responsible Officer:
---------------
Signature Guarantee by Major Bank
Name of Institution:
-------------------------------
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
<PAGE>
EXHIBIT 4
FORM OF DEPOSIT RECEIPT
BOATMEN'S TRUST COMPANY
No.__________
DEPOSIT RECEIPT
3% Convertible Subordinated Debentures due 2003
This writing evidences the receipt by Boatmen's Trust Company
("Custodian") of the specific Debentures listed below which have been deposited
with the Custodian to be held in custody and safekeeping by the Custodian as
provided in that certain Custodial Agreement between the Custodian and the
Robinson-Humphrey Company, Inc., on behalf of purchasers of the Debentures,
dated July 12, 1996. This Deposit Receipt is nontransferable. For further
information, please contact the Custodian at: Boatmen's Trust Company, 510
Locust Street, P.O. Box 14737, St. Louis, Missouri 63178-4737 (Telephone: (314)
466-1354).
Principal Amount: $
-----------------------------------------
Debenture Certificate No.
------------------------------------------
Name of Registered Holder:
------------------------------------------
Address of Registered Holder:
------------------------------------------
BOATMEN'S TRUST COMPANY
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR AMVESTORS FINANCIAL CORPORATION AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000005320
<NAME> AMVESTORS FINANCIAL CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 508,436
<DEBT-CARRYING-VALUE> 11,772
<DEBT-MARKET-VALUE> 11,257
<EQUITIES> 792
<MORTGAGE> 5,896
<REAL-ESTATE> 0
<TOTAL-INVEST> 526,896
<CASH> 13,515
<RECOVER-REINSURE> 111,168
<DEFERRED-ACQUISITION> 46,150
<TOTAL-ASSETS> 711,581
<POLICY-LOSSES> 650,174
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 3,798
<NOTES-PAYABLE> 15,500
0
0
<COMMON> 75
<OTHER-SE> 22,516
<TOTAL-LIABILITY-AND-EQUITY> 711,581
0
<INVESTMENT-INCOME> 9,578
<INVESTMENT-GAINS> 224
<OTHER-INCOME> 1,599
<BENEFITS> 6,517
<UNDERWRITING-AMORTIZATION> 2,267
<UNDERWRITING-OTHER> 3,089
<INCOME-PRETAX> (824)
<INCOME-TAX> (305)
<INCOME-CONTINUING> (519)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (519)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
