1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1996
REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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AMVESTORS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
KANSAS
(State or other jurisdiction
of incorporation or organization)
6311
(Primary Standard Industrial
Classification Code Number)
48-1021516
(I.R.S. Employer
Identification Number)
415 S.W. EIGHTH AVENUE
TOPEKA, KANSAS 66603
(913) 295-4400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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RALPH W. LASTER, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
AMVESTORS FINANCIAL CORPORATION
415 S.W. EIGHTH AVENUE
TOPEKA, KANSAS 66603
(913) 295-4400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copy to:
J. MARK KLAMER, ESQ.
BRYAN CAVE LLP
211 NORTH BROADWAY, SUITE 3600
ST. LOUIS, MISSOURI 63102
DAVID L. SKELDING, ESQ.
LORD, BISSELL & BROOK
115 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective and all
other conditions to the merger (the "Merger") of Financial Benefit Group, Inc.
("FBG") with and into a subsidiary of the Registrant pursuant to the Agreement
and Plan of Merger described in the enclosed Joint Proxy Statement/Prospectus
have been satisfied or waived.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED(1) BE REGISTERED UNIT PRICE FEE(7)
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Common Stock, no par value
per share(2)............................. 5,450,000
Common Stock Warrants...................... 1,500,000 $4.797(3) $33,836,335(5) $14,051
Options to Purchase Common Stock........... 275,000 $11.0625(4) $6,914,062(6)
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(1) This Registration Statement relates to securities of AmVestors Financial
Corporation issuable to holders of Class A common stock, par value $.01, of
FBG ("FBG Common Stock") in connection with the Merger.
(2) Of the 5,450,000 shares of AmVestors Common Stock being registered
hereunder, 1,500,000 shares are issuable, under certain circumstances,
pursuant to the Common Stock warrants being registered hereunder and 275,000
shares are issuable, under certain circumstances, pursuant to the Common
Stock options being registered hereunder.
(3) Maximum offering price per unit for the securities to be issued in
connection with the Merger estimated pursuant to Rule 457(f)(1) of the
Securities Act of 1933, as amended (the "Securities Act"), based upon the
market value of the shares of FBG Common Stock to be cancelled in the Merger
($4.797 per share, which is the average of the reported high and low sales
prices of a share of FBG Common Stock on the Nasdaq National Market on
February 21, 1996).
(4) Maximum offering price per unit of $11.0625 for the 625,000 shares AmVestors
Common Stock which may be issued upon exercise of certain Common Stock
Warrants and Options to Purchase Common Stock registered hereunder based on
the average of the reported high or low sales prices of a share of AmVestors
Common Stock on the New York Stock Exchange on February 27, 1996.
(5) Proposed maximum aggregate offering price of $33,836,335 for securities to
be issued in connection with the Merger estimated by multiplying (a) $4.797,
the proposed maximum offering price per unit for such securities by (b)
7,053,645, the estimated maximum number of shares of FBG Common Stock which
may be exchanged upon consummation of the Merger.
(6) Proposed maximum aggregate offering price of $6,914,062 for shares of
AmVestors Common Stock which may be issued upon exercise of certain Common
Stock Warrants and Options to Purchase Common Stock registered hereunder
estimated by multiplying (a) $11.0625, the proposed maximum offering price
per unit for such securities, by (b) 625,000, the number of such securities
registered hereunder.
(7) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of the Securities Act as follows: 1/29th of one percent of the
sum of (a) $33,836,335, the proposed maximum aggregate offering price for
securities to be issued in the Merger, plus (b) $6,914,062, the proposed
maximum aggregate offering price for the shares of AmVestors Common Stock
which may be issued upon exercise of certain Common Stock Warrants and
Options to Purchase Common Stock registered hereunder.
A fee of $8,050 was paid on October 31, 1995 pursuant to Section
14(g)(1)(A)(i) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rules 14a-6(i)(4) and 0-11 promulgated thereunder
("Rule 0-11") in respect of the Merger upon the filing by the Registrant and
FBG of joint preliminary proxy materials relating thereto. Pursuant to Rule
457(b) of the Securities Act, and Rule 0-11 and Section 14(g)(1)(B) of the
Exchange Act, the amount of the previously paid fee has been credited
against the registration fee payable in connection with this filing.
Accordingly, $8,050 of the filing fee for this Registration Statement has
already been paid and the balance of $6,001 is required to be paid with this
Registration Statement.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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AMVESTORS FINANCIAL CORPORATION
Cross Reference Sheet pursuant to Item 501(b) of Regulation S-K.
LOCATION IN JOINT PROXY
ITEM IN FORM S-4 STATEMENT/PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Facing Page; Cross Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Available Information; Incorporation by
Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........... Summary Information; Risk Factors
4. Terms of the Transaction................ Summary Information; Plan of Merger; The
AmVestors Special Meeting; The FBG Special
Meeting; Dissenters' Rights; Comparative
Rights of Stockholders
5. Pro Forma Financial Information......... Pro Forma Combined Financial Information
6. Material Contacts With the Company Being
Acquired................................ Summary Information; Plan of Merger
7. Additional Information Required For
Reoffering by Persons and Parties Deemed
to be Underwriters...................... Not Applicable
8. Interests of Named Experts and
Counsel................................. Plan of Merger; Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3
Registrants............................. Available Information; Incorporation by
Reference; Summary; Information Regarding
AmVestors; Management's Discussion and
Analysis of Financial Condition and
Results of Operations of AmVestors.
11. Incorporation of Certain Information by
Reference............................... Available Information; Incorporation by
Reference
12. Information With Respect to S-2 or S-3
Registrants............................. Not Applicable
13. Incorporation of Certain Information by
Reference............................... Not Applicable
14. Information With Respect to Registrants
Other Than S-3 or S-2 Registrants....... Not Applicable
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LOCATION IN JOINT PROXY
ITEM IN FORM S-4 STATEMENT/PROSPECTUS
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C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3
Companies............................... Not Applicable
16. Information With Respect to S-2 or S-3
Companies............................... Available Information; Incorporation by
Reference; Summary Information;
Information Regarding FBG; Management's
Discussion and Analysis of Financial
Condition and Results of Operations of FBG
17. Information With Respect to Companies
Other Than S-2 or S-3 Companies......... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations Are to be Solicited...... Outside Front Cover Page; Available
Information; Incorporation by Reference;
Summary Information; Plan of Merger; The
AmVestors Special Meeting; The FBG Special
Meeting; Information Regarding AmVestors;
Dissenters' Rights
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited,
or in an Exchange Offer................. Not Applicable
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AmVestors Financial Corporation
415 S.W. Eighth Avenue
Topeka, Kansas 66603
Telephone: (913) 295-4400
March 5, 1996
Dear Stockholder:
The Board of Directors cordially invites you to attend a Special Meeting of
Stockholders of AmVestors Financial Corporation ("AmVestors"), to be held at
9:00 a.m., local time, on April 8, 1996 at the Doubletree Hotel, (near Kansas
City International Airport) 8801 N.W. 112th Street, Kansas City, Missouri 64153.
At this meeting, you will be asked to consider three proposals. The first
is a proposal to approve an Agreement and Plan of Merger dated as of September
8, 1995, as amended (the "Merger Agreement") by and among AmVestors, Financial
Benefit Group, Inc. ("FBG") and AmVestors Acquisition Subsidiary, Inc.
("Acquisition Subsidiary"), a wholly owned subsidiary of AmVestors, and the
transactions contemplated thereby, including the Merger (as defined below) and
issuance of up to an aggregate of 5.1 million shares of AmVestors Common Stock
to the stockholders and certain option and warrant holders of FBG. Pursuant to
the Merger Agreement, AmVestors would acquire FBG through the merger of FBG with
and into Acquisition Subsidiary (the "Merger"). Upon consummation of the Merger,
each share of FBG Class A Common Stock (other than those held by AmVestors or
stockholders exercising dissenters rights) will be converted into the right to
receive a combination of (i) cash, (ii) a fraction of a share of AmVestors
Common Stock, and (iii) a fraction of an AmVestors Class A Warrant ("AmVestors
Warrant") (collectively, the "Merger Consideration"), valued in the aggregate at
$5.31 per share as described in the accompanying Joint Proxy
Statement/Prospectus if the AmVestors Stock Price (as defined below) is greater
than or equal to $10.50 and less than or equal to $13.25 (with the fraction of
the share of AmVestors Common Stock becoming fixed (and therefore the aggregate
value of the Merger Consideration increasing or decreasing) as described below
if the AmVestors Stock Price is outside of such range).
The amount of cash payable per share of FBG Class A Common Stock in the
Merger ("Cash Consideration Per Share") will be equal to (i) $10 million, less
amounts paid by AmVestors to holders of certain FBG options and warrants (as
described below) and an amount equal to $5.31 multiplied by the number of shares
of FBG Common Stock ("Dissenting Shares") held by dissenting stockholders of
FBG, divided by (ii) the number of shares of FBG Class A Common Stock
outstanding immediately prior to the Merger less the number of Dissenting
Shares. The Cash Consideration Per Share could theoretically vary from $0 to
$1.18. If all outstanding options and warrants for FBG Common Stock which are
eligible to be exchanged for cash (as described below) are so exchanged, all
warrants for FBG Common Stock which are not eligible to be exchanged for cash
are exercised prior to the Merger, and at least 5.3% of the outstanding shares
of FBG Common Stock are Dissenting Shares, then the Cash Consideration Per Share
will equal $0. If no options and warrants which are eligible to be exchanged for
cash (as described below) are so exchanged (with 150,000 of such options and
warrants being converted into options for AmVestors Common Stock (the maximum
allowable pursuant to the terms of the Merger Agreement), with the remainder
being exercised for FBG Common Stock), all warrants which are not eligible to be
exchanged for cash are not exercised prior to the Merger, and there are no
Dissenting Shares, then the Cash Consideration Per Share will equal $1.18.
Certain officers and directors have indicated to FBG their current intention to
take cash and/or exercise with respect to a number of their options; assuming
such officers and directors do take cash and stock as currently indicated, the
Cash Consideration Per Share could vary from $0 to $.55, based on the other
assumptions described above.
The fraction of a share of AmVestors Common Stock payable per share of FBG
Class A Common Stock in the Merger will be equal to $5.00 minus the Cash
Consideration Per Share, divided by (i) the AmVestors Stock Price if such price
is greater than or equal to $10.50 and less than or equal to $13.25, (ii) $10.50
if the AmVestors Stock Price is less than $10.50, or (iii) $13.25 if the
AmVestors Stock Price is greater than $13.25. Since the fraction of a share of
AmVestors Common Stock to be received as part of the Merger
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Consideration is fixed if the AmVestors Stock Price is below $10.50 or above
$13.25, if such price were less than $10.50, the value of the AmVestors Common
Stock to be received by FBG stockholders would decrease and the aggregate value
of the Merger Consideration would be less than $5.31 per share of FBG Common
Stock and, similarly, if such price were greater than $13.25, the value of the
AmVestors Common Stock to be received by FBG stockholders would increase and the
aggregate value of the Merger Consideration would be greater than $5.31 per
share of FBG Common Stock. Finally, if the AmVestors Stock Price were within
such range, the aggregate Merger Consideration would be valued at $5.31 per
share of FBG Common Stock as described in the accompanying Joint Proxy
Statement/Prospectus (although the Merger Consideration is valued as so
described at a constant $5.31 within such range, the size of the fraction of a
share of AmVestors Common Stock to be received as part of the Merger
Consideration could vary within such range (in order to keep such value
constant) by as much as 26%). The "AmVestors Stock Price" will be the average
closing price of AmVestors Common Stock during the twenty consecutive trading
days ending three trading days prior to the Merger.
The fraction of an AmVestors Warrant payable per share of FBG Class A
Common Stock in the Merger will be valued at $.31 (by application of a
Black-Scholes model) on the third trading day prior to the Merger. Each
AmVestors Warrant will be exercisable until six years following such date and
will have an exercise price equal to 135% of the AmVestors Stock Price. A holder
of an AmVestors Warrant can potentially realize value from such warrant, either
by selling such warrant or by exercising such warrant for AmVestors Common
Stock. While the Black-Scholes model is one recognized method of valuing
warrants, there can be no assurance that the trading price of an AmVestors
Warrant will equal or exceed such valuation and therefore whether a holder will
be able to realize the estimated value upon sale of the AmVestors Warrant. In
addition, any value realized upon the exercise of an AmVestors Warrant will
depend upon the relationship between the price of AmVestors Common Stock at such
time and the exercise price of the AmVestors Warrant. If, during the six-year
term of the AmVestors Warrant, the price of AmVestors Common Stock does not
exceed 135% of the AmVestors Stock Price (as determined three trading days prior
to the Merger as described above), no holder of an AmVestors Warrant will be
able to realize any value from such warrant upon exercise. (Notwithstanding the
foregoing, the receipt of an AmVestors Warrant in the Merger will be taxable to
the extent of any gain based upon such warrant's fair market value at the time
of the Merger. See "Plan of Merger -- Certain Federal Income Tax Consequences.")
For more information regarding the calculation of the Merger Consideration to be
received by FBG stockholders in connection with the Merger, see "Plan of Merger
- -- General Description of the Merger" in the accompanying Joint Proxy
Statement/Prospectus.
Each holder of an option or warrant granted under the option or warrant
plans of FBG and exercisable for shares of FBG Common Stock (an "FBG Option")
would be entitled to receive either cash or options exercisable for AmVestors
Common Stock, depending upon the plan under which such FBG Option was granted
and the election or request, if applicable, of the holder. Certain other
outstanding warrants to purchase FBG Common Stock will be exercisable for the
Merger Consideration following the Merger.
Management of AmVestors believes that the proposed Merger would provide
stockholders of AmVestors with the opportunity to participate in the enhanced
growth and other opportunities of the consolidated organization. For information
concerning the reasons the Board of Directors determined to proceed with this
transaction, see "Plan of Merger -- Reasons for the Merger; Board
Recommendations" in the accompanying Joint Proxy Statement/Prospectus.
The accompanying Joint Proxy Statement/Prospectus sets forth, or
incorporates by reference, information, including financial data, relating to
AmVestors and FBG and describes the terms and conditions of the proposed Merger.
The Board of Directors urges that you carefully review these materials before
completing the enclosed proxy card. AmVestors stockholders are not entitled to
dissenters' or appraisal rights in connection with the Merger because AmVestors
is not a constituent corporation in the Merger. See "Dissenters' Rights" in the
accompanying Joint Proxy Statement/Prospectus.
The second proposal is to consider and vote upon an amendment to the 1989
AmVestors Financial Corporation Non-Qualified Stock Option Plan (the "AmVestors
Option Plan") in order to increase the number of shares of AmVestors Common
Stock issuable under such plan by 275,000 shares and to otherwise
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modify the plan to accommodate the grant of AmVestors stock options in
connection with the Merger as described in detail in the accompanying Joint
Proxy Statement/Prospectus.
The third proposal is to consider and vote upon such other business as may
properly come before the Special Meeting (including adjournment of such Special
Meeting) or any adjournments or postponements thereof.
THE DIRECTORS OF AMVESTORS HAVE UNANIMOUSLY APPROVED THE TERMS OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY
RECOMMEND THAT THE STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO APPROVE THE MERGER
AND "FOR" THE PROPOSAL TO AMEND THE AMVESTORS OPTION PLAN.
Approval by AmVestors stockholders of the Merger Agreement, the
transactions contemplated thereby and the amendment of the AmVestors Option Plan
are conditions to the consummation of the Merger. Approval of the Merger by
AmVestors stockholders is also a condition to the amendment of the AmVestors
Option Plan. Accordingly, it is important that your shares be represented at the
Special Meeting, whether or not you plan to attend the Special Meeting in
person. Please complete, sign and date the enclosed proxy card and return it in
the accompanying envelope, which requires no postage if mailed within the United
States. If you later decide to attend the Special Meeting and vote in person, or
if you wish to revoke your proxy for any reason prior to the vote at the Special
Meeting, you may do so and your proxy will have no further effect. Any
stockholder returning a blank executed proxy card will be authorizing the named
proxies to vote the shares covered by the proxy (i) in favor of the Merger
Agreement and the transactions contemplated thereby, including the issuance of
AmVestors Common Stock in connection with the Merger, (ii) in favor of the
proposal to amend the AmVestors Option Plan and (iii) in their discretion with
respect to such other business as may properly come before the Special Meeting
(including a vote to adjourn such Special Meeting) or any adjournments or
postponements thereof.
Should you require assistance in completing your proxy card or if you have
questions about the voting procedure described in the accompanying Joint Proxy
Statement/Prospectus, please feel free to contact AmVestors at 415 S.W. Eighth
Avenue, Topeka, Kansas 66603, Attention: Mr. Mark V. Heitz (telephone (913)
295-4400).
Ralph W. Laster, Jr.
Chairman and Chief Executive Officer
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AMVESTORS FINANCIAL CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
APRIL 8, 1996
TO THE STOCKHOLDERS OF AMVESTORS FINANCIAL CORPORATION:
Notice is hereby given that a Special Meeting of Stockholders of AmVestors
Financial Corporation ("AmVestors") will be held at the Doubletree Hotel, (near
Kansas City International Airport) 8801 N.W. 112th Street, Kansas City, Missouri
64153 on April 8, 1996 at 9:00 a.m., local time, for the following purposes:
(1) To consider and vote upon a proposal to approve the Agreement and
Plan of Merger dated as of September 8, 1995, as amended (the "Merger
Agreement") by and among AmVestors, Financial Benefit Group, Inc. ("FBG")
and AmVestors Acquisition Subsidiary, Inc. ("Acquisition Subsidiary"), a
wholly owned subsidiary of AmVestors, and the transactions contemplated
thereby as fully described in the accompanying Joint Proxy
Statement/Prospectus, including the Merger (as defined below) and issuance
of up to an aggregate of 5.1 million shares of AmVestors Common Stock to
the stockholders and certain option and warrant holders of FBG. Pursuant to
the Merger Agreement, AmVestors would acquire FBG through the merger of FBG
with and into Acquisition Subsidiary (the "Merger");
(2) To consider and to vote upon a proposal to amend the 1989
AmVestors Financial Corporation Non-Qualified Stock Option Plan in order to
increase the number of shares of AmVestors Common Stock issuable under such
plan by 275,000 shares and to otherwise modify the plan to accommodate the
grant of AmVestors stock options in connection with the Merger as described
in detail in the accompanying Joint Proxy Statement/Prospectus; and
(3) To transact such other business as may properly come before the
Special Meeting (including adjournment of such Special Meeting) or any
adjournments or postponements thereof.
The Board of Directors has fixed the close of business on March 5, 1996 as
the record date for determining the stockholders entitled to receive notice of,
and to vote at, the Special Meeting or any adjournment or postponement thereof.
Each share of AmVestors Common Stock will entitle the holder to one vote at the
Special Meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING
ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE SPECIAL
MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE JOINT PROXY
STATEMENT/PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
Topeka, Kansas Ralph W. Laster, Jr.
March 5, 1996 Chairman and Chief Executive Officer
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Financial Benefit Group, Inc.
7251 West Palmetto Park Road
Boca Raton, Florida 33433
Telephone: (407) 394-9400
March 5, 1996
Dear Stockholder:
The Board of Directors cordially invites you to attend a Special Meeting of
Stockholders of Financial Benefit Group, Inc. ("FBG"), to be held at 10:00 a.m.,
local time, on April 8, 1996 at the Radisson Suite Hotel, 7920 Glades Road, Boca
Raton, Florida 33434.
At this meeting, you will be asked to consider two proposals. The first
proposal is to approve the Agreement and Plan of Merger dated as of September 8,
1995, as amended (the "Merger Agreement") by and among FBG, AmVestors Financial
Corporation ("AmVestors") and AmVestors Acquisition Subsidiary, Inc.
("Acquisition Subsidiary"), a wholly owned subsidiary of AmVestors, and the
transactions contemplated thereby. Pursuant to the Merger Agreement, AmVestors
would acquire FBG through the merger of FBG with and into Acquisition Subsidiary
(the "Merger"). Upon consummation of the Merger, each share of FBG Class A
Common Stock (other than those held by AmVestors or stockholders exercising
dissenters rights) will be converted into the right to receive a combination of
(i) cash, (ii) a fraction of a share of AmVestors Common Stock, and (iii) a
fraction of an AmVestors Class A Warrant ("AmVestors Warrant") (collectively,
the "Merger Consideration"), valued in the aggregate at $5.31 per share as
described in the accompanying Joint Proxy Statement/Prospectus if the AmVestors
Stock Price (as defined below) is greater than or equal to $10.50 and less than
or equal to $13.25 (with the fraction of the share of AmVestors Common Stock
becoming fixed (and therefore the aggregate value of the Merger Consideration
increasing or decreasing) as described below if the AmVestors Stock Price is
outside of such range). Prior to the Merger, each share of FBG Class B Common
Stock will be converted into 1.35 shares of FBG Class A Common Stock in
accordance with FBG's Restated Certificate of Incorporation.
The amount of cash payable per share of FBG Class A Common Stock in the
Merger ("Cash Consideration Per Share") will be equal to (i) $10 million, less
amounts paid by AmVestors to holders of certain FBG options and warrants (as
described below) and an amount equal to $5.31 multiplied by the number of shares
of FBG Common Stock ("Dissenting Shares") held by dissenting stockholders of
FBG, divided by (ii) the number of shares of FBG Class A Common Stock
outstanding immediately prior to the Merger less the number of Dissenting
Shares. The Cash Consideration Per Share could theoretically vary from $0 to
$1.18. If all outstanding options and warrants for FBG Common Stock which are
eligible to be exchanged for cash (as described below) are so exchanged, all
warrants for FBG Common Stock which are not eligible to be exchanged for cash
are exercised prior to the Merger, and at least 5.3% of the outstanding shares
of FBG Common Stock are Dissenting Shares, then the Cash Consideration Per Share
will equal $0. If no options and warrants which are eligible to be exchanged for
cash (as described below) are so exchanged (with 150,000 of such options and
warrants being converted into options for AmVestors Common Stock (the maximum
allowable pursuant to the terms of the Merger Agreement), with the remainder
being exercised for FBG Common Stock), all warrants which are not eligible to be
exchanged for cash are not exercised prior to the Merger, and there are no
Dissenting Shares, then the Cash Consideration Per Share will equal $1.18.
Certain officers and directors have indicated to FBG their current intention to
take cash and/or exercise with respect to a number of their options; assuming
such officers and directors do take cash and stock as currently indicated, the
Cash Consideration Per Share could vary from $0 to $.55, based on the other
assumptions described above.
The fraction of a share of AmVestors Common Stock payable per share of FBG
Class A Common Stock in the Merger will be equal to $5.00 minus the Cash
Consideration Per Share, divided by (i) the AmVestors Stock Price if such price
is greater than or equal to $10.50 and less than or equal to $13.25, (ii) $10.50
if the AmVestors Stock Price is less than $10.50, or (iii) $13.25 if the
AmVestors Stock Price is greater than $13.25. Since the fraction of a share of
AmVestors Common Stock to be received as part of the Merger
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Consideration is fixed if the AmVestors Stock Price is below $10.50 or above
$13.25, if such price were less than $10.50, the value of the AmVestors Common
Stock to be received by FBG Stockholders would decrease and the aggregate value
of the Merger Consideration would be less than $5.31 per share of FBG Class A
Common Stock and, similarly, if such price were greater than $13.25, the value
of the AmVestors Common Stock to be received by FBG Stockholders would increase
and the aggregate value of the Merger Consideration would be greater than $5.31
per share of FBG Class A Common Stock. Finally, if the AmVestors Stock Price
were within such range, the aggregate Merger Consideration would be valued at
$5.31 per share of FBG Common Stock as described in the accompanying Joint Proxy
Statement/Prospectus (although the Merger Consideration is valued as so
described at a constant $5.31 within such range, the size of the fraction of a
share of AmVestors Common Stock to be received as part of the Merger
Consideration could vary within such range (in order to keep such value
constant) by as much as 26%). The "AmVestors Stock Price" will be the average
closing price of AmVestors Common Stock during the twenty consecutive trading
days ending three trading days prior to the Merger.
The fraction of an AmVestors Warrant payable per share of FBG Class A
Common Stock in the Merger will be valued at $.31 (by application of a
Black-Scholes model) on the third trading day prior to the Merger. Each
AmVestors Warrant will be exercisable until six years following such date and
will have an exercise price equal to 135% of the AmVestors Stock Price. A holder
of an AmVestors Warrant can potentially realize value from such warrant, either
by selling such warrant or by exercising such warrant for AmVestors Common
Stock. While the Black-Scholes model is one recognized method of valuing
warrants, there can be no assurance that the trading price of an AmVestors
Warrant will equal or exceed such valuation and therefore whether a holder will
be able to realize the estimated value upon sale of the AmVestors Warrant. In
addition, any value realized upon the exercise of an AmVestors Warrant will
depend upon the relationship between the price of AmVestors Common Stock at such
time and the exercise price of the AmVestors Warrant. If, during the six-year
term of the AmVestors Warrant, the price of AmVestors Common Stock does not
exceed 135% of the AmVestors Stock Price (as determined three trading days prior
to the Merger as described above), no holder of AmVestors Warrant will be able
to realize any value from such warrant upon exercise. (Notwithstanding the
foregoing, the receipt of an AmVestors Warrant in the Merger will be taxable to
the extent of any gain based upon such warrant's fair market value at the time
of the Merger. See "Plan of Merger -- Certain Federal Income Tax Consequences.")
For more information regarding the calculation of the Merger Consideration to be
received by FBG stockholders in connection with the Merger, see "Plan of Merger
- -- General Description of the Merger" in the accompanying Joint Proxy
Statement/Prospectus.
Each holder of an option or warrant granted pursuant to the option or
warrant plans of FBG and exercisable for shares of FBG Common Stock (an "FBG
Option") would be entitled to receive either cash or options exercisable for
AmVestors Common Stock depending upon the plan under which such FBG Option was
granted and the election or request, if applicable, of the holder. Certain other
outstanding warrants to purchase FBG Common Stock will be exercisable for the
Merger Consideration following the Merger.
Management of FBG believes that the proposed Merger would provide holders
of FBG Common Stock with the opportunity to participate in the enhanced growth
and other opportunities of the consolidated organization. For information
concerning the reasons the Board of Directors determined to proceed with this
transaction, see "Plan of Merger -- Reasons for the Merger; Board
Recommendations" in the accompanying Joint Proxy Statement/Prospectus.
The second proposal is to consider and vote upon such other business as may
properly come before the Special Meeting (including adjournment of such Special
Meeting) or any adjournments or postponements thereof.
THE DIRECTORS OF FBG HAVE APPROVED THE TERMS OF THE MERGER AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMEND THAT THE STOCKHOLDERS VOTE "FOR"
THE PROPOSAL TO APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
The accompanying Joint Proxy Statement/Prospectus sets forth, or
incorporates by reference, information, including financial data, relating to
FBG and AmVestors and describes the terms and conditions of the proposed Merger.
The Board of Directors urges that the stockholders carefully review these
materials before
10
completing the enclosed proxy card. Pursuant to Delaware General Corporation Law
(the "DGCL"), any holder of FBG Common Stock (i) who files a demand for
appraisal in writing prior to the vote taken at the FBG Special Meeting and (ii)
whose shares are not voted in favor of the Merger, shall be entitled to
appraisal rights under Section 262 of the DGCL. See "Dissenters' Rights" in the
accompanying Joint Proxy Statement/ Prospectus.
Approval of the Merger Agreement and the transactions contemplated thereby
by FBG stockholders is a condition to the consummation of the Merger.
Accordingly, it is important that your shares be represented at the Special
Meeting, whether or not you plan to attend the Special Meeting in person. Please
complete, sign and date the enclosed proxy card and return it in the
accompanying envelope, which requires no postage if mailed within the United
States. If you later decide to attend the Special Meeting and vote in person, or
if you wish to revoke your proxy for any reason prior to the vote at the Special
Meeting, you may do so and your proxy will have no further effect. Any
stockholder returning a blank executed proxy card will be authorizing the named
proxies to vote the shares covered by the proxy in favor of the Merger Agreement
and the transactions contemplated thereby and, in their discretion with respect
to such other business that may properly come before the Special Meeting
(including a vote to adjourn such Special Meeting) or any adjournments or
postponements thereof.
Please DO NOT send in your stock certificates with your proxy card. You
should not send in your stock certificates until you receive a transmittal
letter, which will only be sent after the effective time of the Merger.
Should you require assistance in completing your proxy card or if you have
questions about the voting procedure described in the accompanying Joint Proxy
Statement/Prospectus, please feel free to contact Donna J. Rubertone, Executive
Vice President, at FBG at 7251 West Palmetto Park Road, Boca Raton, Florida
33433 (telephone (407) 394-9400).
Frank T. Crohn
Chairman of the Board and Chief
Executive Officer
11
FINANCIAL BENEFIT GROUP, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held
April 8, 1996
TO THE STOCKHOLDERS OF FINANCIAL BENEFIT GROUP, INC.:
Notice is hereby given that a Special Meeting of Stockholders of Financial
Benefit Group, Inc. ("FBG") will be held at the Radisson Suite Hotel, 7920
Glades Road, Boca Raton, Florida 33434 on April 8, 1996 at 10:00 a.m., local
time, for the following purposes:
(1) To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of September 8, 1995, as amended (the "Merger Agreement"),
by and among FBG, AmVestors Financial Corporation ("AmVestors") and AmVestors
Acquisition Subsidiary, Inc. ("Acquisition Subsidiary"), a wholly owned
subsidiary of AmVestors, and the transactions contemplated thereby as fully
described in the accompanying Joint Proxy Statement/Prospectus. Pursuant to the
Merger Agreement, AmVestors would acquire FBG through the merger of FBG with and
into Acquisition Subsidiary (the "Merger"); and
(2) To transact such other business as may properly come before the Special
Meeting (including adjournment of such Special Meeting) or any adjournments or
postponements thereof.
The Board of Directors has fixed the close of business on March 5, 1996, as
the record date for determining the stockholders entitled to receive notice of,
and to vote at, the Special Meeting or any adjournment or postponement thereof.
Each share of FBG Common Stock will entitle the holder to one vote at the
Special Meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING
ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE SPECIAL
MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE JOINT PROXY
STATEMENT/PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
Boca Raton, Florida Frank T. Crohn
March 5, 1996 Chairman of the Board and Chief
Executive Officer
12
AMVESTORS FINANCIAL CORPORATION
FINANCIAL BENEFIT GROUP, INC.
JOINT PROXY STATEMENT FOR
SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD ON APRIL 8, 1996.
------------------------
AMVESTORS FINANCIAL CORPORATION
PROSPECTUS
------------------------
This Joint Proxy Statement/Prospectus is being furnished to the holders of
Class A and Class B common stock of Financial Benefit Group, Inc., a Delaware
corporation ("FBG") and the holders of common stock of AmVestors Financial
Corporation, a Kansas corporation ("AmVestors") in connection with the
solicitation of proxies by the Boards of Directors of FBG and AmVestors for use
at the respective special meetings of stockholders of FBG and AmVestors to be
held on April 8, 1996, or at any adjournments or postponements thereof (the "FBG
Special Meeting" and the "AmVestors Special Meeting," respectively or the
"Special Meetings," collectively). At the Special Meetings the respective common
stockholders will be asked to consider and vote upon proposals to (i) approve
and adopt an Agreement and Plan of Merger dated as of September 8, 1995, as
amended (the "Merger Agreement") by and among FBG, AmVestors, and AmVestors
Acquisition Subsidiary, Inc. ("Acquisition Subsidiary"), a wholly owned
subsidiary of AmVestors, and the transactions contemplated thereby, including
the Merger (as defined below) (ii) the transaction of such other business as may
properly come before the Special Meetings (including adjournment of such Special
Meetings) or any adjournments or postponements thereof, and (iii) in the case of
AmVestors, the issuance of up to an aggregate of 5.1 million shares of AmVestors
Common Stock to the stockholders and certain option and warrant holders of FBG.
Pursuant to the Merger Agreement, AmVestors would acquire FBG through the merger
of FBG with and into Acquisition Subsidiary (the "Merger"). AmVestors
stockholders will also be asked to consider and vote upon a proposal to approve
an amendment to the AmVestors Financial Corporation Non-Qualified Stock Option
Plan (the "AmVestors Option Plan") to increase the number of shares issuable
under such plan and to otherwise modify such plan to allow the issuance of
options to holders of FBG Options (as defined below) in connection with the
Merger and to certain executive officers of FBG who will be employed by
AmVestors after the Merger. See "The AmVestors Special Meeting" and "The FBG
Special Meeting."
AmVestors has filed a registration statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Act of 1933, as amended (the "Securities Act"),
covering a maximum of (i) 5.1 million shares of AmVestors' common stock, no par
value per share ("AmVestors Common Stock") that are proposed to be issued (x)
pursuant to the Merger to the holders of FBG Class A Common Stock, $.01 par
value per share ("FBG Class A Common Stock"), (y) pursuant to the exercise of
AmVestors Class A Warrants ("AmVestors Warrants") which are to be issued to the
holders of FBG Class A Common Stock pursuant to the Merger, (z) pursuant to the
exercise of AmVestors Options (as defined below) which are to be issued to
certain holders of FBG Options in connection with the Merger and to certain
executive officers of FBG who will be employed by AmVestors after the Merger;
(ii) 1.4 million AmVestors Warrants to be issued to holders of FBG Class A
Common Stock pursuant to the Merger; and (iii) 275,000 options exercisable for
AmVestors Common Stock ("AmVestors Options") which may be issued to certain
holders of FBG Options in connection with the Merger and to certain persons who
will be employed by AmVestors after the Merger. The Registration Statement also
covers a maximum of 250,000 shares of AmVestors Common Stock and 100,000
AmVestors
(Continued on next page)
------------------------
STOCKHOLDERS OF FINANCIAL BENEFIT GROUP, INC. AND AMVESTORS FINANCIAL
CORPORATION SHOULD CAREFULLY CONSIDER THIS JOINT PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE
FACTORS DISCUSSED UNDER THE HEADING "RISK
FACTORS."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
NO PERSON HAS BEEN AUTHORIZED BY AMVESTORS OR FBG TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EITHER AMVESTORS OR FBG.
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A
PROXY OR AN OFFER OR SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES OTHER THAN THE SHARES OF AMVESTORS COMMON STOCK, AMVESTORS
WARRANTS AND AMVESTORS OPTIONS TO WHICH IT RELATES OR AN OFFER OR SOLICITATION
TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED HEREBY SHALL, UNDER ANY CIRCUMSTANCES,
IMPLY OR CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
AMVESTORS OR FBG OR IN THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE
HEREIN SUBSEQUENT TO THE DATE HEREOF.
This Joint Proxy Statement/Prospectus, the Notices of Special Meeting and
the accompanying forms of proxy were first mailed to the stockholders of
AmVestors and FBG on or about March 5, 1996.
------------------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS MARCH 1, 1996.
13
(Continued from previous page)
Warrants issuable to certain holders of FBG Warrants (as defined below)
following the Merger and a maximum of 100,000 shares of AmVestors Common Stock
issuable upon exercise of such AmVestors Warrants. This Joint Proxy
Statement/Prospectus also constitutes the Prospectus of AmVestors filed as part
of the Registration Statement.
Upon consummation of the Merger, each share of FBG Class A Common Stock
(other than Dissenting Shares (as defined in "Dissenter's Rights") and shares
held by AmVestors) will be converted into the right to receive a combination of
(i) cash, (ii) a fraction of a share of AmVestors Common Stock, and (iii) a
fraction of an AmVestors Warrant (collectively, the "Merger Consideration"),
valued in the aggregate at $5.31 per share as described herein if the AmVestors
Stock Price (as defined below) is greater than or equal to $10.50 and less than
or equal to $13.25 (with the fraction of a share of AmVestors Common Stock being
fixed (and therefore the aggregate value of the Merger Consideration increasing
or decreasing) as described below if the AmVestors Stock Price is outside of
such range).
Prior to the conversion of FBG Class A Common Stock into the Merger
Consideration as described above, each share of FBG Class B common stock, $.01
par value per share ("FBG Class B Common Stock" and together with the FBG Class
A Common Stock, the "FBG Common Stock") will be converted into 1.35 shares of
FBG Class A Common Stock in accordance with FBG's Restated Certificate of
Incorporation. It will not be necessary for a holder of FBG Class B Common Stock
to exchange the certificate representing such shares for a certificate
representing FBG Class A Common Stock in order to receive the Merger
Consideration.
The amount of cash payable per share of FBG Class A Common Stock in the
Merger ("Cash Consideration Per Share") will be equal to (i) $10 million, less
amounts paid by AmVestors to holders of FBG Options and an amount equal to $5.31
multiplied by the number of Dissenting Shares, divided by (ii) the number of
shares of FBG Class A Common Stock outstanding immediately prior to the Merger
less the number of Dissenting Shares. The Cash Consideration Per Share could
theoretically vary from $0 to $1.18. If all outstanding FBG Options which are
eligible to be exchanged for cash (as described below) are so exchanged, all FBG
Warrants which are not eligible to be exchanged for cash are exercised prior to
the Merger, and at least 5.3% of the outstanding shares of FBG Common Stock are
Dissenting Shares, then the Cash Consideration Per Share will equal $0. If FBG
Options which are eligible to be exchanged for cash (as described below) are so
exchanged (with 150,000 of such FBG Options being converted into options for
AmVestors Common Stock (the maximum allowable pursuant to the terms of the
Merger Agreement), with the remainder being exercised for FBG Common Stock), all
FBG Warrants which are not eligible to be exchanged for cash are not exercised
prior to the Merger, and there are no Dissenting Shares, then the Cash
Consideration Per Share will equal $1.18. Certain officers and directors have
indicated to FBG their current intention to take cash and/or exercise with
respect to a number of their FBG Options; assuming such officers and directors
do take cash and stock as currently indicated, the Cash Consideration Per Share
could vary from $0 to $.55, based on the other assumptions described above.
The fraction of a share of AmVestors Common Stock payable per share of FBG
Class A Common Stock in the Merger will be equal to $5.00 minus the Cash
Consideration Per Share, divided by (i) the AmVestors Stock Price if such price
is greater than or equal to $10.50 and less than or equal to $13.25, (ii) $10.50
if the AmVestors Stock Price is less than $10.50, or (iii) $13.25 if the
AmVestors Stock Price is greater than $13.25. Since the fraction of a share of
AmVestors Common Stock to be received as part of the Merger Consideration is
fixed if the AmVestors Stock Price is below $10.50 or above $13.25, if such
price were less than $10.50, the value of the AmVestors Common Stock to be
received by FBG stockholders would decrease and the aggregate value of the
Merger Consideration would be less than $5.31 per share of FBG Class A Common
Stock and, similarly, if such price were greater than $13.25, the value of the
AmVestors Common Stock to be received by FBG stockholders would increase and the
aggregate value of the Merger Consideration would be greater than $5.31 per
share of FBG Class A Common Stock. Finally, if the AmVestors Stock Price were
within such range, the aggregate Merger Consideration would be valued at $5.31
per share of FBG Common Stock as described herein (although the Merger
Consideration is valued as so
14
described at a constant $5.31 within such range, the size of the fraction of
share of AmVestors Common Stock to be received as part of the Merger
Consideration could vary within such range (in order to keep such value
constant) by as much as 26%). The "AmVestors Stock Price" will be the average
closing price of AmVestors Common Stock during the twenty consecutive trading
days ending three trading days prior to the Merger.
The fraction of an AmVestors Warrant payable per share of FBG Class A
Common Stock in the Merger will be valued at $.31 (by application of a
Black-Scholes model) on the third trading day prior to the Merger. Each
AmVestors Warrant will be exercisable until six years following such date and
will have an exercise price equal to 135% of the AmVestors Stock Price. A holder
of an AmVestors Warrant can potentially realize value from such warrant either
by selling such warrant or by exercising such warrant for AmVestors Common
Stock. While the Black-Scholes model is one recognized method of valuing
warrants, there can be no assurance that the trading price of an AmVestors
Warrant will equal or exceed such valuation and therefore whether a holder will
be able to realize the estimated value upon sale of the AmVestors Warrant. In
addition, any value realized upon the exercise of an AmVestors Warrant will
depend upon the relationship between the price of AmVestors Common Stock at such
time and the exercise price of the AmVestors Warrant. If, during the six-year
term of the AmVestors Warrant, the price of AmVestors Common Stock does not
exceed 135% of the AmVestors Stock Price (as determined three trading days prior
to the Merger as described above), no holder of an AmVestors Warrant will be
able to realize any value from such warrant upon exercise. (Notwithstanding the
foregoing, the receipt of an AmVestors Warrant in the Merger will be taxable to
the extent of any gain based upon such warrant's fair market value at the time
of the Merger. See "Plan of Merger -- Certain Federal Income Tax Consequences.")
For more information regarding the calculation of the Merger Consideration to be
received by FBG stockholders in connection with the Merger, see "Plan of Merger
- -- General Description of the Merger."
The Merger Agreement provides that it may be terminated by either AmVestors
or FBG if the AmVestors Stock Price is less than $9.50 or greater than $14.50.
Neither AmVestors nor FBG has any present intention as to whether it would elect
to terminate the Merger Agreement in such event. The decision with respect to
such election would be made by the respective Boards of Directors of AmVestors
and FBG following the determination of the AmVestors Stock Price as described in
the preceding paragraph. See "Plan of Merger -- Terms and Conditions of the
Proposed Merger -- Termination and Amendment of the Merger Agreement."
Each holder of an option or warrant exercisable for shares of FBG Common
Stock and granted under the option or warrant plans of FBG (an "FBG Option")
will be entitled to receive either cash or AmVestors Options depending upon the
option or warrant plan under which such FBG Option was granted and the election
or request, if applicable, of the holder. Certain other outstanding warrants to
purchase FBG Common Stock ("FBG Warrants") will be exercisable for the Merger
Consideration following the Merger. See "Plan of Merger -- Terms and Conditions
of Proposed Merger -- FBG Options and Warrants."
The Merger is intended to qualify as a reorganization under the Internal
Revenue Code of 1986, as amended, such that no gain or loss would be recognized
by FBG stockholders on the exchange of their shares of FBG Common Stock in the
Merger except to the extent of cash payments and the fair market value of
AmVestors Warrants received. See "Plan of Merger -- Certain Federal Income Tax
Consequences."
AmVestors Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "AMV." FBG Class A Common Stock is traded on the Nasdaq
National Market under the symbol "FBGIA." FBG Class B Common Stock is not
actively traded. On February 27, 1996, the closing sale prices
for AmVestors Common Stock and FBG Class A Common Stock, as reported on the NYSE
and Nasdaq National Market, were $11 per share and $5 per share, respectively.
15
AVAILABLE INFORMATION
AmVestors and FBG are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, each files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information filed
by each of AmVestors and FBG with the Commission can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
AmVestors has filed the Registration Statement with the Commission, with
respect to the shares of AmVestors Common Stock, AmVestors Warrants and
AmVestors Options which may be issued in connection with the transactions
described herein. This Joint Proxy Statement/Prospectus does not contain all of
the information set forth in the Registration Statement or the exhibits thereto.
As permitted by the rules and regulations of the Commission, this Joint Proxy
Statement/Prospectus omits certain information contained or incorporated by
reference in the Registration Statement. Statements contained in this Joint
Proxy Statement/Prospectus as to the contents of any contract or other document
filed as an exhibit to the Registration Statement are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in its entirety by such reference. For further information,
reference is hereby made to the Registration Statement.
The AmVestors Common Stock began trading on the NYSE under the symbol "AMV"
on November 30, 1994. Prior to that date, the AmVestors Common Stock traded on
the Nasdaq National Market under the symbol "AVFC." Reports, proxy statements
and other information regarding AmVestors which were filed after November 30,
1994 may be inspected at the offices of the NYSE, 11 Wall Street, New York, New
York 10005.
As used in this Joint Proxy Statement/Prospectus, the term "FBG" means
Financial Benefit Group, Inc. and its consolidated subsidiaries and the term
"AmVestors" means AmVestors Financial Corporation and its consolidated
subsidiaries. All information contained or incorporated by reference in this
Joint Proxy Statement/Prospectus relating to FBG was provided by the management
and Board of Directors of FBG. AmVestors assumes no responsibility for the
accuracy of such information. All information contained or incorporated by
reference in this Joint Proxy Statement/Prospectus relating to AmVestors was
provided by the management and Board of Directors of AmVestors. FBG assumes no
responsibility for the accuracy of such information.
i
16
INCORPORATION BY REFERENCE
The following documents filed with the Commission by AmVestors under File
No. 0-15330 and by FBG under File No. 0-13816 pursuant to the Exchange Act are
incorporated herein by reference:
(a) AmVestors' Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (filed March 31, 1995); AmVestors' Quarterly Reports
on Form 10-Q for the fiscal quarters ended March 31, 1995 (filed May
12, 1995), June 30, 1995 (filed August 11, 1995) and September 30, 1995
(filed November 14, 1995); AmVestors' Current Report on Form 8-K dated
September 22, 1995; AmVestors' Registration Statement on Form 8-A dated
February 28, 1996; and the description of the AmVestors Common Stock
contained in the registration statement on Form S-3 filed by AmVestors
on November 4, 1993.
(b) FBG's Annual Report on Form 10-K for the fiscal year ended December 31,
1994 (filed March 31, 1995); FBG's Quarterly Reports on Form 10-Q for
the fiscal quarters ended March 31, 1995 (filed May 13, 1995), June 30,
1995 (filed August 11, 1995) and September 30, 1995 (filed November 14,
1995); FBG's Current Report on Form 8-K dated June 27, 1994 (filed July
19, 1994); and FBG's Current Report on 8-K dated September 21, 1995.
All documents filed by AmVestors with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the termination of the offering of any securities offered hereby shall
be deemed to be incorporated by reference into this Joint Proxy
Statement/Prospectus and to be a part hereof from the date of filing of such
documents. See "Available Information." Any statement contained herein or in a
document incorporated or deemed to be incorporated herein by reference shall be
deemed to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document incorporated or deemed to be incorporated
herein by reference, which statement is also incorporated herein by reference,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS
(EXCLUDING EXHIBITS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE INTO THE INFORMATION INCORPORATED HEREIN) WILL BE PROVIDED BY FIRST
CLASS MAIL WITHOUT CHARGE TO EACH PERSON TO WHOM THIS JOINT PROXY
STATEMENT/PROSPECTUS IS DELIVERED, INCLUDING ANY BENEFICIAL OWNER OF AMVESTORS
COMMON STOCK OR FBG COMMON STOCK, UPON WRITTEN OR ORAL REQUEST BY SUCH PERSON AS
FOLLOWS: WITH RESPECT TO AMVESTORS, TO AMVESTORS FINANCIAL CORPORATION, 415 S.W.
EIGHTH AVENUE, TOPEKA, KANSAS 66603, ATTENTION: MR. MARK V. HEITZ (TELEPHONE:
(913) 295-4400); AND WITH RESPECT TO FBG, TO FINANCIAL BENEFIT GROUP, INC., 7251
WEST PALMETTO PARK ROAD, BOCA RATON, FLORIDA 33433, ATTENTION: DONNA J.
RUBERTONE (TELEPHONE: (407) 394-9400). IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE AT LEAST FIVE DAYS PRIOR TO THE DATE OF
THE SPECIAL MEETINGS.
ii
17
TABLE OF CONTENTS
AVAILABLE INFORMATION............................................................... i
INCORPORATION BY REFERENCE.......................................................... ii
SUMMARY INFORMATION................................................................. 1
Business of AmVestors............................................................. 1
Business of FBG................................................................... 1
The Proposed Merger............................................................... 1
Accounting Treatment.............................................................. 4
Proposed Amendment of AmVestors Option Plan....................................... 4
Certain Federal Income Tax Consequences........................................... 4
AmVestors' Reasons for the Merger................................................. 5
AmVestors' Recommendation......................................................... 5
Opinion of AmVestors' Financial Advisor........................................... 6
The AmVestors Special Meeting..................................................... 6
FBG's Reasons for the Merger...................................................... 7
FBG's Recommendation.............................................................. 7
Opinion of FBG's Financial Advisor................................................ 7
The FBG Special Meeting........................................................... 7
Adjournment of the Special Meeting................................................ 8
Management and Operations After the Merger........................................ 8
Financing for the Merger.......................................................... 8
Interests of Certain Persons in the Merger........................................ 9
Regulatory Filings and Approvals.................................................. 9
Dissenters' Rights................................................................ 9
Comparison of Stockholder Rights.................................................. 9
Market Prices..................................................................... 10
Comparative Per Share Data........................................................ 10
Selected Pro Forma Financial Data................................................. 12
Summary Selected Financial Data................................................... 12
AmVestors...................................................................... 12
FBG............................................................................ 13
Recent Developments............................................................... 15
AmVestors...................................................................... 15
FBG............................................................................ 16
RISK FACTORS........................................................................ 17
Competition....................................................................... 17
Interests of Certain Persons in the Merger........................................ 17
A.M. Best Company Ratings......................................................... 17
Increase in Surrenders............................................................ 18
Lack of Product Diversification................................................... 18
Federal Income Tax Law............................................................ 18
Holding Company Structure; Dividend Restrictions.................................. 19
Insurance Regulation.............................................................. 19
Investment Performance; Effects of Changes in Interest Rates; Non-Investment Grade
Holdings....................................................................... 19
Future Liquidity.................................................................. 20
Dependence upon Key Personnel..................................................... 20
Anti-Takeover Provisions.......................................................... 20
PLAN OF MERGER...................................................................... 21
General Description of the Merger................................................. 21
Background of the Merger.......................................................... 23
Reasons for the Merger; Board Recommendations..................................... 27
AmVestors' Reasons for the Merger.............................................. 27
Recommendation of AmVestors' Board of Directors................................ 27
FBG's Reasons for the Merger................................................... 27
Recommendation of FBG's Board of Directors..................................... 29
Projections....................................................................... 29
Opinions of Financial Advisors.................................................... 30
AmVestors...................................................................... 30
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Pro Forma Merger Analyses......................................................... 32
Analyses Relating to FBG..................................................... 34
Comparable Company Analysis............................................... 34
Comparable Transaction Analysis........................................... 35
Discounted Share Price Analysis........................................... 36
Discounted Cash Flow Analysis............................................. 36
Analyses Relating to AmVestors............................................... 36
Comparable Company Analysis............................................... 36
Discounted Share Price Analysis........................................... 37
Discounted Cash Flow Analysis............................................. 37
Stock Trading History of AmVestors and FBG................................... 38
FBG............................................................................ 38
Transaction Analysis......................................................... 39
Analysis of Certain Publicly Traded Companies................................ 41
Stock Trading History........................................................ 42
Pro Forma Merger Analysis.................................................... 42
Contribution Analysis........................................................ 43
Discounted Cash Flow Analysis................................................ 43
Management and Operations After the Merger........................................ 44
Director Nominees.............................................................. 45
Employment Agreements.......................................................... 45
Financing for the Merger.......................................................... 46
Terms and Conditions of the Proposed Merger....................................... 46
Conditions of the Merger....................................................... 46
Mutual Conditions.............................................................. 46
FBG's Conditions............................................................... 47
AmVestors' Conditions.......................................................... 47
Certain Covenants.............................................................. 47
Conduct of Business Prior to Merger............................................ 48
Agreement Not To Solicit Other Offers.......................................... 49
Confidentiality................................................................ 49
Other Covenants................................................................ 49
Termination and Amendment of the Merger Agreement.............................. 49
Closing Date................................................................... 51
Expenses....................................................................... 51
FBG Options and Warrants....................................................... 51
Interests of Certain Persons in the Merger........................................ 52
FBG Options.................................................................... 52
Indemnification of Officers and Directors...................................... 53
Officers' and Directors' Liability Insurance................................... 53
Employment Arrangements........................................................ 53
Other.......................................................................... 53
Surrender of Stock Certificates and Receipt of Merger Consideration............... 53
Fractional Shares................................................................. 54
Certain Regulatory Filings and Approvals.......................................... 54
Accounting Treatment.............................................................. 55
Public Trading Market............................................................. 55
Status Under Federal Securities Laws.............................................. 55
Certain Federal Income Tax Consequences........................................... 56
Qualification as a Reorganization.............................................. 57
Exchange of FBG Class A Common Stock for the Merger Consideration.............. 57
Cash Received in Lieu of Fractional Shares of AmVestors Common Stock........... 58
Avoiding Dividend Treatment Under Sections 302 and 356 of the Code............. 58
FBG Option Holders............................................................. 59
FBG Warrant Holders............................................................ 59
Backup Withholding............................................................. 60
THE AMVESTORS SPECIAL MEETING....................................................... 60
General........................................................................... 60
Date, Time and Place.............................................................. 61
Record Date; Vote Required........................................................ 61
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Voting and Revocation of Proxies.................................................. 62
Solicitation of Proxies........................................................... 62
Adjournment of the AmVestors Special Meeting...................................... 63
THE FBG SPECIAL MEETING............................................................. 63
General........................................................................... 63
Date, Time and Place.............................................................. 63
Record Date; Vote Required........................................................ 63
Voting and Revocation of Proxies.................................................. 64
Solicitation of Proxies........................................................... 65
Adjournment of the FBG Special Meeting............................................ 65
DISSENTERS' RIGHTS.................................................................. 65
INFORMATION REGARDING AMVESTORS..................................................... 68
Business of AmVestors............................................................. 68
Security Ownership of Certain Beneficial Owners and Management.................... 69
Principal Holders of Voting Securities......................................... 69
Security Ownership of Management............................................... 69
Executive Compensation............................................................ 70
Compensation of Directors...................................................... 70
Executive Compensation......................................................... 70
Option Grants in Last Fiscal Year.............................................. 71
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values....... 71
Compensation Committee Interlocks and Insider Participation.................... 72
Employment Agreements.......................................................... 72
SELECTED HISTORICAL FINANCIAL INFORMATION OF AMVESTORS.............................. 73
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF AMVESTORS........................................................... 76
General........................................................................... 76
Margin Analysis................................................................ 77
Results of Operations............................................................. 79
Nine Months Ended September 30, 1995, and 1994................................. 79
Years Ended December 31, 1994, 1993 and 1992................................... 80
Liquidity and Capital Resources................................................... 82
Reinsurance....................................................................... 83
Effect of Inflation and Changes in Interest Rates................................. 84
New Accounting Standards.......................................................... 84
DESCRIPTION OF AMVESTORS CAPITAL STOCK.............................................. 85
AmVestors Common Stock............................................................ 85
AmVestors Warrants................................................................ 85
Anti-Takeover Provisions.......................................................... 86
Classification of the AmVestors Board.......................................... 86
Two-Thirds Majority Vote for Certain Corporate Actions......................... 86
Effect of Issuance of Preferred Stock.......................................... 87
Amendment of Charter........................................................... 87
Limitation on Liability of Directors.............................................. 87
Transfer Agent.................................................................... 87
INFORMATION REGARDING FBG........................................................... 87
Business of FBG................................................................... 87
Financial Benefit Life......................................................... 88
Annuity International Marketing Corporation.................................... 88
The Insurancemart, Inc. ....................................................... 89
SELECTED HISTORICAL FINANCIAL INFORMATION OF FBG.................................... 90
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF FBG................................................................. 92
General........................................................................... 92
Margin Analysis................................................................ 93
Results of Operations............................................................. 94
Nine Months Ended September 30, 1995 and 1994.................................. 94
Years Ended December 31, 1994, 1993 and 1992................................... 95
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Liquidity and Capital Resources................................................... 98
New Accounting Standards.......................................................... 99
PRO FORMA COMBINED FINANCIAL INFORMATION............................................ 100
REGULATION.......................................................................... 107
Insurance Holding Company Regulations; Restrictions on Dividends and
Distributions.................................................................. 107
NAIC Regulatory Changes........................................................... 108
Risk-Based Capital Requirements................................................... 108
Assessments Against Insurers...................................................... 109
Federal Regulations............................................................... 109
COMPARATIVE RIGHTS OF STOCKHOLDERS.................................................. 110
Election of Directors............................................................. 110
Removal of Directors.............................................................. 110
Amendments to Charter............................................................. 111
Amendments to Bylaws.............................................................. 111
Special Meetings of Stockholders.................................................. 111
Vote on Extraordinary Corporate Transactions...................................... 111
Dividends......................................................................... 112
Appraisal Rights of Dissenting Stockholders....................................... 112
Indemnification and Limitation of Liability of Directors and Officers............. 113
Preemptive Rights................................................................. 114
Business Combination Restrictions................................................. 115
AMENDMENT OF THE 1989 AMVESTORS FINANCIAL CORPORATION
NON-QUALIFIED STOCK OPTION PLAN................................................... 117
Proposed Amendment of AmVestors Option Plan....................................... 117
Vote Required to Approve the Amendment to the AmVestors Option Plan............... 117
Description of the AmVestors Option Plan.......................................... 117
General........................................................................ 117
Eligibility, Grants of Nonqualified Options.................................... 118
Price.......................................................................... 118
Exercise of Options............................................................ 118
Nontransferability............................................................. 118
Dilution, Amendment, and Termination of Plan................................... 118
Termination of Options......................................................... 119
Resales of AmVestors Common Stock by Participants.............................. 119
LEGAL MATTERS....................................................................... 119
EXPERTS............................................................................. 120
INDEX TO FINANCIAL STATEMENTS....................................................... F-1
APPENDIX I -- Merger Agreement, as amended.......................................... I-1
APPENDIX II -- Opinion of Furman Selz Incorporated.................................. II-1
APPENDIX III -- Opinion of Donaldson, Lufkin & Jenrette Securities Corporation...... III-1
APPENDIX IV -- Section 262 of the Delaware General Corporation Law.................. IV-1
APPENDIX V -- Warrant Agreement..................................................... V-1
APPENDIX VI -- Amendment to AmVestors Option Plan................................... VI-1
APPENDIX VII -- Restated AmVestors Financial Corporation 1989 Nonqualified Stock
Option Plan....................................................................... VII-1
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SUMMARY INFORMATION
The following is a summary of certain important terms of the proposed
Merger and related information discussed elsewhere in this Joint Proxy
Statement/Prospectus. This summary does not purport to be complete and is
qualified in its entirety by reference to the more detailed information included
in this Joint Proxy Statement/Prospectus and the appendices hereto, including,
but not limited to, the Agreement and Plan of Merger set forth as Appendix I
hereto. Special meetings (the "Special Meetings") of the respective stockholders
of AmVestors and FBG have been called for April 8, 1996, for the purpose of
voting on proposals to approve the Agreement and Plan of Merger dated September
8, 1995, as amended (the "Merger Agreement") by and among AmVestors, Acquisition
Subsidiary and FBG, and the transactions contemplated thereby and to transact
such other business as may properly come before the Special Meetings (including
an adjournment of such Special Meetings) or any adjournments or postponements
thereof. AmVestors stockholders will also be asked to consider and vote upon a
proposal to amend the AmVestors Option Plan. See "The AmVestors Special Meeting"
and "The FBG Special Meeting." Stockholders of each of AmVestors and FBG are
urged to read this Joint Proxy Statement/Prospectus and the appendices hereto in
their entirety and to consider carefully the information set forth under the
heading "Risk Factors."
BUSINESS OF AMVESTORS
AmVestors, through its subsidiary American Investors Life Insurance
Company, Inc. ("American"), specializes in the sale of annuity products
throughout the United States. AmVestors focuses on the sale of deferred annuity
products, which accounted for 97% of all premiums received by it in 1994 and 95%
of all premiums received by it during the first nine months of 1995. AmVestors
designs its products and directs its marketing efforts towards the savings and
retirement market.
AmVestors' principal executive offices are located at 415 S.W. Eighth
Avenue, Topeka, Kansas 66603 and its telephone number is (913) 295-4400. See
"Information Regarding AmVestors."
BUSINESS OF FBG
FBG is a holding company specializing, through its subsidiaries, in the
annuity market. FBG has three principal subsidiaries, Financial Benefit Life
Insurance Company ("Financial Benefit Life"), Annuity International Marketing
Corporation ("AIMCOR") and The Insurancemart, Inc. ("TIM"). Financial Benefit
Life underwrites and issues annuity products, with deferred annuity products
accounting for 95% of all premiums received by it in 1994 and 96% of all
premiums received by it during the first nine months of 1995. AIMCOR designs,
develops and distributes annuity products for Financial Benefit Life and other
unaffiliated insurance companies and TIM acts as an annuity wholesaler for
Financial Benefit Life, American and other unaffiliated insurance companies.
FBG's principal executive offices are located at 7251 West Palmetto Park
Road, Boca Raton, Florida 33433 and its telephone number is (407) 394-9400. See
"Information Regarding FBG."
THE PROPOSED MERGER
Subject to the satisfaction of the terms and conditions set forth in the
Merger Agreement described below, FBG will merge with and into Acquisition
Subsidiary, a wholly owned subsidiary of AmVestors. Upon consummation of the
Merger, FBG's corporate existence will terminate and Acquisition Subsidiary will
continue as the surviving corporation (the "Surviving Corporation"), wholly
owned by AmVestors.
Prior to the conversion of the FBG Class A Common Stock into the Merger
Consideration as described below, each share of FBG Class B Common Stock will be
converted into 1.35 shares of FBG Class A Common Stock in accordance with FBG's
Restated Certificate of Incorporation. It will not be necessary for a holder of
FBG Class B Common Stock to exchange the certificate representing such shares
for a certificate representing FBG Class A Common Stock in order the receive the
Merger Consideration.
Upon consummation of the Merger, each share of FBG Class A Common Stock
outstanding immediately prior to the Merger (other than Dissenting Shares and
shares held by AmVestors) will be converted into
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the right to receive a combination of (i) cash, (ii) a fraction of a share of
AmVestors Common Stock, and (iii) a fraction of an AmVestors Warrant, valued in
the aggregate at $5.31 per share as described herein if the AmVestors Stock
Price is greater than or equal to $10.50 and less than or equal to $13.25 (with
the fraction of a share of AmVestors Common Stock being fixed (and therefore the
aggregate value of the Merger Consideration increasing or decreasing) as
described below if the AmVestors Stock Price is outside of such range).
The Cash Consideration Per Share to be received for each share of FBG Class
A Common Stock outstanding immediately prior to the Merger will be equal to $10
million, less amounts paid by AmVestors to holders of FBG Options (as described
below) and an amount equal to $5.31 multiplied by the number of Dissenting
Shares, divided by the number of shares of FBG Class A Common Stock outstanding
immediately prior to the Merger less the number of Dissenting Shares. The Cash
Consideration Per Share could theoretically vary from $0 to $1.18. If all
outstanding FBG Options are exchanged for cash (as described herein), all FBG
Warrants which are not eligible to be exchanged for cash are exercised prior to
the Merger, and at least 5.3% of the outstanding shares of FBG Common Stock are
Dissenting Shares, then the Cash Consideration Per Share will equal $0. If no
FBG Options are exchanged for cash (with 150,000 of such FBG Options being
converted into options for AmVestors Common Stock (the maximum allowable
pursuant to the terms of the Merger Agreement), with the remainder being
exercised for FBG Common Stock), all FBG Warrants which are not eligible to be
exchanged for cash are not exercised prior to the Merger, and there are no
Dissenting Shares, then the Cash Consideration Per Share will equal $1.18.
Certain officers and directors have indicated to FBG their current intention to
take cash and/or exercise with respect to a number of their FBG Options;
assuming such officers and directors do take cash and stock as currently
indicated, the Cash Consideration Per Share could vary from $0 to $.55, based on
the other assumptions described above.
The fraction of a share of AmVestors Common Stock payable per share of FBG
Class A Common Stock in the Merger will be equal to $5.00 minus the Cash
Consideration Per Share, divided by (i) the AmVestors Stock Price if such price
is greater than or equal to $10.50 and less than or equal to $13.25, (ii) $10.50
if the AmVestors Stock Price is less than $10.50, or (iii) $13.25 if the
AmVestors Stock Price is greater than $13.25. Since the fraction of a share of
AmVestors Common Stock to be received as part of the Merger Consideration is
fixed if the AmVestors Stock Price is below $10.50 or above $13.25, if such
price were less than $10.50, the value of the AmVestors Common Stock to be
received by FBG stockholders would decrease and the aggregate value of the
Merger Consideration would be less than $5.31 per share of FBG Class A Common
Stock and, similarly, if such price were greater than $13.25, the value of the
AmVestors Common Stock to be received by FBG stockholders would increase and the
aggregate value of the Merger Consideration would be greater than $5.31 per
share of FBG Class A Common Stock. Finally, if the AmVestors Stock Price were
within such range, the aggregate Merger Consideration would be valued at $5.31
per share of FBG Common Stock as described herein (although the Merger
Consideration is valued as so described at a constant $5.31 within such range,
the size of the fraction of a share of AmVestors Common Stock to be received as
part of the Merger Consideration could vary within such range (in order to keep
such value constant) by as much as 26%). The "AmVestors Stock Price" will be the
average closing price of AmVestors Common Stock during the twenty consecutive
trading days ending three trading days prior to the Merger.
The fraction of an AmVestors Warrant payable per share of FBG Class A
Common Stock in the Merger will be valued at $.31 (by application of a
Black-Scholes model) on the third trading day prior to the Merger. Each
AmVestors Warrant will be exercisable until six years after such date and have
an exercise price equal to 135% of the AmVestors Stock Price. A holder of an
AmVestors Warrant can potentially realize value from such warrant, either by
selling such warrant or by exercising such warrant for AmVestors Common Stock.
While the Black-Scholes model is one recognized method of valuing warrants,
there can be no assurance that the trading price of an AmVestors Warrant will
equal or exceed such valuation and therefore whether a holder will be able to
realize the estimated value upon sale of the AmVestors Warrant. In addition, any
value realized upon the exercise of an AmVestors Warrant will depend upon the
relationship between the price of AmVestors Common Stock at such time and the
exercise price of the AmVestors Warrant. If, during the six-year term of the
AmVestors Warrant, the price of AmVestors Common Stock does not exceed 135% of
the AmVestors Stock Price (as determined three trading days prior to the Merger
as described above), no holder of an AmVestors Warrant will be able to realize
any value from such warrant upon exercise. (Notwithstanding
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the foregoing, the receipt of an AmVestors Warrant in the Merger will be taxable
to the extent of any gain based upon such warrant's fair market value at the
time of the Merger. See "Plan of Merger -- Certain Federal Income Tax
Consequences.") See "Plan of Merger -- General Description of Merger" and
"Description of AmVestors Capital Stock -- AmVestors Warrants."
No fractional shares of AmVestors Common Stock or fractional AmVestors
Warrants will be issued; instead, FBG stockholders who would otherwise be
entitled to fractional shares of AmVestors Common Stock or fractional AmVestors
Warrants will receive cash in lieu thereof. See "Plan of Merger -- General
Description of the Merger" and "-- Fractional Shares."
The Merger Agreement provides that it may be terminated by either AmVestors
or FBG if the AmVestors Stock Price is less than $9.50 or greater than $14.50.
Neither AmVestors nor FBG has any present intention as to whether it would elect
to terminate the Merger Agreement in such event. The decision with respect to
such election would be made by the respective Boards of Directors of AmVestors
and FBG following the determination of the AmVestors Stock Price as described in
the preceding paragraph. See "Plan of Merger -- Terms and Conditions of the
Proposed Merger -- Termination and Amendment of the Merger Agreement."
Each holder of an FBG Option will be entitled to receive either cash or
options exercisable for AmVestors Common Stock depending upon the incentive plan
under which such FBG Option was granted and the election or request, if
applicable, of the holder. Pursuant to the terms of the Merger Agreement, no
more than 150,000 shares of AmVestors Common Stock will be subject to AmVestors
Options granted to former FBG Option holders (in addition to 125,000 options to
be issued pursuant to certain employment agreements to be entered into by
AmVestors with certain executive officers of FBG in connection with the Merger).
The FBG Warrants will be exercisable for the Merger Consideration after the
Merger. See "Plan of Merger -- Management and Operations After the Merger --
Employment Agreements" and "Plan of Merger -- FBG Options and Warrants."
Based on the capitalization of AmVestors and FBG as of September 30, 1995,
the stockholders and option holders of FBG immediately prior to the consummation
of the Merger will own securities representing from approximately 19.7% to 24.3%
of the outstanding AmVestors Common Stock on a fully diluted basis following
consummation of the Merger, assuming, alternatively, that (i) the AmVestors
Stock Price is $13.25, that each holder of an FBG Option receives cash rather
than an AmVestors Option in exchange for such option, and the holders of FBG
Warrants do not exercise any such warrants prior to the Merger, or (ii) the
AmVestors Stock Price is $10.50 and that each holder of FBG Options and FBG
Warrants exercise all such options or warrants prior to the Merger.
The Merger Agreement provides that the consummation of the Merger is
subject to certain terms and conditions, including: (i) receipt of approval of
the Merger by the stockholders of AmVestors and FBG and the approval by the
stockholders of AmVestors of the amendments to the AmVestors Option Plan; (ii)
receipt of the written opinions of AmVestors' and FBG's respective counsel that,
among other things, the receipt of AmVestors Common Stock in the Merger will not
be taxable to the FBG stockholders; (iii) receipt of an unqualified opinion of
independent actuarial firms that the reserves and assets held by FBG and
AmVestors in their respective insurance subsidiaries are adequate and
sufficient; (iv) receipt of all material consents or approvals of regulatory
agencies or governmental agencies or bodies required in connection with the
Merger; and (v) satisfaction of other conditions customary to transactions of
this nature. These terms and conditions may be waived by the parties. Neither
AmVestors nor FBG has any present intention to waive or modify any of the
material conditions to the consummation of the Merger. In the event that a
material condition to the consummation of the Merger Agreement is waived after
the date of the Special Meetings, the party that waived such condition will hold
a second special meeting of stockholders, with an amended Joint Proxy
Statement/Prospectus, in order to resolicit approval of the Merger Agreement.
The Merger will become effective at the time of the filing, after satisfaction
or waiver of all of the conditions to the Merger, of a Certificate of Merger
with the Secretary of State of the State of Delaware or at such later time as
may be specified in the Certificate of Merger (the "Effective Time"). The date
on which the Effective Time occurs is referred to herein as the "Closing Date."
See "Plan of Merger -- Terms and Conditions of the Proposed Merger -- Conditions
of the Merger."
Pursuant to the Merger Agreement, subject to the fiduciary duties of FBG's
directors under applicable law as advised by counsel to FBG, FBG has agreed not
to, nor to permit its officers, directors and other
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representatives to, directly or indirectly initiate, solicit, facilitate, assist
or encourage any inquiry or proposal of, or provide any information or
assistance to, any third party concerning (i) any liquidation, dissolution,
recapitalization, merger or consolidation of FBG; (ii) the sale of a significant
amount of assets of FBG or its subsidiaries outside the ordinary course of
business; (iii) the purchase or sale of shares of capital stock of FBG or its
subsidiaries; or (iv) any similar actions or transactions involving FBG or its
subsidiaries other than the transactions contemplated by the Merger Agreement.
The Merger Agreement may be amended at any time prior to the Effective Time
by the mutual written consent of the parties. The Merger Agreement may be
terminated at any time prior to the Effective Time by the mutual consent of the
parties or, unilaterally by either party, (i) if the Effective Time has not
occurred on or before April 8, 1996, (ii) if the AmVestors Stock Price is less
than $9.50 or greater than $14.50, or (iii) in certain other circumstances.
Termination by AmVestors or FBG under certain circumstances will require the
terminating party to make a $250,000 payment to the other party as liquidated
damages. Alternatively, if the Merger is not consummated after the occurrence of
certain "triggering events," FBG may be required to pay a $1.0 million fee to
AmVestors. See "Plan of Merger -- Terms and Conditions of the Proposed Merger --
Termination and Amendment of the Merger Agreement." In the event that the Merger
Agreement is materially amended after the date of the Special Meetings, each of
the Companies will hold a second special meeting of stockholders, with an
amended Joint Proxy Statement/Prospectus, in order to solicit approval of the
Merger Agreement as so amended.
ACCOUNTING TREATMENT
AmVestors intends to account for the Merger using the purchase method.
Accordingly, the aggregate Merger Consideration will be allocated to the assets
and liabilities of FBG based on their estimated fair value. Any excess of cost
over the fair value of net assets of FBG acquired, as of the Effective Time,
will be recorded as goodwill and amortized over a period of time not to exceed
40 years. See "Plan of Merger -- Accounting Treatment."
PROPOSED AMENDMENT OF AMVESTORS OPTION PLAN
The AmVestors Option Plan will be amended to increase the shares of
AmVestors Common Stock that may be subject to AmVestors Options granted
thereunder by 275,000 shares and to provide that in the event AmVestors enters
into a transaction with another company which results in such company being a
direct or indirect subsidiary of AmVestors, the AmVestors Board may grant, in
substitution of options to purchase shares of such other company, or one of its
affiliates, options to purchase AmVestors Common Stock upon such terms and
conditions as the Board may determine. Such amendment will permit the granting
of AmVestors Options in substitution for FBG Options as described herein and to
those certain executive officers of FBG who will be employed by AmVestors after
the consummation of the Merger. See "Plan of Merger -- FBG Options and Warrants"
and "-- Management and Operations After the Merger -- Employment Agreements."
Consummation of the Merger is a condition precedent to the effectiveness of the
amendment to the AmVestors Option Plan. See "Amendment of the 1989 AmVestors
Financial Corporation Non-Qualified Stock Option Plan."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Although no ruling will be requested from the Internal Revenue Service
("IRS") regarding the tax consequences of the Merger, FBG and AmVestors have
received opinions from their respective legal counsel to the effect that, if the
Merger is consummated in accordance with the terms of the Merger Agreement and
as described in this Joint Proxy Statement/Prospectus, for federal income tax
purposes, the Merger should constitute a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as
amended (the "Code"). Such opinions are based upon customary representations and
assumptions made to each such legal counsel by FBG and AmVestors with respect to
certain factual matters required to qualify the Merger as a reorganization under
the Code. It should be noted that an opinion of counsel is not binding upon the
IRS. Thus, no assurance can be given that the IRS will not successfully
challenge the conclusions set forth therein. Because the Merger is expected to
qualify as a reorganization,
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holders of FBG Common Stock who exchange such stock for the Merger Consideration
should recognize gain, if any, up to the sum of the amount of cash and the fair
market value of the AmVestors Warrants received in the Merger. Except as
otherwise described herein, no loss should be recognized as a result of the
Merger. The cash and the fair market value of the AmVestors Warrants received in
the exchange will be treated as having been received as a distribution in
redemption of AmVestors Common Stock. This should result in a capital gain
provided the exchange does not have the effect of the distribution of a dividend
and the stockholder exchanging the FBG Common Stock held such shares as a
capital asset at the time of the exchange. The capital gain will be a long-term
capital gain if such stockholder held such shares for a period greater than one
year as of the Effective Time of the Merger. Although the exchange will usually
result in a capital gain, if the exchange has the effect of distribution of a
dividend, then the amount of gain recognized that is not in excess of the
stockholder's ratable share of undistributed earnings and profits of FBG will be
treated as a dividend.
Because the Merger is expected to qualify as a reorganization, the tax
basis of the AmVestors Common Stock received by a holder of FBG Common Stock
should be equal to the tax basis of the shares of FBG Common Stock surrendered
in exchange therefor, decreased by the amount of cash and the fair market value
of the AmVestors Warrants received and increased by the amount of gain, if any,
recognized to the FBG stockholder on the exchange (including any portion of such
gain that is treated as a dividend). When determining whether any gain or loss
on the disposition of the AmVestors Common Stock received as a result of the
Merger shall be long-term or short-term, the holding period of the shares of
AmVestors Common Stock received by the stockholders of FBG pursuant to the
Merger would include the holding period of the FBG Common Stock exchanged
therefor, provided the FBG Common Stock shares were held by such stockholder as
capital assets on the date of the Merger.
A holder of FBG Options who receives the Option Cash Consideration (as
defined in "Plan of Merger -- FBG Options and Warrants") in exchange for such
options will be taxable at ordinary income rates on the amount of cash received.
A holder of FBG Warrants who does not exercise such warrants prior to the Merger
may recognize taxable gain in connection with the Merger to the extent the fair
market value of the Merger Consideration that would be received by such holder
upon the exercise of such FBG Warrants exceeds the tax basis of the FBG
Warrants.
The adoption of the proposed amendment to the AmVestors Option Plan will
not result in the recognition of taxable income to any holder of AmVestors
Options.
For additional information regarding the federal income tax consequences of
the Merger, see "Plan of Merger -- Certain Federal Income Tax Consequences."
HOLDERS OF FBG COMMON STOCK, FBG OPTIONS OR FBG WARRANTS SHOULD CONSULT
WITH THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE MERGER
INCLUDING THE EFFECT OF ANY STATE, LOCAL, AND FOREIGN LAWS.
AMVESTORS' REASONS FOR THE MERGER
The AmVestors Board believes the Merger fulfills part of AmVestors'
objective of growth through acquisition. In particular, the AmVestors Board
believes that there are several potential benefits of the transaction,
including: (i) acquisition of a block of in-force annuity contracts; (ii)
enhanced marketing capability through additional producing agency relationships;
(iii) additional sources of revenue from AIMCOR's and TIM's relationships with
unaffiliated life insurance companies; and (iv) economies of scale through
consolidation of administrative and operating functions. See "Plan of Merger --
Reasons for the Merger; Board Recommendations."
AMVESTORS' RECOMMENDATION
The directors of AmVestors unanimously approved the terms of the Merger
Agreement and the transactions contemplated thereby and believe the Merger is in
the best interests of its stockholders. THE AMVESTORS BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF AMVESTORS VOTE "FOR" THE
PROPOSAL TO APPROVE THE MERGER
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AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY INCLUDING THE
ISSUANCE OF AMVESTORS COMMON STOCK PURSUANT TO THE MERGER AGREEMENT, AND "FOR"
THE PROPOSAL TO AMEND THE AMVESTORS OPTION PLAN. For a discussion of the factors
considered by the directors of AmVestors in reaching their decision, see "Plan
of Merger -- Reasons for the Merger; Board Recommendations."
OPINION OF AMVESTORS' FINANCIAL ADVISOR
On the date of this Joint Proxy/Prospectus, Furman Selz Incorporated
("Furman Selz"), financial advisor to AmVestors, rendered its written opinion to
the Board of Directors of AmVestors to the effect that, based upon the facts and
circumstances as they existed at that time and subject to the various
assumptions and other considerations set forth in such opinion, as of the date
of this Joint Proxy/Prospectus, the Merger was fair from a financial point of
view to the stockholders of AmVestors. A copy of Furman Selz's opinion is
attached as Appendix II to this Joint Proxy Statement/Prospectus and
stockholders of AmVestors are urged to read the opinion in its entirety. See
"Plan of Merger -- Opinions of Financial Advisors -- AmVestors."
THE AMVESTORS SPECIAL MEETING
The AmVestors Special Meeting will be held on April 8, 1996 at 9:00 a.m.,
local time, at the Doubletree Hotel, (near Kansas City International Airport)
8801 N.W. 112th Street, Kansas City, Missouri 64153. At such meeting, AmVestors
stockholders will be asked to (i) approve the Merger Agreement and the
transactions contemplated thereby, including the issuance of AmVestors Common
Stock in connection with the Merger, (ii) approve the proposal to amend the
AmVestors Option Plan and (iii) vote upon such other business as may properly
come before the AmVestors Special Meeting (including, without limitation,
adjournment of the AmVestors Special Meeting in order to allow for additional
solicitation of stockholder votes in order to obtain a quorum or in order to
obtain more votes in favor of the Merger Agreement) or any adjournments or
postponements thereof. See also "Amendment of the 1989 AmVestors Financial
Corporation Non-Qualified Stock Option Plan" for a discussion of the proposal to
amend the AmVestors Option Plan. The Board of Directors of AmVestors knows of no
business that will be presented for consideration at the AmVestors Special
Meeting other than the matters described in this Joint Proxy
Statement/Prospectus.
Only the holders of record of AmVestors Common Stock as of the close of
business on March 5, 1996 (the "AmVestors Record Date") are entitled to notice
of and to vote at the AmVestors Special Meeting. At the close of business on the
AmVestors Record Date, there were 10,154,995 shares of AmVestors Common Stock
outstanding.
Holders of record of AmVestors Common Stock as of the close of business on
the AmVestors Record Date are entitled to one vote per share on any matter voted
on at the AmVestors Special Meeting. The affirmative vote of the holders of at
least a majority of the total votes cast by the holders of the AmVestors Common
Stock is required to approve the Merger Agreement and the transactions
contemplated thereby and to approve the amendment to the AmVestors Option Plan.
The presence, either in person or by proxy, of the holders of a majority of
the votes entitled to be cast on the matters to be acted upon as of the
AmVestors Record Date is necessary to constitute a quorum at the AmVestors
Special Meeting. Broker non-votes, abstentions and withheld authority votes all
count for the purpose of determining a quorum at the AmVestors Special Meeting.
Shares as to which a stockholder abstains are considered shares entitled to vote
at the AmVestors Special Meeting and are included in determining whether the
proposals presented at the meeting are approved (i.e., an abstention would have
the effect of a vote against the Merger Agreement and the transactions
contemplated thereby, against the amendment of the AmVestors Option Plan, and
against such other business as may have properly come before the AmVestors
Special Meeting (including adjournment of such AmVestors Special Meeting) or any
adjournments or postponements thereof). On the other hand, broker non-votes are
not considered shares entitled to vote at the AmVestors Special Meeting and are
not included in determining whether the proposals presented at the meeting are
approved (i.e., a broker non-vote would have no effect on the outcome of a vote
on the approval of the Merger Agreement and the transactions contemplated
thereby, the amendment of the
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AmVestors Option Plan and such other business as may have properly come before
the AmVestors Special Meeting (including adjournment of such AmVestors Special
Meeting) or any adjournments or postponements thereof).
As of the AmVestors Record Date, directors and executive officers of
AmVestors and their affiliates (as a group) were entitled to vote 221,158 shares
of AmVestors Common Stock, or approximately 2.2% of the outstanding votes
entitled to be cast at the AmVestors Special Meeting. All such persons have
indicated their intention to vote their shares of AmVestors Common Stock for the
approval of the Merger Agreement and the transactions contemplated thereby and
in favor of the amendment to the AmVestors Option Plan.
FBG'S REASONS FOR THE MERGER
The FBG Board has determined that a business combination to increase
stockholder value and stock liquidity and to enhance FBG's growth opportunities
would be in the best interest of the FBG stockholders. In reaching its decision
to adopt and approve the Merger Agreement, the FBG Board considered many factors
(including, without limitation, presentations made by Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") and FBG management, historical financial
information regarding AmVestors, and the historical performance of the AmVestors
Common Stock) and determined that consummation of the Merger was the alternative
most likely to increase stockholder value and liquidity of shareholdings and to
enhance growth opportunities. See "Plan of Merger -- Reasons for the Merger;
Board Recommendations."
FBG'S RECOMMENDATION
At the meetings of FBG's Board of Directors held to consider the Merger,
the directors of FBG carefully considered and approved the terms of the Merger
Agreement and the transactions contemplated thereby as being fair and in the
best interests of FBG's stockholders. THE FBG BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS OF FBG VOTE "FOR" THE PROPOSAL TO APPROVE THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. For a discussion of
the factors considered by the directors of FBG in reaching their decision, see
"Plan of Merger -- Reasons for the Merger; Board Recommendations."
OPINION OF FBG'S FINANCIAL ADVISOR
On September 8, 1995, DLJ, financial advisor to FBG, rendered its written
opinion to the Board of Directors of FBG that, on and as of the date of such
opinion, based upon the procedures and subject to the assumptions described in
such opinion, the consideration to be received by the holders of FBG Common
Stock in the Merger is fair, from a financial point of view, to such holders. On
February 26, 1996, DLJ reconfirmed its opinion based upon facts known to them on
that date. A copy of DLJ's February 26, 1996 opinion is attached as Appendix III
to this Joint Proxy Statement/Prospectus, and holders of FBG Common Stock are
urged to read the opinion in its entirety. See "Plan of Merger -- Opinion of
Financial Advisor -- FBG."
THE FBG SPECIAL MEETING
The FBG Special Meeting will be held on April 8, 1996, at 10:00 a.m., local
time, at the Radisson Suite Hotel, 7920 Glades Road, Boca Raton, Florida 33434.
At such meeting, FBG stockholders will be asked to approve the Merger Agreement
and the transactions contemplated thereby. The FBG Board knows of no business
that will be presented for consideration at the FBG Special Meeting other than
the matters described in this Joint Proxy Statement/Prospectus.
Only the holders of record of FBG Common Stock as of the close of business
on March 5, 1996 (the "FBG Record Date") are entitled to notice of and to vote
at the FBG Special Meeting. At the close of business on the FBG Record Date,
there were 6,922,862 shares of FBG Common Stock outstanding and entitled to vote
at the FBG Special Meeting. Each share of FBG Common Stock will entitle the
holder to one vote at the FBG Special Meeting. The shares of FBG Class A Common
Stock and FBG Class B Common Stock will vote together as a class. The
affirmative vote of at least a majority of the outstanding shares of FBG Common
Stock is required to approve the Merger Agreement and the transactions
contemplated thereby and
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to vote upon such other business as may properly come before the FBG Special
Meeting (including without limitation, adjournment of such FBG Special Meeting
in order to allow for additional solicitation of stockholder votes in order to
obtain a quorum or in order to obtain more votes in favor of the Merger
Agreement) or any adjournments or postponements thereof.
The presence, either in person or by proxy, of the holders of a majority of
the outstanding shares of FBG Common Stock as of the FBG Record Date is
necessary to constitute a quorum at the FBG Special Meeting. The shares
represented by proxies marked "abstain" will be counted toward the requirements
for a quorum. Abstentions, however, will not constitute a vote "for" or
"against" approval of the proposals presented at the FBG Special Meeting and
thus have the practical effect of voting against the Merger Agreement and the
transactions contemplated thereby as well as against such other business as may
properly come before the FBG Special Meeting (including adjournment of such FBG
Special Meeting) or any adjournment or postponement thereof. Shares of FBG
Common Stock referred to as "broker non-votes" will be treated as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum.
As of the FBG Record Date, directors and executive officers of FBG and
their affiliates (as a group) were entitled to vote 1,557,726 shares of FBG
Common Stock, or approximately 22.5% of the outstanding shares entitled to vote
at the FBG Special Meeting. All such persons, have indicated their intention to
vote their shares for the approval of the Merger Agreement and the transactions
contemplated thereby at the FBG Special Meeting.
ADJOURNMENT OF THE SPECIAL MEETINGS
A vote (i) in person by a stockholder for adjournment of the relevant
Special Meeting, or (ii) for the last proposal on the proxy card of AmVestors
and FBG, respectively, authorizing the named proxies to vote the shares covered
by such proxy in their discretion with respect to such other business as may
properly come before the relevant Special Meeting, which would allow such named
proxies in their discretion to vote to adjourn the relevant Special Meeting,
would allow for additional solicitation of stockholder votes in order to obtain
a quorum or in order to obtain more votes in favor of the Merger Agreement.
Consequently, it is not likely to be in the interest of stockholders who intend
to vote against the Merger Agreement to vote in person to adjourn the Special
Meeting or to vote for the last proposal on the proxy card.
The Boards of Directors of both AmVestors and FBG unanimously recommend
that their respective stockholders vote in person in favor of any adjournment of
the relevant Special Meeting so suggested by such Boards in order to solicit
additional votes in order to obtain a quorum or to obtain more votes in favor of
the Merger Agreement, or in favor of the last proposal on its respective proxy
card.
See "The AmVestors Special Meeting -- Record Date; Vote Required" and "The
FBG Special Meeting -- Record Date; Vote Required" for the effect of abstentions
and broker non-votes with respect to a vote on a proposal to adjourn either
Special Meeting and on such other proposals.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
After the Merger, the Surviving Corporation will operate as a subsidiary of
AmVestors. Following the Merger, the AmVestors Board will consist of the current
directors of AmVestors and the three persons chosen by AmVestors from a group of
nominees for director to be submitted by FBG immediately prior to the Closing
Date (the "Nominees"). See "Plan of Merger -- Management and Operations after
the Merger."
FINANCING FOR THE MERGER
AmVestors has obtained a commitment from The First National Bank of Chicago
("First Chicago") for a revolving credit facility of up to $35 million (the
"Credit Facility"). AmVestors intends to draw on the Credit Facility (i) to
finance the cash portion of the Merger Consideration, cash payments required to
be made in lieu of fractional shares and cash payments to dissenting FBG
stockholders and certain FBG Option holders in connection with the Merger and
for the expenses of consummating the Merger and the transactions
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contemplated thereby; (ii) to refinance any existing indebtedness of FBG and
AmVestors; and (iii) for general corporate purposes. See "Plan of Merger --
Financing for the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of FBG's Board of Directors with respect
to the Merger Agreement, FBG stockholders should be aware that FBG's management
and its Board of Directors have interests in the Merger that are in addition to
their interests as FBG stockholders. These interests include, among other
matters, the interests of certain executive officers of FBG in their anticipated
new employment arrangements with AmVestors; the interests of executive officers
and directors of FBG in stock options or warrants with respect to which they may
become entitled to a cash payment in connection with the Merger; and the
obligation of AmVestors to honor any indemnification obligation FBG may have to
its present and former officers and to maintain directors' and officers'
liability insurance with respect to such persons for a period of three years.
The FBG Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby. See "Plan of Merger -- Interests of Certain Persons in the Merger."
REGULATORY FILINGS AND APPROVALS
Consummation of the Merger is contingent upon the receipt of approval from
all necessary state insurance regulators, including the Florida Insurance
Department. In addition, the applicable waiting period under the
Hart-Scott-Rodino Act has expired. See "Plan of Merger -- Certain Regulatory
Filings and Approvals."
DISSENTERS' RIGHTS
Pursuant to Delaware General Corporation Law (the "DGCL"), any holder of
FBG Common Stock (i) who files a proper demand for appraisal in writing prior to
the vote taken at the FBG Special Meeting and (ii) whose shares are not voted in
favor of the Merger, shall be entitled to appraisal rights under Section 262 of
the DGCL. A copy of Section 262 of the DGCL is attached as Appendix IV to this
Joint Proxy Statement/Prospectus. AmVestors' stockholders are not entitled to
dissenters' or appraisal rights with respect to the Merger. See "Dissenters'
Rights."
COMPARISON OF STOCKHOLDER RIGHTS
As a result of the Merger, the stockholders of FBG, whose rights are
currently governed by the DGCL and FBG's Certificate of Incorporation (the "FBG
Certificate") and bylaws, will become stockholders of AmVestors, whose rights
are governed by Kansas law and AmVestors' Amended and Restated Articles of
Incorporation (the "AmVestors Articles") and bylaws. The rights of FBG
stockholders and AmVestors stockholders differ in certain respects. For
instance, the FBG Certificate does not provide for cumulative voting in the
election of directors, whereas the AmVestors Articles provide for cumulative
voting in the election of directors. With respect to charter amendments, the FBG
Certificate may be amended by a vote of a majority of the outstanding shares
entitled to vote thereon, whereas the AmVestors Articles require a two-thirds
vote of the outstanding shares. The FBG bylaws may be amended or repealed and
new or additional bylaws adopted by a vote of the stockholders entitled to vote
in the election of directors. The AmVestors Articles do not grant the power to
amend the bylaws to the stockholders. With respect to the vote required on
certain transactions, Delaware law provides that the affirmative vote of a
majority of the outstanding shares entitled to vote thereon is required for
certain extraordinary corporate transactions. While Kansas law is similar to
Delaware law in this regard, the AmVestors Articles increase the required vote
on certain extraordinary corporate transactions to the affirmative vote of
two-thirds of the outstanding shares entitled to vote generally in the election
of directors. Delaware and Kansas law contain similar restrictions on business
combinations with "interested stockholders", although the ownership threshold to
become an "interested stockholder" is 15% under Delaware law and 5% under Kansas
law. See "Comparative Rights of Stockholders" for a more complete summary of
certain differences between the rights of the holders of FBG Common Stock and
AmVestors Common Stock, some of which may be considered material by FBG
stockholders.
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MARKET PRICES
Since November 30, 1994, AmVestors Common Stock has been traded on the
NYSE. Prior to that date, AmVestors Common Stock was traded on the Nasdaq
National Market. FBG Class A Common Stock is traded on the Nasdaq National
Market. The following table sets forth the high and low sales prices per share
of AmVestors Common Stock and FBG Class A Common Stock as reported on the NYSE
and the Nasdaq National Market, as applicable, in each case based on published
financial sources, for the periods indicated. The per share information
presented below and elsewhere in this Joint Proxy Statement/Prospectus has been
adjusted to reflect all stock splits and stock dividends of AmVestors and FBG.
AMVESTORS FBG CLASS A
COMMON STOCK COMMON STOCK
---------------- ----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
1993:
First Quarter............................................ $16 7/8 $10 $2 $1 1/2
Second Quarter........................................... 13 3/4 9 3/8 2 5/8 1 3/4
Third Quarter............................................ 11 3/4 9 3/4 3 1/4 2 1/8
Fourth Quarter........................................... 11 9 3/8 3 7/8 3
1994:
First Quarter............................................ 12 9 5/8 4 3/4 3 3/8
Second Quarter........................................... 10 1/4 8 3/4 4 1/4 3
Third Quarter............................................ 10 8 3 5/8 2 3/4
Fourth Quarter........................................... 10 8 1/4 3 1/8 2 1/4
1995:
First Quarter............................................ 9 3/4 9 1/4 4 2 13/1
Second Quarter........................................... 11 5/8 10 3 5/8 2 7/8
Third Quarter............................................ 12 7/8 10 7/8 4 9/16 3 1/4
AmVestors and FBG entered into the Merger Agreement on September 8, 1995.
The following table sets forth the closing prices for a share of AmVestors
Common Stock and a share of FBG Class A Common Stock as reported by the NYSE and
the Nasdaq National Market, respectively, on September 7, 1995, the last trading
day preceding the public announcement of the execution of the Merger Agreement,
and on February 27, 1996, the last practicable trading day before the printing
of this Joint Proxy Statement/ Prospectus.
CLOSING PRICE OF CLOSING PRICE OF FBG
DATE AMVESTORS COMMON STOCK CLASS A COMMON STOCK
------------------------------------- ---------------------- --------------------
September 7, 1995.................... $11 5/8 $4 7/16
February 27, 1996.................... $11 $5
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR AMVESTORS
COMMON STOCK AND FBG CLASS A COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE
AMVESTORS STOCK PRICE OR AS TO THE MARKET PRICES OF AMVESTORS COMMON STOCK OR
FBG CLASS A COMMON STOCK AT THE EFFECTIVE TIME OF THE MERGER.
COMPARATIVE PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of AmVestors and FBG and the corresponding pro forma
and pro forma equivalent per share amounts, giving effect to the proposed
Merger. The data presented are based upon the consolidated financial statements
and related notes of each of AmVestors and FBG appearing elsewhere herein, and
the unaudited pro forma consolidated balance sheet and income statements,
including the notes thereto, appearing elsewhere herein. This information should
be read in conjunction with such historical and pro forma financial statements
and related notes thereto. The assumptions used in the preparation of this table
appear elsewhere in this Joint Proxy Statement/Prospectus. See "Pro Forma
Combined Financial Statements." These data are not necessarily
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indicative of the results of the future operations of the consolidated
organization or the actual results that would have occurred if the Merger had
been consummated prior to the periods indicated.
AMVESTORS/FBG
AMVESTORS FBG PRO FORMA FBG PRO FORMA
HISTORICAL HISTORICAL COMBINED(3) EQUIVALENT(4)
---------------- -------------- ---------------- --------------
NINE NINE NINE NINE
MONTHS YEAR MONTHS YEAR MONTHS YEAR MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
9/30 12/31 9/30 12/31 9/30 12/31 9/30 12/31
1995 1994 1995 1994 1995 1994 1995 1994
------- ------ ------ ----- ------- ------ ------ -----
Fully diluted book value per
share at end of period(1)...... $13.08 $10.16 $4.31 $3.22 $12.94 $10.67 $5.33 $4.40
Cash dividends declared per
common share................... .075 -- -- -- .075 -- .03 --
Earnings before extraordinary
item per common share(2)....... 1.05 1.32 .38 .30 .91 1.11 .37 .46
- -------------------------
(1) Historical 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 shares of
AmVestors Common Stock and FBG Common Stock, as the case may be, outstanding
at the balance sheet date, adjusted for the number of shares resulting from
the exercise of dilutive stock options and warrants.
(2) Historical earnings before extraordinary item per common share amounts are
computed by dividing earnings before extraordinary item 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.
Pro forma earnings before extraordinary item per common share amounts are
computed by dividing pro forma earnings before extraordinary item by the pro
forma weighted average shares of AmVestors Common Stock after the Merger. In
addition to the historical weighted average shares of AmVestors Common Stock
for each period presented, the pro forma weighted average includes an
estimated 3,013,000 shares of AmVestors Common Stock to be issued in
connection with the Merger, based on an assumed AmVestors Stock Price of
$11.75 and the further assumption that all FBG Options are exchanged for
cash in connection with the Merger.
(3) AmVestors/FBG Pro Forma Combined data is computed based on an assumed
AmVestors Stock Price of $11.75 and the further assumption that all
outstanding FBG Options are exchanged for cash in connection with the
Merger. See "Pro Forma Combined Financial Information."
(4) FBG Pro Forma Equivalent data is computed by multiplying the respective
AmVestors/FBG Pro Forma Combined data by an exchange multiple based on an
assumed AmVestors Stock Price of $11.75 and further assumes that all
outstanding FBG Options are exchanged for cash in connection with the Merger
and that there are no Dissenting Shares. Under such assumptions, a share of
FBG Class A Common Stock would be exchanged for $.16 in cash, .412 of a
share of AmVestors Common Stock and a fraction of AmVestors Warrant, valued
at $.31 as described herein. See "Plan of Merger -- General Description of
the Merger." This calculation only reflects the issuance of .412 shares of
AmVestors Common Stock per share of FBG Class A Common Stock and does not
reflect the balance of the Merger Consideration to be received by FBG
stockholders.
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SELECTED PRO FORMA FINANCIAL DATA
The following table sets forth certain unaudited pro forma operating and
balance sheet data of AmVestors. The unaudited pro forma information gives
effect to the Merger, using the purchase method of accounting assuming for
purposes of the operating data that the Merger was consummated on January 1,
1994 and for purposes of the balance sheet data that the Merger 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 in
this Joint Proxy Statement/Prospectus and the separate historical consolidated
financial statements of AmVestors and FBG which are included elsewhere in this
Joint Proxy Statement/Prospectus.
The pro forma financial data does not purport to represent what AmVestors'
consolidated financial position or results of operations actually would have
been had the Merger been completed on the dates for which the Merger is being
given effect, nor is it necessarily indicative of the future financial position
or operating results of AmVestors.
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED
1995 DECEMBER 31, 1994
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro Forma Operating Data:
Total revenue.......................................... $ 155,833 $ 191,764
Operating earnings..................................... 19,757 22,693
Earnings before extraordinary item..................... 12,131 14,848
Earnings before extraordinary item per common share.... .91 1.11
Weighted average common and common equivalent shares
outstanding......................................... 13,391 13,354
AS OF
SEPTEMBER 30,
1995
-----------------
Pro Forma Balance Sheet Data:
Total assets........................................... $ 3,108,649
Total debt............................................. 35,000
Stockholders' equity................................... 174,832
Fully diluted book value per share..................... 12.94
SUMMARY SELECTED FINANCIAL DATA
AMVESTORS. The following table summarizes certain selected financial data
of AmVestors derived from the historical consolidated financial statements of
AmVestors and related notes thereto:
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- ---------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---------- --------- --------- --------- --------- --------- ---------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Total revenue................ $ 120,968 110,963 149,700 162,523 175,708 173,372 116,235
Operating earnings (loss).... 16,510 14,082 19,286 27,749 19,761 10,577 (10,401)
Net earnings (loss).......... 10,893 9,266 13,693 17,978 16,818 10,119 (17,719)
Earnings (loss) per share of
common stock
Primary.................... 1.05 0.90 1.32 2.59 2.87 1.84 (3.22)
Fully diluted.............. 1.05 0.89 1.32 2.46 2.56 1.84 (3.22)
Dividends.................... 0.075 -- -- -- -- -- 0.50
Total assets................. $2,368,137 2,238,745 2,260,021 2,114,696 2,090,136 1,959,071 1,773,042
Total debt................... 0 0 0 0 19,859 28,437 33,562
Stockholders' equity......... 137,348 107,592 104,196 100,345 49,463 30,936 17,264
Fully diluted book value per
share...................... 13.08 10.38 10.16 9.70 7.50 5.13 3.80
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NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- ---------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---------- --------- --------- --------- --------- --------- ---------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
OTHER OPERATING DATA:
Operating earnings (loss)
excluding net investment
gains (losses) and
related amortization of
deferred acquisition
costs(1)................. $ 17,260 13,832 18,687 15,491 7,887 2,871 6,279
Net operating earnings
(loss), excluding net
investment gains (losses)
and related amortization
of deferred acquisition
costs and associated
income
taxes(2)................. 11,388 9,101 13,064 10,733 4,012 1,037 3,993
Net operating earnings
(loss), excluding net
investment gains (losses)
and related amortization
of deferred acquisition
costs and associated
income taxes, per common
share(3):
Primary................ 1.10 .88 1.26 1.54 .68 .19 .72
Fully diluted.......... 1.10 .88 1.26 1.47 .61 .19 .72
- ---------------
(1) Amounts shown reflect operating earnings (earnings before interest and
taxes) adjusted to exclude net investment gains (losses) and accelerated
(reduced) amortization of acquisition costs related to such investment gains
(losses). Amortization of deferred acquisition costs related to net
investment gains (losses) excluded were: ($.2) million and $.1 million for
the nine months ended September 30, 1995 and 1994, respectively, and $.2
million, $4.8 million, $8.7 million, $8.8 million, and ($7.6) million for
the years ended December 31, 1994, 1993, 1992, 1991 and 1990, 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 of AmVestors -- Margin Analysis."
(2) Represents operating earnings after taxes adjusted to exclude net investment
gains (losses) and accelerated (reduced) amortization of acquisition costs
related to such investment gains (losses) and to exclude associated income
tax expense. See Note 1 above.
(3) 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.
FBG. The following table summarizes certain selected financial data of FBG
derived from the historical consolidated financial statements of FBG and related
notes thereto.
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- ------- ------- ------- ------- ------- -------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Total revenue................... $ 40,899 38,780 51,063 79,969 81,204 73,954 41,060
Operating earnings
(loss)........................ 5,830 3,623 4,657 15,448 14,174 7,051 (5,379)
Net earnings (loss)............. 3,266 34 726 9,118 9,966 6,129 (6,924)
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NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- ------- ------- ------- ------- ------- -------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Earnings (loss) per share of
common stock
Primary....................... 0.38 0.01 0.09 1.11 1.33 0.89 (1.06)
Fully diluted................. N/A 0.01 N/A 0.51 1.19 0.87 (1.06)
Dividends....................... -- -- -- -- -- -- --
Total assets.................... $719,915 724,999 730,903 789,569 787,607 778,389 641,281
Total debt...................... 15,500 16,000 16,000 15,000 15,000 1,627 9,500
Stockholders' equity............ 37,387 27,924 27,276 29,476 20,020 9,587 3,063
Fully diluted book value per
share......................... 4.31 3.29 3.22 3.47 2.51 1.32 .51
OTHER OPERATING DATA:
Operating earnings (loss)
excluding net investment
gains (losses) and related
amortization of deferred
acquisition costs(1)........ $ 5,115 2,830 3,657 (5,446) 1,073 (3,560) 2,687
Net operating earnings (loss),
excluding net investment
gains (losses) and related
amortization of deferred
acquisition costs and
associated income
taxes(2)(3)................. 3,580 1,845 2,841 (3,554) 792 (3,455) 3,129
Net operating earnings (loss),
excluding net investment
gains (losses) and related
amortization of deferred
acquisition costs and
associated income taxes, per
common share(4):
Primary................... .42 .22 .34 (.43) .11 (.50) .48
Fully diluted............. .42 .22 .34 (.20) .09 (.49) .48
- ---------------
(1) Amounts shown reflect operating earnings (earnings before interest expense
and reinsurance) 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 $1.2 million and $1.3
million for the nine months ended September 30, 1995 and 1994, respectively,
and $1.7 million, $933,000, $-0-, $-0-, and $-0- for the years ended
December 31, 1994, 1993, 1992, 1991 and 1990 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 of FBG -- Margin Analysis."
(2) Represents operating earnings after taxes adjusted to exclude net investment
gains (losses) and accelerated (reduced) amortization of acquisition costs
related to such investment gains (losses) and to exclude associated income
tax expense. See Note 1 above.
(3) Operating earnings for 1993 include a non-recurring charge ($7.0 million)
related to the effect of a reinsurance transaction.
(4) 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.
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RECENT DEVELOPMENTS
AMVESTORS. The following table summarizes certain selected financial data
of AmVestors for the year ended December 31, 1995:
YEAR ENDED
DECEMBER 31, 1995
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Total revenue............................................................. $ 166,651
Operating earnings........................................................ 25,206
Net earnings.............................................................. 16,599
Earnings per share of common stock
Primary................................................................. 1.60
Fully diluted........................................................... 1.60
Dividends................................................................. 0.075
Total assets.............................................................. 2,476,204
Total liabilities......................................................... 0
Stockholders' equity...................................................... 174,445
Fully diluted book value per share........................................ 16.43
OTHER OPERATING DATA:
Operating earnings excluding net investment gains and related
amortization of deferred acquisition costs(1)........................ 24,335
Net operating earnings, excluding net investment gains and related
amortization of deferred acquisition costs and associated income
taxes(2)............................................................. 15,910
Net operating earnings, excluding net investment gains and related
amortization of deferred acquisition costs and associated income
taxes, per common share(3)........................................... 1.53
- ---------------
(1) Amounts shown reflect operating earnings (earnings before interest and
taxes) adjusted to exclude net investment gains and accelerated amortization
of acquisition costs related to such investment gains. 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 of AmVestors -- Margin Analysis."
(2) Represents operating earnings after taxes adjusted to exclude net investment
gains and accelerated amortization of acquisition costs related to such
investment gains and to exclude associated income tax expense. See Note 1
above.
(3) Related per share amount is 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.
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36
FBG. The following table summarizes certain selected financial data of FBG
for the year ended December 31, 1995:
YEAR ENDED DECEMBER
31, 1995
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Total revenue............................................................... $ 54,224
Operating earnings.......................................................... 3,988
Net earnings................................................................ 4,601
Earnings per share of common stock
Primary................................................................... .53
Fully diluted............................................................. .53
Dividends................................................................... --
Total assets................................................................ 719,945
Total debt.................................................................. 15,500
Stockholders' equity........................................................ 41,037
Fully diluted book value per share.......................................... 4.56
OTHER OPERATING DATA:
Operating earnings excluding net investment gains and related amortization
of deferred acquisition costs(1)....................................... 5,446
Net operating earnings, excluding net investment gains and related
amortization of deferred acquisition costs and associated income
taxes(2)............................................................... 3,988
Net operating earnings, excluding net investment gains and related
amortization of deferred acquisition costs and associated income taxes,
per common share(3).................................................... .46
- ---------------
(1) Amounts shown reflect operating earnings (earnings before interest expense
and reinsurance) adjusted to exclude net investment gains and accelerated
amortization of deferred acquisition costs related to such investment gains.
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 of FBG -- Margin Analysis."
(2) Represents operating earnings after taxes adjusted to exclude net investment
gains and accelerated amortization of acquisition costs related to such
investment gains and to exclude associated income tax expense. See Note 1
above.
(3) The related per share amount is 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.
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37
RISK FACTORS
In addition to the other information contained in this Joint Proxy
Statement/Prospectus, the following factors should be considered carefully by
the holders of AmVestors Common Stock and the holders of FBG Common Stock in
connection with the proposals to approve certain matters relating to the Merger
Agreement which will be voted upon at the Special Meetings.
COMPETITION
The market for annuities and other savings and retirement products is
highly competitive. AmVestors competes with individual companies and with groups
of affiliated companies with substantially greater financial resources, higher
A.M. Best or claims-paying ability ratings, greater market share, and larger and
more widespread agency and brokerage relationships, and which may offer a
greater variety of products. Competition in the industry is based on credited
rate levels and other product features, the perceived quality and stability of
the insurer generally as evidenced by industry ratings, commission structure,
marketing and services. AmVestors depends on the recruitment and retention of
productive independent agents for the sale of its products. AmVestors' ability
to recruit and retain agents is substantially affected by perceptions of its
financial condition and the ratings assigned to American by A.M. Best and other
rating organizations. See "-- A.M. Best Company Ratings". AmVestors' agents also
represent other insurance companies and may sell products which compete with
those of AmVestors.
In addition to competing with other life insurance companies, AmVestors
also competes with financial institutions, including banks and mutual funds,
which market annuities and other retirement savings products and have
substantially greater resources than AmVestors. Competition from financial
institutions may be increased as a result of a ruling by the United States
Supreme Court on January 18, 1995 in the case of NationsBank v. VALIC in which
the Court concluded that for purposes of Section 92 of the National Bank Act,
annuities are investment products rather than insurance products and that
federal banks can therefore serve as agents for their customers in the purchase
and sale of both fixed and variable annuities.
The foregoing competitive factors are equally applicable to FBG's business.
Thus, the Merger is not expected to change the impact of the competitive factors
described above on AmVestors' business.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of FBG's Board of Directors with respect
to the Merger Agreement, FBG stockholders should be aware that FBG's management
and its Board of Directors have interests in the Merger that are in addition to
their interests as FBG stockholders. These interests include, among other
matters, the interests of certain executive officers of FBG in their anticipated
new employment arrangements with AmVestors; the interests of executive officers
and directors of FBG in FBG Options with respect to which they may become
entitled to a cash payment in connection with the Merger; and the obligations of
AmVestors to honor any indemnification obligation FBG may have to its present
and former officers and to maintain directors' and officers' liability insurance
with respect to such persons for a period of three years. The FBG Board was
aware of these interests and considered them, among other matters, in approving
the Merger Agreement and the transactions contemplated thereby. See "Plan of
Merger -- Interests of Certain Persons in the Merger."
A.M. BEST COMPANY RATINGS
Ratings, particularly those issued by A.M. Best Company, are generally
considered important to an insurance company's ability to compete in the
insurance business, especially the annuity market. Insurance agents, others in
the insurance industry, and consumers of insurance products generally view an
insurance company's A.M. Best rating as an important factor when determining
whether to distribute or purchase, as the case may be, that company's products.
As of the date of mailing of this Joint Proxy Statement/Prospectus,
American had an A.M. Best rating of 'A-' and Financial Benefit Life had an A.M.
Best rating of 'B'. Such ratings are subject to review and can be
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38
withdrawn or changed at any time by A.M. Best Company. A downgrade by A.M. Best
Company of American's or Financial Benefit Life's ratings, could have a material
adverse effect on the business of AmVestors.
INCREASE IN SURRENDERS
Surrenders of AmVestors' annuity products have increased in recent years.
Total surrender and death benefits paid amounted to $246.6 million, $318.9
million and $203.1 million for the years ended December 31, 1994, 1993 and 1992,
respectively, and $290.2 million for the nine months ended September 30, 1995.
Management believes this increase was due to a general increase in the yield for
alternative fixed investment products during 1994 and the first nine months of
1995, the existence of blocks of policies written in previous years which were
no longer protected by surrender charges, and to a lesser extent for 1994 and
1995, to a reduction in credited rates on certain annuity policies which allow
the policyholders to withdraw their funds without surrender charges for up to 60
days after the first time a credited rate is set below a prescribed rate (the
"bailout rate").
Surrenders of FBG annuity products have also increased in recent years.
Total surrender and death benefits paid amounted to $134.1 million, $88.4
million and $165.8 million for the years ended December 31, 1994, 1993 and 1992,
respectively, and $69.1 million for the nine months ended September 30, 1995.
Management believes this increase was due to a reduction in credited rates on
its annuity policies below the bailout rate, which allowed policyholders to
withdraw their funds without surrender charges. The effort involved larger
blocks during 1992 and 1994 than in 1993 and the first nine months of 1995.
As of September 30, 1995, approximately $345.5 million, or 19.2% of
AmVestors total annuity account value contains no surrender charges. In
addition, approximately $205.9 million or 11% contained a "bailout" provision.
Also, as of September 30, 1995, approximately $12.5 million, or 2.5% of the FBG
total annuity account value contains no surrender charges and approximately
$46.2 million or 9.1% contained a "bailout" provision.
Management believes it will have adequate funds available to pay surrenders
from the respective amounts of cash provided by operations and from premiums
received. In the event that these funds are not adequate to pay withdrawals, it
would be necessary to sell investments at their then current market price.
Substantial future surrenders could have a material adverse effect on AmVestors'
financial condition and results of operations. In general, withdrawal rates on
annuity contracts increase as they approach maturity. Because surrenders of
FBG's annuity products have also increased in recent years, the Merger is not
expected to reduce the risk that future surrenders may have a material adverse
affect on AmVestors' financial condition and results of operations.
LACK OF PRODUCT DIVERSIFICATION
AmVestors' business is dependent on annuities, which account for
substantially all premiums received by AmVestors. The same is true for FBG's
business. If the demand for such products were to decrease significantly for any
reason, AmVestors' operations and financial condition would be materially
adversely affected.
FEDERAL INCOME TAX LAW
Current federal income tax law generally permits the tax-deferred
accumulation of earnings by the policyholder on deferred annuity premiums
received by AmVestors. Taxes, if any, are payable by the policyowner on the
accumulated tax-deferred earnings when annuity benefits are actually paid out or
deemed to be paid. From time to time, there have been proposed changes to the
federal income tax laws that would eliminate this tax deferral for certain types
of annuity products. In addition, alternative federal income tax proposals have
been considered recently, including a "flat tax." If the federal income tax laws
are amended to eliminate or modify the existing tax treatment of deferred
annuity products or to defer, lessen or eliminate taxes on investment products,
demand for AmVestors' products would decline substantially. The operations and
future business prospects of AmVestors would be materially and adversely
affected by a material decrease
18
39
in the demand for its annuity products. While AmVestors is unaware of any
pending legislation to revise applicable federal income tax provisions, no
assurance can be given that such a tax law change will not occur in the future.
Since FBG is subject to the same federal income tax laws as AmVestors, the
Merger is not expected to reduce the risk to AmVestors of a potential adverse
tax law revision.
HOLDING COMPANY STRUCTURE; DIVIDEND RESTRICTIONS
As an insurance holding company, AmVestors' ability to service debt and pay
operating expenses and dividends on its capital stock depends largely on the
receipt of funds from its subsidiary companies. AmVestors expects to borrow $35
million in connection with the Merger. See "Plan of Merger -- Financing for
Merger." The inability of American or, following the Merger, Financial Benefit
Life to pay dividends, commissions and fees in an amount sufficient to meet
AmVestors' obligations would have a material adverse effect on AmVestors.
AmVestors is subject to the insurance holding company regulations in Kansas and,
following the Merger, will be subject to such regulations in Florida. The
provisions of the applicable Kansas and Florida statutes contain restrictions
with respect to the payment of dividends as well as with respect to certain
intercompany transactions which could limit the amount of funds AmVestors may
receive from American or, following the Merger, Financial Benefit Life. See
"Comparative Rights of Stockholders."
INSURANCE REGULATION
American and Financial Benefit Life are subject to significant regulation
by the insurance regulatory authorities in the jurisdictions in which they
transact business. The laws of the various states establish supervisory agencies
with broad administrative powers relative to granting and revoking licenses to
transact business, regulating trade practices, licensing agents, approving
policy forms, setting reserve requirements, determining the form and content of
required statutory financial statements, and prescribing the type and amount of
investments. This regulation and supervision is designed primarily to insure the
financial stability of insurance companies to protect policyowners, not
stockholders. The insurance regulatory structure has been subjected to increased
scrutiny in recent years by the National Association of Insurance Commissioners
(the "NAIC") and federal and state legislative bodies and state regulatory
authorities. Various new legislative and regulatory standards have been adopted
or proposed. No assurance can be given as to the effect of future legislative or
regulatory changes on AmVestors. See "Regulation."
INVESTMENT PERFORMANCE; EFFECTS OF CHANGES IN INTEREST RATES; NON-INVESTMENT
GRADE HOLDINGS
The results of operations and the financial condition of AmVestors are
significantly affected by the performance of its investments and by changes in
interest rates. During a period of declining interest rates, if its investments
are prematurely sold, called, prepaid or redeemed, AmVestors would be unable to
reinvest the proceeds in securities with comparable rates of return. Also,
decreases in interest rates could result in reductions to credited rates, which
in turn could cause increases in surrenders depending upon competitive market
conditions. During a period of rising interest rates, surrender levels generally
increase which in turn could cause AmVestors to be required to sell investments
at prices and times when the market values of such investments are less than
their book values. The Merger is not expected to lessen such risks. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of AmVestors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of FBG."
Non-investment grade securities are subject to greater risk of default. As
of September 30, 1995, approximately 7% of AmVestors' and 9% of FBG's fixed
income portfolios consisted of non-investment grade securities and the remainder
were investment grade. Also, as of that date approximately 22% of AmVestors and
23% of FBG's fixed income portfolios were rated "Baa" (the lowest generic
investment grade category) by Moody's or its equivalent by the NAIC. If a "Baa"
rated security, or any other security, is downgraded to non-investment grade,
AmVestors could experience investment losses due to sales or write-downs and
could be subject to additional scrutiny by both regulatory authorities and
rating agencies.
AmVestors owns bonds of 22 issuers in amounts which exceed 10% of
stockholders' equity. All of these bonds, except one, are rated investment
grade. FBG owns bonds of 31 issuers in amounts which exceed 10% of
19
40
stockholders' equity. All of these bonds are rated investment grade. If any of
the foregoing issuers fails to pay the principal or interest when due, AmVestors
could sustain a loss that could materially adversely affect its results of
operations and financial condition.
Mortgage-backed securities are subject to certain prepayment risks. As of
September 30, 1995, approximately 33% of AmVestors' and 37% of FBG's invested
assets consisted of mortgage-backed securities. As of that date, approximately
22% of AmVestors' and 24% of FBG's mortgage-backed securities portfolios (and
% of AmVestors' and 9.0% of FBG's invested assets) represented interests in
sequential classes and pass-through securities which are subject to greater
prepayment risks than planned amortization and targeted amortization classes.
Such mortgage-backed securities are subject to substantial prepayment risks in a
period of declining interest rates as the underlying mortgages are repaid and
refinanced to take advantage of lower rates. During such periods, AmVestors
generally will be unable to reinvest the proceeds of any such prepayment at
comparable yields. Should prepayments slow as a result of rising interest rates
the cash flows of sequential classes and pass-through securities would lengthen.
This would result in reduced market values. Rising interest rates could also
cause disintermediation and create the need for AmVestors to sell such
securities at a loss.
FUTURE LIQUIDITY
Given the historical cash flow of AmVestors and AmVestors' current
financial results, management believes that AmVestors' cash flow over the next
year will provide sufficient liquidity to meet AmVestors' cash requirements
including cash needed to service the $35 million Credit Facility. Beyond the
next twelve months, cash flow available to AmVestors may be influenced by a
variety of factors, including changes in the annuity market, surrender
experience, the insurance regulatory environment and general economic
conditions. Consequently, although AmVestors presently anticipates that it will
be able to meet its obligations over the long-term, no assurance can be given as
to whether the net cash provided by its operations will provide sufficient funds
for AmVestors to meet its long-term liquidity needs. In the event cash flow from
operations is insufficient to meet its liquidity needs, AmVestors would need to
sell securities at the then current market prices or seek external sources of
financing. There can be no assurance that the market value of securities sold
would exceed their book value or that AmVestors will be able to raise additional
funds through external financing.
DEPENDENCE UPON KEY PERSONNEL
AmVestors' business depends upon the efforts of its executive officers,
including Mr. Ralph W. Laster, Jr., Chairman and Chief Executive Officer and Mr.
Mark V. Heitz, President and General Counsel. The loss of any one of AmVestors'
executive officers could have a material adverse effect upon AmVestors.
AmVestors currently has employment agreements with Messrs. Laster and Heitz
which expire on May 31, 1997 and December 31, 1998, respectively.
FBG's business depends upon the efforts of its executive officers,
including Mr. Frank T. Crohn, Chairman and Chief Executive Officer, and Ms.
Donna J. Rubertone, Executive Vice President and Chief Operating Officer. The
loss of any one of FBG's executive officers could have a material adverse affect
upon FBG. AmVestors will enter into employment agreements with Mr. Crohn and Ms.
Rubertone prior to the Merger. See "Plan of Merger -- Management and Operations
After the Merger -- Employment Agreements."
ANTI-TAKEOVER PROVISIONS
Certain provisions of AmVestors' Amended and Restated Articles of
Incorporation and of Kansas law may render more difficult or have the effect of
discouraging unsolicited takeover bids from third parties or the removal of
incumbent management. These provisions include "blank check" preferred stock, a
classified board of directors and a two-thirds majority voting requirement to
approve certain corporate actions. The holding company law of Kansas may also
delay or impede an acquisition of, or business combination with, AmVestors. See
"Description of AmVestors Capital Stock" and "Comparative Rights of
Stockholders."
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PLAN OF MERGER
The following is a summary of the material terms and conditions of the
Merger Agreement, a copy of which is attached as Appendix I to this Joint Proxy
Statement/Prospectus and incorporated herein by reference. The information
regarding the Merger Agreement in this Joint Proxy Statement/Prospectus does not
purport to be complete and is qualified in its entirety by reference to the full
text of the Merger Agreement.
GENERAL DESCRIPTION OF THE MERGER
Pursuant to the Merger Agreement, at the Effective Time, AmVestors will
acquire FBG through the merger of FBG with and into Acquisition Subsidiary. If
the Merger Agreement and the transactions contemplated thereby are approved by
the stockholders of AmVestors and FBG, and if the other conditions to the Merger
are satisfied or waived, the Merger will become effective upon the filing with
the Secretary of State of the State of Delaware of a duly executed Certificate
of Merger or at such later time as may be specified in the Certificate of
Merger.
Prior to the Merger, each share of FBG Class B Common Stock will be
converted to 1.35 shares of FBG Class A Common Stock in accordance with FBG's
Restated Certificate of Incorporation (the "FBG Certificate"). It will not be
necessary for a holder of FBG Class B Common Stock to exchange the certificate
representing such shares for a certificate representing FBG Class A Common Stock
in order to receive the Merger Consideration. As a result of the Merger, each
share of FBG Class A Common Stock outstanding immediately after such conversion
(other than Dissenting Shares and shares held by AmVestors) will be converted
into the right to receive the Merger Consideration which will consist of a
combination of (i) cash, (ii) a fraction of a share of AmVestors Common Stock,
and (iii) a fraction of an AmVestors Warrant, valued in the aggregate at $5.31
per share as described herein if the AmVestors Stock Price (as defined below) is
greater than or equal to $10.50 and less than or equal to $13.25 (with the
fraction of a share of AmVestors Common Stock being fixed (and therefore the
aggregate value of the Merger Consideration increasing or decreasing) as
described below if the AmVestors Stock Price is outside of such range).
The Cash Consideration Per Share will be equal to $10 million, less amounts
paid by AmVestors to holders of FBG Options (as described below) and an amount
equal to $5.31 multiplied by the number of Dissenting Shares, divided by the
number of shares of FBG Class A Common Stock outstanding immediately prior to
the Merger less the number of Dissenting Shares. The Cash Consideration Per
Share could theoretically vary from $0 to $1.18. If all outstanding FBG Options
are exchanged for cash (as described in "-- Terms and Conditions of the Proposed
Merger -- FBG Options and Warrants"), all FBG Warrants which are not eligible to
be exchanged for cash are exercised prior to the Merger, and at least 5.3% of
the outstanding shares of FBG Common Stock are Dissenting Shares, then the Cash
Consideration Per Share will equal $0. If no FBG Options are exchanged for cash
(with 150,000 of such FBG Options being converted into options for AmVestors
Common Stock (the maximum allowable pursuant to the terms of the Merger
Agreement), with the remainder being exercised for FBG Common Stock), all FBG
Warrants which are not eligible to be exchanged for cash are not exercised prior
to the Merger, and there are no Dissenting Shares, then the Cash Consideration
Per Share will equal $1.18. Certain officers and directors have indicated to FBG
their current intention to take cash and/or exercise with respect to a number of
their FBG Options; assuming such officers and directors do take cash and stock
as currently indicated, the Cash Consideration Per Share could vary from $0 to
$.55, based on the other assumptions described above.
The fraction of a share of AmVestors Common Stock payable per share of FBG
Class A Common Stock in the Merger will be equal to $5.00 minus the Cash
Consideration Per Share, divided by (i) the AmVestors Stock Price if such price
is greater than or equal to $10.50 and less than or equal to $13.25, (ii) $10.50
if the AmVestors Stock Price is less than $10.50, or (iii) $13.25 if the
AmVestors Stock Price is greater than $13.25. Since the fraction of a share of
AmVestors Common Stock to be received as part of the Merger Consideration is
fixed if the AmVestors Stock Price is below $10.50 or above $13.25, if such
price were less than $10.50, the value of the AmVestors Common Stock to be
received by FBG stockholders would decrease and the aggregate value of the
Merger Consideration would be less than $5.31 per share of FBG Class A Common
Stock and, similarly, if such price were greater than $13.25, the value of the
AmVestors Common
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42
Stock to be received by FBG stockholders would increase and the aggregate value
of the Merger Consideration would be greater than $5.31 per share of FBG Class A
Common Stock. Finally, if the AmVestors Stock Price were within such range, the
aggregate Merger Consideration would be valued at $5.31 per share of FBG Common
Stock as described herein (although the Merger Consideration is valued as so
described at a constant $5.31 within such range, the size of the fraction of
share of AmVestors Common Stock to be received as part of the Merger
Consideration could vary within such range (in order to keep such value
constant) by as much as 26%). The "AmVestors Stock Price" will be the average
closing price of AmVestors Common Stock during the twenty consecutive trading
days ending three trading days prior to the Merger.
The fraction of an AmVestors Warrant payable per share of FBG Class A
Common Stock in the Merger will be valued at $.31 (by application of a
Black-Scholes model) on the third trading day prior to the Merger. Each
AmVestors Warrant will be exercisable until six years after such date and have
an exercise price equal to 135% of the AmVestors Stock Price. A holder of an
AmVestors Warrant can potentially realize value from such warrant, either by
selling such warrant or by exercising such warrant for AmVestors Common Stock.
While the Black-Scholes model is one recognized method of valuing warrants,
there can be no assurance that the trading price of an AmVestors Warrant will
equal or exceed such valuation and therefore whether a holder will be able to
realize the estimated value upon sale of the AmVestors Warrant. In addition, any
value realized upon the exercise of an AmVestors Warrant will depend upon the
relationship between the price of AmVestors Common Stock at such time and the
exercise price of the AmVestors Warrant. If, during the six-year term of the
AmVestors Warrant, the price of AmVestors Common Stock does not exceed 135% of
the AmVestors Stock Price (as determined three trading days prior to the Merger
as described above), no holder of an AmVestors Warrant will be able to realize
any value from such warrant upon exercise. (Notwithstanding the foregoing, the
receipt of an AmVestors Warrant in the Merger will be taxable to the extent of
any gain based upon such warrant's fair market value at the time of the Merger.
See "Plan of Merger -- Certain Federal Income Tax Consequences.") For a full
description of the terms of the AmVestors Warrants, see "Description of
AmVestors Capital Stock -- AmVestors Warrants."
The Merger Agreement provides that it may be terminated by either AmVestors
or FBG if the AmVestors Stock Price is less than $9.50 or greater than $14.50.
Neither AmVestors nor FBG has any present intention as to whether it would elect
to terminate the Merger Agreement in such event. The decision with respect to
such election would be made by the respective Boards of Directors of AmVestors
and FBG following the determination of the AmVestors Stock Price as described in
the preceding paragraph. See "-- Terms and Conditions of the Proposed Merger --
Termination and Amendment of the Merger Agreement."
Based on the capitalization of AmVestors and FBG as of September 30, 1995,
the stockholders and option holders of FBG immediately prior to the consummation
of the Merger will own securities representing from approximately 19.7% to
approximately 24.3% of the outstanding AmVestors Common Stock on a fully diluted
basis following consummation of the Merger, assuming, alternatively, that (i)
the AmVestors Stock Price is $13.25, that each holder of an FBG Option receives
cash in exchange for such option, and the holders of FBG Warrants do not
exercise any such warrants, or that (ii) the AmVestors Stock Price is $10.50 and
that each holder of FBG Options and FBG Warrants exercise all such options or
warrants prior to the Merger.
Each holder of an FBG Option will be entitled to receive either cash or
AmVestors Options depending upon the option or warrant plan under which such FBG
Option was granted and the election or request, if applicable, of the holder.
Pursuant to the terms of the Merger Agreement, no more than 150,000 shares of
AmVestors Common Stock are to be subject to AmVestors Options granted to former
FBG Option holders. In addition, outstanding FBG Warrants will be exercisable
for the Merger Consideration. See "-- FBG Options and Warrants."
Following the Effective Time, each stockholder of FBG will be required to
surrender the certificates which theretofore represented shares of FBG Common
Stock to The Boatmen's Trust Company or such other agent as may be designated by
AmVestors (the "Exchange Agent"), together with a duly completed and executed
transmittal letter provided by the Exchange Agent. See " -- Surrender of Stock
Certificates and Receipt of Merger Consideration." No fractional shares of
AmVestors Common Stock or fractional AmVestors Warrants will be issued in the
Merger, but cash will be paid in lieu of such fractional shares and warrants.
See " -- Fractional Shares." The shares of AmVestors Common Stock and AmVestors
Warrants to
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be issued pursuant to the Merger will be freely transferable except by certain
stockholders of FBG who are deemed to be "affiliates" of FBG or AmVestors under
the rules and regulations promulgated by the Commission. The shares of AmVestors
Common Stock issued to such affiliates will be restricted in their
transferability in accordance with rules and regulations promulgated by the
Commission. See " -- Status Under Federal Securities Laws."
As soon as practicable after the Effective Time, the Exchange Agent will
mail to each holder of FBG Common Stock (including the holders of certificates
formerly representing shares of FBG Class B Common Stock) notification of the
consummation of the Merger and instructions as to the procedure for the
surrender of the stock certificates. The Exchange Agent will accept
documentation acceptable to it in lieu of lost or destroyed certificates and may
also require the holder of a lost or destroyed certificate to post an insurance
bond acceptable to the Exchange Agent. Each holder of FBG Common Stock
(including the holders of certificates formerly representing shares of FBG Class
B Common Stock), upon surrender of a stock certificate or certificates
representing such stock, together with the transmittal letter provided by the
Exchange Agent duly completed and executed by such holder, will be entitled to
receive a stock certificate or certificates representing the number of whole
shares of AmVestors Common Stock (together with cash in lieu of fractional
shares) and such cash consideration and AmVestors Warrants (together with cash
in lieu of fractional warrants) to which such holder is entitled. Holders of
certificates formerly representing shares of FBG Class B Common Stock shall be
entitled to receive the number of whole shares of AmVestors Common Stock
(together with cash in lieu of fractional shares) and such cash consideration
and AmVestors Warrants (together with cash in lieu of fractional shares) based
on the number of shares of FBG Class A Common Stock into which such shares of
FBG Class B Common Stock will have been converted prior to the Merger.
FBG STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL LETTER FROM THE EXCHANGE AGENT.
BACKGROUND OF THE MERGER
The AmVestors Board has from time to time considered various corporate
strategies designed to increase long-term stockholder value and in 1993 set a
goal to double assets under management during the next three years -- to $4.0
billion by December 31, 1996. In connection therewith, AmVestors embarked on a
strategy of growth which includes the acquisition of existing companies or
blocks of insurance contracts, as well as continued emphasis on selling the full
range of current products through existing agency relationships.
In 1984, AmVestors commenced sales of deferred annuity products under a
marketing arrangement with FBG. From 1984 through mid-1986, American ceded to
Financial Benefit Life 50% of each policy written by American under the terms of
a coinsurance treaty. From mid-1986 through 1988, only policies written through
FBG were reinsured. By working together during this time, the two companies
assisted each other in entering the annuity business.
During 1988, American recaptured all annuity business previously ceded to
Financial Benefit Life under the reinsurance arrangement. Since then, FBG has
served as a national marketing organization for AmVestors' products through
FBG's subsidiary, TIM, on the same basis as AmVestors' other national marketing
organizations. The amount of this production has not been material to FBG or
AmVestors.
AmVestors currently owns 126,055 shares of FBG Class A Common Stock which
it has accumulated over several years. The last purchase of FBG Class A Common
Stock by AmVestors occurred during 1994.
At various times, the FBG Board and FBG's senior management have discussed
generally the possibility of entering into a business combination in order to,
among other things, increase stockholder value and liquidity of stockholdings
and enhance FBG's growth opportunities in an increasingly competitive
environment (by, for example, expanding the company's capital base and enhancing
its administrative and sales capacities).
As a result of the continued relationship and similarities between
AmVestors and FBG, a potential merger had previously been considered by the two
companies. The first formal proposal by AmVestors was made in a letter of intent
to FBG dated December 5, 1994, in which AmVestors offered to acquire 100% of the
common stock and common stock equivalents of FBG in a stock-for-stock exchange.
The pricing represented an approximate multiple of three (3) shares of FBG
Common Stock for one (1) share of AmVestors
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Common Stock, based on respective market prices at that time and amounted to
approximately $3.05 per share of FBG Class A Common Stock. The parties could not
reach agreement at that time.
On February 9, 1995, FBG formally engaged DLJ to explore a merger or other
business combination. Over the years, FBG has worked with DLJ on financing and
other matters. FBG prepared a memorandum (the "FBG Memorandum") containing key
financial and other data pertaining to FBG to be given to interested parties.
Beginning in early April 1995, DLJ contacted numerous parties which it
believed might have an interest in pursuing a transaction with FBG. The
companies contacted included insurance companies, insurance holding companies,
banks, financial services companies and investment firms. All parties who
received the FBG Memorandum signed confidentiality agreements with FBG.
DLJ then received indications of interest from eight parties (including
AmVestors) on May 16, 1995, one of which was determined by FBG to be unlikely to
have the financial ability to complete the transaction. The seven remaining
parties each spent at least one day performing due diligence at FBG's
headquarters, whereupon DLJ requested that those parties with continuing
interest in FBG submit final written proposals. On July 27, 1995, three such
proposals were submitted, each of which set forth the terms and conditions of
the transaction proposed. FBG determined that the transactions proposed by each
of these three companies might be potentially advantageous to FBG and its
stockholders. Thus, following receipt of these proposals, FBG and DLJ conducted
discussions with each of these companies and their respective financial advisers
regarding various matters including proposed valuations of FBG, conditions to
consummation of each proposed transaction and the feasibility of, and other
issues related to, each proposed transaction.
At a special meeting on August 11, 1995, the FBG Board reviewed the terms
of the three proposals that had been made and the respective businesses,
reputations and characteristics of the three parties making the proposals. Two
of these proposals (including the proposal from AmVestors) contemplated a stock
merger between FBG and the other company. The other proposal contemplated a cash
transaction. After detailed discussion of each proposal, the FBG Board directed
management to further investigate each of the companies and their respective
proposals and negotiate each of the three proposals in an effort to determine
which of the proposals appeared to be most likely to provide a particularly
advantageous opportunity to FBG stockholders. In particular, the FBG Board
directed FBG management to pursue negotiations with, and continue its
investigation of, the two companies that had made the stock merger proposals
(AmVestors and "Company A"). In addition, because the FBG Board was concerned
about the ability of the third company ("Company B") to finance and receive
regulatory approval for its proposed cash Merger with FBG, the Board instructed
FBG management to consider further the ability of Company B to obtain financing
for, and regulatory approval of, such proposed merger with FBG. Following the
August 11 FBG Board meeting, FBG sent preliminary forms of proposed merger
agreements to each of these three companies for their review and comment and
management of FBG further negotiated various aspects of the respective proposals
from AmVestors and Company A, including exchange ratios, collars, termination
and topping fees, pre-closing covenants, conditions to closing and post-closing
operations of the combined entity (including board representation by FBG
nominees). During this period, FBG management, with the assistance of
representatives of DLJ, FBG's legal counsel (Harnett Lesnick Ripps & Kahn, P.A.
and Lord, Bissell & Brook), independent auditors (Deloitte & Touche LLP) and
consulting actuaries (Milliman & Robertson), continued to review the three
companies. Also during this period, after numerous discussions among FBG
management, DLJ and representatives of Company B regarding Company B's ability
to obtain financing for its proposed cash merger, it was believed that it was
unlikely that a transaction with Company B could be successfully negotiated and
consummated.
At a special meeting on August 21, 1995, the FBG Board considered in detail
the proposals that had been made by AmVestors, Company A and Company B,
including consultation with and presentations by FBG's management and financial
and legal advisors regarding the proposals. At the time of such meeting, the
AmVestors proposal valued each FBG share at $5.00 payable in cash and stock,
Company A's proposed transaction valued each FBG share at $5.50 payable in
stock, and Company B's proposal valued each FBG share at $5.19 payable in cash.
In both the AmVestors proposal and that of Company A, each share of FBG Common
Stock was assigned a range of values to be paid in the form of stock of the
acquiring party and, in the
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case of AmVestors, some cash. If such stock traded during a defined measuring
period within a prescribed range, the value remained fixed, i.e. shares of the
acquiring party would be issued in the merger in the ratio that such value would
bear to the stock price of the acquiring party during such period. If the
trading price of the acquiring party fell outside the prescribed price ranges
set forth in each proposal, each proposal contemplated the exchange ratios would
become fixed. At certain trading prices, either party to the proposed mergers
could elect to terminate the merger agreement. The AmVestors proposal provided
that a portion of the merger consideration would be paid in cash; there was no
cash component to the merger consideration proposed by Company A.
The respective proposals differed with respect to the treatment of FBG
Options. Certain of such plans either require a cash payment to be made or
provide the option or warrant holder an election to receive a cash payment with
respect to such options or warrants in the event of a change of control
transaction. (The options issued under FBG's incentive stock option plan (the
"ISOs") are not subject to such a change of control provision.) The AmVestors
proposal included a condition that, following the transaction, the number of
shares of AmVestors Common Stock subject to AmVestors Options issuable in
exchange for FBG Options (including ISOs) not exceed 150,000. The AmVestors
proposal also required that, prior to the Merger, key officers of FBG either
exercise all FBG Options held by them or receive a cash payment for such
instruments and included a provision pursuant to which AmVestors would offer
cash to holders of ISOs. Company A's proposal did not include any restriction or
limitation on the number of its shares that could be subject to options issuable
in exchange for FBG Options. The Company A proposal also did not require the
holders of FBG Options, including officers of FBG, to exercise or receive cash
for such FBG Options held by them. Although Company A's proposal contemplated
honoring the change of control provisions in FBG's option and warrant plans, it
did not provide for any cash payments to holders of FBG ISOs.
Finally, both proposals provided for the acquirors entering into employment
agreements with certain FBG executive officers at the time of the merger. Such
agreements would provide for minimum salary guarantees. The employment
agreements proposed by AmVestors provided for the granting of new AmVestors
Options. The proposed Company A employment agreements did not provide for the
granting of options for Company A stock, but did provide that, in the event of
termination of employment for any reason other than "cause" as defined in such
agreements, each such executive would receive cash for all unexercised options
for Company A stock held by him or her and issued in exchange for FBG Options.
It was the consensus and direction of the FBG Board, based on the
presentations by FBG's management and its advisors and then available
information, that management and DLJ should continue to negotiate further with
AmVestors and Company A, particularly with respect to issues of valuation of
FBG. The FBG Board directed management to suspend discussions with Company B due
to its inability to demonstrate that it could obtain financing for its offer and
uncertainty relating to its ability to obtain regulatory approval for the
proposed transaction. The FBG Board instructed its management that its objective
was the attainment of a definitive merger agreement that was the most
advantageous to FBG's stockholders. This entailed not only the receipt of
optimal merger consideration but also the selection of a substantial merger
partner with attractive business prospects, capable management and an apparent
ability to obtain Florida Insurance Department approval. Following the August 21
meeting, FBG, through DLJ, indicated to each of AmVestors and Company A that the
FBG Board was likely to decide on a course of action, whether to execute a
definitive merger agreement with one of them or to discontinue discussions, at a
meeting to be scheduled in the near future. Each of the companies was advised
that, accordingly, any further proposals or revisions would need to be received
promptly by FBG.
Following the August 21 meeting, FBG senior management, representatives of
DLJ and counsel for FBG negotiated forms of definitive merger agreements with
each of AmVestors and Company A, seeking to obtain the best terms that each
offeror might offer, for presentation to the FBG Board at a meeting scheduled
for September 5.
During this period, negotiations with both AmVestors and Company A centered
primarily on issues of valuation (level of the exchange ratio and nature of the
price collars). In addition, negotiations with AmVestors focused on the
termination and topping fees, especially the conditions under which the topping
fee
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would be payable to AmVestors. Between August 21 and September 5, numerous
conversations took place between AmVestors and FBG relating to various topping
fee proposals and counter proposals. These negotiations resulted in topping fee
conditions that were more favorable to FBG than those originally proposed by
AmVestors. See "-- Terms and Conditions of the Proposed Merger -- Termination
and Amendment of the Merger Agreement."
During this period, a prime subject, which the FBG Board carefully
considered and insisted upon, was affording FBG representation on the AmVestors
Board or the Company A board, as the case may be, for a specified period to
safeguard the interests of FBG stockholders following the merger. Because FBG
stockholders would have owned approximately 67% of the combined entity upon
consummation of the proposed transaction with Company A, FBG believed that it
would be particularly important for FBG nominees to have a significant role on
the board and in the management of the combined entity, particularly in light of
Company A's history of losses, immaterial earnings and smaller size relative to
AmVestors and FBG. After negotiations, AmVestors and FBG agreed to FBG
representation on the AmVestors Board commensurate with the pro forma ownership
by FBG stockholders of AmVestors. In contrast, after extensive negotiations,
Company A would not agree to FBG representation on the Company A Board or other
protections commensurate, in FBG's view, with the pro forma ownership by FBG
stockholders of Company A. See "-- Reasons for the Merger; Board
Recommendations."
The FBG Board met on September 5 to consider the two respective proposed
definitive merger agreements with AmVestors and Company A. At this meeting, the
FBG Board consulted with, and considered presentations by, FBG's management and
financial and legal advisors regarding the alternative merger proposals.
Management summarized its analysis of the relative strengths and advantages each
of these companies would bring to a combination with FBG. The FBG Board also
reviewed analyses by DLJ and by FBG management of the financial aspects of the
two proposals. The FBG Board also considered the respective terms of the
proposed merger agreements, including provisions providing representatives of
FBG with an opportunity to participate in the direction of the respective
post-merger companies to safeguard the interests of FBG's former stockholders
following the merger. In particular, FBG management and legal counsel reviewed
the negotiations that had resulted in the respective closing conditions and the
topping fee proposed by AmVestors which had been subject to a number of
proposals and counter proposals.
After detailed discussion regarding the two proposals, the September 5
meeting was recessed until the afternoon of September 6. On September 6, Company
A communicated to FBG a revised proposal which valued each FBG share at $5.75
payable in stock, and AmVestors amended its proposal to provide that, in the
proposed merger, each share of FBG Common Stock would be converted into total
consideration of $5.31, consisting of a fractional warrant for AmVestors Common
Stock to be valued near the Effective Time at $.31, in addition to AmVestors
Common Stock and cash valued at $5.00 per share.
At the September 5-6 meeting, the FBG Board also heard a presentation by
DLJ of its analysis of the financial terms of the Merger, and representatives of
DLJ delivered its opinion to the FBG Board that, as of such date, the
consideration to be received by the FBG stockholders pursuant to the Merger,
taken as a whole, was fair to such stockholders from a financial point of view.
After further deliberations, the FBG Board approved the execution and delivery
of the Merger Agreement (in substantially the form presented to the Board) as
being in the best interests of FBG's stockholders and as more likely to generate
greater value and stock liquidity than the proposal from Company A. The FBG
Board also was wary of the price stability of Company A's common stock which had
traded at a significant discount to its initial offering price since it was
first offered to the public in 1993. The FBG Board was also concerned about
Company A's unwillingness during the negotiations to afford FBG stockholders, or
their representatives, representation on the Company A board or other
protections commensurate with the pro forma ownership of FBG stockholders in
Company A. For a description of the factors considered by the FBG Board in
reaching this decision, see "-- Reasons For The Merger; Board Recommendations"
below. The Merger Agreement was executed and delivered, and the parties publicly
announced the execution of the Merger Agreement, on September 8, 1995.
On September 20, Company A sent to FBG a letter indicating its willingness
to enter into a stock merger with FBG in which FBG stockholders would receive
Company A stock valued at $6.00 per share and
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suggesting a face-to-face meeting to discuss the proposed transaction. FBG
senior management conferred with its financial and legal advisors regarding this
proposal. The FBG Board unanimously determined at a meeting of the full FBG
Board on September 28, 1995, after presentations by FBG management and FBG's
legal advisors, not to enter into negotiations with Company A regarding such
proposal. In reaching such decision, the FBG Board determined that the proposed
transaction with AmVestors was in the best interests of the FBG stockholders and
was more likely than a transaction with Company A to generate greater value and
stockholder liquidity for such stockholders in the future. It reached this
decision for the same reasons that it reached such a determination on September
6. See "-- Reasons for the Merger; Board Recommendations." For such reasons, the
FBG Board determined that the increase of the face amount of the Company A
proposal by $.25 per share would not compensate the FBG stockholders for what it
perceived as the greater uncertainty of the future performance of the Company A
common stock relative to that of the AmVestors Common Stock.
As set forth in Factor 9 of FBG's Reasons For the Merger (below), subject
to the terms of the Merger Agreement, the FBG Board is not precluded from
considering further alternative proposals to the Merger. At its September 28
meeting, the FBG Board noted that the Merger Agreement provides that FBG may not
facilitate, assist or encourage, or take various actions (including
negotiations) with respect to any extraordinary transaction unless it determines
that its fiduciary obligations require FBG to do so. The FBG Board did not reach
such a determination with respect to the revised Company A proposal. At such
meeting, the FBG Board also noted the possibility that a topping fee of
$1,000,000 would be payable to AmVestors under certain conditions if the Merger
with AmVestors were not consummated.
REASONS FOR THE MERGER; BOARD RECOMMENDATIONS
In reaching their decision to approve the Merger Agreement, the Boards of
Directors of each of AmVestors and FBG consulted with their respective
management teams and advisors and independently considered the proposed Merger
Agreement, including the material factors described below. Based upon their
respective independent reviews of such factors and the business and operations
of the other party, the Boards of Directors of AmVestors and FBG each approved
the Merger Agreement and the transactions contemplated thereby. There can be no
assurance, however, that any of the efficiencies or opportunities described in
the following reasons for the Merger will be achieved through the consummation
of the Merger.
AMVESTORS' REASONS FOR THE MERGER. The AmVestors Board believes that the
Merger fulfills part of AmVestors' objective of growth through acquisition. In
particular, the AmVestors Board believes that there are several potential
benefits of the transaction, including: (i) acquiring a block of in-force
annuity contracts; (ii) enhanced marketing capability through additional
producing agency relationships; (iii) additional sources of revenue from AIMCOR
and TIM relationships with unaffiliated life insurance companies; and (iv)
economies of scale through consolidation of administrative and operating
functions. The Merger, if approved, will result in a combined enterprise that
will have consolidated assets in excess of $3.0 billion.
RECOMMENDATION OF AMVESTORS' BOARD OF DIRECTORS. FOR THE REASONS DISCUSSED
ABOVE, THE DIRECTORS OF AMVESTORS HAVE UNANIMOUSLY APPROVED THE TERMS OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY
RECOMMEND THAT AMVESTORS' STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER.
FBG'S REASONS FOR THE MERGER. The FBG Board decided to enter into a
business combination in order to increase stockholder value and liquidity of
shareholdings and to enhance growth opportunities (by, for example, expanding
the company's capital base and enhancing its administrative and sales
capabilities). In evaluating the proposals of AmVestors and Company A, the FBG
Board considered the extent to which each proposed transaction was likely to
provide such benefits. In reaching its decision to adopt and approve the Merger
Agreement on September 6, 1995, and its decision on September 28, 1995 not to
negotiate further with Company A, the FBG Board consulted with FBG's management
and financial and legal advisors and
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considered DLJ's analysis of the financial aspects of each proposal. In each
such decision, the FBG Board considered many factors, including, but not limited
to, the following:
1. The presentation made by DLJ comparing the proposals and its
opinion that the proposed consideration to be received by the FBG
stockholders pursuant to the Merger is fair to the FBG stockholders from a
financial point of view (see "-- Opinion of Financial Advisors -- FBG");
2. Historical financial information regarding AmVestors and
presentations by FBG's representatives as to their review of AmVestors'
business and financial statements, in particular with regard to AmVestors'
record of substantial operating profits, its low expense structure, and its
depth of management in the administrative, financial and investment areas;
in contrast, the FBG Board noted Company A's history of losses and
immaterial earnings and its high expense structure relative to the amount
of insurance business in force;
3. Presentations by FBG management regarding the proposed Merger and
its advantages to the business of FBG, including FBG's long-term
relationship with AmVestors and its management, the substantially similar
nature of the respective businesses and operations of FBG and AmVestors,
American's 'A-' A.M. Best rating, AmVestors' and FBG's large agent bases
which will provide an opportunity for cross-contracting with AmVestors' and
FBG's subsidiaries, the opportunities for growth in the business of FBG
resulting from the greater capital resources of the combined organization
and possible economies of scale, including potential operating efficiencies
and other synergies which could result from combining AmVestors and FBG; in
contrast, the FBG Board noted the lower amounts of insurance business in
force in Company A relative to AmVestors and FBG, the "B" A.M. Best rating
of Company A's insurance subsidiary and the uncertainty relating to the
sources of future revenue or earnings growth of Company A;
4. The relative performance of AmVestors Common Stock compared to the
Company A common stock (which indicated that AmVestors Common Stock had,
over the preceding two years, performed with its peer group while the
common stock of Company A had not);
5. The relative size of AmVestors compared to Company A which
indicated that AmVestors had significantly more assets and capital than
Company A, resulting in the prospects of greater stability and future
access to capital. In addition, a merger with AmVestors would provide FBG
stockholders with ownership in a substantial company while a merger with
Company A would not meaningfully increase the size of the company in which
FBG stockholders were investors. This is reflected by the fact that a
merger with AmVestors would result in pro forma ownership by FBG
stockholders of approximately 20-24% (excluding the value of cash and
AmVestors Warrants to be received), while a merger with Company A would
result in pro forma ownership by FBG stockholders of approximately 67%;
6. The expectation that stockholder liquidity will be enhanced because
the AmVestors Common Stock to be issued as part of the Merger Consideration
will be listed on the NYSE while the Company A common stock does not trade
on the NYSE;
7. The expectation that the Merger will be tax-free for federal income
tax purposes to FBG and its stockholders, in the latter case to the extent
they receive AmVestors Common Stock (but not cash or AmVestors Warrants);
8. AmVestors resumed paying a cash dividend in 1995, while Company A
has never paid a cash dividend; and
9. The FBG Board's review with its legal and financial advisors of the
provisions of the Merger Agreement, including provisions which would not
prevent FBG from considering or the FBG Board from approving an alternative
business combination proposal from a third party, under certain conditions.
See "-- Terms and Conditions of the Proposal Merger -- Agreement Not to
Solicit Other Offers".
The interests of the FBG Board and senior management in the Merger and in
the Company A proposal were discussed by the FBG Board and the FBG Board
concluded that such interests were not significantly different in the two
transactions except with respect to the treatment of FBG Options. See
"-- Background of the Merger" and "-- Interests of Certain Persons in the
Merger."
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The negative factor relating to the Merger discussed by the FBG Board in
determining to approve the Merger Agreement was that the value of the Merger
Consideration under the Merger Agreement was less than the face value of the
Company A proposal.
The FBG Board determined, based on many factors including the positive and
negative factors discussed above, that the proposed merger with AmVestors was
more likely than the Company A proposal to provide the FBG stockholders with
greater value and liquidity in the future and to enhance growth opportunities
and to be in the best interests of the FBG stockholders. In reaching such
determination, the FBG Board did not assign any specific or relative weight to
the factors discussed above.
RECOMMENDATION OF FBG'S BOARD OF DIRECTORS. FOR THE REASONS DISCUSSED
ABOVE, THE DIRECTORS OF FBG HAVE UNANIMOUSLY APPROVED THE TERMS OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMEND THAT FBG'S
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER.
PROJECTIONS
AmVestors provided projections concerning AmVestors and FBG, and FBG
provided projections concerning FBG, to Furman Selz and DLJ, which were used in
connection with the rendering of their fairness opinions as described herein.
See "-- Opinions of Financial Advisors -- AmVestors" and "-- FBG".
AmVestors' projections concerning itself were prepared by projecting (i)
expected future cash flows from annuity policies, (ii) investment income, (iii)
deferred acquisition costs and (iv) general income and expenses.
Expected future cash flows from annuity policies were projected both for
policies currently in-force and for policies estimated to be sold in the future,
and were computed separately for each type of policy sold by AmVestors, and for
each year in which such policy has previously been sold or is expected to be
sold. Such cash flows were estimated using assumptions regarding mortality,
lapse rates, surrender charges, crediting rates, and direct costs to administer
each policy. For such assumptions AmVestors used actuarial data, historical
experience and practice, expected future practice and the current interest rate
environment. New premium generation also affects cash flows, and was projected
based upon current production, an analysis of AmVestors' distribution network
and management's estimate of future activity.
Investment income was projected based upon current portfolio rates and the
current interest rate environment.
Deferred acquisition costs were projected based on historical experience
and expected future experience, and the expected gross profitability of each
policy for each year of issue (which in turn was based on expected future cash
flows and investment income).
General income and expenses were projected based upon assumptions regarding
interest income on surplus, interest expense on outstanding debt, general and
administrative expenses, inflation and income taxes. Such assumptions were based
upon historical experience and practice, and the results of the other analyses
described above.
AmVestors prepared its projections concerning FBG in substantially the same
manner as described above, incorporating where indicated herein, assumptions
regarding expected cost savings, incremental interest expense and amortization
of goodwill resulting from the Merger. AmVestors' management estimates the
expected cost savings following the Merger to be approximately $2.4 million in
the first year and an additional approximately $1.0 million in the second year
after the Merger ("Cost Savings"). These Cost Savings are expected to result
primarily from the anticipated elimination of similar functions currently being
performed at both companies including investment management services, policy
administration and management information systems and professional services.
FBG prepared its projections concerning FBG in substantially the same
manner described above, on a stand-alone basis without any analysis for the
effects of the Merger.
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Management of AmVestors and FBG have represented to Furman Selz and DLJ
that the projections described above have been reasonably prepared based on
their best current judgments. The projections, however, were not prepared with a
view to public disclosure or to compliance with published guidelines of the
Commission or the guidelines established by the American Institute of Certified
Public Accountants for the preparation and presentation of financial
projections. AmVestors and FBG do not as a matter of course make public their
internal projections. As indicated above, the projections were of necessity
based upon numerous complex assumptions which are inherently subject to
significant economic, regulatory, and competitive uncertainties and
contingencies, which are difficult to predict and, in many cases, which are
beyond AmVestors' and FBG's control. Some or all of such assumptions may not be
realized. Given the uncertainties inherent in the process of making projections,
there can be no assurance that any of the projected results would be achieved.
Actual results for the projection periods may be materially higher or lower than
the projected results. The fact that the projections were provided by AmVestors
and FBG to Furman Selz and DLJ should not be regarded as an indication that
AmVestors, FBG, Furman Selz or DLJ considers the projections to be an accurate
prediction of future events.
None of the independent auditors referred to under "Experts" has reviewed
or compiled any part of the projections or expressed any conclusion or provided
any other form of assurance with respect to such projections or assumptions.
OPINIONS OF FINANCIAL ADVISORS
AMVESTORS. The AmVestors Board retained Furman Selz to render an opinion to
AmVestors as to whether the Merger Consideration to be offered in the Merger to
the holders of FBG Class A Common Stock is fair, from a financial point of view,
to AmVestors' stockholders.
Furman Selz has delivered to AmVestors a written opinion, dated the date of
this Joint Proxy Statement/ Prospectus, that the Merger Consideration offered to
the holders of FBG Class A Common Stock is fair, from a financial point of view,
to AmVestors' stockholders. The full text of the Furman Selz opinion, which sets
forth the assumptions made, matters considered and scope and limitations of the
review undertaken and procedures followed by Furman Selz in rendering its
opinion, is attached to this Proxy Statement/Prospectus as Appendix II. The
following description of the Furman Selz opinion is qualified in its entirety by
reference to the full text of the opinion. AmVestors' stockholders are urged to
read carefully the opinion of Furman Selz in its entirety.
No restrictions or limitations were imposed by the AmVestors Board upon
Furman Selz with respect to the investigations made or the procedures followed
by Furman Selz in rendering its opinion.
Furman Selz's opinion is directed to the AmVestors Board and addresses, as
of the date of this Joint Proxy Statement/Prospectus, only the fairness, from a
financial point of view, to AmVestors' stockholders of the Merger Consideration
offered to the holders of FBG Class A Common Stock. Such opinion does not
constitute a recommendation to any AmVestors stockholder as to how such
stockholder should vote at the AmVestors Special Meeting. Furman Selz did not
participate in any negotiations or structuring of the Merger and was engaged
subsequent to the execution of the Merger Agreement. However, a condition of the
Merger Agreement does require an opinion from Furman Selz. Furman Selz was not
requested to opine as to, and its opinion does not in any manner address,
AmVestors' underlying business decision to proceed with or effect the Merger,
the relative merits of the Merger as compared to any alternative business
strategies which might exist for AmVestors or the effect of any other
transaction in which AmVestors might engage or any agreements or arrangements
which might be concluded between AmVestors and FBG after the date of its
opinion.
In connection with its opinion, Furman Selz reviewed, among other things,
the following: (i) the Merger Agreement and the financial terms of the Merger
set forth therein; (ii) publicly available information concerning AmVestors and
FBG, including 1994 Annual Reports, Annual Reports on Form 10-K for the fiscal
year ended December 31, 1994, Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1995, June 30, 1995 and September 30, 1995. Proxy
Statements for the 1995 Annual Meeting of Stockholders, stock prices, news
releases and research reports as well as financial and other information that
was furnished to it by AmVestors or FBG, including unaudited December 31, 1995
financial data and information provided
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during discussions with their respective managements; (iii) financial and
operating information with respect to the business, operations and prospects of
FBG, including but not limited to an actuarial opinion as to the adequacy of
FBG's reserves, all furnished to Furman Selz by AmVestors and FBG; (iv)
financial and operating information with respect to the business, operations and
prospects of AmVestors furnished to Furman Selz by AmVestors; (v) the historical
stock prices and trading histories of FBG Class A Common Stock and AmVestors
Common Stock; (vi) a comparison of the financial positions and operating results
of FBG and AmVestors with those of publicly traded companies that Furman Selz
deemed relevant; (vii) a comparison of certain financial terms of the Merger to
certain financial terms of selected other business combinations that Furman Selz
deemed relevant; (viii) analyses of the respective contributions in terms of
assets and earnings of AmVestors and FBG to the combined companies and the
relative ownership of the combined companies by the current stockholders of
AmVestors and FBG; (ix) analyses of other potential financial effects of the
Merger; (x) certain internal information relating to AmVestors and/or FBG,
including various financial forecasts and projections based upon differing
assumptions provided to Furman Selz by the managements of AmVestors and/or FBG;
and (xi) possible synergies and other potential benefits arising from the
Merger.
In addition, Furman Selz held discussions with various members of senior
management of AmVestors and FBG concerning their respective businesses,
operations, assets, present condition and future prospects to the extent deemed
appropriate by Furman Selz. Furman Selz also held discussions with various
members of the senior management of AmVestors concerning the strategic and
operating benefits anticipated from the Merger, and conducted such other
financial studies, analyses and investigations as it deemed appropriate for the
purposes of rendering its opinion.
In arriving at its opinion, Furman Selz assumed and relied upon the
accuracy and completeness of the financial and other information that was
available to it from public sources, that was provided to it by AmVestors or FBG
or their respective representatives or that was otherwise reviewed by it in
arriving at its opinion and did not attempt to independently verify, or
undertake an obligation to verify, such information.
Furman Selz also relied on the opinion of an independent actuary as to the
adequacy of the FBG reserves provided to it by AmVestors' management and
prepared by Milliman & Robertson, Inc. The opinion of Milliman & Robertson,
Inc., as well as the accompanying report (collectively, the "M&R Work"), contain
numerous explanations, limitations and assumptions. All of these explanations,
limitations and assumptions -- which relate to the adequacy of the reserves --
must be taken into consideration to understand the M&R Work. Therefore, in order
to understand or rely on the M&R Work, it is necessary to read the M&R Work in
its entirety. A copy of the M&R Work has been filed with the Commission as an
exhibit to the Registration Statement and can be inspected and copied at the
public reference facilities maintained by the Commission. See "Available
Information."
Furman Selz did not visit or conduct a physical inspection of the
properties or facilities of AmVestors or FBG (although representatives of Furman
Selz visited both AmVestors' and FBG's headquarters) nor did it make, obtain or
assume any responsibility for any independent evaluation or appraisal of such
properties and facilities or of the assets, liabilities or reserves of AmVestors
or FBG, or conduct any independent actuarial evaluations. In addition, Furman
Selz assumed that forecasts and projections prepared by the managements of
AmVestors and FBG represented the best current judgment of their managements as
to the future financial condition and results of operations of AmVestors and
FBG, respectively. Managements of AmVestors and FBG represented to Furman Selz
that such forecasts and projections had been reasonably prepared based on their
best current judgments.
Furman Selz also took into account its assessment of general economic,
market and financial conditions and its experience in similar transactions, as
well as its experience in securities valuation in general. Its opinion
necessarily is based upon conditions as they existed at the time of the opinion
and could be evaluated on that date and on the information made available to it
as of that date. It should be understood that, although subsequent developments
may affect its opinion, Furman Selz does not have any obligation to update,
revise or reaffirm the opinion.
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In addition, upon the advice of AmVestors, Furman Selz assumed that the
Merger would be accounted for as a purchase for generally accepted accounting
principles ("GAAP") reporting purposes. Furman Selz assumed that, in the course
of obtaining necessary regulatory approvals for the Merger, no restrictions
would be imposed that would have a material adverse effect on the contemplated
benefits of the Merger. AmVestors management has represented to Furman Selz that
it does not believe that consummation of the Merger will cause a downgrading of
American by A.M. Best, and Furman Selz's opinion relies on such representation.
Furman Selz expressed no opinion as to the price at which AmVestors Common Stock
will trade subsequent to the Merger.
Furman Selz believes that its analyses must be considered in the aggregate,
and that selecting portions of its analyses or the factors considered by it,
without considering all factors and analyses, could create a misleading view of
the process underlying its opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analyses or
summary description. In performing its analyses, Furman Selz made numerous
implicit assumptions about the industry and general economic conditions, and
other matters, many of which are beyond the control of AmVestors and FBG,
including, but not limited to, the interest rate environment, the regulatory
environment, tax laws, competition and level of merger and acquisition activity.
Any forecasts, projections or estimates as to future results relied upon by
Furman Selz in performing the analyses described herein are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than such forecasts, projections or estimates. Because such
forecasts, projections or estimates are inherently subject to uncertainty, none
of AmVestors, FBG or Furman Selz assumes responsibility for their accuracy.
However, the managements of AmVestors and FBG have represented to Furman Selz
that they believe that such forecasts and projections were reasonably prepared
based on their best current judgments.
The following is a brief summary of the material aspects of the analyses
utilized by Furman Selz in rendering its opinion. Such summary does not purport
to be a complete description of all of the analyses performed by Furman Selz in
connection with its opinion.
All income statement data analyzed excludes capital gains and losses (and
deferred acquisition costs related to such capital gains and losses) and other
nonrecurring items.
PRO FORMA MERGER ANALYSES
Furman Selz performed a series of analyses based on pro forma historical
information and projected information for the combined companies, including the
Cost Savings, incremental interest expense and amortization of goodwill
resulting from the Merger ("Combined AmVestors/FBG"). See "-- Projections." For
the purpose of its analyses of Combined AmVestors/FBG, Furman Selz assumed that
the holders of FBG Options exercised such FBG Options, that the new AmVestors
Warrant holders did not exercise such warrants and that the Cash Consideration
Per Share equalled $1.06 (the "Options/Warrants Exercise and Cash Assumptions").
The $1.06 is derived by dividing $10 million in cash consideration by
approximately 9.4 million shares of FBG Common Stock, consisting of shares of
FBG Common Stock currently outstanding plus approximately 2.5 million additional
shares issuable upon the assumed conversion of FBG Options but excluding shares
of FBG Common Stock owned by AmVestors.
Furman Selz analyzed AmVestors' and FBG's relative contribution to Combined
AmVestors/FBG with respect to operating earnings, pre-tax income, net income,
total assets and book value and compared this with the relative ownership of
AmVestors' and FBG's stockholders of Combined AmVestors/FBG. Such analyses were
considered on a percentage contribution basis and were made for 1994, 1995, 1996
and 1997 under three scenarios assuming the AmVestors Stock Price was $11.625,
$14.50 and $9.50 per share, respectively, and, utilizing the Options/Warrants
Exercise and Cash Assumptions.
Furman Selz also conducted a similar set of analyses assuming an AmVestors
and FBG merger without the Cost Savings, incremental interest expense and
amortization of goodwill. In other words, both companies were combined on a
historical and projected basis assuming that both AmVestors and FBG continued to
be stand-alone entities ("No Savings Combined AmVestors/FBG"). Furman Selz
analyzed FBG's and AmVestors' relative contribution to No Savings Combined
AmVestors/FBG with respect to operating
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earnings, pre-tax income, net income, total assets and book value and compared
this with the relative ownership of FBG stockholders and AmVestors stockholders
of No Savings Combined AmVestors/FBG. Such analyses were considered on a
percentage contribution basis and were made for 1994, 1995, 1996 and 1997 under
three scenarios assuming the AmVestors' Stock Price was $11.625, $14.50 and
$9.50 per share, respectively, and utilizing the Options/Warrants Exercise and
Cash Assumptions.
Assuming an AmVestors Stock Price of $11.625 and utilizing the
Options/Warrants Exercise and Cash Assumptions (which includes the assumption
that the AmVestors Warrants are not exercised), FBG stockholders would receive
23.5% of the common stock in both the Combined AmVestors/FBG and the No Savings
Combined AmVestors/FBG cases. In 1994, FBG would have contributed 33.6%, 28.4%,
30.5%, 25.3% and 27.9% of operating earnings, pre-tax income, net income, total
assets and book value, respectively, to Combined AmVestors/FBG and 14.7%, 8.9%,
9.8%, 24.4% and 20.7% of operating earnings, pre-tax income, net income, total
assets and book value, respectively, to No Savings Combined AmVestors/FBG. In
1995, FBG would have contributed 29.0%, 24.6%, 25.7%, 22.8% and 18.7% of
operating earnings, pre-tax income, net income, total assets and book value,
respectively, to Combined AmVestors/FBG and 22.3%, 18.4%, 19.4%, 22.6% and 18.9%
of operating earnings, pre-tax income, net income, total assets and book value,
respectively, to No Savings Combined AmVestors/FBG. In 1996, FBG would have
contributed 25.6%, 21.3%, 20.5%, 23.5% and 18.5% of operating earnings, pre-tax
income, net income, total assets and book value, respectively, to Combined
AmVestors/FBG and 26.2%, 23.9%, 23.4%, 20.3% and 17.8% of operating earnings,
pre-tax income, net income, total assets and book value, respectively, to No
Savings Combined AmVestors/FBG. In 1997, assuming both the Combined
AmVestors/FBG and No Savings Combined AmVestors/FBG cases, FBG would have
contributed at least 23.5% in operating earnings, pre-tax income and net income
as a percentage of total operating earnings, pre-tax income and net income to
both Combined AmVestors/FBG and No Savings Combined AmVestors/FBG. FBG's
contribution to book value and total assets in 1997 falls below 23.5% in both
cases.
Assuming an AmVestors Stock Price of $14.50 and utilizing the
Options/Warrants Exercise and Cash Assumptions (which includes the assumption
that the AmVestors Warrants are not exercised) FBG stockholders would receive
21.2% of the common stock in both the Combined AmVestors/FBG and the No Savings
Combined AmVestors/FBG cases. In 1994, FBG would have contributed 33.3%, 28.0%,
30.0%, 25.3% and 29.3% of operating earnings, pre-tax income, net income, total
assets and book value, respectively, to Combined AmVestors/FBG and 14.7%, 8.9%,
9.8%, 24.4% and 20.7% of operating earnings, pre-tax income, net income, total
assets and book value, respectively, to No Savings Combined AmVestors/FBG. In
1995, FBG would have contributed 28.8%, 24.3%, 25.3%, 22.7% and 16.8% of
operating earnings, pre-tax income, net income, total assets and book value,
respectively, to Combined AmVestors/FBG and 22.3%, 18.4%, 19.4%, 22.6% and 18.9%
of operating earnings, pre-tax income, net income, total assets and book value,
respectively, to No Savings Combined AmVestors/FBG. In 1996, FBG would have
contributed 25.4%, 21.1%, 20.0%, 23.7% and 20.6% of operating earnings, pre-tax
income, net income, total assets and book value, respectively, to Combined
AmVestors/FBG and 26.2%, 23.9%, 23.4%, 20.3% and 17.8% of operating earnings,
pre-tax income, net income, total assets and book value, respectively, to No
Savings Combined AmVestors/FBG. In 1997, FBG would have contributed 28.8%,
25.5%, 24.5%, 23.3% and 21.1% of operating earnings, pre-tax income, net income,
total assets and book value, respectively, to Combined AmVestors/FBG and 26.4%,
24.9%, 24.3%, 20.3% and 18.5% of operating earnings, pre-tax income, net income,
total assets and book value, respectively, to No Savings Combined AmVestors/FBG.
Assuming an AmVestors Stock Price of $9.50 and utilizing the
Options/Warrants Exercise and Cash Assumptions (which includes the assumption
that the AmVestors Warrants are not exercised) FBG stockholders would receive
25.4% of the common stock in both the Combined AmVestors/FBG and No Savings
Combined AmVestors/FBG cases. In 1994, FBG would have contributed 33.9%, 28.7%,
30.9%, 25.1% and 25.5% of operating earnings, pre-tax income, net income, total
assets and book value, respectively, to Combined AmVestors/FBG and 14.7%, 8.9%,
9.8%, 24.4% and 20.7% of operating earnings, pre-tax income, net income, total
assets and book value, respectively, to No Savings Combined AmVestors/FBG. In
1995, FBG would have contributed 29.3%, 24.9%, 26.1%, 22.6% and 15.5% of
operating earnings, pre-tax income, net income, total assets and book value,
respectively, to Combined AmVestors/FBG and 22.3%, 18.4%, 19.4%,
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22.6% and 18.9% of operating earnings, pre-tax income, net income, total assets
and book value, respectively, to No Savings Combined AmVestors/FBG. In 1996, FBG
would have contributed 25.9%, 21.6%, 20.8%, 23.4% and 16.4% of operating
earnings, pre-tax income, net income, total assets and book value, respectively,
to Combined AmVestors/FBG and 26.2%, 23.9%, 23.4%, 20.3% and 17.8% of operating
earnings, pre-tax income, net income, total assets and book value, respectively,
to No Savings Combined AmVestors/FBG. In 1997, FBG would have contributed 29.2%,
25.9%, 25.1%, 23.1% and 17.4% of operating earnings, pre-tax income, net income,
total assets and book value, respectively, to Combined AmVestors/FBG and 26.4%,
24.9%, 24.3%, 20.3% and 18.5% of operating earnings, pre-tax income, net income,
total assets and book value, respectively, to No Savings Combined AmVestors/FBG.
Furman Selz also analyzed the pro forma accretive/dilutive effect on
operating earnings, pre-tax income and net income to AmVestors' stockholders for
1994, 1995, 1996 and 1997 assuming an AmVestors Stock Price of $11.625, $14.50
and $9.50 per share, respectively, and based on the Options/Warrants Exercise
and Cash Assumptions (which do not assume the exercise of the AmVestors
Warrants). Such analyses were based on the pro forma historical information and
projections for Combined AmVestors/FBG provided by AmVestors' management. In
1994, assuming an AmVestors Stock Price of $11.625, accretion would have been
15.0%, 6.7% and 9.6% for operating earnings, pre-tax income and net income,
respectively. In 1994, assuming an AmVestors Stock Price of $14.50, accretion
would have been 17.8%, 8.9% and 12.8% for operating earnings, pre-tax income and
net income, respectively. In 1994, assuming an AmVestors Stock Price of $9.50,
accretion would have been 12.8%, 4.4% and 8.0% for operating earnings, pre-tax
income and net income, respectively. In 1995, assuming an AmVestors Stock Price
of $11.625, accretion would have been 7.7%, 1.3% and 3.3% for operating
earnings, pre-tax income and net income, respectively; assuming an AmVestors
Stock Price of $14.50, accretion would have been 10.2%, 3.8% and 5.2% for
operating earnings, pre-tax income and net income, respectively; and assuming an
AmVestors Stock Price of $9.50, accretion/(dilution) would have been 5.1%,
(0.9)% and 1.3% for operating earnings, pre-tax income and net income,
respectively. In 1996, assuming an AmVestors Stock Price of $11.625,
accretion/(dilution) would have been 3.4%, (2.3%) and (3.0%) for operating
earnings, pre-tax income and net income, respectively; assuming an AmVestors
Stock Price of $14.50, accretion/(dilution) would have been 6.4%, 0.4% and
(0.6%) for operating earnings, pre-tax income and net income, respectively; and
assuming an AmVestors Stock Price of $9.50, accretion/(dilution) would have been
1.1%, (4.2%) and (4.7%) for operating earnings, pre-tax income and net income,
respectively. The Merger would have an accretive effect in 1997 on operating
earnings, pre-tax income and net income of Combined AmVestors/FBG assuming an
AmVestors Stock Price of $11.625, $14.50 and $9.50 per share, respectively.
THE RESULTS OF THESE PRO FORMA MERGER ANALYSES ARE BASED ON ESTIMATES
PROVIDED BY THE MANAGEMENTS OF AMVESTORS AND/OR FBG AND ARE NOT NECESSARILY
INDICATIVE OF WHAT THE FINANCIAL RESULTS FOR THE COMBINED COMPANIES WOULD HAVE
BEEN HISTORICALLY OR WILL BE IN THE FUTURE.
ANALYSES RELATING TO FBG
Furman Selz performed analyses relating to FBG based on two separate
projection scenarios for FBG: (i) pro forma projections for FBG provided by
AmVestors' management, pro forma for the Merger as if it had occurred on January
1, 1994, assuming Cost Savings, incremental interest expense and goodwill
associated with purchase accounting are allocated to FBG ("FBG Projections
Scenario I"); and (ii) FBG projections provided by FBG's management as of
January 1996 for FBG on a stand-alone basis ("FBG Projections Scenario II).
Comparable Company Analysis
In its comparable company analysis of FBG, Furman Selz compared selected
historical, current and projected financial and operating results of FBG with
the financial and operating results of selected publicly traded life and annuity
insurance companies that, in Furman Selz's judgment, were most closely
comparable to FBG (the "FBG Comparable Companies"). The FBG Comparable Companies
were chosen by Furman Selz as companies whose general business, operating and
financial characteristics are representative of companies in the life and
annuity segment of the insurance industry in which FBG operates, although Furman
Selz recognized that each of the FBG Comparable Companies is distinguishable
from FBG in certain respects, including, without limitation, "Equity Market
Capitalization" (total common shares outstanding
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multiplied by the closing price per share) and A.M. Best rating category. The
Equity Market Capitalizations of the FBG Comparable Companies are generally
greater than that of FBG, ranging from $116.5 million to $1.5 billion in
contrast to $48.3 million for FBG as of the date of the opinion, and the A.M.
Best rating of the FBG Comparable companies are generally in the A- or better
categories in contrast to a rating of B for FBG as of the date of the opinion.
Such FBG Comparable Companies included American Annuity Group, Equitable of Iowa
Companies, First Colony Corporation, Presidential Life Corporation, Western
National Corporation and AmVestors. Furman Selz considered, among other things:
(i) operating statement data, including unaudited December 31, 1995 year end net
income excluding realized gains (and associated deferred acquisition costs);
(ii) selected balance sheet data (both on a statutory and GAAP accounting
basis); (iii) 1996 earnings per share estimates for the FBG Comparable Companies
made by research analysts; and (iv) historical trading ranges of the FBG
Comparable Companies' stocks.
Furman Selz calculated a range of multiples for the FBG Comparable
Companies by dividing each of the FBG Comparable Companies' Equity Market
Capitalizations by each such company's estimated unaudited December 31, 1995
year end net income, estimated 1996 net income, book value and book value
adjusted for a mark-to-market of its investment portfolio ("Adjusted Book
Value") unaudited as of December 31, 1995. Since net income and book value
already reflect the cost of a company's debt or preferred stock, multiples of
net income and book value are typically based on Equity Market Capitalization
which excludes debt or preferred stock. Multiples of Equity Market
Capitalization to unaudited December 31, 1995 year end net income ranged from
7.3x to 12.2x with a median of 10.9x. Assuming the Merger Consideration of $5.31
per share, the implied multiples of Equity Market Capitalization to unaudited
December 31, 1995 year end net income was 11.3x, which was within the range of
multiples of the FBG Comparable Companies. Multiples of Equity Market
Capitalization to estimated 1996 net income ranged from 6.4x to 10.7x with a
median of 9.5x. Assuming the Merger Consideration of $5.31 per share, implied
multiples of Equity Market Capitalization to estimated 1996 net income based on
FBG Projections Scenarios I and II were 10.2x and 9.0x, which were within the
range of multiples of the FBG Comparable Companies. Multiples of Equity Market
Capitalization to book value ranged from 0.67x to 1.37x with a median of 1.10x
and multiples of Adjusted Book Value ranged from 0.67x to 1.37x with a median of
0.99x. Assuming the Merger Consideration of $5.31 per share, implied multiples
of Equity Market Capitalization to book value and adjusted book value unaudited
as of December 31, 1995 were 1.17x and 1.17x which were within the range of
multiples of the FBG Comparable Companies.
Furman Selz also looked at "Total Market Capitalization" (Equity Market
Capitalization plus debt) to Statutory Capital for the FBG Comparable Companies.
Since Statutory Capital does not reflect the cost of a company's debt or
preferred stock, which is usually at the holding company rather than the life
insurance company level, multiples of Statutory Capital are typically based on
Total Market Capitalization which includes the cost of such debt or preferred
stock. Multiples of Total Market Capitalization to December 31, 1994 Statutory
Capital ranged from 1.01x to 2.43x with a median of 1.69x. Assuming the Merger
Consideration and the assumption of FBG debt, the implied multiple of Total
Market Capitalization to Statutory Capital was 1.36x which was within the range
of multiples of the FBG Comparable Companies.
Comparable Transaction Analysis
Furman Selz also evaluated selected acquisitions currently pending or
completed during the last five years of U.S. life and annuity insurance
companies (the "Acquired Life and Annuity Insurance Companies"). None of such
acquisitions took place under market conditions or competitive conditions or
circumstances that are directly comparable to the Merger as of the date of this
Joint Proxy Statement/Prospectus, and each of the Acquired Life and Annuity
Insurance Companies is distinguishable from FBG in certain respects, including,
without limitation the significantly larger size of a majority of the
transactions. Acquisitions used in Furman Selz's analysis included Conseco,
Inc.'s acquisition of CCP Insurance, Inc., American General Corp.'s partial
acquisition of Western National Corp., Conseco Capital Partner II's acquisition
of Statesman Group, Protective Life's acquisition of Wisconsin National Life,
GECC's acquisition of United Pacific Life and American Annuity Group's
acquisition of GALIC. Furman Selz also reviewed certain other transactions of
life and annuity insurance companies which it determined not to include in the
analysis described above
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because the principal line of business of such companies was not annuities or
because they targeted markets different from those targeted by AmVestors or FBG.
The selected transactions did not represent the complete list of life and
annuity insurance company transactions which have occurred because Furman Selz
does not have access to the data of certain non-public transactions.
Furman Selz calculated a range of multiples based on the ratio of equity
purchase price to net income for the latest twelve months prior to the
announcement of the selected transactions, equity purchase price to the latest
reported stated book value prior to the announcement of the selected
transactions, and equity purchase price plus assumed debt to Statutory Capital
for the latest fiscal year end prior to the announcement of the selected
transactions. Multiples of equity purchase price to such latest twelve months
net income ranged from 7.2x to 15.4x with a median of 9.9x, multiples of equity
purchase price to such latest reported stated book value ranged from 0.79x to
1.98x with a median of 1.23x. Assuming the Merger Consideration of $5.31 per
share, implied multiples for FBG of unaudited December 31, 1995 year end net
income and book value were 11.3x and 1.17x which were within the range of
multiples of the Acquired Life Insurance Companies. Multiples of equity purchase
price plus assumed debt to such latest available fiscal year end Statutory
Capital ranged from 1.30x to 1.85x with a median of 1.68x. Assuming the Merger
Consideration and the assumption of FBG debt, the implied multiple of adjusted
1995 Statutory Capital was 1.41x which was within the range of multiples of the
Acquired Life and Annuity Insurance Companies.
Discounted Share Price Analysis
Furman Selz performed a discounted share price analysis of FBG based on the
FBG Projections Scenario I and FBG Projections Scenario III. In conducting this
analysis, Furman Selz discounted projected earnings per share and dividends per
share generated by FBG through the year 2000 plus a derived terminal value for
FBG based on a multiple range of 6.0x to 12.0x year 2000 net income. These
values were discounted to present value using discount rates ranging from 10.0%
to 14.0% and the FBG Projections Scenario I analysis assumed an AmVestors Stock
Price of $11.625, $14.50 and $9.50. The discounted share price analysis of
Scenarios I and II above derived an implied range of values of $3.51 to $9.15
per FBG share. The Merger Consideration of $5.31 per share of FBG Common Stock
falls within such range.
Discounted Cash Flow Analysis
Furman Selz also performed a discounted cash flow analysis of FBG based on
the FBG Projections Scenario I and FBG Projections Scenario II. In conducting
this analysis, Furman Selz discounted the projected after-tax cash flows
generated by FBG through the year 2000 in the form of the level of statutory
dividends permissible by the Florida Insurance Department without prior approval
and other unlevered net income generated by non-insurance operations. These cash
flows were discounted to present value using discount rates ranging from 10.0%
to 14.0%. In addition, Furman Selz derived terminal values for FBG at the end of
the year 2000 by multiplying FBG's projected 2000 net income by net income
multiples ranging from 6.0x to 10.0x and discounting them to present value using
the same range of discount rates. Furman Selz derived an implied range of values
based on this analysis of $4.95 to $9.66 per FBG share. The Merger Consideration
of $5.31 per share of FBG Common Stock falls within such range.
ANALYSES RELATING TO AMVESTORS
Comparable Company Analysis
In its comparable company analysis of AmVestors, Furman Selz compared
selected historical, current and projected financial and operating results of
AmVestors with the financial and operating results of selected publicly traded
life and annuity insurance companies that, in Furman Selz's judgment, were most
closely comparable to AmVestors (the "AmVestors Comparable Companies"). The
AmVestors Comparable Companies were chosen by Furman Selz as companies that
possess general business, operating and financial characteristics representative
of companies in the life and annuity segment of the insurance industry in which
AmVestors operates, although Furman Selz recognized that each of the AmVestors
Comparable Companies is distinguishable from AmVestors in certain respects,
including, without limitation, Equity Market Capitalization and A.M Best rating
category. The Equity Market Capitalizations of the AmVestors Comparable
Companies ranged from $48.3 million to $1.5 billion in contrast to $116.5 for
AmVestors as of the date of the opinion, and the A.M. Best rating of the
AmVestors Comparable Companies ranged from B to A++ in
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contrast to a rating A- for AmVestors as of the date of the opinion. Such
AmVestors Comparable Companies included AmVestors, American Annuity Group,
Equitable of Iowa Companies, First Colony Corporation, Presidential Life
Corporation, Western National Corporation and FBG. Furman Selz considered, among
other things: (i) selected balance sheet data (both on a statutory and GAAP
accounting basis); (ii) operating statement data, including unaudited December
31, 1995 year end net income excluding realized gains (and associated deferred
acquisition costs); (iii) 1996 earnings per share estimates for the AmVestors
Comparable Companies made by research analysts; and (iv) historical trading
ranges of the AmVestors Comparable Companies' stocks.
Furman Selz calculated a range of multiples for the AmVestors Comparable
Companies by dividing each of the AmVestors Comparable Companies' Equity Market
Capitalizations by each such company's unaudited December 31, 1995 year end net
income and estimated 1996 net income. Multiples of Equity Market Capitalization
to unaudited December 31, 1995 year end net income ranged from 7.3x to 12.2x
with a median of 11.2x and multiples of estimated 1996 net income ranged from
6.4x to 10.7x with a median of 9.0x. Furman Selz calculated a range of market
multiples by dividing each of the AmVestors Comparable Companies Equity Market
Capitalizations by its book value and Adjusted Book Value unaudited as of
December 31, 1995. Multiples of Equity Market Capitalization to book value
ranged from 0.67x to 1.37x with a median of 1.18x and multiples of Equity Market
Capitalization to Adjusted Book Value ranged from 0.67x to 1.37x with a median
of 1.18x. Based upon Equity Market Capitalization multiples of AmVestors'
unaudited December 31, 1995 year end net income and 1996 net income, book value
and Adjusted Book Value, Furman Selz derived an implied range of values for
AmVestors of $10.97 to $22.58 per share of AmVestors Common Stock. As of
February 23, 1996 the price of AmVestors Common Stock of $11.25 falls within
such range.
Furman Selz also looked at Total Market Capitalization to Statutory Capital
for the AmVestors Comparable Companies. Multiples of Total Market Capitalization
to December 31, 1994 Statutory Capital ranged from 1.01x to 2.43x with a median
of 1.52x. Based upon Total Market Capitalization multiples of AmVestors'
Statutory Capital, Furman Selz derived an implied range of values for AmVestors
of $11.49 to $28.46 per share of AmVestors Common Stock. As of February 23, 1996
the price of AmVestors Common Stock of $11.25 falls below such range.
Discounted Share Price Analysis
Furman Selz performed a discounted share price analysis of AmVestors.
Furman Selz performed this analysis based on two separate projection scenarios
for AmVestors: (i) Earnings Per Share Projections for AmVestors on a stand-alone
basis based on Wall Street research analyst estimates and (ii) projections
provided by AmVestors' management as of December 1995 for AmVestors on a
stand-alone basis ("AmVestors Projections"). In conducting this analysis, Furman
Selz discounted projected earnings per share and dividends per share generated
by AmVestors through the year 2000 plus a derived terminal value for AmVestors
based on a multiple range of 4.0x to 10.0x year 2000 net income. These values
were discounted to present value using rates ranging from 10.0% to 14.0%. Such
discounted share price analysis derived an implied range of values of $5.20 to
$18.70 per share of AmVestors Common Stock. As of February 23, 1996 the price of
AmVestors Common Stock of $11.25 falls within such range.
Discounted Cash Flow Analysis
Furman Selz also performed a discounted cash flow analysis of AmVestors
based on the AmVestors Projections. In conducting this analysis, Furman Selz
discounted the projected after-tax cash flows generated by AmVestors through the
year 2000 in the form of statutory dividends and other unlevered net income
generated by non-insurance operations. These cash flows were discounted to
present value using discount rates ranging from 10.0% to 14.0%. In addition,
Furman Selz derived terminal values for AmVestors at the end of the year 2000 by
multiplying GAAP net income by net income multiples ranging from 4.0x to 10.0x,
and discounting them to present value using the same range of discount rates.
Furman Selz derived an implied range of values based on this analysis of $10.56
to $23.43 per share of AmVestors Common Stock. As of February 23, 1996 the price
of AmVestors Common Stock of $11.25 falls within such range.
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Stock Trading History of AmVestors and FBG
Furman Selz reviewed the stock price performances of AmVestors and FBG, and
AmVestors and FBG indices versus the "Comparable Companies Index" (the companies
included in both AmVestors' and FBG's Comparable Company Analyses excluding both
AmVestors and FBG) during the one-year period ending February 15, 1996 and the
five-year period ending February 15, 1996. Furman Selz reviewed such stock
trading histories to provide relative and comparative historical market data for
AmVestors and FBG in contrast to current trading levels.
Furman Selz noted that the Merger Consideration offered of $5.31 per share
to holders of FBG Class A Common Stock represented a 16.4% premium to the
52-week high of FBG's stock price and a 19.7% premium to the stock price the
last trading day prior to the announcement of the Merger. Over the one year
period, FBG's Class A Common Stock price generally traded above the Comparable
Companies Index and over a five year period, FBG's stock price traded below the
Comparable Companies Index.
Furman Selz also noted that price of AmVestors Common Stock prior to the
announcement of the Merger was $11.625, which represented a 40.9% premium to the
52-week low of AmVestors' stock price and a 9.1% discount to the 52-week high
stock price. Furman Selz also assumed that the price of AmVestors Common Stock
upon mailing of the Joint Proxy Statement/Prospectus was $11.00, 12.8% above the
52-week low and 14.6% below the 52-week high. Over the one year period,
AmVestors Common Stock generally traded comparably to the Comparable Companies
Index and over a five year period, AmVestors traded below the Comparable
Companies Index.
Furman Selz is a nationally recognized investment banking firm engaged in,
among other things, the valuation of businesses and securities in connection
with mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. Furman Selz has substantial experience in merger and acquisition
transactions and is familiar with AmVestors. In the ordinary course of its
business, Furman Selz actively trades in the equity securities of AmVestors for
its own account and the accounts of its customers and certain officers of Furman
Selz and, accordingly, may at any time hold a long or short position in such
securities. Based on Furman Selz's qualifications and familiarity with
AmVestors' business, AmVestors did not interview any other financial advisor
candidates. Furman Selz acted as underwriter to AmVestors in its November 1993
public offering of 4.025 million common shares. In connection with such
services, AmVestors paid Furman Selz fees totaling $2,485,438. In addition,
through various funds, Furman Selz manages a portion of AmVestors' investment
portfolio aggregating approximately $3.5 million of committed investments.
Furman Selz, may, in the future, act as underwriter and/or financial advisor to
AmVestors.
For its services in rendering the Fairness Opinion to the AmVestors Board
and pursuant to the terms of an engagement letter, AmVestors has paid Furman
Selz a $250,000 non-refundable fee. Such fee was payable regardless of whether
or not Furman Selz found the Merger Consideration offered to the holders of FBG
Class A Common Stock to be fair from a financial point of view to the AmVestors
stockholders and whether or not the Merger was consummated. AmVestors agreed to
reimburse Furman Selz for out-of-pocket expenses (including the reasonable fees
and out-of-pocket expenses of counsel) not to exceed $20,000 without AmVestors'
consent, incurred by Furman Selz in connection with its services, and to
indemnify Furman Selz and certain related persons against certain liabilities in
connection with its services.
FBG. In its role as financial advisor to FBG, DLJ was asked by FBG to
render its opinion to the FBG Board as to the fairness, from a financial point
of view, to the stockholders of FBG of the Merger Consideration to be paid by
AmVestors pursuant to the Merger Agreement. On September 8, 1996 and February
26, 1996, DLJ delivered its written opinions (the February 26, 1996 opinion
herein referred to as the "DLJ Opinion") to the FBG Board that the Merger
Consideration is fair, from a financial point of view, to the stockholders of
FBG.
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A copy of the DLJ Opinion is attached hereto as Appendix III. FBG
stockholders are urged to read the opinion in its entirety for assumptions made,
procedures followed, other matters considered and limits of the review by DLJ.
The summary of the opinion of DLJ set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion. The DLJ Opinion was prepared for the FBG Board and is directed
only to the fairness to the holders of FBG Common Stock as of February 26, 1996
from a financial point of view, of the Merger Consideration and does not
constitute a recommendation to any stockholder as to how to vote at the FBG
Special Meeting.
No restrictions or limitations were imposed by the FBG Board upon DLJ with
respect to the investigations made or the procedures followed by DLJ in
rendering its opinion.
In arriving at its opinion, DLJ reviewed the Merger Agreement. DLJ also
reviewed financial and other information that was publicly available or
furnished to it by FBG and AmVestors, including information provided during
discussions with their respective managements. In addition, DLJ (i) reviewed
prices and premiums paid in certain other selected business combinations in the
life insurance and annuity industries; (ii) compared certain financial and
securities data of FBG and AmVestors with such data of selected companies whose
securities are traded in public markets; (iii) reviewed the historical stock
prices and trading volumes of FBG Common Stock and AmVestors Common Stock; (iv)
analyzed the pro forma financial impact of the Merger on AmVestors' and FBG's
stockholders; (v) compared the relative contribution of FBG to the combined
company's net operating income, stockholders' equity and total assets with the
relative ownership of FBG stockholders in the combined company after giving
effect to the Merger; and (vi) performed a discounted cash flow analysis of FBG.
DLJ also discussed the past and current operations, financial condition and
prospects of FBG and AmVestors with the respective managements of FBG and
AmVestors, received financial projections for FBG and AmVestors from their
respective managements, and conducted such other financial studies, analyses and
investigations as DLJ deemed appropriate for purposes of rendering its opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that was
available to it from public sources, that was provided to DLJ by FBG and
AmVestors or their respective representatives, or that was otherwise reviewed by
DLJ. With respect to the financial projections supplied to DLJ, DLJ has assumed
that they were reasonably prepared and reflected the best currently available
estimates and judgments of the management of FBG and AmVestors as to the future
operating and financial performance of FBG and AmVestors. DLJ did not assume any
responsibility for making and did not make any independent evaluation of FBG's
or AmVestors' assets or liabilities or any independent verification of any of
the information reviewed by DLJ. DLJ did not express any opinion with respect to
legal matters relating to the Merger and relied as to all legal matters relating
to the Merger on advice of counsel.
The DLJ Opinion was necessarily based on economic, market, financial and
other conditions as they existed on the date of the DLJ Opinion and on the
information made available to DLJ as of such date and on the review and analyses
conducted by DLJ as of such date. It should be understood that, although
subsequent developments may affect its opinion, DLJ does not have any obligation
to update, revise or reaffirm the DLJ Opinion.
The following is a summary of the material factors considered and principal
financial analyses performed by DLJ to arrive at the DLJ Opinion. DLJ performed
certain procedures, including each of the financial analyses described below,
and reviewed with the managements of FBG and AmVestors the assumptions on which
such analyses were based and other factors.
TRANSACTION ANALYSIS. DLJ reviewed publicly available information for
selected transactions involving the acquisition of life insurance and
annuity companies since January 1, 1993 (the "Selected Transactions"). In
reviewing these transactions, several factors were considered including:
(i) the lack of public information for subsidiary and private company
transactions which represent a significant portion of the merger and
acquisition activity; (ii) the lack of directly comparable transactions;
and (iii) the generally larger size of several of the transactions. The
Selected Transactions were not intended to represent the complete list of
life insurance and annuity company transactions which have occurred.
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Rather, such transactions included only selected recent transactions
involving life insurance and annuity companies. Such transactions were used
in this analysis because the companies involved were deemed by DLJ to
operate in similar businesses or have similar financial characteristics to
FBG and AmVestors.
DLJ reviewed the consideration paid in such transactions in terms of
the price paid for the common stock plus the amount of debt and preferred
stock assumed, repaid or redeemed in such transactions (the "Transaction
Value") as a multiple of statutory net operating income for the latest
twelve months ("LTM") or last fiscal year ended prior to the announcement
of such transactions and as a multiple of adjusted statutory capital and
surplus as of the end of the last fiscal quarter ended or last fiscal year
ended prior to the announcement of such transactions. In acquisitions of
life insurance and annuity companies, the purchase price paid may be
expressed as multiplies of the Transaction Value to statutory net operating
earnings and to adjusted capital and surplus. Variances in multiples for
different transactions may reflect such considerations as the consistency,
quality and growth of earnings and the company's capitalization, asset
quality and return on surplus. Since statutory net operating earnings and
adjusted statutory capital and surplus do not reflect the cost of a
company's debt or preferred stock financing, which are usually at the
holding company rather than the life insurance company level, multiples of
statutory net operating earnings and adjusted capital and surplus are
appropriately based on Transaction Value which includes the cost of
assuming, repaying or redeeming such debt or preferred stock financing.
Comparing the multiples of Transaction Value to be paid for FBG by
AmVestors to the statutory net operating earnings and adjusted statutory
capital and surplus of FBG with the multiples paid by acquirors in other
transactions indicates whether the valuation being placed on FBG is within
the range of values paid for other life insurance and annuity companies.
The average and low multiples of Transaction Value to statutory net
operating income for the last fiscal year ended prior to the announcement
of the Selected Transactions were 15.6x and 5.1x, respectively. Based on an
offer price of $5.31 per share, the implied multiple of Transaction Value
to FBG's 1994 statutory net operating income was 37.6x. This multiple is
greater than the low and greater than the average multiples of the Selected
Transactions. The average and low multiples of Transaction Value to
adjusted statutory capital and surplus as of the end of the last fiscal
year ended prior to the announcement of the Selected Transactions were 1.8x
and 1.2x, respectively. Based on the same offer price per share, the
implied multiple of Transaction Value to FBG's 1994 year end adjusted
statutory capital and surplus was 1.6x. This multiple is greater than the
low and less than the average multiples of the Selected Transactions.
Additionally, DLJ reviewed the consideration paid in such transactions
in terms of the price paid for the common stock in such transactions as a
multiple of net operating income prepared in accordance with GAAP for the
LTM prior to the announcement of such transactions and as a multiple of
stockholders' equity as of the last fiscal quarter ended prior to the
announcement of such transactions. In acquisitions of life insurance and
annuity companies, the purchase price paid may be expressed as multiples of
the price paid for common stock to GAAP net operating earnings and to
stockholders' equity. Variances in multiples for different transactions may
reflect such considerations as the consistency, quality and growth of
earnings and the company's capitalization, asset quality and return on
capital. Since GAAP net operating earnings and stockholders' equity already
reflect the cost of a company's debt or preferred stock financing,
multiples of GAAP net operating earnings or stockholders' equity are
appropriately based on the price paid for the company's common stock which
excludes the cost of assuming, repaying or redeeming such debt or preferred
stock financing. Comparing the multiples of price offered to be paid for
the FBG Common Stock by AmVestors to the GAAP net operating earnings and
stockholders' equity of FBG with the multiples paid by acquirors in other
transactions indicates whether the valuation being placed on FBG is within
the range of values paid for other life insurance and annuity companies.
The average and low multiples of price paid for common stock to LTM
GAAP net operating earnings for the Selected Transactions were 15.6x and
5.2x, respectively. Based on an offer price of $5.31 per share, the implied
multiple of price paid for common stock to FBG's GAAP net operating
earnings for the LTM ended September 30, 1995 was 11.2x. This multiple is
greater than the low and less than the average multiples of the Selected
Transactions. The average and low multiples of price paid for common
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stock to stockholders' equity for the last fiscal quarter ended prior to
the announcement of the Selected Transactions were 1.5x and 0.8x,
respectively. Based on an offer price of $5.31 per share, the implied
multiple of price paid for common stock to FBG's stockholders' equity as of
September 30, 1995 was 1.3x. This multiple is greater than the low and less
than the average multiples of the Selected Transactions.
DLJ also determined the percentage premium of the offer prices
(represented by the purchase price per share in cash transactions and the
price of the constituent securities times the exchange ratio in the case of
stock-for-stock mergers) over the public market trading prices one day, one
week and one month prior to the announcement date of selected life
insurance and annuity company transactions where the acquired company's
stock was publicly traded (the "Selected Public Transactions"). The average
premiums of offer prices to public market trading prices one day, one week
and one month prior to the announcement date for the Selected Public
Transactions were 8.5%, 15.5% and 18.9%, respectively. An offer price of
$5.31 per FBG share represents premiums to FBG public market trading prices
one day, one week and one month prior to announcement of the Merger of
19.7%, 18.0%, and 24.9%, respectively. These premiums are greater than the
average premiums of the Selected Public Transactions.
ANALYSIS OF CERTAIN PUBLICLY TRADED COMPANIES. To provide comparative
market information, DLJ compared selected historical share price and
operating and financial ratios for FBG to the corresponding data and ratios
of the following companies whose securities are publicly traded: (i) First
Colony Corporation; (ii) AmVestors Financial Corporation; (iii) Equitable
of Iowa Companies; (iv) Presidential Life Corporation; (v) SunAmerica Inc.;
and (vi) American Annuity Group, Inc. (together, the "Selected Companies").
Such analysis included, among other things, the ratios of stock price
to GAAP net operating earnings per share ("EPS") for the LTM ended
September 30, 1995, fiscal year 1995 and fiscal year 1996 estimated net
operating EPS (as estimated by research analysts and compiled by
Institutional Brokers Estimating Service for the Selected Companies and
management's projections for FBG) and stockholders' equity per share as of
September 30, 1995 as well as the ratios of the aggregate equity market
capitalization plus the amount of debt and preferred stock outstanding
("Enterprise Value") to statutory net operating earnings and year end 1994
statutory capital and surplus. Closing prices as of February 22, 1996 were
used in this analysis. The ratios described in this paragraph have been
designed to reflect the value attributable in the public equity markets to
various valuation measures of life insurance and annuity companies. In
determining whether to buy or sell shares of stock of publicly traded
companies in the life insurance and annuity industries, investors look at a
company's historical and projected GAAP net operating earnings, historical
statutory net operating earnings, stockholders' equity and statutory
capital and surplus. The multiples of stock price to GAAP net operating
earnings per share and Enterprise Value to statutory net operating earnings
reflect the value attributed to a company by public equity market investors
based on the company's historical and projected earnings. The multiples of
stock price to stockholders' equity per share and Enterprise Value to
statutory capital and surplus reflect the value attributed to a company by
public equity market investors based on the company's net worth. Variances
in multiples for different companies may reflect such considerations as the
consistency, quality and growth of earnings and the company's
capitalization, asset quality and return on capital. Since GAAP net
operating earnings and stockholders' equity already reflect the cost of a
company's debt or preferred stock financing, multiples of GAAP net
operating earnings or stockholders' equity are appropriately based on the
price paid for the company's common stock which excludes debt or preferred
stock financing. Since statutory net operating earnings and capital and
surplus do not reflect the cost of a company's debt or preferred stock
financing, which are usually at the holding company rather than the life
insurance company level, multiples of statutory net operating earnings and
statutory capital and surplus are appropriately based on Enterprise Value
which includes debt or preferred stock financing. Comparing the multiples
of price offered to be paid by AmVestors to the GAAP net operating earnings
per share, stockholders' equity, statutory net operating earnings and
statutory capital and surplus of FBG with the multiples at which the
Selected Companies trade indicates whether the valuation being placed on
FBG is within the range of values at which the Selected Companies trade.
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The average and low ratios of public stock price to GAAP net operating
EPS for the LTM ended September 30, 1995 were 10.7x and 7.3x, respectively
for the Selected Companies. Based on an offer price of $5.31 per share, the
implied multiple of offer price to FBG's GAAP net operating EPS for the LTM
ended September 30, 1995 was 11.2x. This multiple is greater than the low
and greater than the average multiples of the Selected Companies. The
average and low ratios of public stock price to estimated 1995 GAAP net
operating EPS were 10.9x and 5.5x, respectively, for the Selected
Companies. Based on the same offer price, the implied multiple of offer
price to FBG's estimated 1995 GAAP net operating EPS was 12.8x. This
multiple is greater than the low and greater than the average multiples of
the Selected Companies. The average and low ratios of public stock price to
estimated 1996 GAAP operating EPS were 10.3x and 6.3x, respectively for the
Selected Companies. Based on the same offer price, the implied multiple of
offer price to FBG's estimated 1996 GAAP net operating EPS was 8.8x. This
multiple is greater than the low and less than the average multiples of the
Selected Companies. The average and low ratios of public stock price to
stockholders' equity of September 30, 1995 were 1.5x and 0.9x,
respectively, for the Selected Companies. Based on the same offer price,
the implied multiple of offer price to FBG's stockholders' equity as of
September 30, 1995 was 1.1x. This multiple is greater than the low and less
than the average multiples of the Selected Companies. The average and low
ratios of Enterprise Value to 1994 statutory net operating earnings for the
Selected Companies were 23.7x and 12.3x, respectively. Based on the same
offer price, the implied ratio of Enterprise Value to FBG's 1994 statutory
net operating earnings was 37.6x. This multiple is greater than the low and
greater than the average multiples of the Selected Companies. The average
and low ratios of Enterprise Value to 1994 year end statutory capital and
surplus for the Selected Companies were 3.1x and 1.3x, respectively. Based
on the same offer price, the implied ratio of the Enterprise Value to FBG's
1994 year end statutory capital and surplus was 1.7x. This multiple is
greater than the low and less than the average multiples of the Selected
Companies.
No company or transaction used in the Transaction Analysis or the
Analysis of Certain Publicly Traded Companies described above was directly
comparable to FBG, AmVestors or the Proposed Merger. Accordingly, an
analysis of the results of the foregoing was not simply mathematical nor
necessarily precise; rather, it involved complex considerations and
judgments concerning differences in financial and operating characteristics
of companies and other factors that could affect the transaction values and
trading prices. For example, many qualitative factors are involved in
valuing a company or analyzing a transaction in the life insurance and
annuity industries including assessments of the quality of management, the
attractiveness of the company's target market, the economics of the
products being sold and the company's market position relative to its
competitors. Other factors that could affect the transaction values or
trading prices include differences in distribution, products, geographic or
demographic customer concentration, size, accounting practices, asset
portfolio quality, interest rate sensitivity and other factors. These
factors may affect transaction values or trading prices in each case by
affecting in varying degrees investors' expectations of such factors as the
company's risk and future operating profitability.
STOCK TRADING HISTORY. To provide contextual data and comparative
market data, DLJ examined the history of the trading prices and their
relative relationships for both FBG Common Stock and AmVestors Common Stock
for the periods ending one year, two years and ten years prior to the
announcement of the Merger. DLJ also reviewed the daily closing prices of
FBG Common Stock and AmVestors Common Stock and compared the FBG and
AmVestors closing stock prices with the S&P 400 Index and an index of the
Selected Companies. DLJ reviewed the one year, two year and ten year
trading history of FBG Common Stock and AmVestors Common Stock to determine
whether trading levels immediately prior to announcement of the Merger were
reflective of longer term trading levels or were affected by recent unusual
or event specific trading activity. In addition, DLJ reviewed the trading
history of FBG Common Stock and AmVestors Common Stock relative to an index
of the Selected Companies in order to assess the relative stock price
performance of FBG, AmVestors and the index.
PRO FORMA MERGER ANALYSIS. DLJ analyzed certain pro forma financial
effects resulting from the Merger. In conducting its analysis, DLJ relied
upon certain assumptions described above and financial projections provided
by the managements of both FBG and AmVestors. DLJ analyzed the pro forma
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effect of combining FBG and AmVestors on the earnings, book value and
leverage ratios of the combined companies. The results of the pro forma
combination analysis are not necessarily indicative of future operating
results or financial position. Certain holders of FBG Options who do not
exercise such options prior to the Merger, may, depending upon the plan
under which such FBG Options were granted, choose to receive either cash or
AmVestors Options in exchange for such FBG Options. The number of shares of
AmVestors Common Stock issued in the Merger will be affected by which
alternative such holders of FBG Options choose. Assuming that all such
holders of FBG Options choose to receive cash, AmVestors' stockholders
would realize earnings per share dilution of 2.0% in 1996 and 1.0% in 1997
on a pro forma basis. On a share equivalent basis, assuming an all stock
transaction, FBG stockholders would realize earnings per share pickup of
27.2% in 1996 and 23.2% in 1997 on a pro forma basis. The effect of the
Merger on AmVestors' ratio of debt to total capitalization would be to
increase such ratio from 0% before the Merger to 13.6% after the Merger.
CONTRIBUTION ANALYSIS. DLJ analyzed FBG's and AmVestors' relative
contributions to the combined company with respect to GAAP net operating
earnings, stockholders' equity and total assets and compared this with the
relative ownership of FBG stockholders in the combined company after the
Merger. Such analysis was considered on a percentage contribution basis and
was made, where appropriate, (i) for the twelve months ended September 30,
1995 based on AmVestors' and FBG's reported financial results; and (ii) for
the twelve month periods ended December 31, 1995, 1996 and 1997 as
projected by FBG's and AmVestors' managements.
For the LTM ended September 30, 1995, FBG's relative contribution to
the combined company with respect to GAAP net operating earnings was 21.4%
of total. FBG's relative contribution to the combined company with respect
to stockholders' equity was 21.4% of total. FBG's relative contribution to
the combined company with respect to total assets was 23.3% of total. For
the projected twelve months ended December 31, 1995, FBG's relative
contribution to the combined company with respect to GAAP net operating
earnings was 18.6% of total. For the projected twelve months ended December
31, 1996, FBG's relative contribution to the combined company with respect
to net operating earnings was 23.4% of total. For the projected twelve
months ended December 31, 1997, FBG's relative contribution to the combined
company with respect to net GAAP operating earnings was 24.3% of total.
Assuming a 100% stock transaction and an AmVestors Stock Price of
$11.00, FBG stockholders would own approximately 29.9% of the combined
company after the Merger. The results of these contribution analyses are
not necessarily indicative of the contributions that the respective
businesses may actually make in the future.
DISCOUNTED CASH FLOW ANALYSIS. DLJ also performed a discounted cash
flow analysis of FBG. In conducting this analysis, DLJ calculated the
present value per share of the cash flows projected by FBG's management for
FBG on a stand-alone basis. The discounted cash flow analysis was based on
discount rates ranging from 12% to 14%. The terminal value for this
analysis was computed by multiplying FBG's projected terminal capital and
surplus by a range of multiples. DLJ relied on its understanding of
required equity returns in the life insurance and annuity business to
derive discount rates and the public equity market analysis of selected
life insurance and annuity companies and selected merger market
transactions to derive the multiples of statutory capital and surplus used
to calculate terminal values. At a multiple of statutory capital and
surplus of 1.4x, the present value per share of FBG's projected cash flows
ranged from $4.88 to $4.37 at discount rates ranging from 12% to 14%. At a
multiple of statutory capital and surplus of 2.2x, the present value per
share of FBG's projected cash flows ranged from $7.96 to $7.19 at discount
rates ranging from 12% to 14%.
The summary set forth above does not purport to be a complete
description of the analyses performed by DLJ. The preparation of a fairness
opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods
to the particular circumstances and, therefore, such an opinion is not
readily susceptible to summary description. The preparation of a fairness
opinion does not involve a mathematical evaluation or weighing of the
results of the individual analyses performed, but requires DLJ to exercise
its professional judgment --
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based on its experience and expertise -- in considering a wide variety of
analyses taken as a whole. Each of the analyses conducted by DLJ was
carried out in order to provide a different perspective on the transaction
and add to the total mix of information available. DLJ did not form a
conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to fairness. Rather, in
reaching its conclusion, DLJ considered the results of the analyses in
light of each other and did not place particular reliance or weight on any
individual analysis and ultimately reached its opinion based on the results
of all analyses taken as a whole. Accordingly, notwithstanding the separate
factors summarized above, DLJ believes that its analyses must be considered
as a whole and that selecting portions of its analyses and the factors
considered by it, without considering all analyses and factors, may create
an incomplete view of the evaluation process underlying its opinion. In
performing its analyses, DLJ made numerous assumptions with respect to
industry performance, business and economic conditions and other matters.
These assumptions include but are not limited to assumptions regarding: (i)
macro-economic business conditions, (ii) competitive dynamics and general
trends in the life insurance and annuity industries, (iii) competition from
other industries including the banking and mutual fund industries, (iv)
current and projected interest rates, and (v) industry regulatory
environment. The analyses performed by DLJ are not necessarily indicative
of actual values or future results, which may be significantly more or less
favorable than suggested by such analyses.
The FBG Board selected DLJ as its financial advisor because it is a
nationally recognized investment banking firm that has substantial
experience in transactions similar to the Merger and is familiar with FBG,
its businesses and the annuity industry. Based on DLJ's qualifications and
familiarity with FBG's business, FBG did not interview any other financial
advisor candidates. Pursuant to the terms of an engagement letter dated
February 9, 1995 between FBG and DLJ, FBG paid DLJ a $25,000 retainer fee
and an additional $275,000 for the DLJ Opinion. Pursuant to the terms of
the engagement letter, FBG will pay DLJ, on the Closing Date, cash
compensation equal to 2% of the aggregate amount of the Merger
Consideration received by the stockholders of FBG including the assumption
or repayment of debt by AmVestors, less the retainer fee and $275,000 paid
to date. Based on the closing price of AmVestors Common Stock on February
22, 1996, DLJ's total fee including amounts already paid by FBG would be
approximately $1.26 million. FBG also agreed to reimburse DLJ for all
out-of-pocket expenses (including the reasonable fees and out-of-pocket
expenses of counsel) incurred by DLJ in connection with its engagement, and
to indemnify DLJ and certain related persons against certain liabilities in
connection with its engagement, including liabilities under the federal
securities laws. The terms of the fee arrangement with DLJ, which DLJ and
FBG believe are customary in transactions of this nature, were negotiated
at arms' length between FBG and DLJ, and the FBG Board was aware of such
arrangement, including the fact that a significant portion of the aggregate
fee payable to DLJ is contingent upon consummation of the Merger. Firemark
Capital, Inc., an investment banking and research firm with expertise in
the insurance industry, assisted FBG in its earlier discussions with
AmVestors (see "-- Background of the Merger") and will receive a fee of
$50,000 from DLJ upon completion of the Merger.
In the ordinary course of business, DLJ may actively trade the
securities of both FBG and AmVestors for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities. DLJ, as part of its investment banking
services, is regularly engaged in the valuation of businesses and
securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
After the Merger, Acquisition Subsidiary will operate as a subsidiary of
AmVestors. Following the Merger, it is anticipated that the AmVestors Board will
consist of the current directors of AmVestors and the three new directors to be
chosen as described below. In addition, AmVestors will enter into employment
agreements with each of Frank T. Crohn, currently Chairman of the Board, Chief
Executive Officer and a
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Director of FBG and Donna J. Rubertone, currently Executive Vice President,
Chief Operating Officer and a Director of FBG.
DIRECTOR NOMINEES. The Merger Agreement provides that the Board of
Directors of AmVestors will appoint to the Board three individuals from a group
of qualified nominees recommended by FBG and acceptable to AmVestors, with one
individual to be appointed to each of the Board's three classes of directors. If
any Nominee so appointed is unable to serve the entirety of the remaining term
of the class to which such Nominee is appointed, the AmVestors Board will
appoint another person from such group to the AmVestors Board as successor
thereto. The Nominees have not been identified as of this time, and are not
expected to be identified until immediately prior to the Effective Time.
EMPLOYMENT AGREEMENTS. In connection with the Merger, Frank T. Crohn,
currently Chairman of the Board, Chief Executive Officer and a Director of FBG
and Donna J. Rubertone, currently Executive Vice President, Chief Operating
Officer and a Director of FBG, will enter into employment agreements with
AmVestors and certain of its subsidiaries. These employment agreements are
summarized below.
Frank T. Crohn. Pursuant to an Employment Agreement to be entered into in
connection with the Merger, AmVestors will agree to cause Mr. Crohn to be
elected and maintained for a period of two years from the Closing Date as
Chairman of the Board of FBG's current subsidiaries, Financial Benefit Life,
AIMCOR and TIM. In addition, during the term of his Employment Agreement,
AmVestors may reasonably request that Mr. Crohn serve as Chairman of other
subsidiaries of AmVestors. Pursuant to his Employment Agreement, Mr. Crohn is
required to devote no more than 500 hours per calendar year to his duties
thereunder and is entitled to (i) a salary of $200,000 per year; (ii) at the
inception of the Employment Agreement, 75,000 non-qualified options to purchase
AmVestors Common Stock under the AmVestors Option Plan at an exercise price
equal to the market price of the AmVestors Common Stock on the date of issue;
(iii) participate in all fringe benefit, stock option and retirement plans
available to employees of Financial Benefit Life generally; (iv) reimbursement
of business expenses; and (v) continued salary payments for up to six months
after any disability (as defined therein) of Mr. Crohn. Mr. Crohn's employment
may be terminated prior to its expiration only for cause, which includes
conviction of certain crimes, gross negligence or willful misconduct in the
performance of his duties or a material breach of his Employment Agreement which
is unremedied for more than 30 days. Mr. Crohn has also agreed that during his
employment and for a period of one year thereafter, he will not compete directly
or indirectly with AmVestors or attempt to entice away or employ any employee of
AmVestors or its subsidiaries.
Donna J. Rubertone. Pursuant to an Employment Agreement to be entered into
in connection with the Merger, AmVestors will agree to employ Ms. Rubertone for
a period of three years from the Closing Date as President of Financial Benefit
Life, AIMCOR and TIM. In addition, during the term of her Employment Agreement,
AmVestors may reasonably request that Ms. Rubertone serve as President of other
subsidiaries of AmVestors. Pursuant to her Employment Agreement, Ms. Rubertone
is required to devote her full working time to the business of such subsidiaries
and is entitled to, among other things (i) a salary of $175,000 per year; (ii)
participate in the Incentive Compensation Plan and Bonus Compensation Agreements
as the Board of Directors of AmVestors shall, in its discretion, determine;
(iii) at the inception of the Employment Agreement, 50,000 non-qualified options
to purchase AmVestors Common Stock under the AmVestors Option Plan at an
exercise price equal to the market price of the AmVestors Common Stock on the
date of issue; (iv) participate in all fringe benefit, stock option and
retirement plans available to employees of Financial Benefit Life generally; (v)
reimbursement of business expenses; and (vi) continued salary payments for up to
six months after any disability (as defined therein) of Ms. Rubertone. Ms.
Rubertone's employment may be terminated prior to its expiration either (i) for
cause, which includes conviction of certain crimes, gross negligence or willful
misconduct in the performance of her duties or a material breach of her
Employment Agreement which is unremedied for more than 30 days; or (ii) without
cause upon payment of a severance amount equal to a full year's salary plus a
sum equal to any bonus payments received by Ms. Rubertone in the previous twelve
months. Ms. Rubertone has also agreed that during her employment, she will not
compete directly or indirectly with AmVestors and that she will at no time
disclose any confidential information regarding AmVestors or its subsidiaries.
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FINANCING FOR THE MERGER
AmVestors has obtained a commitment from First Chicago for an unsecured
revolving Credit Facility of up to $35 million. AmVestors intends to draw on the
Credit Facility (i) to finance the cash payments required to be made to FBG
stockholders and certain FBG Option holders in connection with the Merger and
for the expenses of consummating the Merger and the transactions contemplated
thereby; (ii) to refinance any existing indebtedness of FBG and AmVestors; and
(iii) for general corporate purposes.
The Credit Facility may be utilized by AmVestors for a period of six years
after the Closing Date, provided that the $35 million credit limit will be
reduced by $1.5 million in each of the third and fourth quarters of the second
year of the Credit Facility and by $2 million each quarter thereafter. At the
election of AmVestors on the date of each drawdown of the Credit Facility,
interest is payable at either (i) a fluctuating interest rate equal to the
higher of (a) the corporate base rate of interest announced by First Chicago, 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 yet to be determined).
TERMS AND CONDITIONS OF THE PROPOSED MERGER
Set forth below is a description of the primary terms and conditions of the
Merger Agreement, which description does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement, a copy of which
is attached hereto as Appendix I.
CONDITIONS OF THE MERGER. Set forth below is a description of the principal
conditions to the obligations of FBG, AmVestors and Acquisition Subsidiary to
consummate the Merger.
MUTUAL CONDITIONS. The respective obligations of FBG, AmVestors and
Acquisition Subsidiary to consummate the Merger are subject to the satisfaction
or waiver of certain mutual conditions, including, without limitation, the
following: (i) the Merger Agreement, the Merger and the other transactions
contemplated thereby shall have been approved by the requisite vote of the
stockholders of FBG and the stockholders of AmVestors; (ii) all approvals,
waivers or authorizations of, notices to or filings with of any governmental or
regulatory authority required for the consummation of the Merger (including
without limitation the Florida Insurance Department and Kansas Commissioner of
Insurance, if required) shall have been obtained except where the failure to
obtain such consents would not have a material adverse effect on the business of
FBG, AmVestors or the Surviving Corporation; (iii) no provision of any
applicable law or regulation and no judgment, injunction, order or decree shall
prohibit the consummation of the Merger and no court, arbitrator or governmental
body, agency or official shall have issued any order, and there shall not be any
statute, rule or regulation, restraining or prohibiting the consummation of the
Merger or the effective operation of the business of any of the parties or their
respective subsidiaries after the Effective Time; (iv) the legal opinion of
counsel to AmVestors shall have been received by FBG regarding certain legal
matters; (v) the legal opinion of counsel to FBG shall have been received by
AmVestors regarding certain legal matters; (vi) the shares of AmVestors Common
Stock to be issued in the Merger shall have been approved for listing on the
NYSE; (vii) AmVestors and the Surviving Corporation shall have executed and
delivered the Employment Agreements with each of Frank T. Crohn and Donna J.
Rubertone; and (viii) there shall not have been a downgrading or threatened
downgrading of American by A.M. Best; provided, that, in the event of a
threatened downgrading, the companies have agreed that (a) AmVestors will
promptly notify FBG of such threatened downgrading, and (b) neither AmVestors
nor FBG may terminate the Merger because of such threatened downgrading unless
such threat has not been withdrawn by A.M. Best within ten calendar days from
the date it was received, and (1) AmVestors shall have used its reasonable best
efforts to have such threat withdrawn prior to such time, and (2) if permitted
by A.M. Best, AmVestors and FBG shall have made a joint presentation to A.M.
Best with a request that it withdraw such threatened downgrading.
FBG and AmVestors have filed the appropriate applications for the
governmental and regulatory approvals required as a condition to the respective
obligations of the parties to consummate the Merger, and
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the parties presently anticipate that all regulatory matters will be
successfully completed in a timely manner. See "-- Certain Regulatory Filings
and Approvals."
FBG'S CONDITIONS. FBG's obligation to consummate the Merger is subject to
the satisfaction, unless waived, of certain other conditions, including, without
limitation, the following: (i) the representations and warranties of AmVestors
made in the Merger Agreement must be true and correct in all material respects,
all obligations required to be performed by AmVestors prior to the Effective
Time have been performed in all material respects, and AmVestors shall have
delivered an officer's certificate stating the foregoing; (ii) no material
adverse change in the business, assets, condition (financial or otherwise),
properties, liabilities or the results of operations of AmVestors shall have
occurred; (iii) FBG shall have received from its counsel a legal opinion
regarding certain tax matters; and (iv) FBG shall have received an unqualified
opinion of an independent actuarial firm, satisfactory to FBG and accompanied by
an Actuarial Memorandum, that the reserves and assets held by AmVestors and
American are adequate and sufficient to fund the legal and contractual
obligations to American's policy holders as of June 30, 1995.
AMVESTORS' CONDITIONS. AmVestors' obligation to consummate the Merger is
subject to the satisfaction, unless waived, of certain other conditions,
including, without limitation, the following: (i) the representations and
warranties of FBG made in the Merger Agreement must be true and correct in all
material respects, all obligations required to be performed by FBG prior to the
Effective Time have been performed in all material respects, and FBG shall have
delivered an officer's certificate stating the foregoing; (ii) no material
adverse change in the business, assets, condition (financial or otherwise),
properties, liabilities or the results of operations of FBG shall have occurred
including, without limitation, a downgrading or threatened downgrading of
Financial Benefit Life by A.M. Best; (iii) AmVestors shall have received
reasonably satisfactory comfort letters from Deloitte & Touche, LLP, independent
auditors to FBG, dated the date of this Joint Proxy Statement/Prospectus and
updated as of the Closing Date, with respect to certain financial information
regarding FBG and its subsidiaries; (iv) AmVestors shall have received from its
counsel a legal opinion regarding certain tax matters; (v) AmVestors shall have
received an unqualified opinion of an independent actuarial firm, satisfactory
to AmVestors and accompanied by an Actuarial Memorandum, that the reserves and
assets held by FBG and Financial Benefit Life are adequate and sufficient to
fund the legal and contractual obligations to Financial Benefit Life's policy
holders as of June 30, 1995; (vi) AmVestors shall have received all state
securities or "blue sky" authorizations necessary to issue AmVestors Common
Stock and AmVestors Warrants pursuant to the Merger; (vii) AmVestors shall have
received a signed letter from each person who is an "affiliate" of FBG within
the meaning of the Securities Act restricting the sale of AmVestors Common Stock
received by such person pursuant to the Merger for certain purposes (see "--
Status Under Federal Securities Laws"); (viii) AmVestors stockholders shall have
approved the proposed amendment to the AmVestors Option Plan; and (ix) shares of
FBG Class A Common Stock held by FBG stockholders who have not voted such shares
in favor of the Merger and who shall have delivered a written demand for
appraisal of such shares in the manner provided in the DGCL and who shall not
have withdrawn such objection or waived such rights prior to the Closing Date
shall not constitute more than 10% of the outstanding FBG Class A Common Stock
as of the Closing Date. See "Dissenters Rights."
Neither AmVestors nor FBG has any present intention to waive any of the
material conditions to the consummation of the Merger. In the event that a
material condition to the consummation of the Merger Agreement is waived after
the date of the Special Meetings, then the company that waived such condition
will hold a second special meeting of stockholders, with an amended Joint Proxy
Statement/ Prospectus, in order to resolicit approval of the Merger Agreement.
CERTAIN COVENANTS. AmVestors and FBG have each agreed to use their
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate the
transactions contemplated by the Merger Agreement.
AmVestors has agreed to appoint to its Board the three Nominees from a
group of individuals recommended by FBG and reasonably acceptable to AmVestors,
with one individual to be appointed to each of the Board's three classes of
directors. If any Nominee so appointed is unable to serve the entirety of the
remaining term of the class to which such Nominee is appointed, the Board will
appoint another person from
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such group to the Board as successor thereto. See "Management and Operations
After the Merger -- Director Nominees."
FBG and AmVestors have agreed to give the other party prompt notice of the
following: (i) the receipt of any notice or other communication from a third
party alleging that its consent is required in connection with the Merger; (ii)
the receipt of any notice or other communication from any regulatory body in
connection with the Merger; or (iii) the commencement or threat of any action,
suit, claim, investigation or proceeding involving or affecting that party,
which, if pending on the date of the Merger Agreement would have been required
to have been disclosed to the other party or which relates to the consummation
of the Merger.
FBG and AmVestors have agreed to give the other full access to its offices,
properties, books and records and to furnish the other party with such financial
and operating data as may be reasonably requested.
FBG and AmVestors have each agreed to give notice of and hold a meeting of
its stockholders for the purpose of obtaining any necessary adoption and
approval of certain matters relating to the Merger and, subject to directors'
fiduciary obligations under applicable law as advised by counsel, the Board of
Directors of each party will recommend to their respective stockholders that
they vote in favor of such approval. In addition, AmVestors has agreed to vote
all shares of FBG Common Stock held by it in favor of the Merger.
CONDUCT OF BUSINESS PRIOR TO MERGER. Except as otherwise provided in the
Merger Agreement, AmVestors has agreed to use its reasonable best efforts to
preserve intact its business organizations and relationships with third parties
and to keep available the services of its present officers and employees. FBG
has agreed, unless the prior written consent of AmVestors is obtained, to (i)
carry on its business diligently and substantially in the same manner as prior
to the execution of the Merger Agreement and to not make or institute any
unusual method of management, accounting or operation except in a manner
consistent with prior practice or enter into any transaction other than in the
ordinary course of business; (ii) not make loans or discounts or any commitments
to loan or discount in an aggregate amount greater than $25,000; (iii) not enter
into any management, maintenance, servicing or similar contracts having a term
of more than one year or providing for fees in excess of a rate of $25,000 per
year other than the renewal of certain data processing and computer servicing
contracts; (iv) maintain in force all insurance policies in effect on the date
of the Merger Agreement; (v) make investments in the usual course of business
consistent with past practice and investment policy (and promptly inform
AmVestors in writing of the relevant details of all such investments); (vi) not
grant any increase in the rates of pay of its employees or any increase in the
compensation payable or to become payable, if any, to any of its directors,
officers, employees or agents, or increase in any amount the benefits or
compensation, if any, of any such directors, officers, employees or agents under
any pension plan or other contract or commitment; and not pay nor agree to pay
any bonus or commission to any of its directors, officers, employees or agents
and not otherwise enter into or amend any employment or severance agreement with
any such directors, officers, employees or agents, provided that the foregoing
will not prevent (a) increases in rates of pay to employees who are not officers
or directors in amounts and at times consistent with past practice, (b) annual
bonus payments to up to 10 employees of FBG who are not officers or directors
and who customarily receive an annual bonus, at such times and in such
individual amounts as are consistent with past practice, provided that, in no
event may such bonus payments exceed $25,000 in the aggregate, and (c) bonuses
to officers which FBG is obligated to pay pursuant to the terms of a currently
existing bonus plan; (vii) not enter into any material contract or commitment,
or engage in any transaction not in the usual and ordinary course of business
and consistent with past practice; (viii) not sell or dispose of any of its
material assets out of the ordinary course of business and maintain its assets
in their present condition, reasonable wear and tear excepted; (ix) not make any
expenditure for fixed assets and not purchase any data processing equipment for
any single item in excess of $25,000 or enter into any leases of fixed assets
providing for an annual rental of $25,000; (x) not declare or pay any dividend
or make any other distribution, directly or indirectly, in respect of any
capital stock of FBG or its subsidiaries (other than distributions from FBG's
subsidiaries to FBG in an amount necessary to support FBG's debt service or
operations) nor directly or indirectly redeem, purchase or otherwise acquire or
issue any such capital stock, or grant or issue any capital stock of FBG or its
subsidiaries or stock options, warrants or other rights therefor (other than
issuances of FBG Class A Common Stock and FBG Class B Common Stock pursuant to
the exercise of currently outstanding FBG Options or pursuant to the conversion
of FBG Class B Common Stock to FBG Class A
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Common Stock); (xi) not amend the restated Certificate of Incorporation or
Bylaws of FBG or any of its subsidiaries, or make any change in the authorized
or issued capital stock of FBG or such subsidiaries; (xii) not do any act or
omit to do any act which will cause or permit a material breach by FBG of any
contract, commitment or obligation, including without limitation the Merger
Agreement; (xiii) not charge off any loans prior to Closing except in accordance
with past policies and procedures consistently applied; (xiv) not acquire,
purchase any assets of, or make any investment in any entity, (other than, in
the case of normal investing activity, as allowed in (v) above); (xv) not agree
or commit to do any of the foregoing; (xvi) not take or agree or commit to take
any action that would make any representation or warranty of FBG in the Merger
Agreement inaccurate in any respect at, or as of any time prior to, the
Effective Time, and (xvii) not omit or agree or commit to omit to take any
action necessary to prevent any such representation or warranty from being
inaccurate in any respect at any such time.
AGREEMENT NOT TO SOLICIT OTHER OFFERS. Pursuant to the Merger Agreement,
subject to the fiduciary duties of FBG's directors under applicable law as
advised by counsel to FBG, FBG has agreed not to, nor to permit its officers,
directors and other representatives to, directly or indirectly, initiate,
solicit, facilitate, assist or encourage any inquiry or proposal of, or provide
any information or assistance to, any third party concerning (i) any
liquidation, dissolution, recapitalization, merger or consolidation of FBG; (ii)
outside the ordinary course of business, the sale of a significant amount of
assets of FBG or its subsidiaries; (iii) the purchase or sale of shares of
capital stock of FBG or its subsidiaries; or (iv) any similar actions or
transactions involving FBG or its subsidiaries other than the transactions
contemplated by the Merger Agreement ("Extraordinary Transactions"). FBG has
agreed to immediately notify AmVestors if any proposal with respect to an
Extraordinary Transaction is made.
CONFIDENTIALITY. Subject to certain limitations, during the period prior to
the Effective Time and in the event the Merger Agreement is terminated,
AmVestors and FBG have each agreed to hold, and use its reasonable best efforts
to cause its officers, directors, employees, accountants, counsel, consultants,
advisors and agents to hold, in confidence all non-public documents and
information concerning the other party furnished to such party in connection
with the transactions contemplated by the Merger Agreement unless such party is
compelled to disclose such information by judicial or administrative process or
by other requirements of law.
OTHER COVENANTS. In addition to the foregoing, FBG has agreed to deliver to
AmVestors (i) within 60 days of the execution of the Merger Agreement, a
preliminary report of title with respect to all real property owned by FBG; and
(ii) within 20 days of the last day of each calendar month until the Closing
Date, financial reports for such month certified by the Chief Financial Officer
of FBG. AmVestors has also agreed to (i) cause the Surviving Corporation to
provide the eligible employees of the Surviving Corporation and its subsidiaries
with benefits that are in the aggregate generally as favorable as the benefits
provided to the eligible employees of AmVestors, provided that, AmVestors, in
its sole discretion, may elect to continue the health care coverage currently
maintained by FBG for such eligible employees and that the foregoing does not
limit AmVestors' or the Surviving Corporation's ability to make any staffing
decisions they deem appropriate; (ii) honor any obligation of FBG to indemnify
and hold harmless the present and former officers and directors of FBG (the
"Indemnitees") in respect of acts or omissions occurring prior to the Effective
Time to the extent required by FBG's Certificate and bylaws, or any
indemnification agreement to which FBG and any Indemnitee are parties; and (iii)
provide officers' and directors' liability insurance in respect of acts or
omissions occurring prior to the Effective Time covering each such Indemnitee on
terms with respect to coverage and amounts roughly comparable to the coverage
and amounts currently provided by FBG's policy, which provides for coverage in
the amount of $2.0 million, so long as such coverage may be obtained by
AmVestors at a reasonable cost.
TERMINATION AND AMENDMENT OF THE MERGER AGREEMENT. The Merger Agreement may
be terminated at any time prior to the Effective Time by the mutual consent of
FBG and AmVestors. In addition, either of the parties may terminate the Merger
Agreement in the event: (i) the Merger is not consummated on or before April 8,
1996; (ii) the requisite approvals of the respective stockholders of either FBG
or AmVestors are not obtained at the Special Meetings; (iii) there shall be any
law or regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, order or decree enjoins or otherwise prohibits
the
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Merger; (iv) any of the conditions to such party's obligations has not occurred
or been waived; or (v) the AmVestors Stock Price is less than $9.50 or greater
than $14.50. In addition, AmVestors may terminate the Merger Agreement in the
event that FBG receives an acquisition proposal from a third party that the
Board of Directors of FBG determines is more favorable to FBG's stockholders
than the transactions contemplated by the Merger Agreement, or the FBG Board
otherwise declines to make, withdraws or modifies its recommendation that its
stockholders approve the Merger.
The Merger Agreement provides that, in the event that the Merger Agreement
is terminated and the Merger has not been consummated (other than as a result of
the material breach by AmVestors of its representations, warranties or covenants
contained therein or the exercise by either party of its right to terminate the
Merger Agreement due to the AmVestors Stock Price being less than $9.50 or
greater than $14.50 as described above), and if no Triggering Event (as defined
below) has occurred, FBG will reimburse AmVestors for its time and expenses in
pursuing and structuring the Merger in an amount equal to $250,000. In the event
that the Merger Agreement is terminated and the Merger has not been consummated
as a result of the material breach by AmVestors of its representations,
warranties or covenants and there has been no material breach by FBG of its
representations, warranties or covenants, and if no Triggering Event has
occurred, AmVestors will be required to reimburse FBG for its time and expenses
in pursuing and structuring the Merger in an amount equal to $250,000.
FBG will be required to pay a $1.0 million fee to AmVestors (the "Break-up
Fee") in the event the Merger is not consummated and any of the following
"Triggering Events" has occurred:
(i) any other party has in any manner proposed (whether to management,
the directors or the stockholders of FBG or otherwise) or communicated or
announced its interest in pursuing an Extraordinary Transaction, such
proposal or interest is publicly communicated or announced by any party,
and the stockholders of FBG disapprove the Merger;
(ii) more than 25% of the shares of FBG Common Stock held by the
directors of FBG are voted against, or abstain from voting on, the Merger;
(iii) FBG enters into an agreement (or reaches an agreement in
principle) providing for an Extraordinary Transaction or the directors or
stockholders of FBG authorize or approve the entering into of any of such
agreement or agreement in principle by FBG or any application, notification
or filing seeking regulatory approval or clearance of any such agreement,
agreement in principle or Extraordinary Transaction shall have been filed;
(iv) the consummation of an Extraordinary Transaction by FBG;
(v) any other party has commenced, or publicly communicated an
intention to commence, a solicitation of proxies in opposition to approval
by FBG's stockholders of the Merger and the stockholders of FBG disapprove
the Merger; or
(vi) the Board of Directors of FBG declines to make, withdraws or
amends its recommendation to its stockholders to approve the Merger.
The Merger Agreement provides that the Break-up Fee will not be payable in
the event that FBG has terminated the Merger Agreement prior to the occurrence
of a Triggering Event. Further, the Break-up Fee will also not be payable in the
event that AmVestors terminates the Merger Agreement (i) due to the AmVestors
Stock Price being less than $9.50 or greater than $14.50 as described above,
(ii) because it has been advised in writing that the Merger will be accounted
for as a pooling, or (iii) because of a downgrading or threatened downgrading of
American or Financial Benefit Life by A.M. Best which is not primarily the
result of a Triggering Event or actions taken in connection with a Triggering
Event.
The Merger Agreement, including the provision setting forth an outside date
for consummation of the Merger of April 8, 1996 and all other material terms
thereof, may be amended, waived or modified in writing by the parties provided
that no such amendment or waiver shall, after the approval by FBG's
stockholders, without the further approval of such stockholders, alter or change
(i) the amount or kind of consideration to be received in exchange for any
shares of FBG Common Stock; (ii) any term of the certificate of
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incorporation of the Surviving Corporation or (iii) any of the terms or
conditions of the Merger Agreement if such alteration or change would adversely
affect the stockholders of FBG. In the event that the Merger Agreement is
materially amended after the date of the Special Meetings, then each of the
Companies will hold a second special meeting of Stockholders, with an amended
Joint Proxy Statement/Prospectus, in order to solicit approval of the Merger
Agreement as so amended.
CLOSING DATE. The closing of the Merger will occur on such date as
AmVestors notifies FBG in writing no less than five days prior thereto, which
date will not be more than ten days after each of the conditions to the
effectiveness of the Merger Agreement has been waived or satisfied (the "Closing
Date"). On the Closing Date, the parties will file a Certificate of Merger in
the office of the Secretary of State of Delaware. The Effective Time will occur
upon the filing of such Certificate of Merger.
EXPENSES. All fees, costs and expenses required or incurred in connection
with the Merger Agreement will be paid by the party incurring such costs or
expenses, subject to the provisions described in "-- Termination and Amendment
of the Merger Agreement."
FBG OPTIONS AND WARRANTS. Each holder of an option or warrant issued
pursuant to one of FBG's incentive plans who does not exercise such option or
warrant prior to the Merger, will be entitled to receive either cash or
AmVestors Options as described below.
If the FBG Option was granted pursuant to the Financial Benefit Group, Inc.
Non-Qualified Option Plan, such option will terminate upon the consummation of
the Merger (as specified by the terms of such plan) and its holder will be
entitled to receive an amount of cash equal to the product of (i) the excess of
the Merger Consideration (valuing the fraction of AmVestors Common Stock
receivable at the AmVestors Stock Price and valuing the fraction of the
AmVestors Warrant at $.31) over the exercise price of such option, multiplied by
(ii) the number of shares subject to such FBG Option (the "Option Cash
Consideration").
If such FBG Option was granted pursuant to the Financial Benefit Group,
Inc. Equity Incentive Non-Qualified Warrant/Option Program, such option will be
exchangeable, at the election of its holder, as specified by the terms of such
plan, for either the Option Cash Consideration or a non-qualified option
exercisable for AmVestors Common Stock having substantially the same terms and
conditions as such FBG Option except that, in order to reflect the terms of the
Merger, the exercise price per share of such FBG Option will be determined by
dividing the exercise price of the FBG Option by the Exchange Ratio (as defined
in the next sentence) and the number of shares of AmVestors Common Stock
issuable upon exercise will be determined by multiplying the number of shares of
FBG Common Stock subject to the FBG Option by the Exchange Ratio. The "Exchange
Ratio" will be equal to the sum of (i) the number of shares of AmVestors Common
Stock receivable for each share of FBG Class A Common Stock in the Merger, (ii)
a number of shares equal to the Cash Portion Per Share divided by the AmVestors
Stock Price, and (iii) a number of shares equal to $.31 divided by the AmVestors
Stock Price.
If such FBG Option was granted pursuant to the Financial Benefit Group,
Inc. Employee Incentive Stock Option Plan, such option will be exchangeable for
either the Option Cash Consideration (at the request of the option holder and
with the consent of FBG) or an incentive stock option exercisable for AmVestors
Common Stock having substantially the same terms and conditions as such FBG
Option except that, in order to reflect the terms of the Merger, the exercise
price per share of such FBG Option will be determined by dividing the exercise
price of the FBG Option by the Exchange Ratio and number of shares of AmVestors
Common Stock issuable upon exercise will be determined by multiplying the number
of Shares of FBG Common Stock subject to the FBG Option by the Exchange Ratio.
Upon conversion of the FBG Class B Common Stock into FBG Class A Common
Stock in connection with the Merger, each FBG Option to purchase one share of
FBG Class B Common Stock will be converted into an FBG Option to purchase 1.35
shares of Class A Common Stock. Each holder of an FBG Option after such
conversion will then be treated as described above depending upon the plan under
which such FBG Option was granted.
Pursuant to the terms of the Merger Agreement, no more than 150,000 shares
of AmVestors Common Stock are to be subject to AmVestors Options granted to
former FBG Option holders (in addition to 125,000
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options to be issued pursuant to certain employment agreements to be entered
into by AmVestors in connection with the Merger). Certain officers of FBG who
hold FBG Options have indicated their willingness to either exercise such
options prior to the Merger or to elect to receive cash in exchange for such
options in order to enable the condition to the consummation of the Merger that
conversions of FBG Options result in no more than 150,000 shares of AmVestors
Common Stock to be subject to former FBG Options to be satisfied. The decision
of such officers to exercise such options prior to the Merger or to elect to
receive cash in exchange for such options is a personal decision of each officer
subject to change up until no later than 4 days before the Effective Time. If
conversion of FBG Options after such elections have been made would cause more
than 150,000 shares of AmVestors Common Stock to be subject to former FBG
Options, such event would cause a failure of a condition to AmVestors'
obligation to consummate the Merger, and would constitute a breach by FBG of the
Merger Agreement. AmVestors currently has no intentions as to what course of
action it would take in such event.
All elections or requests to receive cash rather than AmVestors Options (if
applicable) must be made no later than four days before the Effective Time or
such FBG Options will be converted into AmVestors Options. Each holder of an FBG
Option entitled to elect or request cash will be mailed an election or a request
form, along with a copy of this Joint Proxy Statement/Prospectus at about the
same time as the stockholders of AmVestors and FBG will be mailed this Joint
Proxy Statement/Prospectus.
FBG also has outstanding FBG Warrants to purchase 643,781 shares of FBG
Class A Common Stock which were not issued pursuant to any FBG benefit plan, all
of which are currently exercisable. Pursuant to the terms of the FBG Warrants,
upon exercise and payment of the exercise price thereof following the Closing
Date, the holders of the FBG Warrants will be entitled to receive the Merger
Consideration they would have been entitled to receive had they exercised the
FBG Warrants immediately prior to the Closing Date. None of the FBG Warrants
terminates pursuant to its terms, or is cancelable, following or in connection
with the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of FBG's Board with respect to the Merger
Agreement, FBG stockholders should be aware that FBG's management and its Board
have interests in the Merger that are in addition to their interests as FBG
stockholders. Each of the members of FBG's Board of Directors was aware of those
interests in effect on the date of approval and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby. Such interests are as follows:
FBG OPTIONS. As of February 23, 1996 executive officers and directors of
FBG held FBG Options to purchase an aggregate of 1,443,897 shares of FBG Class A
Common Stock (taking into account the conversion of each option to purchase one
share of FBG Class B Common Stock into an option to purchase 1.35 shares of FBG
Class A Common Stock), at various exercise prices and subject to various vesting
schedules. Such outstanding FBG Options were granted under the Financial Benefit
Group, Inc. Non-Qualified Option Plan, the Financial Benefit Group, Inc. Equity
Incentive Non-Qualified Warrant/Option Program, and the Financial Benefit Group,
Inc. Employee Incentive Stock Option Plan. Certain FBG executive officers and
directors have indicated that they intend to either exercise their FBG Options
prior to the Closing Date or exchange such FBG Options for cash in order to
enable the condition to the consummation of the Merger that conversions of FBG
Options result in no more than 150,000 shares of AmVestors Common Stock be
subject to FBG Options to be satisfied. See "-- FBG Options and Warrants." As
indicated in the following table, all of the FBG Options held by directors and
executive officers will entitle
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or enable, as the case may be, the holders to receive payment in cash by virtue
of the Merger for such FBG Options as of the Effective Time:
AMOUNT OF AGGREGATE AMOUNT OF AGGREGATE
CASH PAYABLE CASH PAYABLE
FROM FBG OPTIONS FROM FBG OPTIONS AGGREGATE
NOT EXERCISABLE EXERCISABLE ON OR CASH PAYABLE
ON OR BEFORE THE BEFORE THE BY VIRTUE
OPTION HOLDER EFFECTIVE TIME EFFECTIVE TIME OF THE MERGER
----------------------------- ------------------- ------------------- -------------
Frank T. Crohn............... $ 87,717.35 $2,248,183.32 $2,335,900.67
Donna J. Rubertone........... 93,270.69 1,401,002.24 1,494,272.93
Jerald R. Hoeft.............. 56,400.91 688,197.75 744,598.66
Mark A. Simon................ 77,185.76 1,018,871.93 1,096,057.69
Other Directors.............. 63,096.81 512,657.79 575,754.60
----------- ------------- -------------
Total................... $377,671.52 $5,868,913.03 $6,246,584.55
=========== ============= =============
The terms of FBG's Non-Qualified Option Plan require that the holders of
all FBG Options issued thereunder, whether exercisable or not, receive a cash
payment upon the consummation of the Merger. FBG's Equity Incentive
Non-Qualified Warrant/Option Program provides that the holders of FBG Options
issued thereunder (whether exercisable or not) are entitled to elect whether to
receive a cash payment or to have such FBG Options converted into AmVestors
Options upon the consummation of the Merger. The terms of FBG's Employee
Incentive Stock Option Plan do not provide for a cash payment to the holders of
FBG Options issued thereunder by virtue of the Merger; however, pursuant to the
Merger Agreement, the holders of FBG Options (whether exercisable or not) issued
under such plan will be given the opportunity to request, at least 10 days prior
to the Closing, that FBG allow such holder to receive a cash payment from the
Surviving Corporation upon consummation of the Merger in lieu of the AmVestors
Options they would otherwise be entitled to receive according to the terms of
such plan. The figures in the foregoing table are based on the assumption that
the holders of all FBG Options for which a cash election is available elect to
receive cash for all such FBG Options, and, in the case of the Financial Benefit
Group, Inc.'s Employee Incentive Stock Option Plan, that the holders of all FBG
Options issued thereunder request a cash payment. FBG intends to accept all such
requests.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Merger Agreement provides
that the Surviving Corporation will honor the obligations of FBG to indemnify
its present and former officers and directors in respect of acts and omissions
occurring prior to the Effective Time to the extent required by FBG's
certificate of incorporation, bylaws or any indemnification agreement to which
FBG is a party.
OFFICERS' AND DIRECTORS' LIABILITY INSURANCE. The Merger Agreement provides
that, for a period of three years after the Effective Time, AmVestors will cause
the Surviving Corporation to maintain officers' and directors' liability
insurance in respect of acts or omissions occurring prior to the Effective Time
covering each present and former officer and director of FBG on terms with
respect to coverage and amounts roughly comparable to the coverage and amounts
currently provided by FBG so long as such coverage may be obtained by AmVestors
at a reasonable cost, the current cost of FBG's insurance being deemed
reasonable for this purpose.
EMPLOYMENT ARRANGEMENTS. If the Merger is consummated, Frank T. Crohn and
Donna J. Rubertone will have entered into employment agreements with AmVestors,
and certain other executive officers are anticipated to be employed by AmVestors
and/or one of its subsidiaries. See "-- Management and Operations after the
Merger -- Employment Agreements."
OTHER. As of September 30, 1995, Frank T. Crohn owned 62,506 shares of
AmVestors Common Stock which he acquired prior to July, 1994.
SURRENDER OF STOCK CERTIFICATES AND RECEIPT OF MERGER CONSIDERATION
As soon as practicable after the Effective Time, the Exchange Agent will
mail to each holder of FBG Common Stock (including the holders of certificates
formerly representing shares of FBG Class B Common Stock) notification of the
consummation of the Merger and instructions as to the procedure for the
surrender
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of the stock certificates. The Exchange Agent will accept documentation
acceptable to it in lieu of lost or destroyed certificates and may also require
the holder of a lost or destroyed certificate to post an insurance bond
acceptable to the Exchange Agent. Each holder of FBG Common Stock (including the
holders of certificates formerly representing shares of FBG Class B Common
Stock), upon surrender of a stock certificate or certificates representing such
stock, together with the transmittal letter provided by the Exchange Agent duly
completed and executed by such holder, will be entitled to receive a stock
certificate or certificates representing the number of the whole shares of
AmVestors Common Stock (together with cash in lieu of fractional shares) and
such cash consideration and AmVestors Warrants (together with cash in lieu of
fractional warrants) to which such holder is entitled. Holders of certificates
formerly representing shares of FBG Class B Common Stock shall be entitled to
receive the number of whole shares of AmVestors Common Stock (together with cash
in lieu of fractional shares) and such cash consideration and AmVestors Warrants
(together with cash in lieu of fractional warrants) based on the number of
shares of FBG Class A Common Stock into which such shares of FBG Class B Common
Stock will have been converted prior to the Merger.
FBG STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL LETTER FROM THE EXCHANGE AGENT.
From and after the Effective Time, there shall be no further transfers on
the stock transfer books of FBG of any FBG Common Stock.
No dividends or other distributions will be paid to a former stockholder of
FBG with respect to shares of AmVestors Common Stock until such stockholder's
stock certificate(s) representing FBG Common Stock are remitted to the Exchange
Agent. Any dividends declared between the Effective Time and the date of the
surrender of the FBG stock certificate(s) will be paid to the holder, without
interest thereon, upon the surrender of such stock certificate(s). Holders of
any unsurrendered certificates representing FBG Common Stock will not be
entitled to vote the AmVestors Common Stock to which they are entitled until
such certificates are exchanged for certificates representing AmVestors Common
Stock.
FRACTIONAL SHARES
No fractional shares of AmVestors Common Stock or fractional AmVestors
Warrants will be issued in connection with the Merger. Where the Merger
Consideration would otherwise require the issuance of a fractional share, cash
equal to the value of such fractional interest will be paid to the holder of
such interest in lieu of such fractional share (with the AmVestors Common Stock
being valued at the AmVestors Stock Price). Where the Merger Consideration would
otherwise result in the payment of a fraction of a AmVestors Warrant, the cash
equal to the value of such fractional interest (with the AmVestors Warrant being
valued at $.31 divided by the fraction of an AmVestors Warrant being issued as
part of the Merger Consideration, will be paid to such stockholder.
CERTAIN REGULATORY FILINGS AND APPROVALS
Consummation of the Merger is contingent upon the receipt of an approval
from the Florida Insurance Department with respect to the transfer of control of
FBG to AmVestors. The controlling Florida statute states that an acquisition of
voting securities shall be deemed approved unless the Department disapproves the
proposed acquisition within ninety days following the filing of the required
acquisition of control statement. The acquisition of control statement was filed
with the Florida Insurance Department on September 13, 1995. At the time of
filing, FBG and AmVestors filed a written notice waiving their rights to have a
hearing on this matter. On November 29, 1995, the Florida Department of
Insurance issued a Notice of Hearing for Case No. 12174-95-C (JPF) for a hearing
to be held on January 5, 1996, at 1:30 p.m. E.S.T. in Tallahassee, Florida for
the purpose of reviewing the proposed Merger. The Department of Insurance may
approve the Merger without this hearing, but sent the required Notice to
accommodate the companies' time requirements in the event a hearing is held.
Other states require approval of or notification of the change of control
of a licensed insurer such as Financial Benefit Life. While such approvals or
notices could affect Financial Benefit Life's certificate of
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authority in each such state, such approvals are not a condition to the
consummation of the Merger. Nevertheless, it is anticipated that all such
approvals will be secured prior to the consummation of the Merger.
Under the Hart-Scott-Rodino Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and specified waiting period requirements have been satisfied.
AmVestors and FBG filed notification and report forms under the
Hart-Scott-Rodino Act with the FTC and the Antitrust Division on October 17,
1995. The latest required waiting periods for such filings under the
Hart-Scott-Rodino Act expired on November 17, 1995. On October 30, 1995, the
companies received a notice of early termination of the waiting period from the
FTC. However, at any time before or after the Effective Time of the Merger, and
notwithstanding that the Hart-Scott-Rodino Act waiting period has expired, the
FTC, the Antitrust Division or any state could take such action under the
antitrust laws as it deems necessary or desirable in the public interest. Such
action could include seeking to enjoin the consummation of the Merger or seeking
divestiture of FBG or businesses of AmVestors or FBG acquired as a result of the
Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase for financial accounting
purposes in accordance with generally accepted accounting principles. For
purposes of preparing AmVestors' consolidated financial statements, AmVestors
will establish a new accounting basis for FBG's assets and liabilities based
upon the fair values thereof, the Merger Consideration and the costs of the
Merger. Any excess of cost over the fair value of the net assets of FBG will be
recorded as goodwill and amortized over a period not to exceed 40 years. A final
determination of required purchase accounting adjustments, including the
allocation of the purchase price to the assets acquired and liabilities assumed
based on their respective fair values, has not yet been made. Accordingly, the
purchase accounting adjustments made in connection with the development of the
pro forma combined financial information appearing elsewhere in this Joint Proxy
Statement/Prospectus are preliminary and have been made solely for purposes of
developing such pro forma combined financial information. AmVestors will
undertake a study to determine the fair value of certain of FBG's assets and
liabilities and will make appropriate purchase accounting adjustments upon
completion of that study. For financial reporting purposes, the results of
operations of FBG will be included in the AmVestors consolidated statement of
income following the Effective Time. The AmVestors financial statements for
prior periods will not be restated as a result of the Merger or related
transactions. See "Pro Forma Combining Financial Statements."
PUBLIC TRADING MARKET
AmVestors and FBG anticipate that the shares of AmVestors Common Stock to
be issued and reserved for issuance (i) in connection with the Merger, (ii) upon
exercise of the AmVestors Options and (iii) upon exercise of the AmVestors
Warrants, will be traded on the NYSE and approval of such trading by the NYSE is
a condition precedent to the effectiveness of the Merger. AmVestors and FBG
anticipate that the AmVestors Warrants to be issued in connection with the
Merger will also be listed on the NYSE.
STATUS UNDER FEDERAL SECURITIES LAWS
The shares of AmVestors Common Stock to be issued to stockholders of FBG
pursuant to the Merger Agreement or upon exercise of AmVestors Warrants and
AmVestors Options have been registered under the Securities Act, thereby
allowing such shares to be freely traded without restriction by persons who will
not be "affiliates" of AmVestors after the Merger or who were not "affiliates"
of FBG on the date of the FBG Special Meeting. All directors and certain
officers and stockholders of FBG may be deemed to have been "affiliates" of FBG
within the meaning of such rules. Any such person may resell the AmVestors
Common Stock received by him or her in the Merger only if such shares are
registered under the Securities Act or an exemption from registration under the
Securities Act is available. Such persons may be able to effect resales under
the safe harbor provisions of Rule 145 under the Securities Act (or Rule 144 in
the case of such persons who become "affiliates" of AmVestors) or as otherwise
permitted under the Securities Act. Persons who may be deemed affiliates of FBG
or AmVestors generally include individuals or entities that control, are
controlled
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by, or are under common control with, such party, and may include certain
officers and directors of such party as well as principal stockholders of such
party. It is recommended that any such person obtain advice of securities
counsel prior to effecting any resales.
The Merger Agreement requires, as a condition to closing, that each of
FBG's "affiliates" execute a written agreement to the effect that such person
will not offer or sell or otherwise dispose of any of the AmVestors Common Stock
received in the Merger in violation of the Securities Act or the rules and
regulations thereunder.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discusses only certain federal income tax consequences of the
Merger to United States citizens or residents who hold shares of FBG Common
Stock. It does not discuss all the tax consequences that might be relevant to
stockholders entitled to special treatment under the Code or to holders who
acquired their shares of FBG Common Stock through the exercise of employee stock
options or otherwise as compensation. It also does not address the tax
consequences of the Merger under state, local, or foreign tax laws.
Although no ruling will be requested from the IRS regarding the tax
consequences of the Merger, FBG and AmVestors have received opinions from their
respective legal counsel Lord, Bissell & Brook and Bryan Cave LLP to the effect
that, if the Merger is consummated in accordance with the terms of the Merger
Agreement and as described in this Joint Proxy Statement/Prospectus, for federal
income tax purposes, the Merger will constitute a reorganization within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. Such opinions are
based upon customary representations and assumptions made to each such legal
counsel by FBG and AmVestors with respect to certain factual matters required to
qualify the Merger as a reorganization under the Code, including that:
(i) there is no current plan or intention by the holders of 5% or more
of FBG Common Stock, and to the best of the knowledge of the management of
FBG, there is no plan or intention on the part of the remaining holders of
FBG Common Stock, to sell, exchange, or otherwise dispose of a number of
shares of AmVestors Common Stock received in the Merger that would reduce
the FBG stockholders' ownership of AmVestor Common Stock to a number having
a value as of the date of the Merger of less than 50% of the value of all
of the formerly outstanding FBG Common Stock as of that same date; (ii)
Acquisition Subsidiary will acquire at least 90% of the fair market value
of the net assets and at least 70% of the fair market value of the gross
assets held by FBG immediately prior to the Merger; (iii) prior to the
Merger, AmVestors will be in control of Acquisition Subsidiary (for these
purposes, the term "control" is defined as the direct ownership of stock
possessing at least 80% of the total combined voting power of all classes
of stock entitled to vote and at least 80% of the total number of shares of
all other classes of stock of such corporation); (iv) following the Merger,
AmVestors intends to cause Acquisition Subsidiary, as the survivor of the
Merger, to continue the historic and customary business activities of FBG
or use a significant portion of FBG's historic business assets in a
business; (v) AmVestors, Acquisition Subsidiary, FBG, and the stockholders
of FBG will pay only their respective expenses, if any, incurred in
connection with the Merger; (vi) none of AmVestors, Acquisition Subsidiary,
and FBG are under the jurisdiction of a court in a Title 11 or similar case
within the meaning of Section 368(a)(3)(A) of the Code; (vii) no stock of
Acquisition Subsidiary will be issued in the Merger; (viii) any cash paid
by AmVestors to holders of FBG Common Stock in lieu of fractional shares is
not separately bargained for consideration and is being distributed solely
to avoid the expense and inconvenience of issuing fractional shares; and
(ix) the total cash consideration that will be paid in the Merger to the
FBG stockholders instead of issuing fractional shares of AmVestors Common
Stock will not exceed one percent of the total consideration that will be
issued in the Merger to the FBG stockholders in exchange for their shares
of FBG Common Stock and the fractional share interests of each FBG
stockholder will be aggregated and no FBG stockholder will receive cash in
an amount equal to or greater than the value of one full share of AmVestors
Common Stock.
It should be noted that an opinion of counsel is not binding upon the IRS. Thus,
no assurance can be given that the IRS will not successfully challenge the
conclusions set forth therein.
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QUALIFICATION AS A REORGANIZATION. Although AmVestors and FBG each intend
to take the position that the Merger qualifies as a reorganization within the
meaning of sections 368(a)(1)(A) and 368(a)(2)(D) of the Code (an "A"
reorganization), the IRS may take a contrary position. The discussion below
describes certain of the material factors that may be relevant in determining
whether the Merger is likely to qualify as an "A" reorganization.
In general, a corporate reorganization under section 368(a)(1)(A) of the
Code means a statutory merger or consolidation. A statutory merger or
consolidation is a merger or consolidation effected pursuant to the corporation
laws of the United States or a State or territory, or the District of Columbia.
The transaction will be effected pursuant to the corporation law of Delaware.
Thus, the transaction will be a statutory merger.
In order for a transaction to qualify as a reorganization under section
368(a)(1)(A) by reason of section 368(a)(2)(D), one corporation (the acquiring
corporation) must acquire substantially all of the properties of another
corporation (the acquired corporation) partly or entirely in exchange for stock
of a corporation which is in control of the acquiring corporation (the
controlling corporation), provided that (i) the transaction would have qualified
under section 368(a)(1)(A) if the merger had been into the controlling
corporation, and (ii) no stock of the acquiring corporation is used in the
transaction. The IRS has defined "substantially all" for purposes of issuing
private letter rulings as 90 percent of the fair market value of the acquired
corporation's net assets and 70 percent of the fair market value of the acquired
corporation's gross assets. If Acquisition Subsidiary acquires 90 percent of the
fair market value of FBG's net assets and 70 percent of FBG's gross assets in a
statutory merger under the laws of Delaware and uses only stock of AmVestors
(which is in control of Acquisition Subsidiary) then the IRS private letter
ruling requirements should be met. Assuming the IRS ruling requirements are met,
the statutory requirements of sections 368(a)(1)(A) and 368(a)(2)(D) should also
be met.
In addition to the statutory requirements described above, the Merger may
qualify as an "A" reorganization only if certain judicial doctrines relating to
"continuity of shareholder interest" and "continuity of business enterprise" are
also met. To satisfy the continuity of shareholder interest requirement,
stockholders of FBG must not, pursuant to a plan or intent existing at or prior
to the consummation of the Merger, dispose of or transfer the AmVestors Common
Stock to be received pursuant to the Merger such that the stockholders of FBG,
in the aggregate, would no longer have a material equity interest in FBG
(through their ownership of AmVestors Common Stock) in relation to the value of
FBG determined prior to the consummation of the Merger. Based on representations
of the management of FBG that there is no plan or intention by any holder of
five percent (5%) or more of FBG Common Stock, and to the best of the knowledge
of the management of FBG, there is no plan or intention on the part of the
remaining holders of FBG Common Stock, to sell, exchange, or otherwise dispose
of a number of shares of AmVestors Common Stock received in the transaction that
would reduce the FBG stockholders' ownership of AmVestors Common Stock to a
number having a value as of the date of the transaction, of less than 50 percent
(50%) of the value of all of the formerly outstanding FBG Common Stock as of
that same date, the continuity of shareholder interest test should be met.
To satisfy the continuity of business enterprise requirement, Acquisition
Subsidiary must either (i) continue the historic business of FBG or (ii) use a
significant portion of FBG's historic business assets in a business. Based on
AmVestors' representation that it intends to cause Acquisition Subsidiary, as
the survivor of the Merger, to continue the historic and customary business
activities of FBG or use a significant portion of FBG's historic business assets
in a business, the continuity of business enterprise test should be met.
In the event that the Merger Agreement is materially amended after the date
of the Special Meetings, each of the companies will hold a second Special
Meeting in order to solicit the approval of its stockholders to the Merger
Agreement as so amended. An amendment of the Merger Agreement in such a manner
as to cause the Merger to fail to qualify as an "A" reorganization would be a
material amendment requiring second Special Meetings.
EXCHANGE OF FBG CLASS A COMMON STOCK FOR THE MERGER CONSIDERATION. A
stockholder's gain or loss is equal to the Merger Consideration received by such
stockholder less such stockholder's tax basis in the surrendered shares. If the
Merger were to fail to qualify as a reorganization, each FBG stockholder would
fully
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recognize such gain or loss. However, based upon the opinions of Bryan Cave LLP
and Lord, Bissell & Brook that the Merger constitutes a reorganization under
sections 368(a)(1)(A) and 368(a)(2)(D) of the Code, each holder of FBG Common
Stock who exchanges such stock for the Merger Consideration should recognize
gain, if any, in an amount equal to the lesser of (i) the excess of the fair
market value of the Merger Consideration (excluding any cash received in lieu of
a fractional share of AmVestors Common Stock) over the holder's tax basis in the
FBG Common Stock exchanged therefore, or (ii) the fair market value of the
AmVestors Warrants and the amount of cash received in the Merger (excluding any
cash received in lieu of a fractional share of AmVestors Common Stock). Except
as otherwise described herein, no loss should be recognized as a result of the
Merger. The Cash Consideration Per Share and the fair market value of the
AmVestors Warrants (and any cash received in lieu of a fractional AmVestors
Warrant) received in the exchange will be treated as having been received as a
distribution in redemption of AmVestors Common Stock. This should result in a
capital gain provided the exchange does not have the effect of the distribution
of a dividend and the stockholder exchanging the FBG Common Stock held such
shares as a capital asset at the time of the exchange. The capital gain will be
a long-term capital gain if such stockholder held such shares for a period
greater than one year as of the Effective Time of the Merger. Although the
exchange will usually result in a capital gain, if the exchange has the effect
of the distribution of a dividend, then the amount of gain recognized that is
not in excess of the stockholder's ratable share of the undistributed earnings
and profits of FBG will be treated as a dividend. See "-- Avoiding Dividend
Treatment Under Sections 302 and 356 of the Code."
Because the Merger is expected to qualify as a reorganization, the tax
basis of the AmVestors Common Stock received by an FBG stockholder should be
equal to the tax basis of the shares of FBG Common Stock surrendered in exchange
therefor, decreased by the amount of cash and the fair market value of the
AmVestors Warrants received and increased by the amount of gain, if any,
recognized to the stockholder on the exchange (including any portion of such
gain that is treated as a dividend). The tax basis of the AmVestors Warrants
received by an FBG stockholder will be equal to the fair market value of the
AmVestors Warrants on the date of the Merger. The value of the fraction of an
AmVestors Warrant which constitutes part of the Merger consideration is
estimated at $0.31 by application of a Black-Scholes model. For purposes of
determining whether the gain or loss on a subsequent disposition of AmVestors
Common Stock is long-term or short-term, the holding period of the AmVestors
Common Stock received pursuant to the Merger by FBG stockholders will include
the holding period of the shares of FBG Common Stock exchanged therefor,
provided such shares of FBG Common Stock were held as a capital asset on the
date of the Merger.
CASH RECEIVED IN LIEU OF FRACTIONAL SHARES OF AMVESTORS COMMON STOCK. No
fractional shares of AmVestors Common Stock will be issued in the Merger. An FBG
stockholder who receives cash in the Merger in lieu of a fractional share of
AmVestors Common Stock will be treated as having received that fractional share
in the Merger in exchange for all or part of a share of FBG Common Stock and
then immediately having that fractional share redeemed by AmVestors for cash.
The FBG stockholder will recognize capital gain or loss with respect to the
fractional share of AmVestors Common Stock (provided the shares of FBG Common
Stock are held as capital assets at the Effective Time) equal to the difference
between (i) the tax basis allocable to the "hypothetically redeemed" fractional
share of AmVestors Common Stock and (ii) the cash received in lieu thereof
provided that the "hypothetical redemption" described in the preceding sentence
is not characterized as a dividend. See below "-- Avoiding Dividend Treatment
Under Sections 302 and 356 of the Code".
AVOIDING DIVIDEND TREATMENT UNDER SECTIONS 302 AND 356 OF THE CODE. The
principles of Section 302 of the Code apply to determine whether AmVestors
Warrants and cash received by an FBG stockholder in the Merger have the effect
of a dividend distribution under section 356 of the Code and are taxable to the
extent of the FBG stockholder's ratable share of FBG's undistributed accumulated
tax earnings and profits. For purposes of applying Section 302 of the Code to
the Merger, an FBG stockholder who receives in the Merger (i) AmVestors Warrants
and cash or (ii) cash in lieu of a fractional share of AmVestors Common Stock
will be treated as (A) having received shares of AmVestors Common Stock
("Hypothetical AmVestors Shares") and (B) immediately having the Hypothetical
AmVestors Shares redeemed by AmVestors in exchange for AmVestors Warrants and/or
cash. Pursuant to Section 302 of the Code, an FBG stockholder will recognize
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capital gain rather than dividend income with respect to the AmVestors Warrants
and cash received in the Merger (provided the shares of FBG Common Stock are
held as capital assets at the Effective Time) only if the "hypothetical
redemption" described in the preceding sentence is (i) "not essentially
equivalent to a dividend," (ii) "substantially disproportionate" with respect to
the FBG stockholder or (iii) completely terminates the FBG stockholder's
interest in AmVestors. The constructive ownership rules of Section 318 of the
Code apply in comparing an FBG stockholder's percentage interest in AmVestors
both immediately after the Merger (but before the hypothetical redemption) and
after the hypothetical redemption. Generally, the Section 318 constructive
ownership rules treat a stockholder as owning (i) shares owned by certain
relatives, related corporations, partnerships, estates or trusts, or (ii) shares
the stockholder has an option to acquire.
A hypothetical redemption by AmVestors of Hypothetical AmVestors Shares for
cash is "not essentially equivalent to a dividend" where it results in a
"meaningful reduction" in an FBG stockholder's percentage ownership of AmVestors
Common Stock. In determining whether the hypothetical redemption by AmVestors
results in a meaningful reduction in an FBG stockholder's percentage ownership
of AmVestors Common Stock, an FBG stockholder must compare the holder's share
interest in AmVestors (including any actual, hypothetical and constructive
ownership) immediately after the Merger (but before the hypothetical redemption)
to the holder's share interest in AmVestors (including any actual, hypothetical
and constructive ownership) after the hypothetical redemption. The IRS has held
in Revenue Ruling 76-385 that a minority stockholder in a widely-held public
corporation (i.e., a holder whose relative stock interest in AmVestors and FBG
is minimal in relation to the respective shares outstanding and who exercises no
"control" over corporate affairs) had a meaningful reduction in the holder's
share interest after a redemption transaction where the holder's actual and
constructive percentage stock ownership in the corporation was reduced from
0.0001118 percent to 0.0001081 percent (an approximate 3.31% reduction in
relative interest).
A hypothetical redemption transaction would be "substantially
disproportionate" with respect to an FBG stockholder if the holder's percentage
ownership of AmVestors Common Stock (including any actual, hypothetical and
constructive ownership) immediately after the hypothetical redemption by
AmVestors is less than 80% of the holder's percentage ownership of AmVestors
Common Stock (including any actual, hypothetical and constructive ownership)
immediately before the hypothetical redemption by AmVestors.
A holder of FBG Common Stock "completely terminates" the holder's interest
in AmVestors if the holder does not own any actual or constructive AmVestors
Common Stock after the hypothetical redemption.
Based on the aggregate consideration to be received in the Merger and
assuming a stockholder holds its shares as a capital asset, any gain recognized
in the Merger should qualify for capital gain treatment.
FBG OPTION HOLDERS. Each holder of an FBG Option who receives the Option
Cash Consideration in exchange for an FBG Option that was granted pursuant to
the Financial Benefit Group, Inc. Non-Qualified Plan, the Financial Benefit
Group, Inc. Equity Incentive Non-Qualified Warrant/Option Program, or the
Financial Benefit Group, Inc. Employee Incentive Stock Option Plan will have
ordinary income to the extent of the cash received. Each holder of an FBG Option
that was granted pursuant to the Financial Benefit Group, Inc. Equity Incentive
Non-Qualified Warrant/Option Program and who elects to exchange such FBG Option
for an AmVestors Option as described herein, will recognize no taxable income at
the time of the Merger. Each holder of an FBG Option that was granted pursuant
to the Financial Benefit Group, Inc. Employee Incentive Stock Option Plan and
who elects (with FBG's consent) to exchange such option for an AmVestors's
Option as described herein, will recognize no taxable income at the time of the
Merger.
FBG WARRANT HOLDERS. Each holder of FBG Warrants who exercises such FBG
Warrants prior to the Merger will recognize no gain on the receipt of FBG Class
A Common Stock upon exercise of such FBG Warrants. In such case, the holder's
basis in the shares of FBG Class A Common Stock received will be the sum of the
holder's basis in such FBG Warrants plus the exercise price paid to exercise
such FBG Warrants. The subsequent exchange of such FBG Class A Common Stock for
the Merger Consideration will generally result in the same tax consequences to
such holder as described in " -- Exchange of FBG Class A Common Stock for the
Merger Consideration" above, except that the holding period of the FBG Common
Stock will begin on the date on which the FBG Warrants are exercised under
section 1223(6) of the Code. Therefore, FBG Warrant holders who exercise their
FBG Warrants one year or less than one year before the Effective
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Time of the Merger and recognize capital gain on the exchange of FBG Stock for
the Merger Consideration should receive short-term capital gain treatment under
section 1222(1) of the Code because the holding period of the FBG Stock will not
be for more than one year.
The tax consequences to holders of FBG Warrants who do not exercise such
FBG Warrants prior to the Merger are unclear. See "Plan of Merger -- Terms and
Conditions; FBG Options and Warrants" for a description of the FBG Warrants. The
IRS has taken the position that the automatic conversion of warrants to purchase
stock in a target corporation into warrants to purchase stock in an acquiring
corporation in a reorganization under sections 368(a)(1)(A) and 368(a)(2)(D) of
the Code constitutes an exchange within the meaning of section 1001 of the Code.
If the IRS were to take the position that the conversion of the right to receive
FBG Common Stock into the right to receive the Merger Consideration pursuant to
the Merger was a conversion of FBG Warrants into AmVestors Warrants
("Substituted Warrants") and this position were sustained by a court, a holder
of FBG Warrants would recognize gain to the extent the fair market value of the
Merger Consideration that would be received by such holder upon exercise of such
FBG Warrants exceeds the holder's tax basis in the FBG Warrants. Any resulting
gain would be a capital gain provided the holder of the FBG Warrant held such
warrant as a capital asset at the time of the Merger. The holding period for tax
purposes of the Substituted Warrants would begin on the day after the deemed
exchange of warrants, i.e. the date after the Effective Time of the Merger. The
holding period of the AmVestors Common Stock and AmVestors Warrants received
upon subsequent exercise of the Substituted Warrants will begin with the date on
which the Substituted Warrant is exercised under section 1223(6) of the Code.
HOLDERS OF FBG WARRANTS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
TAX CONSEQUENCES OF EXERCISING OR NOT EXERCISING THEIR FBG WARRANTS PRIOR TO THE
MERGER.
BACKUP WITHHOLDING. Unless an exemption applies under the applicable law
and regulations, the Exchange Agent will be required to withhold, and will
withhold, 31% of any cash payments to a stockholder or other payee in the Merger
unless the stockholder or other payee provides his tax identification number
(social security number or employee identification number) and certifies that
the number is correct. Each stockholder or other payee should complete and sign
the Substitute Form W-9 enclosed herewith so as to provide the information and
certification necessary to avoid backup withholding, unless an exemption applies
and is proved in a manner satisfactory to AmVestors and the Exchange Agent.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT
DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER, OR THE
TAX CONSEQUENCES TO FBG STOCKHOLDERS WHO PERFECT APPRAISAL RIGHTS. THE
DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND
PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND
COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE
COULD AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. BECAUSE OF THE
COMPLEXITY OF THE TAX LAWS, AND BECAUSE THE TAX CONSEQUENCES OF ANY PARTICULAR
STOCKHOLDER MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN, IT IS RECOMMENDED
THAT EACH STOCKHOLDER, OPTION HOLDER AND WARRANT HOLDER CONSULT HIS OR HER
PERSONAL TAX ADVISOR CONCERNING THE APPLICABLE FOREIGN AND UNITED STATES
FEDERAL, STATE AND LOCAL INCOME TAX CONSEQUENCES OF THE MERGER.
THE AMVESTORS SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
AmVestors Common Stock in connection with the solicitation of proxies by the
Board of Directors of AmVestors for use at the AmVestors Special Meeting and any
adjournments or postponements thereof. At the AmVestors Special Meeting, the
stockholders of AmVestors will consider and vote upon (1) a proposal to approve
the Merger Agreement and the transactions contemplated thereby, including
without limitation the Merger and the issuance of AmVestors
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Common Stock in connection with the Merger, (2) a proposal to amend the
AmVestors Option Plan, and (3) any other business which may properly be brought
before the AmVestors Special Meeting (including without limitation, adjournment
of such AmVestors Special Meeting in order to allow for additional solicitation
of stockholder votes in order to obtain a quorum or in order to obtain more
votes in favor of the Merger Agreement) or any adjournments or postponements
thereof. Each copy of this Joint Proxy Statement/Prospectus which is being
mailed or delivered to AmVestors stockholders is accompanied by an AmVestors
proxy card and a Notice of Special Meeting. See "Approval of the amendment to
the 1989 AmVestors Financial Corporation Non-Qualified Stock Option Plan" for a
discussion of the proposal to amend the AmVestors Option Plan.
THE AMVESTORS BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT ALL
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY. THE AMVESTORS BOARD OF DIRECTORS HAS ALSO UNANIMOUSLY
APPROVED THE AMENDMENT TO THE AMVESTORS OPTION PLAN AND RECOMMENDS THAT ALL
STOCKHOLDERS VOTE "FOR" APPROVAL OF SUCH AMENDMENT.
DATE, TIME AND PLACE
The AmVestors Special Meeting will be held at the Doubletree Hotel, (near
Kansas City International Airport) 8801 N.W. 112th Street, Kansas City, Missouri
64153 on April 8, 1996 at 9:00 a.m., local time.
RECORD DATE; VOTE REQUIRED
The Board of Directors of AmVestors has fixed the close of business on
March 5, 1996, as the AmVestors Record Date. Only holders of record of shares of
AmVestors Common Stock at the close of business on the AmVestors Record Date
will be entitled to notice of and to vote at the AmVestors Special Meeting or
any adjournment or postponement thereof. On the AmVestors Record Date 10,154,995
shares of AmVestors Common Stock were outstanding and entitled to vote at the
AmVestors Special Meeting. Holders of record of AmVestors Common Stock as of the
close of business on the AmVestors Record Date are entitled to one vote per
share on any matter voted on at the AmVestors Special Meeting. The affirmative
vote of the holders of at least a majority of the total votes cast by the
holders of the AmVestors Common Stock is required to approve the Merger
Agreement and the transactions contemplated thereby and to approve the amendment
to the AmVestors Option Plan.
The presence, either in person or by proxy, of the holders of a majority of
the votes entitled to be cast on the above matters as of the AmVestors Record
Date is necessary to constitute a quorum at the AmVestors Special Meeting.
Broker non-votes, abstentions and withheld authority votes all count for the
purpose of determining a quorum at the AmVestors Special Meeting. Shares as to
which a stockholder abstains are considered shares entitled to vote at the
AmVestors Special Meeting and are included in determining whether the proposals
presented at the meeting are approved (i.e., an abstention would have the effect
of a vote against the Merger Agreement and the transactions contemplated
thereby, against the amendment of the AmVestors Option Plan, and against such
other business as may have properly come before the AmVestors Special Meeting
(including adjournment of such AmVestors Special Meeting) or any adjournments or
postponements thereof). On the other hand, broker non-votes are not considered
shares entitled to vote at the AmVestors Special Meeting and are not included in
determining whether the proposals presented at the meeting are approved (i.e., a
broker non-vote would have no effect on the outcome of a vote on the Merger
Agreement and the transactions contemplated thereby, on the amendment of the
AmVestors Option Plan and on such other business as may have properly come
before the AmVestors Special Meeting (including adjournment of such AmVestors
Special Meeting) or any adjournments or postponements thereof).
As of the AmVestors Record Date for the AmVestors Special Meeting,
directors and executive officers of AmVestors and their affiliates (as a group)
were entitled to vote an aggregate of 221,158 shares of AmVestors Common Stock,
or approximately 2.2% of the outstanding votes entitled to be cast at the
AmVestors Special
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Meeting. All such persons have indicated their intention to vote their shares of
AmVestors Common Stock for the approval of the Merger Agreement and the
transactions contemplated thereby and in favor of the Amendment to the AmVestors
Option Plan.
VOTING AND REVOCATION OF PROXIES
Shares of AmVestors Common Stock which are represented by a proxy properly
executed and received prior to the vote at the AmVestors Special Meeting will be
voted at the AmVestors Special Meeting in the manner directed on the proxy card,
unless such proxy is revoked in advance of such vote. ANY EXECUTED PROXY CARD ON
WHICH DIRECTIONS TO VOTE ARE NOT GIVEN, WILL BE DEEMED TO AUTHORIZE THE NAMED
PROXIES TO VOTE THE SHARES COVERED BY THE PROXY CARD (I) IN FAVOR OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, (II) IN FAVOR OF THE
PROPOSAL TO AMEND THE AMVESTORS OPTION PLAN AND (III) IN THEIR DISCRETION WITH
RESPECT TO SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE AMVESTORS SPECIAL
MEETING (INCLUDING ADJOURNMENT OF SUCH AMVESTORS SPECIAL MEETING) OR ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF.
Any stockholder of AmVestors giving a proxy may revoke it at any time prior
to the vote at the AmVestors Special Meeting. Stockholders of AmVestors wishing
to revoke a proxy prior to the time it is voted may do so by delivering to the
Secretary of AmVestors at 415 S.W. Eighth Avenue, Topeka, Kansas 66603, a
written notice of revocation bearing a later date than the proxy or a later
dated proxy relating to the same shares or by attending the AmVestors Special
Meeting and voting in person. Attendance at the AmVestors Special Meeting will
not in itself constitute the revocation of a proxy.
The Board of Directors of AmVestors is not currently aware of any business
to be brought before the AmVestors Special Meeting other than that described
herein. If, however, other matters are properly brought before the AmVestors
Special Meeting (including without limitation, adjournment of such AmVestors
Special Meeting in order to allow for additional solicitation of stockholder
votes in order to obtain a quorum or in order to obtain more votes in favor of
the Merger Agreement), or any adjournments or postponements thereof, the persons
appointed as proxies will have discretionary authority to vote the shares
represented by duly executed proxies in accordance with their discretion and
judgment as to the best interest of AmVestors.
A stockholder may not have the ability to challenge the fairness of the
Merger Agreement outside of the dissenter's rights mechanism provided by state
law (which are not available to AmVestors stockholders. See "Dissenter's
Rights"). However, it should be noted that a stockholder who votes in favor of
the Merger (or who abstains or does not vote with respect to the Merger) may be
deemed to have ratified the terms of the Merger Agreement, including the
fairness thereof, and, accordingly, be precluded from challenging the fairness
of the Merger Agreement in any available subsequent legal proceeding.
SOLICITATION OF PROXIES
AmVestors will bear the costs of soliciting proxies. Proxies will initially
be solicited by AmVestors by mail, but directors, officers and selected other
employees of AmVestors may also solicit proxies in person or by telephone or
telegraph. Directors, executive officers and any other employees of AmVestors
who solicit proxies will not be specially compensated for such services.
Brokerage houses, nominees, fiduciaries, and other custodians will be requested
to forward soliciting materials to beneficial owners and will be reimbursed for
their reasonable out-of-pocket expenses incurred in sending proxy materials to
beneficial owners. AmVestors has also engaged Beacon Hill Partners, Inc., a
professional soliciting organization, to aid in the solicitation of proxies.
AmVestors estimates that the fee for such services will be approximately $5,000
plus reimbursable out-of-pocket expenses.
HOLDERS OF AMVESTORS COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING AMVESTORS PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
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ADJOURNMENT OF THE AMVESTORS SPECIAL MEETING
A vote (i) in person by a stockholder for adjournment of the AmVestors
Special Meeting, or (ii) for the last proposal on the proxy card of AmVestors
authorizing the named proxies to vote the shares covered by such proxy in their
discretion with respect to such other business as may properly come before the
AmVestors Special Meeting which would allow such named proxies in their
discretion to vote to adjourn the AmVestors Special Meeting, would allow for
additional solicitation of stockholder votes in order to obtain a quorum or in
order to obtain more votes in favor of the Merger Agreement. Consequently, it is
not likely to be in the interest of stockholders who intend to vote against the
Merger Agreement to vote in person to adjourn the AmVestors Special Meeting or
to vote for the last proposal on the proxy card.
The Board of Directors of AmVestors unanimously recommends that the
AmVestors stockholders vote in person in favor of any adjournment of the
AmVestors Special Meeting suggested by the Board in order to solicit additional
votes in order to obtain a quorum or to obtain more votes in favor of the Merger
Agreement, or in favor of the last proposal on its respective proxy card.
THE FBG SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of FBG
Common Stock in connection with the solicitation of proxies by the Board of
Directors of FBG for use at the FBG Special Meeting and any adjournments or
postponements thereof. At the FBG Special Meeting, the stockholders of FBG will
consider and vote upon a proposal to approve the Merger Agreement and the
transactions contemplated thereby and vote upon any other business which may
properly be brought before the FBG Special Meeting (including without
limitation, adjournment of such FBG Special Meeting in order to allow for
additional solicitation of shareholder votes in order to obtain a quorum or in
order to obtain more votes in favor of the Merger Agreement) or any adjournments
or postponements thereof. Each copy of this Joint Proxy Statement/Prospectus
which is being mailed or delivered to FBG stockholders is accompanied by an FBG
proxy card and a Notice of Special Meeting.
THE FBG BOARD HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND RECOMMENDS THAT ALL STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
DATE, TIME AND PLACE
The FBG Special Meeting will be held at the Radisson Suite Hotel, 7920
Glades Road, Boca Raton, Florida 33434 on April 8, 1996 at 10:00 a.m., local
time.
RECORD DATE; VOTE REQUIRED
The Board of Directors of FBG has fixed the close of business on March 5,
1996 as the FBG Record Date. Only holders of record of shares of FBG Common
Stock at the close of business on the FBG Record Date will be entitled to notice
of and to vote at the FBG Special Meeting or any adjournment or postponement
thereof. On the FBG Record Date, there were 6,549,195 shares of FBG Class A
Common Stock and 373,667 shares of FBG Class B Common Stock outstanding and
entitled to vote at the FBG Special Meeting and no shares of FBG preferred stock
outstanding. The FBG Class A Common Stock and the FBG Class B Common Stock vote
together as a class. Each share of FBG Common Stock will entitle the holder to
one vote at the FBG Special Meeting, in person or by properly executed proxy. A
majority of shares of FBG Common Stock outstanding on the FBG Record Date
represented at the FBG Special Meeting in person or by proxy will constitute a
quorum for purposes of the FBG Special Meeting. The shares represented by
proxies marked "abstain" will be counted toward the requirements for a quorum.
Abstentions, however, will not constitute a vote "for" or "against" the
proposals presented at the FBG Special Meeting and thus have the practical
effect
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of voting against the proposal to approve the Merger Agreement and the
transactions contemplated thereby as well as against such other business as may
properly come before the FBG Special Meeting (including adjournment of such FBG
Special Meeting) or any adjournment or postponement thereof, because an
abstention as to each share of FBG Common Stock is one less vote for approval of
such proposals. Shares of FBG Common Stock referred to as "broker non-votes"
will be treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum, but will be treated as not present and not
entitled to vote with respect to approval of the Merger Agreement and the
transactions contemplated thereby as well as any other business as may properly
come before the FBG Special Meeting (including adjournment of such FBG Special
Meeting) or any adjournments or postponements thereof. Each outstanding share of
FBG Common Stock is entitled to one vote on each matter properly brought before
the FBG Special Meeting. The affirmative vote of the holders of at least a
majority of the outstanding shares of FBG Common Stock is required to approve
the Merger Agreement and the transactions contemplated thereby. Any holder of
FBG Common Stock (i) who files a proper demand for appraisal in writing prior to
the vote taken at the FBG Special Meeting and (ii) whose shares are not voted in
favor of the Merger, shall be entitled to appraisal rights under Delaware law.
See "Dissenter's Rights." A stockholder may not have the ability to challenge
the fairness of the Merger Agreement outside of the dissenter's rights mechanism
provided by State law. However, it should be noted that stockholder who votes in
favor of the Merger (or who abstains or does not vote with respect to the
Merger) may be deemed to have ratified the terms of the Merger Agreement,
including the fairness thereof, and, accordingly, be precluded from challenging
the fairness of the Merger Agreement in any available subsequent legal
proceeding.
As of the FBG Record Date for the FBG Special Meeting, directors and
executive officers of FBG and their affiliates (as a group) were entitled to
vote an aggregate of 1,557,726 shares of FBG Common Stock. Such persons are
entitled to vote approximately 22.5% of the outstanding shares of FBG Common
Stock entitled to vote at the FBG Special Meeting. All FBG directors and
executive officers, who collectively are entitled to vote such shares of FBG
Common Stock, have indicated their intention to vote their shares for the
approval of the Merger Agreement and the transactions contemplated thereby at
the FBG Special Meeting.
VOTING AND REVOCATION OF PROXIES
Shares of FBG Common Stock which are represented by a proxy properly
executed and received prior to the vote at the FBG Special Meeting will be voted
at the FBG Special Meeting in the manner directed on the proxy card, unless such
proxy is revoked in advance of such vote. ANY FBG STOCKHOLDER RETURNING A BLANK
EXECUTED PROXY CARD WILL BE DEEMED TO HAVE AUTHORIZED THE NAMED PROXIES TO VOTE
THE SHARES COVERED BY THE PROXY CARD (I) IN FAVOR OF THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY AND (II) IN THEIR DISCRETION WITH RESPECT
TO SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE FBG SPECIAL MEETING
(INCLUDING ADJOURNMENT OF THE FBG SPECIAL MEETING) OR ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF. Failure to return a properly executed proxy card or to
vote in person at the FBG Special Meeting will have the practical effect of a
vote against the proposal under consideration.
Any stockholder of FBG giving a proxy may revoke it at any time prior to
the vote at the FBG Special Meeting. Stockholders of FBG wishing to revoke a
proxy prior to the time it is voted may do so by delivering to the Secretary of
FBG at 7251 West Palmetto Park Road, Boca Raton, Florida 33433, a written notice
of revocation bearing a later date than the proxy or a later dated proxy
relating to the same shares or by attending the FBG Special Meeting and voting
in person. Attendance at the FBG Special Meeting will not in itself constitute
the revocation of a proxy.
The Board of Directors of FBG is not currently aware of any business to be
brought before the FBG Special Meeting other than that described herein. If,
however, other matters are properly brought before the FBG Special Meeting, or
any adjournments or postponements thereof, the persons appointed as proxies will
have discretionary authority to vote the shares represented by duly executed
proxies in accordance with their discretion and judgment as to the best interest
of FBG.
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SOLICITATION OF PROXIES
FBG will bear the costs of soliciting proxies. Proxies will initially be
solicited by FBG by mail, but directors, officers and selected other employees
of FBG may also solicit proxies in person or by telephone or telegraph.
Directors, executive officers and any other employees of FBG who solicit proxies
will not be specially compensated for such services. Brokerage houses, nominees,
fiduciaries, and other custodians will be requested to forward soliciting
materials to beneficial owners and will be reimbursed for their reasonable out-
of-pocket expenses incurred in sending proxy materials to beneficial owners. FBG
has also engaged Beacon Hill Partners, Inc., a professional soliciting
organization, to aid in the solicitation of proxies. FBG estimates that the fee
for such services will not exceed $2,500 plus reimbursable out-of-pocket
expenses.
HOLDERS OF FBG COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING FBG PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
ADJOURNMENT OF THE FBG SPECIAL MEETING
A vote (i) in person by a stockholder for adjournment of the FBG Special
Meeting, or (ii) for the last proposal on the proxy card of FBG authorizing the
named proxies to vote the shares covered by such proxy in their discretion with
respect to such other business as may properly come before the FBG Special
Meeting which would allow such named proxies in their discretion to vote to
adjourn the FBG Special Meeting, would allow for additional solicitation of
stockholder votes in order to obtain a quorum or in order to obtain more votes
in favor of the Merger Agreement. Consequently, it is not likely to be in the
interest of stockholders who intend to vote against the Merger Agreement to vote
in person to adjourn the FBG Special Meeting or to vote for the last proposal on
the proxy card.
The Board of Directors of FBG unanimously recommends that the FBG
stockholders vote in person in favor of any adjournment of the FBG Special
Meeting suggested by the Board in order to solicit additional votes in order to
obtain a quorum or to obtain more votes in favor of the Merger Agreement, or in
favor of the last proposal on its respective proxy card.
DISSENTERS' RIGHTS
Pursuant to the DGCL, any holder of FBG Common Stock (i) who properly files
a demand for appraisal in writing prior to the vote taken at the FBG Special
Meeting and (ii) whose shares are not voted in favor of the Merger, shall be
entitled to appraisal rights under Section 262 of the DGCL.
SECTION 262 IS REPRINTED IN ITS ENTIRETY AS APPENDIX IV TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF
THE LAW RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO APPENDIX D. THIS DISCUSSION AND APPENDIX D SHOULD BE REVIEWED
CAREFULLY BY ANY HOLDER WHO WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO
WISHES TO PRESERVE THE RIGHT TO DO SO, AS FAILURE TO COMPLY WITH THE PROCEDURES
SET FORTH HEREIN OR THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.
A holder of record of FBG Common Stock as of the FBG Record Date who makes
the demand described below with respect to such shares, who continuously is the
record holder of such shares through the Effective Time, who otherwise complies
with the statutory requirements of Section 262 and who neither votes in favor of
the Merger Agreement nor consents thereto in writing may be entitled to an
appraisal by the Delaware Court of Chancery (the "Delaware Court") of the fair
value of his or her shares of stock ("Dissenting Shares").
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the FBG Special Meeting, not less than 20 days
prior to the meeting each constituent corporation must notify each of the
holders of its stock for which appraisal rights are available that such
appraisal rights are available
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and include in each such notice a copy of Section 262. This Joint Proxy
Statement-Prospectus shall constitute such notice to the record holders of FBG
Common Stock.
FBG voting stockholders who desire to exercise their appraisal rights must
not vote in favor of the Merger Agreement or the Merger and must deliver a
separate written demand for appraisal to FBG prior to the vote by the
stockholders of FBG on the Merger Agreement and the Merger. A stockholder who
signs and returns a proxy without expressly directing by checking the applicable
boxes on the reverse side of the proxy card enclosed herewith that his or her
shares of FBG Common Stock be voted against the proposal or that an abstention
be registered with respect to his or her shares of FBG Common Stock in
connection with the proposal will effectively have thereby waived his or her
appraisal rights as to those shares of FBG Common Stock because, in the absence
of express contrary instructions, such shares of FBG Common Stock will be voted
in favor of the proposal. (See "The FBG Special Meeting -- Voting and Revocation
of Proxies -- FBG.") Accordingly, a stockholder who desires to perfect appraisal
rights with respect to any of his or her shares of FBG Common Stock must, as one
of the procedural steps involved in such perfection, either (i) refrain from
executing and returning the enclosed proxy card and from voting in person in
favor of the proposal to approve the Merger Agreement or (ii) check either the
"Against" or the "Abstain" box next to the proposal on such card or
affirmatively vote in person against the proposal or register in person an
abstention with respect thereto. A demand for appraisal must be executed by or
on behalf of the stockholder of record and must reasonably inform FBG of the
identity of the stockholder of record and that such record stockholder intends
thereby to demand appraisal of the FBG Common Stock. A person having a
beneficial interest in shares of FBG Common Stock that are held of record in the
name of another person, such as a broker, fiduciary or other nominee, must act
promptly to cause the record holder to follow the steps summarized herein
properly and in a timely manner to perfect whatever appraisal rights are
available. If the shares of FBG Common Stock are owned of record by a person
other than the beneficial owner, including a broker, fiduciary (such as a
trustee, guardian or custodian) or other nominee, such demand must be executed
by or for the record owner. If the shares of FBG Common Stock are owned of
record by more than one person, as in a joint tenancy or tenancy in common, such
demand must be executed by or for all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in exercising the demand,
such person is acting as agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of FBG Common Stock as a nominee for others, may exercise appraisal
rights with respect to the shares held for all or less than all beneficial
owners of shares as to which such person is the record owner. In such case, the
written demand must set forth the number of shares covered by such demand. Where
the number of shares is not expressly stated, the demand will be presumed to
cover all shares of FBG Common Stock outstanding in the name of such record
owner.
A stockholder who elects to exercise appraisal rights, if available, should
mail or deliver his or her written demand to: Financial Benefit Group, 7251 West
Palmetto Park Road, Boca Raton, Florida 33433, Attention: Donna J. Rubertone,
Executive Vice President.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of FBG Common Stock owned, and that the
stockholder is thereby demanding appraisal of his or her shares. A proxy or vote
against the Merger Agreement will not by itself constitute such a demand. Within
ten days after the Effective Time, the Surviving Corporation must provide notice
of the Effective Time to all stockholders who have complied with Section 262.
Within 120 days after the Effective Time, either the Surviving Corporation
or any stockholder who has complied with the required conditions of Section 262
may file a petition in the Delaware Court, with a copy served on the Surviving
Corporation in the case of a petition filed by a stockholder, demanding a
determination of the fair value of the shares of all dissenting stockholders.
Accordingly, FBG stockholders who desire to have their shares appraised should
initiate any petitions necessary for the perfection of their appraisal rights
within the time periods and in the manner prescribed in Section 262. AmVestors
does not have any present intentions as to whether it would file any such
petition in the event a stockholder makes a written
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demand. If appraisal rights are available, within 120 days after the Effective
Time, any stockholder who has theretofore complied with the applicable
provisions of Section 262 will be entitled, upon written request, to receive
from the Surviving Corporation a statement setting forth the aggregate number of
shares of FBG Common Stock not voting in favor of the Merger Agreement and with
respect to which demands for appraisal were received by FBG and the aggregate
number of holders of such shares. Such statement must be mailed within 10 days
after the written request therefor has been received by the Surviving
Corporation.
If a petition for an appraisal is timely filed and assuming appraisal
rights are available, at the hearing on such petition, the Delaware Court will
determine which stockholders, if any, are entitled to appraisal rights. The
Delaware Court may require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Delaware Court may dismiss the proceedings as to such
stockholder. Where proceedings are not dismissed, the Delaware Court will
appraise the shares of FBG Common Stock owned by such stockholders, determining
the fair value of such shares exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value. In
such event, the Delaware Court's appraisal may be more than, less than, or equal
to the Merger Consideration. In determining fair value, the Delaware Court is to
take into account all relevant factors. In relevant case-law, the Delaware
Supreme Court discussed the factors that could be considered in determining fair
value in an appraisal proceeding, stating that "proof of value by any techniques
or methods which are generally considered acceptable in the financial community
and otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that in making this determination
of fair value the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts
ascertainable as of the date of the merger that throw light on future prospects
of the merged corporation. The Delaware Supreme Court also stated that "elements
of future value, including the nature of the enterprise, which are known or
susceptible of proof as of the date of the merger and not the product of
speculation, may be considered." Section 262, however, provides that fair value
is to be "exclusive of any element of value arising from the accomplishment or
expectation of the merger."
The cost of the appraisal proceeding may be determined by the Delaware
Court and taxed against the parties as the Delaware Court deems equitable in the
circumstances. Upon application of a dissenting stockholder of FBG, the Delaware
Court may order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorney's fees and the fees and expenses of experts, be
charged pro rata against the value of all shares of stock entitled to appraisal.
Any holder of shares of FBG Common Stock who has duly demanded appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote for any purpose any shares subject to such demand or to receive payment of
dividends or other distributions on such shares, except for dividends or
distributions payable to stockholders of record at a date prior to the Effective
Time.
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw such demand for appraisal; after this period, the
stockholder may withdraw such demand for appraisal only with the consent of the
Surviving Corporation. If no petition for appraisal is filed with the Delaware
Court within 120 days after the Effective Time, stockholders' rights to
appraisal shall cease. Any stockholder may withdraw such stockholder's demand
for appraisal by delivering to the Surviving Corporation a written withdrawal of
his or her demand for appraisal and acceptance of the Merger, except that (i)
any such attempt to withdraw made more than 60 days after the Effective Time
will require written approval of the Surviving Corporation and (ii) no appraisal
proceeding in the Delaware Court shall be dismissed as to any stockholder
without the approval of the Delaware Court, and such approval may be conditioned
upon such terms as the Delaware Court deems just.
AmVestors stockholders are not entitled to dissenters' or appraisal rights
with respect to the Merger. See "Comparative Rights of Stockholders -- Appraisal
Rights of Dissenting Stockholders."
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INFORMATION REGARDING AMVESTORS
The following briefly describes the business of AmVestors. Additional
information regarding AmVestors is contained in its filings with the Commission
pursuant to the Exchange Act. See "Available Information" and "Incorporation by
Reference."
BUSINESS OF AMVESTORS
AmVestors is an insurance holding company whose subsidiaries are American,
American Investors Sales Group, Inc. ("American Sales"), AmVestors Investment
Group, Inc. ("AVIG") and Omni-Tech Medical, Inc. ("Omni-Tech"). AmVestors was
incorporated in 1986 to serve as a holding company for all of the common stock
of American.
American specializes in the sale of annuity products throughout the United
States. Deferred annuities accounted for approximately 97% of all premiums
received by AmVestors in 1994 and 95% for the nine months ended September 30,
1995. American also offers single premium immediate annuities ("SPIAs") and
flexible premium universal life ("FPULs") insurance. As of September 30, 1995,
AmVestors had total annuity contracts in force of $2.0 billion. Historically,
the 50 and older age group has accounted for over 80% of all annuity premiums
received by American and, to date, the average premium received by it per
annuity contract has been approximately $22,000. American continues to target
this age group because management believes that as this group ages, it will have
an increasing interest in saving for retirement, nursing home care and
unanticipated medical costs. American seeks to make sales in the market for
retirement savings products by offering annuity products that meet the demands
of agents and the pre-retirement population. American markets its annuity
products through independent agents licensed in 47 states and the District of
Columbia. Agents are recruited through AmVestors' wholly-owned subsidiary,
American Sales, as well as through various other marketing organizations. As of
September 30, 1995, American had approximately 6,700 independent agents licensed
to sell its products. American does not market its annuity products through
stockbrokers but rather endeavors to attract agents to sell its products by
offering a broad selection of fixed annuity products, by providing timely,
comprehensive services to agents and customers and by continuing to specialize
in annuity products. Since 1990, over 34% of annuity premiums received by
American have been produced by agents recruited by American Sales, resulting in
commission savings for AmVestors as compared with business produced by agents
recruited through other marketing organizations. American's strategy is to
expand sales in a growing market, attract quality agents, sell products with
profit potential and maintain a high quality investment portfolio.
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 accumulated 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. Founded in 1965, American has focused on the sale of single premium
annuity products since 1984. On May 9, 1995, A.M. Best, which rates insurance
companies based on factors of concern to policyowners, reaffirmed American's
"A-" (Excellent) rating. On October 24, 1994, Duff & Phelps reaffirmed
American's claims paying ability rating of "A+" (Single-A-Plus).
Beginning in 1988, management restructured AmVestors' investment portfolio,
reducing the holdings of non-investment grade securities from approximately 59%
of its total bond portfolio as of the end of 1987 to approximately 7% as of each
of December 31, 1994 and September 30, 1995. During the same period, AmVestors
has expanded internal investment management capabilities through the addition of
new personnel,
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and has augmented its capabilities for agent recruitment through American Sales
and the establishment of relationships with additional marketing organizations.
As of September 30, 1995 there were 10,135,175 shares of AmVestors Common
Stock and no shares of preferred stock outstanding. For the fiscal year ended
December 31, 1994, AmVestors reported revenues of $149.7 million and net income
of $13.7 million. For the nine months ended September 30, 1995, AmVestors
reported revenues of $121.0 million and net income of $10.9 million.
AmVestors' principal executive offices are located at 415 S.W. Eighth
Avenue, Topeka, Kansas 66603 and its telephone number is (913) 295-4400.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL HOLDERS OF VOTING SECURITIES. Based upon the records of AmVestors
and filings with the Commission as of June 30, 1995 (the "Determination Date"),
there are no persons, individually or as a group, who were known to AmVestors to
be deemed to be the beneficial owners of more than five percent of the issued
and outstanding AmVestors Common Stock.
SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth, as of the
Determination Date, the beneficial ownership of AmVestors Common Stock by each
director, the named executive officers and by all persons, as a group, who are
currently directors and executive officers of AmVestors, in each case as of the
Determination Date, except as otherwise indicated in the footnotes hereto. Each
director or executive officer has sole voting and investment power over the
shares listed opposite his or her name except as set forth in the footnotes
hereto.
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS
- ---------------------------------------------------------------- ----------------------- ----------
Janis L. Andersen, Director..................................... 24,944(2) *
Robert G. Billings, Director.................................... 12,024(3) *
Jack H. Brier, Director......................................... 10,278(4) *
Thomas M. Fogt, Executive Vice President of AmVestors........... 52,004(5) *
Lynn F. Hammes, Secretary & Treasurer of AmVestors.............. 69,206(6) *
Mark V. Heitz, President, General Counsel and Director of
AmVestors..................................................... 175,767(7) 1.7%
Ralph W. Laster, Jr., Chairman, Chief Executive Officer and
Director of AmVestors......................................... 220,574(8) 2.1%
R. Rex Lee, M.D., Director...................................... 108,018(9) 1.0%
Robert R. Lee, II, Director..................................... 12,263(10) *
Robert T. McElroy, M.D., Director............................... 52,430(11) *
James V. O'Donnell, Director.................................... 4,500(12) *
Timothy S. Reimer, Chief Investment Officer of AmVestors........ 63,601(13) *
All officers and directors as a group (12 persons).............. 805,609 7.5%
- -------------------------
(1) Directors and officers have sole voting and investment powers of the shares
shown unless held under options or otherwise indicated below.
(2) Includes 7,000 shares which may be acquired upon the exercise of options
which are currently exercisable.
(3) Includes 7,000 shares which may be acquired upon the exercise of options
which are currently exercisable.
(4) Includes 1,600 shares owned by Brier Development Company, Inc. Mr. Brier is
the president and sole stockholder of Brier Development Company, Inc.
Includes 3,500 shares which may be acquired upon the exercise of options
which are currently exercisable.
(5) Includes 50,000 shares which may be acquired upon the exercise of options
which are currently exercisable.
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(6) Includes 4,506 shares allocated and held in trust under AmVestors' Employee
Stock Ownership Plans ("ESOPs"). Includes 64,000 shares which may be
acquired upon the exercise of options which are currently exercisable.
(7) Includes 8,077 shares allocated and held in trust under AmVestors' ESOPs.
Includes 158,240 shares which may be acquired upon the exercise of options
which are currently exercisable.
(8) Includes 9,615 shares allocated and held in trust under AmVestors' ESOPs.
Includes 169,562 shares which may be acquired upon exercise of options
which are currently exercisable.
(9) Includes 562 shares allocated and held in trust under AmVestors' ESOPs.
Includes 42,271 shares which may be acquired upon the exercise of options
which are currently exercisable.
(10) Includes 7,000 shares which may be acquired upon the exercise of options
which are currently exercisable.
(11) Includes 1,339 shares owned by Dr. McElroy's spouse. Includes 3,500 shares
which may be acquired upon exercise of options which are currently
exercisable.
(12) Includes 3,500 shares which may be acquired upon the exercise of options
which are currently exercisable.
(13) Includes 5,444 shares allocated and held in trust under AmVestors' ESOPs.
Includes 58,157 shares which may be acquired upon the exercise of options
which are currently exercisable.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS. Outside directors were compensated for their
service on AmVestors' Board at the rate of $750 per month plus $1,500 for each
meeting attended. For committee meetings held on days other than the regular
Board meeting, each outside Board member in attendance is compensated $500 for
such attendance. Directors who are employees of AmVestors are not compensated
for service as members of the Board or of any Committee of the Board. In
addition, the Chairman of the Compensation Committee is paid $1,000 per month.
On May 19, 1994 the stockholders approved the 1994 Stock Deferral Plan for
Non-Employee Directors ("Director Deferral Plan"). Under the Director Deferral
Plan, each non-employee director may elect to defer the receipt of fees for
services to the Board and its Committees, which are then credited in stock units
payable in an equal number of shares of AmVestors' Common Stock and held by
AmVestors in an account for the benefit of such director. In the event of such
an election, AmVestors will apply the amount of director fees specified by the
director to determine the number of shares of AmVestors Common Stock that are
payable to such director based on a price equal to the average closing price of
AmVestors Common Stock for the quarter in which such election applies.
On March 26, 1992, AmVestors adopted the AmVestors Financial Corporation
Directors Retirement Plan ("Directors Retirement Plan"). The Directors
Retirement Plan provides a monthly retirement benefit to eligible retired
directors in the amount of $750. In addition, AmVestors will continue to pay
premiums for life insurance coverage for each eligible director for the amount
of coverage provided while they were a director of AmVestors. Directors who
attain age 60 and have completed five years of service for AmVestors are
eligible to receive benefits under the Directors Retirement Plan.
EXECUTIVE COMPENSATION. The following table sets forth summary compensation
for the last three fiscal years of Mr. Laster, AmVestors' Chief Executive
Officer, and Messrs. Heitz, Hammes and Reimer, the three
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executive officers, for services rendered in all capacities to AmVestors and its
subsidiaries for the years ended December 31, 1994, 1993 and 1992:
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(1)(2) AWARDS SECURITIES ALL OTHER
-------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTION/SAR'S(#) ($)(3)
- ------------------------------- ---- --------- -------- ----------------- ------------
Mr. Ralph W. Laster, Jr. ...... 1994 370,000 370,000 -- 26,134
Chairman and CEO of 1993 370,000 162,500 95,000 shrs 28,710
AmVestors 1992 325,000 255,000 26,562 23,029
Mr. Mark V. Heitz.............. 1994 235,000 236,788 -- 26,134
President and General Counsel 1993 235,000 105,000 81,000 28,710
of AmVestors 1992 210,000 170,000 29,241 23,029
Mr. Lynn F. Hammes............. 1994 142,500 50,000 -- 25,688
Secretary and Treasurer of 1993 123,632 25,000 37,500 22,556
AmVestors 1992 94,000 15,000 2,500 11,001
Mr. Timothy S. Reimer.......... 1994 141,010 70,144 -- 22,051
Chief Investment Officer 1993 173,813 50,000 24,500 28,498
of AmVestors 1992 150,000 25,000 -- 17,621
- -------------------------
(1) Excludes perquisites which did not exceed the lesser of $50,000 or 10% of
the combined salary and bonus of any executive officer for the year.
(2) The salary and bonus compensation of AmVestors' executive officers is
determined by the AmVestors Board based on both corporate and individual
performance for the prior year. Corporate factors relevant to 1992, 1993 and
1994 compensation levels were earnings, return on stockholders' equity,
increased premiums, asset growth, reduction in bank debt, increased
capitalization in American and performance of American's investment
portfolio. Individual factors include business planning skills, leadership
abilities, creativity, experience, assumption of additional duties in
connection with promotions or changes, and individual performance in any
special projects or situations. In addition, Mr. Laster has entered into a
three year employment contract with AmVestors which expires May 31, 1995
pursuant to which his base salary may not be decreased below $370,000.
(3) Amounts reported in this column consist of contributions allocated by
AmVestors to each officer under AmVestors' tax qualified ESOPs and the
AmVestors Financial Corporation Money Purchase Pension Plan. These
allocations are held in trust pending the officer's termination or
retirement. All full-time employees with more than one year of service
participate in these plans.
OPTION GRANTS IN LAST FISCAL YEAR. There were no stock options or stock
appreciation rights granted to the four executive officers of AmVestors in 1994.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION
VALUES. The following table sets forth information concerning the number and
value realized as to options exercised during 1994 and options held at December
31, 1994, by the individuals named in the preceding Summary Compensation Table
and the value of those options held at such date. All options had exercise
prices lower than the fair market value of the
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92
AmVestors Common Stock on December 31, 1994 ("in-the-money" options). All
unexercised options listed are currently exercisable.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED OPTIONS/SARS AT OPTIONS/SARS AT
NAME ON EXERCISE(#) VALUE REALIZED 1994 YEAR END(#) 1994 YEAR END($)(1)
- ---------------------------- --------------- -------------- ---------------------- --------------------
Mr. Laster.................. -- -- 169,562 211,524
Mr. Heitz................... -- -- 158,240 218,136
Mr. Hammes.................. -- -- 64,000 75,421
Mr. Reimer.................. -- -- 58,157 99,064
- -------------------------
(1) Value of unexercised In-The-Money Options is calculated by subtracting the
exercise price from the market value of the underlying stock at 1994 year
end and multiplying the result times the number of shares subject to
exercise. The 1994 year end market value of the AmVestors Common Stock was
$9.50.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION. Recommendations on executive compensation are made to the Board
by the three-member Compensation Committee of the Board ("Committee"). The
Committee is composed of Mr. O'Donnell, Dr. Lee and Dr. McElroy. Each member of
the Committee is a non-employee director of AmVestors. Dr. Lee was employed by
American during 1992 and 1993 as Senior Medical Director.
On January 22, 1991, AmVestors made a 30 year, $504,000 first mortgage loan
on the personal residence of Dr. Lee, a director of AmVestors. At the time the
loan was made, it represented a loan to estimated value of approximately 80%.
The largest outstanding balance on the loan during 1994 was $205,059 on January
1, 1994. This loan originally provided for interest at the rate equal to the
cost of funds of the Eleventh District of the Federal Reserve, plus 2% and had a
final payment due February 1, 2021. On December 10, 1992, the terms of the loan
were renegotiated to provide for interest to be fixed at a rate of 7.5% and a
final payment due January 10, 2008. The outstanding principal balance on this
loan was $11,815 as of December 31, 1994. This loan has since been paid in full.
EMPLOYMENT AGREEMENTS. Pursuant to an employment agreement by and between
AmVestors, American, AmVestors Investment Group, Inc. and American Investors
Sales Group, Inc. (the "Companies") and Mr. Laster, the Companies have agreed to
provide Mr. Laster a base salary, health benefits, insurance benefits and other
perquisites through May 31, 1997. Mr. Laster's salary is reviewed annually based
upon certain subjective and objective performance factors discussed in the
Compensation Committee Report on Executive Compensation. The agreement also
provides that if Mr. Laster is discharged without cause prior to the end of the
contract term, he is entitled to receive contract compensation throughout the
remaining term of the contract.
Pursuant to an employment agreement by and between AmVestors, American and
Mr. Heitz, AmVestors and American have agreed to provide Mr. Heitz a base
salary, health benefits, insurance benefits and other perquisites through
December 31, 1998. Mr. Heitz's salary is reviewed annually based upon certain
subjective and objective performance factors. The agreement also provides that
AmVestors and American will pay Mr. Heitz severance pay, if he is discharged
without cause, in an amount equal to the salary and other compensation and
benefits due for the remainder of the calendar year in which such termination of
employment occurs. Mr. Heitz is also entitled to receive a continuation of his
monthly base salary for a period not to exceed the difference between 12 months
and the number of months after such termination in which salary and benefits
were payable in the calendar year in which such discharge occurred.
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SELECTED HISTORICAL FINANCIAL INFORMATION OF AMVESTORS
The following table sets forth the periods and dates indicated, selected
historical financial data of AmVestors. The selected consolidated income
statement and balance sheet data for the five years in the period ended December
31, 1994, is derived from AmVestors' audited consolidated financial statements.
The selected consolidated financial data for the nine month periods ended
September 30, 1995 and 1994 is derived from the unaudited consolidated financial
statements of AmVestors and, in the opinion of management, reflect all
adjustments necessary for a fair presentation of the results of operations and
financial condition. 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. 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 of
AmVestors."
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- -------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT AND OTHER DATA:
Revenue:
Insurance premiums and policy
charges(1)....................... $ 6,554 4,831 6,331 6,594 7,545 11,798 8,614
Net investment income(2)........... 114,724 105,361 142,009 138,539 141,155 144,940 131,745
Net investment gains (losses)...... (993) 328 803 17,049 20,521 16,477 (24,297)
Income from disposal of private
placement securities(3).......... -- -- -- -- 5,821 -- --
Other revenues..................... 683 443 557 341 666 157 173
Total Revenue........................ $120,968 110,963 149,700 162,523 175,708 173,372 116,235
BENEFIT AND EXPENSES:
Benefits, claims and interest
credited to policyholders........ $88,588 83,198 112,310 113,848 128,049 135,209 119,950
Amortization of deferred policy
acquisition costs................ 8,085 7,524 9,026 9,436 16,409 14,967 324
General insurance expenses......... 6,315 5,301 7,587 8,830 8,694 9,447 5,369
Premium and other taxes, licenses
and fees......................... 1,470 858 1,491 2,660 2,795 3,172 993
Total benefits and expenses........ $104,458 96,881 130,414 134,774 155,947 162,795 126,636
Operating earnings (loss).......... $16,510 14,082 19,286 27,749 19,761 10,577 (10,401)
Interest expense................... -- -- -- 994 2,443 4,273 3,700
Earnings (loss) before income tax
expense (benefit) and
extraordinary item............... $16,510 14,082 19,286 26,755 17,318 6,304 (14,101)
Income tax expense (benefit)....... 5,617 4,816 5,593 8,564 118 (3,815) 3,618
Earnings (loss) before
extraordinary item............... $10,893 9,266 13,693 18,191 17,200 10,119 (17,719)
Extraordinary item(4).............. -- -- -- (213) (382) -- --
Net earnings (loss)................ $10,893 9,266 13,693 17,978 16,818 10,119 (17,719)
Earnings (loss) before
extraordinary item per share of
common stock
Primary.......................... $1.05 0.90 1.32 2.62 2.94 1.84 (3.22)
Fully diluted.................... 1.05 0.89 1.32 2.49 2.62 1.84 (3.22)
Earnings (loss) per share of common
stock
Primary.......................... 1.05 0.90 1.32 2.59 2.87 1.84 (3.22)
Fully diluted.................... 1.05 0.89 1.32 2.46 2.56 1.84 (3.22)
Dividends.......................... 0.075 -- -- -- -- -- 0.50
OTHER OPERATING DATA:
Operating earnings (loss)
excluding net investment gains
(losses) and related
amortization of deferred
acquisition costs(5)........... $ 17,260 13,832 18,687 15,491 7,887 2,871 6,279
Net operating earnings (loss)
excluding net investment gains
(losses) and related
amortization of deferred
acquisition costs and income
taxes(6)....................... $ 11,388 9,101 13,064 10,733 4,012 1,037 3,993
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NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- -------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net operating earnings (loss)
excluding net investment gains
(losses) and related amortization
of deferred acquisition costs and
income taxes per common share(7):
Primary.......................... $ 1.10 .88 1.26 1.54 .68 .19 .72
Fully diluted.................... $ 1.10 .88 1.26 1.47 .61 .19 .72
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets(8)...................... 2,368,137 2,238,745 2,260,021 2,114,696 2,090,136 1,959,071 1,773,042
Total debt........................... 0 0 0 0 19,859 28,437 33,562
Stockholders' equity(9).............. 137,348 107,592 104,196 100,345 49,463 30,936 17,264
Fully diluted book value per
share(10).......................... 13.08 10.38 10.16 9.70 7.50 5.13 3.80
STATUTORY DATA:(11)
Net statutory premiums(1).......... 255,236 209,104 269,448 219,455 169,235 219,222 332,894
Statutory capital and
surplus(12)...................... 86,853 91,000 87,521 87,146 74,461 68,571 73,857
Total AVR/MSVR(13)................. 26,017 25,070 23,633 24,376 17,452 17,507 --
Total IMR(13)...................... 8,118 10,664 10,595 11,961 6,971 N/A N/A
- -------------------------
(1) 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.
(2) Net investment income is presented net of investment expense.
(3) 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of AmVestors --
Years Ended December 31, 1994, 1993, and 1992" and Note 10 of Notes to
Consolidated Financial Statements of AmVestors.
(4) As a result of the restructuring of AmVestors' 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 $.6 million and $.4
million as of September 30, 1992 and December 31, 1992, respectively.
(5) Amounts shown reflect operating earnings (earnings before interest and
taxes) adjusted to exclude net investment gains (losses) and accelerated
(reduced) amortization of acquisition costs related to such investment
gains (losses). Amortization of deferred acquisition costs related to net
investment gains (losses) excluded were: ($.2) million and $.1 million for
the nine months ended September 30, 1995 and 1994, respectively, and $.2
million, $4.8 million, $8.7 million, $8.8 million, and ($7.6) million for
the years ended December 31, 1994, 1993, 1992, 1991 and 1990, 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 of AmVestors --
Margin Analysis."
(6) Represents operating earnings after taxes adjusted to exclude net
investment gains (losses) and accelerated (reduced) amortization of
acquisition costs related to such investment gains (losses) and to exclude
associated income tax expense. See Note 5 above.
(7) 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.
(8) Effective January 1, 1993, AmVestors adopted the provisions of Statement of
Financial Accounting Standards 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.
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95
(9) Effective January 1, 1994, AmVestors 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(k) of Notes to Consolidated Financial Statements of
AmVestors.
(10) 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 AmVestors 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.
(11) 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.
(12) 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.
(13) 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF AMVESTORS
GENERAL
AmVestors specializes in the sale of deferred annuity products as a
retirement savings vehicle for individuals. During each of the past three years,
sales of deferred annuities have accounted for at least 96% of AmVestors'
premiums received, while sales of SPIAs and FPULs have accounted for virtually
all remaining premiums received. AmVestors' operating earnings are derived
primarily from its investment results, 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
acquisition costs, or "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 AmVestors' balance
sheet by an increase in assets equal to the premiums received and by a
corresponding increase in future policy liabilities.
AmVestors' earnings depend, in significant part, upon the persistency of
its annuities. Over the life of the annuity, net investment income, net
investment gains 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 expended in the current period. Most of American's annuity policies in force
have surrender charges 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 1994, 1993 and 1992,
AmVestors' weighted average expected surrender levels were 9.0%, 13.0% and 9.9%,
compared to the weighted average actual surrenders of 9.8%, 14.7% and 9.6%. For
the first nine months of 1995, AmVestors' weighted average expected surrender
level was 8.8%, compared to the weighted average actual surrenders of 17.2% for
such period. Actual surrenders reflect the effects of the decrease in interest
rates experienced in 1995 along with the leveling of the yield curve, which
resulted in interest rates on bank certificates of deposit and other investment
alternatives exceeding the renewal interest rates being paid on AmVestors'
annuity policies. In addition, surrenders have been impacted by the significant
equity returns experienced in 1995. 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 the result
of AmVestors' reduction in credited rates.
Recent periods of low interest rates have reduced AmVestors' investment
yields. As a result of the lower investment yields, AmVestors elected to reduce
credited interest rates on certain of its annuity products. Certain annuities
issued by AmVestors 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
crediting 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, AmVestors announces its renewal crediting rates
on January 14 of each year. In January 1994, 1993 and 1992, due to the general
decline in interest rates and the yield on its investment portfolio, AmVestors
reduced credited interest rates on certain annuity contracts below the 'bailout'
level. The aggregate account values of annuity contracts on which the crediting
rate was reduced below the 'bailout' level totalled $109.8 million, $326.2
million, and $160.4 million during 1994, 1993 and 1992, respectively. As a
result, $18.3 million, or 17%, $139.6 million, or 43%, and $34.6 million, or
22%, of such policies were surrendered during 1994, 1993, and 1992,
respectively.
AmVestors 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, 7% for 1993 and 7% for 1992. The following table
reflects annuity
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account values for policies containing a "bailout" provision with current
credited rates above the "bailout" rate:
PERCENT BAILOUT RATE OF
AMOUNT OF TOTAL 6% OR LESS
------ -------- ---------------
(DOLLARS IN MILLIONS)
September 30, 1995............................................. $205.9 11% $ 203.8
December 31, 1994.............................................. 180.9 14 180.5
December 31, 1993.............................................. 269.1 16 159.4
December 31, 1992.............................................. 538.0 31 92.5
The decreases experienced during 1993 and 1994 reflect the reduction of
crediting rates below the "bailout" rate previously discussed. The increase
experienced in 1995 results from the sale of new policies with a "bailout."
The decision to reduce crediting rates below the "bailout" rate is under
management's control and is largely determined by AmVestors' need to maintain
its desired interest margin, which is primarily dependent upon the Company's
investment returns and credited rates to its policyholders. If AmVestors 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, AmVestors 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 maturity and surrender
charges are reduced or expire. AmVestors 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. AmVestors' earnings are 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 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 corresponding amortization of DAC is reduced as the stream of
profitability on the underlying annuities is
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effectively reduced. The following margin analysis depicts the effects of
realized gains (losses) on AmVestors' operating earnings (loss):
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- ---------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- ------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS)
Average invested assets(1)........... $1,962.5 1,850.6 1,862.3 1,770.9 1,689.7 1,546.5 1,315.0
======== ======== ======== ======== ======== ======== ========
Insurance premiums and policy
charges............................ 6.6 4.8 6.3 6.6 7.5 11.8 8.6
Net investment income (2)............ 114.7 105.4 142.0 138.5 141.2 144.9 131.7
Income from disposal of private
placement securities............... -- -- -- -- 5.8 -- --
Policyholder benefits................ (88.6) (83.2) (112.3) (113.8) (128.0) (135.2) (120.0)
-------- -------- -------- -------- -------- -------- --------
Gross interest margin................ 32.7 27.0 36.0 31.3 26.5 21.5 20.3
Associated amortization of DAC....... (8.3) (7.4) (8.8) (4.7) (7.7) (6.2) (7.9)
-------- -------- -------- -------- -------- -------- --------
Net interest margin.................. 24.4 19.6 27.2 26.6 18.8 15.3 12.4
-------- -------- -------- -------- -------- -------- --------
Net investment gains (losses)........ (1.0) 0.3 0.8 17.0 20.5 16.5 (24.3)
Associated amortization of DAC....... 0.2 (0.1) (0.2) (4.8) (8.7) (8.8) 7.6
-------- -------- -------- -------- -------- -------- --------
Net margin (loss) from investment
gains (losses)..................... (0.8) 0.2 0.6 12.2 11.8 7.7 (16.7)
-------- -------- -------- -------- -------- -------- --------
Total net margin (loss).............. 23.6 19.8 27.8 38.8 30.6 23.0 (4.3)
Expenses, net........................ (7.1) (5.7) (8.5) (11.1) (10.9) (12.4) (6.1)
-------- -------- -------- -------- -------- -------- --------
Operating earnings (loss)............ 16.5 14.1 19.3 27.7 19.7 10.6 (10.4)
Interest expense..................... -- -- -- (1.0) (2.4) (4.3) (3.7)
-------- -------- -------- -------- -------- -------- --------
Earnings before income taxes......... 16.5 14.1 19.3 26.7 17.3 6.3 (14.1)
Income tax expense (benefit)......... 5.6 4.8 5.6 8.5 0.1 (3.8) 3.6
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss) before
extraordinary loss................. 10.9 9.3 13.7 18.2 17.2 10.1 (17.7)
Extraordinary loss on early
extinguishment of debt............. -- -- -- (0.2) (0.4) -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings......................... $ 10.9 9.3 13.7 18.0 16.8 10.1 (17.7)
======== ======== ======== ======== ======== ======== ========
Operating earnings (loss)............ $ 16.5 14.1 19.3 27.7 19.7 10.6 (10.4)
Less: Net margin (loss) from
investment gains (losses).......... (0.8) 0.2 0.6 12.2 11.8 7.7 (16.7)
-------- -------- -------- -------- -------- -------- --------
Operating earnings excluding net
investment gains (losses) and
related amortization of deferred
acquisition costs(3)............... $ 17.3 13.9 18.7 15.5 7.9 2.9 6.3
======== ======== ======== ======== ======== ======== ========
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NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------- --------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
(ANNUALIZED) (PERCENTAGE OF AVERAGE INVESTED ASSETS)
Average invested assets(1)............. 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ====== ====== ======
Insurance premiums and policy
charges.............................. 0.45% 0.34% 0.34% 0.37% 0.44% 0.76% 0.65%
Net investment income(2)............... 7.79 7.45 7.63 7.82 8.36 9.37 10.02
Income from disposal of private
placement securities................. -- -- -- -- 0.34 -- --
Policyholder benefits.................. (6.02) (5.88) (6.03) (6.43) (7.58) (8.74) (9.13)
------ ------ ------ ------ ------ ------ ------
Gross interest margin.................. 2.22 1.91 1.93 1.77 1.57 1.39 1.54
Associated amortization of DAC......... (0.56) (0.53) (0.47) (0.27) (0.46) (0.40) (0.60)
------ ------ ------ ------ ------ ------ ------
Net interest margin.................... 1.66 1.38 1.46 1.50 1.11 0.99 0.94
------ ------ ------ ------ ------ ------ ------
Net investment gains (losses).......... (0.07) 0.02 0.04 0.96 1.21 1.07 (1.85)
Associated amortization of DAC......... 0.02 (0.01) (0.01) (0.27) (0.51) (0.57) 0.58
------ ------ ------ ------ ------ ------ ------
Net margin (loss) from investment gains
(losses)............................. (0.05) 0.01 0.03 0.69 (0.70) 0.50 (1.27)
------ ------ ------ ------ ------ ------ ------
Total net margin (loss)................ 1.60 1.39 1.49 2.19 1.81 1.49 (0.33)
Expenses, net.......................... (0.48) (0.41) (0.46) (0.63) (0.65) (0.80) (0.46)
------ ------ ------ ------ ------ ------ ------
Operating earnings (loss).............. 1.12 0.98 1.04 1.56 1.17 0.69 (0.79)
Interest expense....................... -- -- -- (0.06) (0.14) (0.28) (0.28)
------ ------ ------ ------ ------ ------ ------
Earnings before income taxes........... 1.12 0.98 1.04 1.51 1.02 0.41 (1.07)
Income tax expense (benefit)........... 0.38 0.31 0.30 0.48 0.01 (0.25) 0.27
------ ------ ------ ------ ------ ------ ------
Net earnings (loss) before
extraordinary
loss................................. 0.74 0.67 0.74 1.03 1.02 0.65 (1.35)
Extraordinary loss on early
extinguishment of debt............... -- -- -- (0.01) (0.02) -- --
------ ------ ------ ------ ------ ------ ------
Net earnings........................... 0.74% 0.67% 0.74% 1.02% 0.99% 0.65% (1.35)%
====== ====== ====== ====== ====== ====== ======
Operating earnings (loss).............. 1.12% 0.98% 1.04% 1.56% 1.17% 0.69% (0.79)%
Less: Net margin (loss) from investment
gains (losses)....................... (0.05) 0.01 0.03 0.69 0.70 0.50 (1.27)
------ ------ ------ ------ ------ ------ ------
Operating earnings excluding net
investment gains (losses) and related
amortization of deferred acquisition
costs(3)............................. 1.17% 0.97% 1.00% 0.88% 0.47% 0.19% 0.48%
====== ====== ====== ====== ====== ====== ======
- -------------------------
(1) 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.
(2) Net investment income is presented net of investment expense.
(3) 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.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995, AND 1994. Insurance premiums and
policy charges increased $1.8 million or 38%, to $6.6 million in 1995 from $4.8
million in 1994, due primarily to a $1.8 million increase in surrender charges
received on increased surrenders of annuity policies.
Net investment income increased $9.3 million, or 9%, to $114.7 million from
$105.4 million in 1994. This increase reflects both an increase in average
invested assets from $1,850.6 million in 1994 to $1,962.5 million
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in 1995 and an increase in the average yield on invested assets from 7.5% for
the nine months ended September 30, 1994 to 7.8% for the same period in 1995.
The 1994 yield was impacted by losses generated by an investment in limited
partnerships. These partnerships form a fund of funds totalling $22.4 million on
September 30, 1995, which is structured with a goal toward obtaining returns in
excess of the Standard & Poor's ("S&P") 500 over time without regard to the
general direction of financial markets. The individual investments employ
differing investment strategies for return. These strategies include capital
appreciation through long and short investing in United States (U.S.) equities
and options, purchase and sale of equities or instruments convertible into
equities, purchase of securities affected by "event driven situations" (such as
public announcements or industry news), and purchase and sale of other financial
instruments such as puts, calls, warrants, rights, preferred stocks, commodity
contracts or futures. These investment partnerships utilize hedging and
leverage, however as a limited partner AmVestors' maximum loss exposure is
limited to the amount of its investment. This fund generated pre-tax income of
$3.0 million during the first nine months of 1995 compared with a loss of $1.5
million in calendar year 1994.
Net investment gains (losses) decreased $1.3 million, to a $1.0 million
loss in 1995, from a $.3 million gain in 1994. Gains and losses may be realized
upon securities which are disposed of for various reasons. The gains realized
during 1994 are the result of general portfolio management. The losses realized
during 1995 reflect writedowns of $1.0 million taken on securities deemed to
have an other than temporary diminution in value offset in part by gains and
losses realized as a result of general portfolio management.
Other revenue increased by $.3 million, or 75%, to $.7 million for the 1995
nine months from $.4 million for the same period in 1994. This increase is due
primarily to an increase in Omni-Tech sales.
Benefits, claims and interest credited to policyholders increased $5.4
million, or 6% to $88.6 million in 1995 from $83.2 million in 1994. This
increase results primarily from an increase in the average interest rate
credited on AmVestors' annuity liabilities, from 5.8% as of September 30, 1994,
to 6.0% as of September 30, 1995, along with an increase in annuity liabilities
to $2,033.2 million on September 30, 1995, from $1,844.1 million on September
30, 1994.
Amortization of deferred policy acquisition costs increased $.6 million, or
8%, to $8.1 million in 1995 from $7.5 million in 1994. Amortization of deferred
policy acquisition costs ("DAC") associated with investment gains decreased $.3
million to a benefit of $.3 million in 1995 on $1.0 million of losses, from $.1
million in 1994 on $.3 million of gains. Amortization of DAC associated with
gross interest margin increased $.9 million to $8.3 million in 1995 from $7.4
million in 1994. Acquisition costs incurred during 1995 and deferred into future
policy periods were $25.1 million, compared with $19.5 million in 1994.
General insurance expenses increased $1.0 million or 19% to $6.3 million
for the 1995 nine months from $5.3 million for the same period in 1994.
Management believes this increase can be attributed to increases in business
activity and assets under management.
Premium and other taxes, licenses and fees increased $.6 million to $1.3
million in 1995 from $.7 million in 1994. This increase results from state
guaranty association assessments covering policies issued by insolvent insurers.
See Note 12 of Notes to Consolidated Financial Statements.
Income tax expense increased $.8 million to $5.6 million in 1995 from $4.8
million in 1994. Taxes were provided at an effective rate of 34.0% on 1995 and
1994 income.
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992. Insurance premiums and policy
charges decreased $.3 million, or 5%, to $6.3 million in 1994 from $6.6 million
in 1993 due primarily to a $.5 million decrease in insurance premiums from SPIAs
with life contingencies. This decrease was partially offset by a $.3 million
increase in the amount of surrender charges collected on the surrender of
deferred annuity policies. Insurance premiums and policy charges decreased $.9
million, or 12%, to $6.6 million in 1993 from $7.5 million in 1992 due primarily
to a $.6 million decrease in the amount of surrender charges collected on the
surrender of deferred annuity policies and a $.2 million decrease in premiums on
ordinary life insurance policies.
Net investment income increased $3.5 million, or 3%, to $142.0 million from
$138.5 million in 1993. This increase resulted from an increase in average
invested assets from $1,770.9 million in 1993 to $1,862.3 million
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in 1994, offset in part by a reduction in the average yield on invested assets
from 7.8% for the year ended December 31, 1993, to 7.6% for the year ended
December 31, 1994. Net investment income decreased $2.7 million, or 2%, to
$138.5 million in 1993 from $141.2 million in 1992. This decrease resulted from
the reduction in the average yield on invested assets from 8.4% for the year
ended December 31, 1992, to 7.8% for the year ended December 31, 1993, offset in
part by an increase in average invested assets from $1,689.6 million in 1992 to
$1,770.9 million for 1993. Average yields have been impacted by declining
interest rates throughout 1992 and 1993 and the reinvestment at lower yields of
proceeds from securities disposed of to realize investment gains. The 1994
yields were negatively affected by an investment in investment partnerships.
These partnerships form a fund of funds totalling $23.1 million on December 31,
1994 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 a loss of $1.9 million in
1994 compared with income of $1.2 million in 1993. Since the date of original
investment this investment has experienced a loss of 2.2%, compared to a cash
flow equivalent loss of 9.4% had the same amounts been invested at the same time
in 10 year treasury bonds, or a .6% gain had the funds been invested in the
Standard & Poor's 500.
Net investment gains decreased $16.2 million, or 95%, to $.8 million for
the year ended December 31, 1994, from $17.0 million for the year ended December
31, 1993. This follows a $3.5 million decrease in 1993 from $20.5 million for
the year ended December 31, 1992. 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 gains realized during 1992 were primarily to utilize the tax
benefit of capital loss carryforwards. The decision to realize gains or losses
lies to a great degree in management's discretion.
Income from disposal of private placement securities was $5.8 million in
1992. During 1988, 1989 and 1990, American purchased private placement
securities believed to have a quality rating equivalent to "BBB" by Standard &
Poor's. In 1992 AmVestors engaged an independent firm to review the private
placement securities portfolio. That review determined those securities would
have been rated "BB" -- "B" if they had been rated by S&P when issued and that
the total market value of the securities at the time of the report was
approximately $5.8 million less than the par value of these securities. On
September 21, 1992, an affiliate of the placement agent agreed to purchase the
bonds at their par value, which approximated AmVestors' cost. Several of these
bonds had been written down in an amount totalling $2.1 million during 1990,
1991 and 1992 when declines in value were considered to be other than temporary.
The effect on 1992 operations of this transaction was a net investment loss of
$4.3 million representing the difference between the market value at the time of
sale and the GAAP book carrying value of the securities, and $5.8 million of
income from disposal of private placement securities representing the amount
received in excess of market value. There are no similar transactions in 1994 or
1993.
Other revenue increased by $.3 million, or 100%, to $.6 million in 1994
from $.3 million in 1993 due primarily to a $.3 million increase in Omni-Tech
sales. Other revenue decreased $.3 million, or 50%, to $.3 million in 1993 from
$.6 million in 1992 due primarily to a decrease of $.4 million in the recovery
of amounts paid as a result of the settlement of legal claims which had resulted
from agent fraud. This decrease was partially offset by a $.1 million increase
in Omni-Tech sales.
Benefits, claims and interest credited to policyholders decreased $1.5
million, to $112.3 million in 1994 from $113.8 million in 1993. This decrease
results primarily from a reduction in the average interest rate credited on
AmVestors' annuity liabilities, from 6.2% as of December 31, 1993 to 5.8% as of
December 31, 1994. This decrease was partially offset by an increase in annuity
liabilities to $1,971.6 million on December 31, 1994. In 1993, this amount
decreased $14.2 million, or 11%, to $113.8 million from $128.0 million in 1992.
This decrease resulted primarily from a reduction in the average interest rate
credited on annuity liabilities, from 7.1% as of December 31, 1992 to 6.2% as of
December 31, 1993. This decrease was partially offset by an increase in annuity
liabilities to $1,826.9 million on December 31, 1993, from $1,806.2 million on
December 31, 1992.
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Amortization of deferred policy acquisition costs 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 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 investments gains. This follows a decrease of
$7.0 million, or 43%, in 1993 from $16.4 million in 1992, primarily due to
decreased investment gains, the inclusion of income from disposal of private
placement securities in the 1992 period and the increase in the estimates of
future expected gross profits previously discussed. Acquisition costs incurred
in 1994 and deferred into future policy periods were $25.8 million, compared
with $18.2 million in 1993 and $14.1 million in 1992.
General insurance expenses decreased $1.2 million, or 14%, 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
contacts in 1994. This follows an increase in general insurance expenses of $.1
million in 1993 from $8.7 million in 1992.
Premium and other taxes, licenses and fees decreased $1.1 million, or 46%,
to $1.3 million in 1994 from $2.4 million in 1993 following a decrease of $.1
million, or 4%, in 1993 from $2.5 million in 1992. The above amounts include
charges (credits) of approximately ($.4) million, $1.6 million and $1.8 million
for the years 1994, 1993 and 1992, respectively, for nonrecoverable guaranty
fund assessments resulting from a significant number of insolvencies that
occurred in recent years.
Interest expense decreased $1.0 million in 1994 following the repayment of
all debt in November, 1993, with proceeds from AmVestors' Common Stock offering.
This follows a decrease of $1.4 million to $1.0 million in 1993 from $2.4
million in 1992. This decrease reflects the repayment of debt in 1993.
Income tax expense decreased $2.9 million to $5.6 million in 1994 from $8.5
million in 1993. During 1993, income tax expense increased $8.4 million to $8.5
million from $.1 million in 1992. A large portion of the tax on net investment
gains realized in 1992 was offset by tax benefits from capital loss
carryforwards from 1989 and 1990. These capital loss carryforwards were fully
utilized during 1992 resulting in the taxation of the net investment gains
realized in 1993 and 1994.
Extraordinary loss on early extinguishment of debt represents the write-off
of costs capitalized under AmVestors' debt agreement that was paid in full on
November 19, 1993. The 1992 amount represents the write-off of costs capitalized
under debt agreements that were restructured on April 24, 1992.
LIQUIDITY AND CAPITAL RESOURCES
AmVestors is an insurance holding company whose principal asset is the
common stock of American. AmVestors' primary cash requirements are to pay
operating expenses.
As a holding company, AmVestors relies on funds received from American to
meet its cash requirements at the holding company level. AmVestors receives
funds from American in the form of commissions paid to American Sales,
investment fees paid to AIG, 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 AmVestors 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. 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. For purposes of AmVestors'
consolidated statements of cash flows, financing activities include premiums
received from sales of deferred annuities, 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 nine months
ended September 30, 1995, and 1994, was ($91.7) million
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and ($143.8) million, respectively, and for the years ended December 31, 1994,
1993 and 1992, was $26.6 million, ($91.5) million and ($27.7) million.
The decrease in net cash provided by annuity contracts without life
contingencies in the first nine months of 1995 resulted primarily from a $109.0
million increase in surrender and death benefits paid, from $181.2 million to
$290.2 million offset by a $49.9 million increase in premiums received from
$206.9 million to $256.8 million. The increase in net cash provided by annuity
contracts without life contingencies in 1994 resulted primarily from a $72.3
million decrease in surrender and death benefits paid from $318.9 million
(approximately 16.1% of beginning reserves for future policy benefits) to $246.6
million (approximately 12.3% of beginning reserves for future policy benefits)
along with a $45.6 million increase in premiums received from $222.2 million to
$267.8 million. The decline in net cash provided by annuity contracts without
life contingencies in 1993 resulted primarily from a $115.8 million increase in
surrender and death benefits paid from $203.1 million (approximately 11.1% of
beginning reserves for future policy benefits) to $318.9 million (approximately
16.1% of beginning reserves for future policy benefits) offset by a $53.5
million increase in premiums received from $168.7 million to $222.2 million. The
decline in net cash provided by annuity contracts without life contingencies in
1992 resulted primarily from a $50.5 million decline in premiums received from
$219.2 million to $168.7 million, and a $5.8 million increase in surrender and
death benefits paid from $197.3 million (approximately 12.6% of beginning
reserves for future policy benefits) to $203.1 million (approximately 11.1% of
beginning reserves for future policy benefits).
Net cash provided by AmVestors' operating activities was $117.4 million and
$97.1 million for the nine months ended September 30, 1995 and 1994,
respectively, and $130.5 million, $129.7 million and $142.9 million for the
years ended December 31, 1994, 1993 and 1992, respectively. 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,
AmVestors purchases investments taking into account the anticipated future cash
flow requirements of its underlying liabilities. In addition, AmVestors invests
a portion of its assets in short-term investments and maturities of less than
one year (2%, 2%, 3% and 7% as of September 30, 1995, and December 31, 1994,
1993 and 1992, respectively). The weighted average duration of AmVestors'
investment portfolio was 4.4 years as of September 30, 1995.
AmVestors 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, AmVestors 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, AmVestors 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 AmVestors' Common
Stock. On December 30, 1992, AmVestors issued and sold 235,294 shares of Common
Stock at $10.625 per share to AmVestors' 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 7 of
Notes to Consolidated Financial Statements of AmVestors. In 1993, AmVestors
raised $29.4 million through the sale of 3,451,668 shares of Common Stock. In
December 31, 1994, AmVestors entered into a credit agreement with First 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 $15,000,000 in the form
of a 5-year revolving credit facility. For additional information regarding this
credit agreement, see Note 5 of Notes to Consolidated Financial Statements of
AmVestors.
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 of AmVestors.
REINSURANCE. AmVestors had amounts receivable under reinsurance agreements
of $146.2 million and $149.7 million as of September 30, 1995, and December 31,
1994, respectively. Of the amounts, $144.5 million and $147.9 million,
respectively, were associated with a single insurer, ERC. In 1989, AmVestors
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entered into a coinsurance agreement which ceded 90% of the risk on AmVestors'
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. AmVestors also receives 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 two assumption reinsurance agreements
with other reinsurers.
EFFECT OF INFLATION AND CHANGES IN INTEREST RATES. AmVestors does not
believe that inflation has had a material effect on its consolidated results of
operations during the past three years. AmVestors seeks to manage its investment
portfolio, in part, to reduce its exposure to interest rate fluctuations. In
general, the market value of AmVestors' fixed income securities increases or
decreases directly with interest rate changes. For example, if interest rates
decline (as was the case in 1992, 1993 and 1995), AmVestors' 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 1994),
fixed income investments generally will decrease in market value, while net
investment income will increase. The impact of changing interest rates on
AmVestors' bond portfolio resulted in unrealized gains (losses) of $50.8
million, $(105.6) million, $81.4 million and $41.5 million as of September 30,
1995, December 31, 1994, 1993 and 1992, respectively.
In a rising interest rate environment (such as that experienced in 1994),
AmVestors' average cost of funds would increase over time as it prices its new
and renewing annuities to attempt 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, AmVestors' cost of funds would decrease over time, reflecting lower
interest crediting rates on its fixed annuities.
In addition to the increase in AmVestors' average cost of funds caused by a
rising interest rate environment, surrenders of annuities that are no longer
protected by surrender charges increase. While AmVestors experienced a decrease
in total surrenders during 1994, the decrease was primarily due to the large
number of bailout surrenders in 1993. Throughout 1994, AmVestors saw an increase
in surrenders of policies which no longer were covered by surrender charges.
Management believes the increased surrenders experienced in 1994 were due to the
increasing interest rates throughout 1994. This trend has continued into 1995.
Management believes that surrenders are lower during periods of declining
interest rates.
NEW ACCOUNTING STANDARDS
In accordance with a Special Report, "A Guide to Implementation of
Statement No. 115 on Accounting for Certain Investments in Debt and Equity
Securities" issued by the Financial Accounting Standards Board during November,
1995, AmVestors chose to classify all securities as available-for-sale. If all
securities had been classified as available-for-sale at September 30, 1995,
stockholders' equity would have increased by $10,633,000.
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DESCRIPTION OF AMVESTORS CAPITAL STOCK
The authorized capital stock of AmVestors consists of 25,000,000 shares of
AmVestors Common Stock, no par value, and 2,000,000 shares of Preferred Stock,
par value $1 per share. There are no shares of Preferred Stock outstanding.
AMVESTORS COMMON STOCK
All of the outstanding shares of AmVestors Common Stock are fully paid and
non-assessable. The holders of shares of AmVestors Common Stock are entitled to
receive such dividends as may be declared by the AmVestors Board.
Each holder of AmVestors Common Stock is entitled to cumulative voting in
the election of directors, to one vote per share on all other matters submitted
to a vote of stockholders and to share ratably in all assets available for
distribution to holders of AmVestors Common Stock upon liquidation or
dissolution and after satisfaction of any liquidation preference attributable to
any outstanding preferred stock. No holder of AmVestors Common Stock has any
preemptive right to subscribe for any security of AmVestors. There are no
conversion rights or redemption or sinking fund provisions applicable to the
AmVestors Common Stock.
AMVESTORS WARRANTS
The AmVestors Warrants will be issued to holders of FBG Class A Common
Stock pursuant to the terms of the Merger Agreement. The fraction of an
AmVestors Warrant payable per share of FBG Class A Common Stock in the Merger
will be valued at $.31 as determined by the Black-Scholes model in the Equity
Option Calculator licensed by Bloomberg L.P. on the third trading day prior to
the Merger. The Black-Scholes model will utilize the following assumptions: (i)
an AmVestors Warrant will be exercisable for a period of six years following the
date which is three trading days prior to the Closing Date; (ii) the exercise
price shall be equal to 135% of the AmVestors Stock Price (the average closing
price of the AmVestors Common Stock during the twenty consecutive trading days
ending three trading days prior to the Merger); (iii) the option type will be
American; (iv) the options will be "dilutive" (i.e., it is assumed that the
shares of AmVestors Common Stock issued upon exercise of the AmVestors Warrants
will be newly issued shares and not shares purchased in the market); (v) the
volatility rate will be the rate prescribed by the Bloomberg model as of the
date which is three trading days prior to the Closing Date; (vi) the
semi-annual, risk-free interest rate, as prescribed by the Bloomberg model, as
of the date the AmVestors Stock Price will be used; (vii) a cash dividend of
$.075 per share of AmVestors Common Stock on April 13 of each year; and (viii)
the number of shares of AmVestors Common Stock outstanding following the Merger.
The AmVestors Warrants will be issued in registered form under, governed
by, and pursuant to the terms of a warrant agreement between AmVestors and
Boatmen's Trust Company, as Warrant Agent (the "Warrant Agreement").
The following statements are brief summaries of certain provisions of the
Warrant Agreement. A copy of a form of Warrant Agreement is attached hereto as
Appendix V and the information regarding the AmVestors Agreement in this Joint
Proxy Statement/Prospectus does not purport to be complete and is qualified in
its entirety by reference to the full text of the Warrant Agreement.
Each AmVestors Warrant entitles the holder thereof to purchase one share of
AmVestors Common Stock at a price of 135% of the AmVestors Stock Price. However,
the AmVestors Warrants are exercisable only for whole shares; no fractional
shares will be issued. The right to exercise the AmVestors Warrant will commence
immediately upon consummation of the Merger and will be exercisable for a period
of six years following the date on which the AmVestors Stock Price is
determined. The purchase price can be paid only in lawful money of the United
States.
The Warrant Agreement contains provisions that protect the AmVestors
Warrant holders against dilution by adjustment of the exercise price and/or the
number of shares of AmVestors Common Stock exercisable pursuant to the AmVestors
Warrant in certain events including, but not limited to, stock dividends, stock
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splits, reclassifications, mergers or issuance of rights or options to subscribe
to AmVestors Common Stock at a lower price than pursuant to the AmVestors
Warrant.
An AmVestors Warrant holder will not possess any rights as a stockholder of
AmVestors in connection with the AmVestors Warrant. However, an AmVestors
Warrant holder will be entitled to receive merger or other consolidation
consideration and extraordinary dividends as if the AmVestors Warrant holder had
exercised the AmVestors Warrant prior to the transaction causing such a
distribution. Furthermore, upon the occurrence of an event triggering an
anti-dilution adjustment, or in certain events including, but not limited to, a
merger, sale of substantially all the assets, consolidation, extraordinary
dividend declaration and other special distributions, liquidation, and
dissolution, AmVestors will provide each holder of an AmVestors Warrant with
notice of such an event.
At any time when the AmVestors Warrants are exercisable and as a condition
to redemption of the AmVestors Warrants, AmVestors is required to have a current
registration statement on file with the Commission and to register or qualify
under the laws and regulations of the states in which the holders of the
AmVestors Warrants reside in order to comply with the applicable laws in
connection with the exercise of the AmVestors Warrants. So long as the AmVestors
Warrants are outstanding, AmVestors will use its best efforts to file all
required post-effective amendments and supplements to the registration statement
in accordance with applicable federal securities laws, and to take appropriate
action under federal and state securities laws to permit the issuance of
AmVestors Common Stock issuable upon exercise of the AmVestors Warrants.
AmVestors will, at all times, reserve and keep available out of its
authorized AmVestors Common Stock the number of shares of AmVestors Common Stock
that are issuable upon the exercise of all outstanding AmVestors Warrants. All
such shares of AmVestors Common Stock, when issued upon such exercise, will be
validly issued, fully paid and nonassessable, free and clear of all liens,
security interests, charges and other encumbrances or restrictions on sale and
free and clear of all preemptive rights.
ANTI-TAKEOVER PROVISIONS
CLASSIFICATION OF THE AMVESTORS BOARD. Article Seven of AmVestors' Articles
provides that the AmVestors Board shall be divided into three classes, effective
as of the Annual Meeting of Stockholders in 1987. Each class shall have a term
of three years. Class I consists of three directors, each to hold office for one
year until the 1997 Annual Meeting of Stockholders; Class II consists of three
directors, each to hold office for two years until the 1998 Annual Meeting of
Stockholders; and Class III consists of three directors, each to hold office for
three years until the 1996 Annual Meeting of Stockholders.
The staggered Board makes it more difficult for stockholders, including
those holding a majority of the AmVestors Common Stock, to force an immediate
change in the composition of a majority of the AmVestors Board. Since the terms
of only approximately one-third of the incumbent directors would expire each
year, assuming no resignations by or removal of directors, the time required to
change a majority of the AmVestors Board is two years. Assuming no resignations
by or removal of directors, a two-thirds stockholder vote is required under the
AmVestors Articles to amend Article Seven in order for stockholders to change a
majority of the directors at any annual meeting should they consider such a
change desirable.
TWO-THIRDS MAJORITY VOTE FOR CERTAIN CORPORATE ACTIONS. Under Article Eight
of the AmVestors Articles, any merger or certain other business combinations to
be effected between AmVestors and an entity or affiliate of such entity that
owns 5% or more of AmVestors' outstanding stock ("acquiring entity") must be
approved by the holders of not less than two-thirds of the outstanding shares of
AmVestors' stock entitled to vote in the election of directors or must be
approved by a majority of AmVestors' directors who are not affiliated with the
acquiring entity or must be in compliance with certain fair price provisions.
This provision of the Articles of Incorporation cannot be amended except by a
vote of two-thirds of AmVestors' outstanding stock entitled to vote in the
election of directors.
The primary purpose of this provision is to discourage other corporations
or groups from attempting to acquire control of AmVestors through the
acquisition of a substantial number of shares of AmVestors Common Stock followed
by a forced merger or sale of assets without negotiation with management. This
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107
provision also may serve to reduce the danger of possible conflicts of interest
between a substantial stockholder on the one hand and AmVestors and its other
stockholders on the other. It should be noted that the foregoing provisions
could enable a minority of AmVestors' stockholders to prevent a transaction
favored by the majority of the stockholders. Also, in some circumstances, the
AmVestors Board could cause a two-thirds vote of management to retain control
over the affairs of AmVestors and their positions with AmVestors.
EFFECT OF ISSUANCE OF PREFERRED STOCK. The shares of authorized but
unissued preferred stock are issuable in series with such rights, preference,
privileges and restrictions as the AmVestors Board may determine without any
further stockholder approval, including voting rights, redemption provisions,
dividend rates, liquidation preferences and conversion rights. The issuance of
such shares may adversely affect the voting power of the holders of AmVestors
Common Stock. Certain terms and conditions of AmVestors' Preferred Stock could
have the effect of discouraging a takeover attempt of AmVestors.
AMENDMENT OF CHARTER. Amendments to AmVestors' Articles require the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Company stock entitled to vote thereon.
LIMITATION ON LIABILITY OF DIRECTORS
Section 1 of Article Seven of AmVestors' Articles provides that any
director of AmVestors shall not be personally liable to AmVestors, its
stockholders or policy holders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of director's duty of
loyalty to AmVestors or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law,
(iii) under the Kansas statutory provision making directors personally liable,
under a negligence standard, for unlawful dividends or unlawful stock
repurchases or redemptions, or (iv) for any transaction from which the director
derived an improper personal benefit. This provision offers directors protection
against awards of monetary damages for negligence in the performance of their
duties. It does not affect the availability of equitable remedies such as an
injunction or recision based upon a director's breach of the duty of care or
gross negligence.
TRANSFER AGENT
The transfer agent and registrar for the AmVestors Common Stock is, and for
the AmVestors Warrants will be, Boatmen's Trust Company, Corporate Trust
Division, 510 Locust Street, 2nd Floor, St. Louis, Missouri.
INFORMATION REGARDING FBG
The following briefly describes the business of FBG. Additional information
regarding FBG is contained in its filings with the Commission pursuant to the
Exchange Act. See "Additional Information" and "Incorporation by Reference."
BUSINESS OF FBG
FBG is a holding company specializing through subsidiaries in the annuity
market. FBG was incorporated in Delaware in September, 1982 as First Women's
Financial Corporation. It changed its name to Financial Benefit Group, Inc. on
June 9, 1986.
FBG, through its wholly-owned subsidiaries, each of which is fully
described below, operates in three distinct capacities in the annuity market.
- Through Financial Benefit Life, it acts principally as a manufacturer, or
issuer, of annuity products;
- Through Annuity International Marketing Corporation ("AIMCOR"), it acts
as a designer, developer and distributor of annuities for Financial
Benefit Life and other unaffiliated insurance companies with which it has
long term marketing agreements on a royalty basis; and
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- Through The Insurancemart, Inc. ("TIM"), it functions as a wholesaler for
all of the life companies with which AIMCOR has marketing agreements,
including Financial Benefit Life and American, as well as for other
carriers.
A fourth subsidiary, Financial Benefit Management Corporation ("FBMC"),
manages the bond and equity portfolios as well as the real estate holdings and
mortgages of Financial Benefit Life.
FBG also owns another subsidiary, Rainbow Card Pack Publications, Inc.,
which specializes in the sales and production of card pack advertising. Card
pack advertising is a form of direct mail advertising which, in the case of FBG,
is targeted to insurance agents.
FBG's executive offices are located in a building which Financial Benefit
Life owns at 7251 West Palmetto Park Road, Boca Raton, Florida 33433. Its
telephone number is (407) 394-9400.
FINANCIAL BENEFIT LIFE. Financial Benefit Life, FBG's principal subsidiary,
is a legal reserve life insurance company specializing in annuity products.
Financial Benefit Life was initially licensed in Florida, its home state, on
March 23, 1983 and is now admitted to do business in 38 other states, the U.S.
Virgin Islands and the District of Columbia. Since January 1984, when Financial
Benefit Life's single premium annuity sales commenced, FBG has offered a variety
of single and flexible premium deferred annuity and single premium immediate
annuity plans. Deferred annuity products accounted for 95% of all premiums
received by Financial Benefit Life in 1994 and 96% of all premiums received by
it during the first nine months of 1995.
Approximately 80% of sales of annuities this year by Financial Benefit Life
through September 30, 1995 were from the following ten states: Florida, Ohio,
Michigan, Wisconsin, Indiana, Missouri, Tennessee, Nebraska, Iowa and Arizona.
All of Financial Benefit Life's annuity sales have been made by independent
agents contracted to Financial Benefit Life and recruited through National
Marketing Organizations ("NMOs"), primarily TIM which has produced over 70% of
the premium through September 30, 1995. Agents recruited through one independent
NMO produced over 28% of Financial Benefit Life's premium volume through
September 30, 1995. Financial Benefit Life's direct premium written was $57.8
million in 1993, $76.5 million in 1994, and $46.0 million through September 30,
1995.
ANNUITY INTERNATIONAL MARKETING CORPORATION. AIMCOR was incorporated in
Florida in November 1983 and in July 1984 began designing and marketing
annuities and recruiting agents for American Investors Life Insurance Company.
In 1986, it began performing these same functions for Fidelity Bankers Life
Insurance Company. A portion of the premium written under these agreements was
reinsured to Financial Benefit Life. These agreements are no longer in force and
all reinsurance formerly held has been retroceded to the respective carriers.
In April, 1990, AIMCOR entered into seven year agreements with two
subsidiaries of Life Partners Group, Inc. -- Massachusetts General Life
Insurance Company ("Mass General") and Philadelphia Life Insurance Company
("Philadelphia Life") to develop and market a line of annuity products. Both
companies are rated 'A' ("Excellent") by A.M. Best and 'A+' by Duff & Phelps
with total assets in excess of $5.0 billion. These programs commenced in
September, 1990 and to date over $338 million of premium has been written under
these agreements.
In 1993, AIMCOR entered into similar agreements to design and market
annuity products with Fort Dearborn Life Insurance Company, Chicago, Illinois
("Fort Dearborn") and Columbian Mutual Life Insurance Company ("Columbian
Mutual").
Fort Dearborn is a subsidiary of Blue Cross/Blue Shield of Illinois. For
over 10 years, Fort Dearborn has maintained an 'A' ("Excellent") rating by A.M.
Best. They are currently licensed in 49 states, the District of Columbia and the
U.S. Virgin Islands and have over $345 million in assets. Columbian Mutual is a
New York domiciled mutual life insurer and was founded in 1882. Columbian Mutual
has a 'B++' ("Very Good") rating by A.M. Best and is licensed in 50 states,
Puerto Rico, the District of Columbia and the U.S. Virgin Islands.
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As compensation for its services, Mass General, Philadelphia Life,
Columbian Mutual and Fort Dearborn each pay AIMCOR a quarterly fee based on the
accumulated account value of all such policies in force on the books of the
respective carrier on the last day of each quarter. These payments will continue
for a period of fifteen years from the date of issue of each policy or such
shorter time as the business remains in force. As of September 30, 1995, the
total accumulated account value of all outside carriers noted above was $405.3
million. Through September 30, 1995, AIMCOR has received $731,104 in marketing
fees on this business.
In late 1994, AIMCOR entered into a marketing agreement with Business Men's
Assurance Company of America ("BMA") located in Kansas City, Missouri. BMA has
been in business since 1909 and has an 'A' ("Excellent") rating by A.M. Best,
'AA' rating by S & P, 'AA' rating by Duff & Phelps, and is a member of the
Generali Group. The marketing program commenced in early 1995 and has proven to
be a successful endeavor. Through September 30, 1995, over $197 million of
premium has been written under this agreement and AIMCOR has received over
$981,580 in marketing fees.
THE INSURANCEMART, INC. TIM is an NMO, or wholesaler, which recruits agents
to sell annuities and in some cases, life insurance, for Financial Benefit Life,
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 5,500. These agents have generated $93.4 million
of annuity premium in 1995 through September 30th. TIM receives an override on
all annuity and life insurance premiums sold through TIM recruited agents.
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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, 1994, is derived from FBG's audited consolidated financial statements. The
selected consolidated financial data for the nine month periods ended September
30, 1995, and 1994 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. 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. 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 of FBG."
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Income Statement and Other Data:
Revenue:
Net investment income(1)............. $ 32,300 $ 32,757 $ 43,126 $ 53,006 $ 61,954 $ 57,608 $ 46,038
Realized gains on investments........ 1,907 2,115 2,668 21,827 13,101 10,611 (8,066)
Commissions and marketing fees....... 2,344 1,109 1,423 1,062 1,209 876 916
Other Income......................... 4,348 2,799 3,846 4,074 4,940 4,859 2,172
-------- -------- -------- -------- -------- -------- --------
Total revenue.......................... 40,899 38,780 51,063 79,969 81,204 73,954 41,060
Benefits and expenses:
Increase in future policy benefits... 20,900 20,463 28,067 41,468 63,700 51,675 39,512
General and administrative
expenses........................... 3,712 2,969 3,333 4,176 2,742 3,699 3,198
Payroll and related expenses......... 2,083 2,209 2,860 2,447 2,317 2,492 2,106
Amortization of deferred acquisition
costs.............................. 8,223 9,375 11,952 16,168 (2,008) 8,749 1,391
Interest expense..................... 1,165 1,060 1,406 1,476 677 736 566
Depreciation and amortization........ 151 141 194 262 279 288 232
-------- -------- -------- -------- -------- -------- --------
Total benefits and expenses............ 36,234 36,217 47,812 65,997 67,707 67,639 47,005
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income tax expense
and extraordinary charge............. 4,665 2,563 3,251 13,972 13,497 6,315 (5,945)
Income tax expense..................... 1,400 892 725 4,854 3,531 186 979
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
charge............................... 3,265 1,671 2,526 9,118 9,966 6,129 (6,924)
Extraordinary charge on extinguishment
of debt, net of tax(2)............... -- (1,637) (1,800) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...................... $ 3,265 $ 34 $ 726 $ 9,118 $ 9,966 $ 6,129 $ (6,924)
======== ======== ======== ======== ======== ======== ========
Earnings (loss) before extraordinary
item per share of common stock
Primary............................ $ 0.38 $ 0.20 $ 0.30 $ 1.11 $ 1.33 $ 0.89 $ (1.06)
Fully diluted...................... N/A $ 0.20 N/A $ 0.51 $ 1.19 $ 0.87 $ (1.06)
Earnings (loss) per share of common
stock
Primary............................ $ 0.38 $ 0.01 $ 0.09 $ 1.11 $ 1.33 $ 0.89 $ (1.06)
Fully diluted...................... N/A $ 0.01 N/A $ .51 $ 1.19 $ 0.87 $ (1.06)
OTHER OPERATING DATA:
Operating earnings (loss) excluding
net investment gains (losses) and
related amortization of deferred
acquisition costs(3)............... $ 5,115 2,830 3,657 (5,446) 1,073 (3,560) 2,687
Net operating earnings (loss)
excluding net investment gains
(losses) and related amortization
of deferred acquisition costs and
associated income taxes(4)......... $ 3,580 1,845 2,841 (3,554) 792 (3,455) 3,129
Net operating earnings (loss)
excluding net investment gains
(losses) and related amortization
of deferred acquisition costs and
associated income taxes per common
share(5):
Primary............................ $ .42 .22 .34 (.43) .11 (.50) .48
Fully diluted...................... $ .42 .22 .34 (.20) .09 (.49) .48
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NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Balance sheet data (at end of period):
Total assets(6)...................... $719,915 $724,999 $730,903 $789,569 $787,607 $778,389 $641,281
Total debt........................... 15,500 16,000 16,000 15,000 15,000 1,627 9,500
Shareholders' equity................. 37,387 27,924 27,276 29,476 20,020 9,597 3,063
Fully diluted book value per
share(7)........................... 4.31 3.29 3.22 3.47 2.51 1.32 0.51
Statutory data:(8)
Net statutory premiums............... $ 46,005 $ 59,684 $ 76,533 $ 57,777 $110,476 $143,407 $227,745
Statutory capital and surplus(9)..... 31,188 29,952 30,258 31,092 27,282 23,910 18,222
Total AVR/MSVR(10)................... 9,551 8,825 8,728 8,741 8,236 7,609 72
Total IMR(10)........................ 7,695 7,558 7,861 7,006 3,612 0 0
- -------------------------
(1) Net investment income is presented net of investment expense.
(2) 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 and $363,000
as of December 31, 1994 and September 30, 1994, respectively.
(3) Amounts shown reflect operating earnings (earnings before interest expense
and reinsurance) 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 $1.2 million and
$1.3 million for the nine months ended September 30, 1995 and 1994,
respectively, and $1.7 million, $933,000, $-0-, $-0-, and $-0- for the
years ended December 31, 1994, 1993, 1992, 1991 and 1990 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 of FBG -- Margin Analysis."
(4) Represents operating earnings after taxes adjusted to exclude net
investment gains (losses) and accelerated (reduced) amortization of
acquisition costs related to such investment gains (losses) and to exclude
associated income tax expense.
(5) 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.
(6) Effective January 1, 1993, FBG and adopted the provisions of Statement of
Financial Accounting Standards 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.
(7) 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.
(8) 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.
(9) 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.
(10) IMR and AVR are required to be included in reports filed on or after
December 31, 1992. Prior to the 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF FBG
GENERAL
FBG specializes in the sale of deferred annuity products as a retirement
savings vehicle for individuals. During each of the past three years, sales of
deferred annuities have accounted for at least 93% of FBG's premiums received,
while sales of SPIAs have accounted for the remainder. FBG also markets and
sells deferred annuities for unaffiliated insurers and is paid marketing fees
and commission for such sales and services.
FBG's operating earnings are 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
deferred acquisition costs, or "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 depend, 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 Financial Benefit Life'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 FBG's reduction in
credited rates.
Recent periods of low interest rates have reduced FBG's investment yields.
As a result of the lower investment yields, FBG elected to reduce credited
interest rates on certain of its annuity products. Certain annuities issued by
FBG include a 'bailout' feature. This feature generally allows policyowners to
withdraw their entire 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 $182.5 million, $74.7 million, and $289.7 million during 1994,
1993 and 1992, respectively. As a result, $73.1 million, or 40%, $25.3 million
or 34%, and $81.9 million, or 28%, of such policies were surrendered during
1994, 1993, and 1992, respectively. FBG 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, FBG's
annuity withdrawal rates were 11.6% for 1994, 9.6% for 1993 and 7.5% for 1992,
which management believes is consistent with industry experience for comparable
product durations. Annuity account values that contained a "bailout provision"
were $66.4 million or 12.7%, $250.2 million or 44.6% and $326.2 million or 45.7%
as of December 31, 1994, 1993 and 1992, respectively. The current credited rates
on the remaining policies with "bailout provisions" is 6.25% or less. FBG is now
less disposed to reduce credited interest rates below current "bailout" rate
levels because the current earnings rate on its investment portfolios is 8.3%
and the reinvestment rate is approximately 6.75%. Furthermore, FBG no longer
markets products with "bailout" interest rates, hence it has been a matter of
diminishing concern. If FBG 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, FBG would have to
sell securities at the then current market prices. FBG expects the withdrawals
on its annuity contracts will increase as such contracts approach maturity
because as the surrender charges
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"wear off," the policies because more susceptible to disintermediation. FBG 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 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 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 margin analysis depicts the effects
of realized gains (losses) on FBG's operating earnings (loss):
NINE MONTHS
ENDED SEPTEMBER
30, YEARS ENDED DECEMBER 31,
---------------- ----------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
Average invested assets(1).................. $527.4 $540.4 $546.7 $625.3 $681.0 $618.4 $452.5
======= ======= ======= ======= ======= ======= =======
Net investment income(2).................... $ 32.3 $ 32.7 $ 43.1 $ 53.0 $ 61.9 $ 57.6 $ 46.0
-------
Policyholder benefits....................... $ 20.9 20.4 28.1 41.5 63.7 51.6 39.5
------- ------- ------- ------- ------- ------- -------
Gross interest margin....................... 11.4 12.3 15.0 11.5 (1.8) 6.0 6.5
Associated amortization of DAC.............. 8.0 8.4 10.7 15.3 (2.0) 8.7 1.4
------- ------- ------- ------- ------- ------- -------
Net interest margin......................... 3.4 3.9 4.3 (3.8) 0.2 (2.7) 5.1
------- ------- ------- ------- ------- ------- -------
Net investment gains........................ 1.9 2.1 2.7 21.9 13.1 10.6 (8.1)
Associated amortization of DAC.............. 0.2 1.0 1.3 0.9 -- -- --
------- ------- ------- ------- ------- ------- -------
Net margin from investment gains............ 1.7 1.1 1.4 21.0 13.1 10.6 (8.1)
------- ------- ------- ------- ------- ------- -------
Total net margin............................ 5.1 .5 5.7 17.2 13.3 7.9 (3.0)
Expenses, net of other income and
commissions & marketing fees.............. (0.8) 1.3 1.1 1.7 (0.8) 0.9 2.5
------- ------- ------- ------- ------- ------- -------
Operating earnings.......................... 5.9 3.7 4.6 15.5 14.1 7.0 (5.5)
Interest expense............................ 1.2 1.1 1.4 1.5 0.7 0.7 0.5
------- ------- ------- ------- ------- ------- -------
Earnings before income taxes................ 4.7 2.6 3.2 14.0 13.4 6.3 (6.0)
Income tax expense.......................... 1.4 0.9 0.7 4.9 3.5 0.2 0.9
------- ------- ------- ------- ------- ------- -------
Earnings before extraordinary loss.......... 3.3 1.7 2.5 9.1 9.9 6.1 (6.9)
Extraordinary loss on early extinguishment
of debt................................... -- 1.6 1.8 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net earnings................................ $ 3.3 $ 0.1 $ 0.7 $ 9.1 $ 9.9 $ 6.1 $ (6.9)
======= ======= ======= ======= ======= ======= =======
Operating earnings (loss)................... $ 5.9 $ 3.7 $ 4.6 $ 15.5 $ 14.1 $ 7.0 $ (5.5)
Less: Net margin from investment gains...... 1.7 1.1 1.4 21.0 13.1 10.6 (8.1)
------- ------- ------- ------- ------- ------- -------
Operating earnings excluding net investment
gains and associated DAC.................. $ 4.2 $ 2.6 $ 3.2 $ (5.5) $ 1.0 $ (3.6) $ 2.6
======= ======= ======= ======= ======= ======= =======
NINE MONTHS
ENDED SEPTEMBER
30, YEARS ENDED DECEMBER 31,
---------------- ----------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
(PERCENTAGE OF AVERAGE INVESTED ASSETS)
Average invested assets(1).................. 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
===== ===== ===== ===== ===== ===== =====
Net investment income(2).................... 8.16% 8.07% 7.88% 8.48% 9.09% 9.31% 10.17%
Policyholder benefits....................... 5.28 5.03 5.14 6.64 9.35 8.34 8.73
----- ----- ----- ----- ----- ----- -----
Gross interest margin....................... 2.88 3.03 2.74 1.84 (0.26) 0.97 1.44
Associated amortization of DAC.............. 2.02 2.07 1.96 2.45 (0.29) 1.41 0.31
----- ----- ----- ----- ----- ----- -----
Net interest margin......................... 0.86 0.96 0.79 (0.61) 0.03 (0.44) 1.13
----- ----- ----- ----- ----- ----- -----
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NINE MONTHS
ENDED SEPTEMBER
30, YEARS ENDED DECEMBER 31,
---------------- ----------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
(PERCENTAGE OF AVERAGE INVESTED ASSETS)
Net investment gains........................ 0.48 0.52 0.49 3.50 1.92 1.71 (1.79)
Associated amortization of DAC.............. 0.05 0.25 0.24 0.14 0.00 0.00 0.00
----- ----- ----- ----- ----- ----- -----
Net margin from investment gains............ 0.43 0.27 0.26 3.36 1.92 1.71 (1.79)
----- ----- ----- ----- ----- ----- -----
Total net margin............................ 1.29 1.23 1.04 2.75 1.95 1.28 (0.66)
Expenses, net of other income and
commissions & marketing fees.............. (0.20) 0.32 0.20 0.27 (0.12) 0.15 0.55
----- ----- ----- ----- ----- ----- -----
Operating earnings.......................... 1.49 0.91 0.84 2.48 2.07 1.13 (1.22)
Interest expense............................ 0.30 0.27 0.26 0.24 0.10 0.11 0.11
----- ----- ----- ----- ----- ----- -----
Earnings before income taxes................ 1.19 0.64 0.59 2.24 1.97 1.02 (1.33)
Income tax expense.......................... 0.35 0.22 0.13 0.78 0.51 0.03 0.20
----- ----- ----- ----- ----- ----- -----
Earnings before extraordinary loss.......... 0.83 0.42 0.46 1.46 1.45 0.99 (1.52)
Extraordinary loss on early extinguishment
of debt................................... -- 0.39 0.33 -- -- -- --
----- ----- ----- ----- ----- ----- -----
Net earnings................................ 0.83% 0.02% 0.13% 1.46% 1.45% 0.99% (1.52)%
===== ===== ===== ===== ===== ===== =====
Operating earnings.......................... 1.49% 0.91% 0.84% 2.48% 2.07% 1.13% (1.22)%
Less: Net margin from investment gains...... 0.43 0.27 0.26 3.36 1.92 1.71 (1.79)
----- ----- ----- ----- ----- ----- -----
Operating earnings excluding net investment
gains and associated DAC.................. 1.06% 0.64% 0.59% (0.88)% 0.15% (0.58)% 0.57%
===== ===== ===== ===== ===== ===== =====
- -------------------------
(1) Average of cash and invested assets (before SFAS 115 adjustment) at the
beginning and end of period.
(2) Net investment income is presented net of investment expense.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994. For the nine months ended
September 30, 1995, net income was $3.3 million or $.38 per share, compared to
$1.7 million or $.20 per share, before an extraordinary charge, for the nine
months ended September 30, 1994. The increase was attributed to improvements in
operations which included less surrender-related amortization of deferred
acquisition costs ("DAC"), net of surrender charges and increased commissions
and marketing fees resulting from new marketing initiatives. Earnings during the
1994 period were less due to management's conscious decision to lower credited
interest rates on certain of its inforce business which in some cases allowed
policyholders to surrender their policies without penalty. The greater
surrenders in the year earlier period resulted in greater amortization of DAC.
After tax earnings from operations before realized gains on investments and
interest expense was $2.9 million for the nine months ended September 30, 1995
compared to a gain of $1.6 million for the nine months ended September 30, 1994.
The experience in the year earlier nine months included increased amortization
of DAC related to a greater level of surrenders. The current nine months
included the benefits of increased marketing fees.
The extraordinary charge of $2.0 million before an expected tax benefit of
$.4 million related to the early extinguishment of the $10.0 million
subordinated convertible debenture owed to Southwestern Life Insurance Company
of Dallas, Texas, a subsidiary of Southwestern Life Corporation.
Investment income, in both the available-for-sale and the held-to-maturity
portfolios, for the nine months ended September 30, 1995, was $32.3 million
compared to $32.8 million for the nine months ended September 30, 1994. The
decrease in investment income for the current nine months resulted primarily
from a reduction in assets under management caused by the excess of surrenders
over new premium written for Financial Benefit Life. Investment income as a
percentage of invested assets was unchanged at 8.5% for the nine months ended
September 30, 1995 and for the nine months ended September 30, 1994.
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Realized gains on the sale of available-for-sale securities for the nine
months ended September 30, 1995 were $1.9 as compared to $2.1 million for the
nine months ended September 30, 1994. Included in realized gains for the nine
months ended September 30, 1995 was $.3 million from the sale of FBG's Causeway
manufactured home community.
Commission and marketing fees were $2.3 million for the nine months ended
September 30, 1995 compared to $1.1 million for the nine months ended September
30, 1994. The increase related primarily to commissions and marketing fees
received from a new client company for both AIMCOR and TIM.
Other income which includes surrender charges and rental income on the home
office building was $4.3 million for the nine months ended September 30, 1995
compared to $2.8 million for the nine months ended September 30, 1994. During
1994, FBG 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 the nine months of 1995, this option was available on a significantly
more limited basis.
For the nine months ended September 30, the increase in future policy
benefits was $20.9 million in 1995 compared to $20.5 million in the 1994 period.
The increase related to the effects of crediting higher interest rates on new
business as compared to conditions in the year earlier period.
General and administrative expenses were $3.7 million for the nine months
ended September 30, 1995 compared to $3.0 million for the nine months ended
September 30, 1994. The increase for the nine months related to increased
spending for non-recurring professional fees relating to the pending merger with
AmVestors Financial Corporation.
Payroll and related expenses were $2.1 million for the nine months ended
September 30, 1995 compared to $2.2 million for the nine months ended September
30, 1994. The slight reduction during the current period relates to reductions
in executive staff and deferred compensation which was partially offset by
increases in compensation for merit.
Amortization of DAC was $8.2 million for the nine months ended September
30, 1995 compared to $9.4 million for the nine months ended September 30, 1994.
Amortization is less during the current period primarily because policy
surrenders and withdrawals for Financial Benefit Life are less when compared to
year earlier levels.
Interest expense increased to $1.2 million for the nine months ended
September 30, 1995 from $1.1 million for the nine months ended September 30,
1994. The slight increase primarily reflects a greater rate of interest on the
amount of debt outstanding during the current nine months when compared to the
year earlier period.
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992. After tax earnings from
operations before realized gains on investments, interest and reinsurance
effects increased to $2.5 million or $.30 per share for the year ended December
31, 1994 from $1.0 million or $.13 per share for the year ended December 31,
1993. This improvement was attributed to FBG's increased spread between the
earned rate on its investments and the credited rates on annuity policies issued
by Financial Benefit Life. After tax earnings from operations before realized
gains on investments, interest expense and reinsurance effects increased to $1.0
million or $.13 per share for the year ended December 31, 1993 from $.8 million
or $.04 per share for the year ended December 31, 1992. This improvement was
attributed to FBG's increased spread between the earned rate on its investments
and the credited rates on annuity policies issued by Financial Benefit Life.
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 per share 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 related DAC) of $13.6
million while 1994 earnings included only $1.2 million of net realized gains on
investments. Net income decreased to $9.1 million in 1993 from $9.9 million in
1992. Primary earnings per share decreased to $1.11 in
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1993 from $1.33 in 1992. On a fully diluted basis, earnings per share decreased
to $.51 per share in 1993 from $1.19 in 1992. The decrease for the year was
attributed primarily to an increase in the effective GAAP tax rate (from 26% to
35%) due to a change in deferred taxes and also to an increase in the equivalent
common shares outstanding resulting from the excess of the market price of the
FBG Common Stock over the exercise price of outstanding FBG Options, and, for
the fully diluted calculation, the dilutive effects of an outstanding
subordinated convertible debenture.
The extraordinary charge in 1994 of $2.0 million before a tax benefit of
$.2 million related to the early
extinguishment of both a $10.0 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), as well as the cancellation of a
contract entitling Southwestern Life Insurance Company to purchase 51% of the
FBG Common Stock on a fully-diluted basis. These debts were refinanced through a
$16.0 million borrowing from Shawmut Bank ("Shawmut").
Total insurance premiums received increased 32% to $76.5 million in 1994
from $57.8 million in 1993. The increase is believed to have resulted from an
upgrade in FBG's A.M. Best Company rating (B- to B) and also to higher
prevailing market interest rates which favor the sale of interest sensitive
products. Total insurance premiums received were $57.8 million for 1993 compared
to $110.5 million for 1992. The decline for the year was attributable by
management to lower, less competitive interest rates which FBG offered for both
new and renewing business in addition to a downgrade (B to B-) in Financial
Benefit Life's rating from the A.M. Best Company.
Effective January 1, 1994, FBG adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." SFAS No. 115 expands the use of fair value accounting for
certain investments in debt and equity securities and requires that securities
be classified as either held-to-maturity, available-for-sale or
held-for-trading, if applicable. The effect of adopting SFAS No. 115 on January
1, 1994 caused stockholders' equity to be increased by $1.7 million (net of $4.0
million deferred policy acquisition costs amortization and of deferred taxes of
$1.0 million that would have been recorded if those securities had been sold at
their fair value on January 1, 1994.) During 1994, FBG transferred
available-for-sale securities with a fair value of $82.7 million to securities
held-to-maturity. For the year ended December 31, 1994, FBG classified certain
bonds having an amortized cost of $302.3 million, and a fair value of $289.8
million as available for sale. The related unrealized loss of $12.8 million was
partially offset by $7.6 million for DAC and $1.8 million of deferred taxes
which resulted in a decrease in stockholders' equity of $3.4 million. The
remainder of FBG's fixed maturity securities were classified as
held-to-maturity.
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 $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 deferred
acquisition costs ("DAC") totaled $21.5 million as of the June 30, 1993
transaction date. As of December 31, 1994, the reserves totaled $133.9 million
and the DAC totaled $10.8 million.
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 premium written contributed to the decrease. Investment
income as a percentage of invested assets declined to 8.3% in 1994 from 8.9% in
1993. This reduction was attributed to lower average effective interest rates in
1994 compared to 1993. Investment income decreased to $53.0 million in 1993 from
$61.9 million in 1992. 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. Investment income as a percentage of
invested assets declined to 8.9% in 1993 from 9.5% in 1992. This reduction was
attributed to the lower interest rate environment during 1993 compared to 1992.
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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 Financial
Benefit Life's sale of corporate bonds to effect the Philadelphia Life
reinsurance treaty. Realized gains on investments increased to $21.8 million in
1993 from $13.1 million in 1992. During 1993, FBG realized $19.3 million of
capital gains relating to the sale of bonds to raise cash necessary for the
transfer of reserves to Philadelphia Life on July 12, 1993. Another $5.8 million
of net capital gains were realized in the management of FBG's portfolio and
disposal of bonds in selected industries where it recognized potential
deterioration of financial performance fundamentals. Net realized losses of $3.8
million were realized relating to the sales of four manufactured home
communities and to the disposition of another real estate property that was
severely damaged by Hurricane Andrew.
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 account value over which the marketing fees are based.
FBG has marketing arrangements with Massachusetts General Life Insurance
Company, Philadelphia Life Insurance Company, Fort Dearborn Life Insurance
Company, and Columbian Mutual Life Insurance Company. FBG receives quarterly
payments based on the policyholders' account value on business produced for
these four carriers. The aggregate policyholders account value increased from
$316.0 million as of December 31, 1993 to $366.0 million as of December 31,
1994. Commissions and marketing fees decreased to $1.1 million in 1993 from $1.2
million in 1992. However, marketing fees in 1992 included a non-recurring
payment of $.3 million from a marketing arrangement FBG formerly had with
Fidelity Bankers Life Insurance Company ("Fidelity"), a company in receivership
in Virginia. Marketing fees due from Fidelity for 1991, 1992 and for future
periods were the subject of a dispute which was settled on May 13, 1992 at which
time FBG received $.3 million. Without the settlement, 1992 commissions and
marketing fees would have been $.9 million.
Other income, which consists principally of surrender charges and rental
income on the home office building decreased to $3.8 million in 1994 from $4.1
million in 1993. Surrender charge income was greater in 1993 because more
surrenders were subject to surrender charges. Other income decreased to $4.1
million in 1993 from $4.9 million in 1992. In 1992, FBG received $1.0 million as
consideration for the release of FBG's interest in a reinsurance agreement with
Fidelity. Surrender charge income increased slightly to $3.5 million in 1993
from $3.4 million in 1992.
The increase in the 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. The increase in the liability for future policy
benefits decreased to $41.4 million in 1993 from $63.7 million in 1992. The
decrease results from the reduction in credited rates to policyholders' reserves
reflecting declines in market interest rates and also the reduced reserve
requirements following the mid-year Philadelphia Life reinsurance transaction.
General and administrative expenses decreased to $3.3 million in 1994 from
$4.2 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 Financial Benefit
Life. General and administrative expenses increased to $4.2 million in 1993 from
$2.7 million in 1992. The increase reflects additional marketing expenses for
AIMCOR and TIM. AIMCOR developed an annuity line for two new carriers during
1993 which required an initial investment in start-up costs. In addition,
auditing costs for two market conduct examinations and one triennial
examination, actuarial fees, legal expenses and state guaranty fund assessments
contributed to the increase in expenses.
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. Payroll and related expenses increased to
$2.4 million in 1993 from $2.3 million in 1992. The slight increase for the year
reflects pay increases for merit and inflation.
Amortization of DAC decreased to $11.9 million in 1994 from $16.2 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. Amortization of DAC increased to $16.2 million in 1993 from negative
amortization of $2.0 million in 1992.
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The increase reflects amortization relating to the Philadelphia Life reinsurance
treaty, surrenders for the year, and, to a lesser extent, realized capital
gains.
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. Interest
expense increased to $1.5 million in 1993 from $.7 million in 1992. The increase
reflects the additional interest incurred on the $10.0 million subordinated
convertible debenture which was executed in October, 1992.
Depreciation and amortization expense decreased to $.2 million in 1994 from
$.3 million in 1993. The decrease was due to certain office furniture and
computer equipment that became fully depreciated during the year. Depreciation
and amortization expense decreased slightly to $279,000 in 1993 from $288,000 in
1992.
LIQUIDITY AND CAPITAL RESOURCES
FBG is an insurance holding company whose principal asset is the common
stock of Financial Benefit Life. FBG's primary cash requirements are to service
long-term debt and to pay operating expenses.
As a holding company, FBG is dependent upon cash flows from its
subsidiaries to meet its cash requirements. FBG receives funds from Financial
Benefit Life for commissions and marketing fees paid to AIMCOR and TIM and for
investment management fees paid to Financial Benefit Management Corporation. FBG
receives funds from AIMCOR as a result of marketing fees received from its
client companies. FBG receives funds from TIM as a result of the commissions
received for being a wholesaler for other life insurance carriers. FBG also
receives funds from each of the subsidiaries for an intercompany expense sharing
agreement, an intercompany tax-sharing agreement and cash dividends. The
liquidity and cash requirements of Financial Benefit Life 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
Financial Benefit Life are the payment of surrenders, policy benefits, operating
expenses and commissions, as well as the purchase of securities for investment.
Financial Benefit Life 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. Financial Benefit Life 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 September 30, 1995, Financial Benefit Life's
capital and surplus/liabilities ratio computed in accordance with the Florida
Department of Insurance practices was 6.3%; including the AVR the ratio was
8.3%; including the AVR and IMR the ratio was 9.9%.
Florida's insurance statutes and regulations restrict the flow of funds,
including dividends, from Financial Benefit Life to FBG. 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
capital gains for the preceding year (provided there is available surplus from
net operating profits and net realized 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. FBG does not intend to rely on dividends in excess of those not
requiring special permission. Approximately $2.0 million is available in 1995
for the payment of dividends by Financial Benefit Life without regulatory
approval.
Financial Benefit Life can generate cash by the sale of securities from its
available-for-sale portfolio. As of September 30, 1995, FBG's available-for-sale
portfolio had a carrying value of $341.2 million. Approximately 9.0% of FBG's
fixed maturity portfolio was invested in less than investment grade securities
at September 30, 1995 and December 31, 1994. As of September 30, 1995, Financial
Benefit Life did not own any bonds that were in default or issued by entities in
bankruptcy.
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On February 18, 1992, FBG executed a $5.0 million Term Note with Wabash
Life Insurance Company ("Wabash"), maturing February 18, 1994 and carrying
interest at the lesser of the prime rate plus 1.5% or the maximum non-usurious
rate permitted by law. From the proceeds, $4.0 million was contributed to the
paid-in surplus of Financial Benefit Life. On November 16, 1993, FBG paid the
Wabash Term Note in full by borrowing $5.0 million from Southwestern Life
Corporation (formerly I.C.H. Corporation) under a term loan arrangement that
required quarterly payments of $250,000 until maturity in 1998. Interest accrued
at the lesser of the prime rate plus 2.0% or the maximum non-usurious rate
permitted by law. The common stock of Financial Benefit Life was pledged as
collateral for the loan.
In connection with the Wabash Term Note, FBG granted five and ten-year
detachable warrants to purchase 1,000,000 shares of FBG Class A Common Stock,
exercisable at $.75 and $1.00 per share. At the November 16, 1993 repayment
date, 500,000 warrants had been granted and all rights to the remaining 500,000
were extinguished.
On October 28, 1992, FBG issued a $10.0 million convertible subordinated
debenture to Southwestern Life Insurance Company ("SWL") of Dallas, Texas, a
subsidiary of Southwestern Life Corporation (formerly I.C.H. Corporation)
pursuant to a Debenture Purchase Agreement dated October 27, 1992. From the
proceeds, $7.0 million was contributed to the paid-in surplus of Financial
Benefit Life. Under the terms of the Debenture Purchase Agreement, SWL purchased
a ten year 10% debenture convertible into FBG Class A Common Stock at a price of
$2.50 per share, with annual increases in the conversion price beginning in
1993, subject to anti-dilution provisions. In addition, under a Stockholders'
Agreement among FBG, SWL and certain of FBG'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 FBG's Stock on a fully diluted basis.
On June 27, 1994, FBG entered into a revolving credit agreement with
Shawmut whereby Shawmut provided $16.0 million of proceeds to FBG. The proceeds
were used to retire the Southwestern Life Corporation term loan, the SWL
subordinated convertible debenture and to provide $1.0 million towards a $2.0
million charge for early extinguishment of the debt, and the surrender of
contractual option rights. A $1.0 million dividend from Financial Benefit Life
was made to FBG for the balance of the $2.0 million charge.
The term of the Shawmut credit agreement is 5.5 years with interest indexed
to either the prime rate or LIBOR (London Interbank Offered Rate) plus a
specified number of basis points based on the A.M. Best rating for Financial
Benefit Life. As the A.M. Best rating increases, the number of basis points in
excess of either the prime rate or LIBOR declines. The agreement also provides
for specified reductions in principal each year.
In connection with the Shawmut credit agreement, FBG granted detachable
warrants to purchase 75,000 shares of FBG 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, FBG
has agreed to maintain 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. At
September 30, 1995 FBG was in compliance with all bank covenants.
NEW ACCOUNTING STANDARDS
In accordance with a Special Report, "A Guide to Implementation of
Statement No. 115 on Accounting for Certain Investments in Debt and Equity
Securities" issued by the Financial Accounting Standards Board during November,
1995, FBG chose to classify all securities as available-for-sale. If all
securities had been classified as available-for-sale at September 30, 1995,
stockholders' equity would have increased by $513,000.
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PRO FORMA COMBINED FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet has been
prepared using the unaudited consolidated balance sheets of AmVestors and FBG as
of September 30, 1995. For such balance sheet, the Merger is accounted for using
the purchase method of accounting as if the Merger had occurred on September 30,
1995. Using this method based upon a preliminary purchase price for FBG, the
identifiable assets and liabilities of FBG have been adjusted to their estimated
fair values and certain estimated costs to downsize and reorganize FBG
operations have been accrued. The purchase price allocation is based on the
estimated fair values as of September 30, 1995 and may change depending on the
general level of interest rates. To the extent that interest rates decline
between the pro forma balance sheet date and the Closing Date, the fair value of
the FBG portfolio will likely be increased, causing the amount of goodwill to be
reduced. To the extent that interest rates increase, the converse would most
likely occur.
The following unaudited pro forma consolidated statements of earnings are
for the year ended December 31, 1994 and the nine months ended September 30,
1995. For purposes of such pro forma, the Merger is accounted for using the
purchase method of accounting as if the Merger had occurred January 1, 1994.
Other than reflecting the estimated reduction in costs attributable to certain
employment agreements, no other cost savings and synergies, which AmVestors
expects to realize as a result of the Merger, have been reflected in the pro
forma consolidated statements of earnings.
The pro forma consolidated financial statements do not purport to represent
what AmVestors' consolidated financial position or results of operations
actually would have been had the Merger been completed on the dates for which
the Merger is being given effect, nor is it necessarily indicative of future
financial position or operating results of AmVestors. The pro forma consolidated
financial statements should be read in conjunction with the accompanying notes
ask the historical financial statements of the respective companies and the
related notes thereto. Certain reclassifications have been made to the
historical financial statements of AmVestors and FBG in order to provide
classifications appropriate to the pro forma financial statements.
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PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
(DOLLARS IN THOUSANDS)
HISTORICAL AS OF
SEPTEMBER 30, 1995
----------------------- PRO FORMA PRO
AMVESTORS FBG ADJUSTMENTS(1) FORMA
---------- -------- -------------- ---------
ASSETS
Bonds -- held to maturity.................. $1,184,634 $181,721 2,167 1,368,522
Bonds -- available for sale................ 781,259 341,238 8,418 1,130,915
Other investments.......................... 46,217 6,693 (234) 52,676
---------- ------- ------- ---------
TOTAL INVESTMENTS................... 2,012,110 529,652 10,351 2,552,113
Cash and cash equivalents.................. 16,708 10,204 26,912
Amounts due from reinsurers................ 146,218 120,118 266,336
Deferred policy acquisition costs --
AmVestors................................ 155,047 -- 155,047
Deferred policy acquisition costs -- FBG... -- 43,629 (43,629) --
Present value of future profits -- FBG..... -- -- 38,000 38,000
Goodwill................................... -- -- 12,183 12,183
Other assets............................... 38,054 16,312 3,692 58,058
---------- ------- ------- ---------
$2,368,137 719,915 20,597 3,108,649
========== ======= ======= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities:
Policy liabilities....................... $2,214,721 656,375 2,871,096
Existing credit facility................. -- 15,500 (15,500) --
New Credit Facility...................... -- -- 35,000 35,000
Other liabilities........................ 16,068 10,653 1,000 27,721
---------- ------- ------- ---------
2,230,789 682,528 20,500 2,933,817
---------- ------- ------- ---------
Stockholders' Equity:
Common stock............................. 12,897 -- 3,533 16,430
Paid-in capital.......................... 64,250 -- 33,951 98,201
Unrealized investment gains.............. 14,327 -- 14,327
Retained earnings........................ 49,009 -- 49,009
FBG net equity........................... -- 37,387 (37,387) --
Leveraged employee stock ownership
plan.................................. (3,135) -- (3,135)
---------- ------- ------- ---------
137,348 37,387 97 174,832
---------- ------- ------- ---------
$2,368,137 719,915 20,597 3,108,649
========== ======= ======= =========
Number of common shares outstanding........ 10,135 6,865 12,912
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NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(1) Pro forma Balance Sheet adjustments related to the Merger and the financing
thereof are summarized in the following table and more fully described in
the notes that follow.
BANK
FINANCING
ACQUISITION TOTAL
STOCK FEES AND FAIR VALUE PRO FORMA
ISSUANCE(A) EXPENSES(B) ADJUSTMENTS(C) ADJUSTMENTS
----------- ----------- -------------- -----------
Bonds -- held to maturity...................... $ 1,392 1,392
Bonds -- available for sale.................... $ 8,418 8,418
Other investments.............................. $ (234) (234)
Deferred policy acquisition costs -- FBG....... (45,544) (45,544)
Present value of future profits -- FBG......... 38,000 38,000
Goodwill....................................... 14,817 14,817
Acquisition costs.............................. 37,718 11,082 (48,800) --
Other assets................................... 4,097 4,097
Existing credit facility....................... (15,500) (15,500)
New credit facility............................ 35,000 35,000
Other liabilities.............................. 1,000 1,000
Common stock................................... 3,533 3,533
Paid-in-capital................................ 33,951 33,951
FBG net equity................................. (37,038) (37,038)
- -------------------------
(a) Represents the issuance of 2.8 million shares of AmVestors Common Stock
exchanged for 6.7 million shares of FBG Class A Common Stock and the
estimated value of the AmVestors Warrants recorded at $.31 for each share of
FBG Class A Common Stock exchanged. The pro forma calculations assume an
AmVestors Stock Price of $11.75 and the further assumption that all
outstanding FBG Options receive cash in connection with the Merger.
(b) Represents $35 million of borrowings under the New Credit Facility to (i)
refinance $15.5 million of borrowings under the existing credit facility of
FBG (ii) pay the $10.0 million cash portion of the Merger Consideration and
make cash payments in lieu of fractional shares and fractional AmVestors
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. The balance of the $35 million borrowed of $8,418 has been assumed
to be invested in bonds-available for sale.
(c) Represents adjustments to reflect FBG net assets at estimated fair market
value based upon management's preliminary allocation of the aggregate Merger
Consideration.
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PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL
YEAR ENDED
DECEMBER 31, 1994
------------------- PRO FORMA PRO
AMVESTORS FBG ADJUSTMENTS FORMA
--------- ------ ----------- --------
Insurance premiums and policy charges.............. $ 6,331 3,236 9,567
Net investment income.............................. 142,009 43,126 (3,315)(a) 181,820
Net investment gains............................... 803 2,668 (5,684)(a) (2,213)
Other revenue...................................... 557 2,033 2,590
-------- ------ -------- --------
Total revenue............................... 149,700 51,063 (8,999) 191,764
-------- ------ -------- --------
Benefits, claims and interest credited to
policyholders.................................... 112,310 28,067 140,377
Amortization of:
Deferred policy acquisition costs................ 9,026 11,952 (10,888)(b) 10,090
Present value of future profits.................. -- -- 3,789(b) 3,789
Goodwill......................................... -- -- 382(b) 382
Other expenses..................................... 9,078 6,387 (1,032)(c) 14,433
-------- ------ -------- --------
Total benefits and expenses................. 130,414 46,406 (7,749) 169,071
-------- ------ -------- --------
Operating earnings................................. 19,286 4,657 (1,250) 22,693
Interest expense................................... -- 1,406 654(d) 2,060
-------- ------ -------- --------
Earnings before taxes and extraordinary item....... 19,286 3,251 (1,904) 20,633
Income tax expense................................. 5,593 725 (533)(e) 5,785
-------- ------ -------- --------
Earnings before extraordinary item................. $ 13,693 2,526 (1,371) 14,848
======== ====== ======== ========
Earnings before extraordinary item per common
share:
Primary.......................................... $1.32 .30 1.11
Fully diluted.................................... $1.32 .30 1.11
Average shares outstanding(f):
Primary.......................................... 10,341 8,466 13,354
Fully diluted.................................... 10,541 8,466 13,354
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PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL NINE
MONTHS ENDED
SEPTEMBER 30, 1995
--------------------- PRO FORMA PRO
AMVESTORS FBG ADJUSTMENTS FORMA
--------- ------ ----------- -------
Insurance premiums and policy charges.............. $ 6,554 3,802 10,356
Net investment income.............................. 114,724 32,300 (1,899)(a) 145,125
Net investment gains............................... (993) 1,907 (4,135)(a) (3,221)
Other revenue...................................... 683 2,890 3,573
------- ------ ------ -------
Total revenue................................. 120,968 40,899 (6,034) 155,833
------- ------ ------ -------
Benefits, claims and interest credited to
policyholders.................................... 88,588 20,900 109,488
Amortization of:
Deferred policy acquisition costs................ 8,085 8,223 (8,698)(b) 7,610
Present value of future profits.................. -- -- 5,456(b) 5,456
Goodwill......................................... -- -- 287(b) 287
Other expenses..................................... 7,785 5,946 (495)(c) 13,236
------- ------ ------ -------
Total benefits and expenses................... 104,458 35,069 (3,451) 136,077
------- ------ ------ -------
Operating earnings................................. 16,510 5,830 (2,584) 19,757
Interest expense................................... -- 1,165 380(d) 1,545
------- ------ ------ -------
Earnings before taxes.............................. 16,510 4,665 (2,964) 18,211
Income tax expense................................. 5,617 1,400 (937)(e) 6,080
------- ------ ------ -------
Net earnings....................................... $ 10,893 3,265 (2,027) 12,131
======= ====== ====== =======
Net earnings per common share:
Primary.......................................... $1.05 .38 .91
Fully diluted.................................... $1.05 .38 .91
Average shares outstanding(f):
Primary.......................................... 10,330 8,581 13,343
Fully diluted.................................... 10,378 8,581 13,391
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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 premiums 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, 1994. 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, 1994. Pro forma
amortization of present value of future profits for the five years ending
December 31, 1998 are estimated to be approximately $3.8 million, $7.4
million, $7.1 million, $5.5 million, and $4.1 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.
(d) Represents additional interest expense related to the incremental borrowings
under the New Credit Facility, including debt issue costs. Interest under
the New Credit Facility will be determined at the option of AmVestors 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 New Credit Facility at a rate yet to be determined). 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 equivalents 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 AmVestors Common Stock after the Merger. In addition to the
historical weighted average shares of AmVestors Common Stock for each
period presented, the pro forma weighted average includes an estimated
3,013,000 shares of AmVestors Common Stock to be issued in connection with
the Merger, based on an assumed AmVestors Stock Price of $11.75 and the
further assumption that all FBG Options are exchanged for cash in
connection with the Merger.
(g) Net operating earnings, which represents operating earnings after taxes
adjusted to exclude net investment gains (losses) and accelerated (reduced)
amortization of acquisition costs related to such
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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, 1994:
Net operating earnings.................................................. $13,064 17,806
Per common share --
fully diluted........................................................ $1.26 1.33
Nine Months Ended September 30, 1995:
Net operating earnings.................................................. $11,388 15,117
Per common share --
fully diluted........................................................ $1.10 1.13
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.
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REGULATION
AmVestors and American are subject to the insurance laws and regulations of
Kansas, the domiciliary state of American; and the laws and regulations of the
other states in which American is licensed to do business. FBG and Financial
Benefit Life are subject to the laws and regulations of Florida, the domiciliary
state of Financial Benefit Life, and the laws and regulations of the other
states in which Financial Benefit Life is licensed to do business. At present,
American is licensed to conduct business in 47 states and the District of
Columbia and Financial Benefit Life is licensed to conduct business in 39
states, the District of Columbia and the Virgin Islands. The insurance laws and
regulations, as well as the level of supervisory authority that may be exercised
by the various state insurance departments, vary by jurisdiction, but generally
grant broad powers to supervisory agencies or state regulators to examine and
supervise insurance companies and insurance holding companies with respect to
every significant aspect of the insurance business. These laws and regulations
generally require insurance companies to meet certain solvency standards to
maintain minimum standards of business conduct and to file certain reports with
regulatory authorities, including information concerning their capital
structure, ownership and financial condition.
American and Financial Benefit Life are each required to file annual
statutory financial statements and are subject to periodic examination by the
insurance departments of each of the jurisdictions in which they are licensed,
authorized and accredited. The Kansas Insurance Department completed its most
recent examination of American for the years ended December 31, 1990 through
December 31, 1993. The results of this examination contained no material adverse
findings. The Florida Insurance Department completed its most recent examination
of Financial Benefit Life for the years ended December 31, 1989 through December
31, 1992. The results of this examination contained no material adverse
findings.
NAIC adopted an accreditation program in 1992 which requires the Insurance
Department of the various states to become accredited by the end of 1994 or cede
certain control over their domestic companies. The program requires certain
model laws, model regulations and practices to be in effect. The Kansas
Insurance Department and the Florida Insurance Department have been accredited
under the NAIC program.
INSURANCE HOLDING COMPANY REGULATIONS; RESTRICTIONS ON DIVIDENDS AND
DISTRIBUTIONS. AmVestors and American are subject to regulation under the
insurance and insurance holding company statutes of Kansas. FBG and Financial
Benefit Life are subject to regulations under the insurance and insurance
holding company statutes of Florida. The insurance holding company laws and
regulations vary from jurisdiction to jurisdiction, but generally require
insurance and reinsurance subsidiaries of insurance holding companies to
register with the applicable state regulatory authorities and to file with those
authorities certain reports describing, among other information, their capital
structure, ownership, financial condition, certain intercompany transactions and
general business operations. The insurance holding company statutes also require
prior regulatory agency approval or, in certain circumstances, prior notice of
certain material intercompany transfers of assets as well as certain
transactions between insurance companies, their parent companies and affiliates.
AmVestors and FBG are insurance holding companies and substantially all
income, in the case of AmVestors, and a significant portion of income, in the
case of FBG, reflected in their respective Consolidated Statements of Operations
are derived from the operations of their respective insurance subsidiaries.
AmVestors' assets consist primarily of the stock of American and its other
subsidiaries. FBG's assets consist primarily of stock of Financial Benefit Life
and its other subsidiaries. Dividends, fees, rents and commissions received from
American have been, and together with Amvestors' retained funds and earnings
thereon, and following the Merger, dividends and other payments from Financial
Benefit Life, will be the source of funds for the operations of AmVestors.
Insurance laws and regulations of Kansas and Florida, the respective states of
incorporation of American and Financial Benefit Life, restrict the flow of
funds, including dividends, from American to AmVestors and from Financial
Benefit Life to FBG. In addition, the payment of dividends, fees, rents and
commissions by the insurance subsidiaries reduces their surplus and therefore
may affect the amount of annuities they can issue.
Pursuant to the Kansas Insurance Holding Company Act, American may not,
without prior approval, of the Kansas Insurance Department, pay dividends if the
amount of such dividends added to all other dividends or other distributions
made by American within the preceding twelve months exceeds the greater of (i)
its statutory net gain from operations for the prior calendar year of (ii) 10%
of statutory surplus at the end of the
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preceding calendar year. During the year ended December 31, 1994, American had a
statutory net gain from operations of $5.6 million. As of December 31, 1994, 10%
of American's statutory surplus was $8.7 million. In addition, another provision
of Kansas insurance law limits dividends that American may pay to AmVestors to
earned surplus calculated on a statutory basis, which totalled $12.3 million as
of September 30, 1995.
Under Florida insurance law and regulations, the aggregate dividends that
Financial Benefit Life may pay without prior regulatory approval is limited to
the greater of the sum of statutory net operating profits and net realized
capital gains for the preceding calendar year (provided there is available
surplus from net operating profits and net realized 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.
On December 31, 1994, FBG had accumulated statutory surplus derived from
net operating profits and net realized capital gains of $20.4 million. The sum
of statutory net profits and net realized capital gains for 1994 were $1.7
million. As of September 30, 1995, available surplus from net operating profits
and net realized capital gains was $22.4 million.
Under the Kansas and Florida insurance laws, unless (i) certain filings are
made with the applicable state insurance departments, (ii) certain requirements
are met, including a public hearing and (iii) approval or exemption is granted
by the insurance commissioner, no person may acquire any voting security or
security convertible into a voting security of an insurance holding company,
which controls a Kansas or Florida insurance company, as the case may be, or
merge with such a holding company, if as a result of such transaction such
person would "control" the insurance holding company. "Control" is presumed to
exist if a person directly or indirectly owns or controls 10% or more of the
voting securities of another person, under Kansas law, and 5% or more of the
voting securities of another person under Florida law.
NAIC REGULATORY CHANGES. The NAIC and insurance regulators are involved in
a process of re-examining existing laws and regulations and their application to
insurance companies. In particular, this re-examination has focused on insurance
company investment and solvency issues and, in some instances, has resulted in
new interpretations of existing law, the development of new laws and the
implementation of non-statutory guidelines. The NAIC has formed committees and
appointed advisory groups to study and formulate regulatory proposals on such
diverse issues as the use of surplus debentures, accounting for reinsurance
transactions and the adoption of risk-based capital rules. It is not possible to
predict the future impact of changing state and federal regulation on the
operations of AmVestors, American, FBG or Financial Benefit Life.
Regulations prescribed by the NAIC for periods ended prior to January 1,
1992 require the establishment of an MSVR account designed to stabilize a
company's statutory capital and surplus against fluctuations in the market value
of stocks and bonds. In December 1991, the NAIC adopted changes to its rules for
establishing and maintaining reserve accounts for assets of insurance companies
in statutory financial statements. These changes became effective as of January
1, 1992 for annual statements filed for the year ended December 31, 1992 and
thereafter. Under the new rules, the MSVR account was replaced by an AVR account
which consists of two main components: a "default component," which provides for
potential credit-related losses on debt securities and an "equity component,"
which provides for potential losses on all types of equity investments,
including real estate. The new rules also required the establishment of a new
reserve called the IMR, which is credited with the portion of realized
investment gains and charged with losses net of tax from the sale of fixed
maturities attributable to changes in interest rates. Gains or losses credited
or charged to the IMR are required to be amortized into earnings over the
remaining period to maturity of the fixed maturities sold.
RISK-BASED CAPITAL REQUIREMENTS. The NAIC has adopted risk-based capital
("RBC") requirements that require insurance companies to calculate and report
information under a risk-based formula that attempts to measure statutory
capital and surplus needs based on the risks in a company's mix of products and
investment portfolio. Under the formula, a company first determines its
Authorized Control Level risk-based capital ("ACL") by taking into account (i)
the risk with respect to the insurer's assets; (ii) the risk of adverse
insurance experience with respect to the insurer's liabilities and obligations;
(iii) the interest rate risk with respect to the insurer's business; and (iv)
all other business risks and such other relevant risks as are set forth in the
RBC instructions. A company's "Total Adjusted Capital" is the sum of statutory
capital and surplus
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and such other items as the RBC instructions may provide. The formula is
designed to allow state insurance regulators to identify potential weakly
capitalized companies.
The requirements provide for four different levels of regulatory attention.
The "Company Action Level" is triggered if a company's total Adjusted Capital is
less than 2.0 times its ACL but greater than or equal to 1.5 times its ACL. At
the Action Level, the company must submit a comprehensive plan to the regulatory
authority which discusses proposed corrective actions to improve the capital
position. The "Regulatory Action Level" is triggered if a company's Total
Adjusted Capital is less than 1.5 times but greater than or equal to 1.0 times
its ACL. At the Regulatory Action Level, the regulatory authority will perform a
special examination of the company and issue an order specifying corrective
actions that must be followed. The "Authorized Control Level" is triggered if a
company's Total Adjusted Capital is than 1.0 times but greater than or equal to
0.7 times its ACL, and the regulatory authority may take action it deems
necessary, including placing the company under regulatory control. The
"Mandatory Control Level" is triggered if a company's Total Adjusted Capital is
less than 0.7 times its ACL, and the regulatory authority is mandated to place
the company under its control.
As of September 30, 1995 American's and Financial Benefit Life's Total
Adjusted Capital exceeded their respective ACL by more than 2.0 times.
ASSESSMENTS AGAINST INSURERS. Under the guaranty fund laws of all states in
which American or Financial Benefit Life, as the case may be, operate, insurers
can be assessed for losses incurred by policyholders of insolvent insurance
companies. At present, most guaranty fund laws provide for assessments based
upon the amount of primary insurance underwritten in a given jurisdiction.
AmVestors and FBG have each set up a reserve for their current estimates of
future non-recoverable guaranty fund assessments.
FEDERAL REGULATION. Although the federal government generally does not
directly regulate the insurance industry, federal initiatives often have an
impact on the business. It is not possible to predict the outcome of any such
initiatives or the potential effects thereof on AmVestors or FBG.
Congressional initiatives directed at repeal of the McCarran-Ferguson Act
(which exempts the "business of insurance" from most federal laws, including the
antitrust laws, to the extent it is subject to state regulation) and judicial
decisions narrowing the definition of "business of insurance" for
McCarran-Ferguson Act purposes may limit the ability of insurance and
reinsurance companies in general to share information with respect to
rate-setting, underwriting and claims management practices. For example, on June
28, 1993, the U.S. Supreme Court held in Hartford Fire Insurance Co. v.
California that a course of conduct by defendant commercial liability insurers
and reinsurers to change the terms of standard domestic general liability
insurance policies through an alleged refusal to engage in other unrelated
transactions with third parties (a boycott) is not immunized from federal
antitrust laws by the McCarran-Ferguson Act. Current and proposed federal
measures which may also significantly affect the insurance industry include
minimum solvency requirements and removal of barriers preventing banks from
engaging in the insurance business.
The NAIC is an organization which is comprised of the chief insurance
regulator for each of the 50 states and the District of Columbia. In 1990, the
NAIC began an accreditation program to ensure that states have adequate
procedures in place for effective insurance regulation, especially with respect
to financial solvency. The accreditation program requires that a state meet
specific minimum standards in over 15 regulatory areas to be considered for
accreditation. The accreditation program is an ongoing process and once
accredited, a state must enact any new or modified standards approved by the
NAIC within two years following adoption. As of September 30, 1995, 46 states
were accredited, including, Kansas and Florida.
The NAIC has been considering the adoption of a model investment law for
several years. The current projection for adoption of a model investment law is
1996, at the earliest. It is not yet determined whether the model investment law
would be added to the NAIC accreditation standards so that consideration of the
model for adoption in states would be required for the achievement or
continuation of any state's accreditation. It is not possible to predict the
impact of these activities on AmVestors' insurance subsidiaries.
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COMPARATIVE RIGHTS OF STOCKHOLDERS
As a result of the Merger, the stockholders of FBG, whose rights are
currently governed by Delaware law, will become stockholders of AmVestors, whose
rights are governed by Kansas law. The following discussion is intended only to
highlight certain differences between the rights of corporate stockholders under
Kansas law and Delaware law generally and specifically with respect to
stockholders of FBG and AmVestors. The discussion does not purport to constitute
a detailed comparison of the provisions of Kansas and Delaware law, and FBG
stockholders are referred to those laws for a definitive treatment of the
subject matter.
ELECTION OF DIRECTORS
Under Delaware law, directors, unless their terms are staggered, are
elected at each annual stockholder meeting. Vacancies on the board of directors
may be filled by the stockholders or directors, unless the certificate of
incorporation or a bylaw provides otherwise. The certificate of incorporation
may authorize the election of certain directors by one or more classes or series
of shares, and the certificate of incorporation, an initial bylaw or a bylaw
adopted by a vote of the stockholders may provide for staggered terms for the
directors. The certificate of incorporation or the bylaws also may allow the
stockholders or the board of directors to fix or change the number of directors,
but a corporation must have at least one director. The Bylaws of FBG have set
the number of directors at twelve. The FBG Certificate has established three
classes of directors, to serve staggered terms. Vacancies on the FBG Board may
be filled by either the stockholders of each class of the corporation's capital
stock entitled to fill such vacancy, or by the directors elected by such class.
Under Delaware law, stockholders do not have cumulative voting rights unless the
certificate of incorporation so provides. The FBG Certificate does not provide
for cumulative voting.
The former stockholders of FBG will have rights under Kansas law in the
election of directors similar, though not identical, to those provided by
Delaware law. Directors, unless their terms are staggered, are elected at each
annual stockholder meeting under Kansas law. Vacancies on the board of directors
may be filled (i) by a majority of directors then in office or (ii) whenever the
holders of any class or classes of stock or series thereof are entitled to elect
one or more directors by the articles of incorporation, by a majority of the
directors elected by such class or classes or series thereof then in office, or
by a sole remaining director so elected. The articles of incorporation may
authorize the election of certain directors by one or more classes or series of
shares. The number of directors shall be fixed by, or in the manner provided in,
the bylaws, unless the articles of incorporation establish the number of
directors, in which case an amendment to the articles is required to change the
number of directors. The AmVestors Articles fix the number of members of the
Board of Directors at between three and thirteen persons, subject to change
within these limits by a majority of the entire Board of Directors. The Board of
Directors is divided into three classes, serving staggered terms. The AmVestors
Articles provides that vacancies on the Board are to be filled by the remaining
members and any director so chosen shall hold office until the next election of
the class for which such directors shall have been chosen, and until their
successor has been elected and qualified. Under Kansas law, stockholders do not
have cumulative voting rights for the election of directors unless the articles
of incorporation so provide. The AmVestors Articles provides for cumulative
voting.
REMOVAL OF DIRECTORS
Under Delaware law, directors of a corporation may be removed, with or
without cause, by the holders of a majority of the shares entitled to vote at an
election. The FBG Bylaws provide that the stockholders of each class of the
corporation's stock shall have the right to remove, with or without cause, by
majority vote or written consent any such director elected by that class of
stockholders or elected by directors who have been elected by the holders of
such class.
Kansas law provides that any director may be removed with or without cause
by a majority of the shares then entitled to vote at an election of directors
unless director terms are staggered. In the case of staggered terms, unless the
articles of incorporation provide otherwise, stockholders may remove directors
only for cause or, in the case of a corporation having cumulative voting for
directors, if less than the entire board is to be removed, no director may be
removed without cause if the votes cast against such director's removal would be
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sufficient to elect such director if then cumulatively voted at an election of
the entire board of directors or, if there be classes of directors, at an
election of the class of directors of which such director is a part. The
AmVestors Articles provides that a director may be removed from office at any
time, but only for cause by the holders of two-thirds (2/3) of the outstanding
shares of capital stock of the corporation entitled to vote in the election of
directors, or only for cause by a majority of the Board of Directors.
AMENDMENTS TO CHARTER
Under Delaware law, unless a higher vote is required in the certificate of
incorporation, an amendment to the certificate of incorporation of a corporation
may be approved by a majority of the outstanding shares entitled to vote upon
the proposed amendment. The FBG Certificate requires voting by class for any
proposed amendment to Section 4(c) thereof. The FBG Certificate reserves in the
corporation the right to amend all other portions thereof in the manner now or
hereafter prescribed by statute.
Kansas law provides that an amendment to the articles of incorporation of a
corporation must be approved by at least a majority of the outstanding stock
entitled to vote upon the proposed amendment, and by at least a majority of the
outstanding stock of each class entitled to vote thereon as a class. The
articles of incorporation may state a greater number or proportion required for
approval. The AmVestors Articles requires a vote of two-thirds (2/3) of the
outstanding shares of the common stock of the corporation to amend such
Articles.
AMENDMENTS TO BYLAWS
Delaware law provides that a corporation's bylaws may be amended by that
corporation's stockholders, or, if so provided in the corporation's certificate
of incorporation, the power to amend the corporation's bylaws may also be
conferred on the corporation's directors. The FBG Certificate provides that
FBG's directors may amend FBG's Bylaws. In addition, FBG's Bylaws may be amended
or repealed and new or additional Bylaws adopted by a vote of the stockholders
entitled to vote in the election of directors.
Kansas law provides that the right to adopt, amend or repeal bylaws of a
corporation shall be vested in the corporation's board of directors, unless
otherwise provided in such corporation's articles of incorporation and subject
to the right of the stockholders to adopt, amend or repeal the bylaws. The
AmVestors Articles does not grant the power to amend the bylaws to the
stockholders.
SPECIAL MEETINGS OF STOCKHOLDERS
Delaware law provides that special meetings of the stockholders of a
corporation may be called by the corporation's board of directors or by such
other persons as may be authorized in the corporation's certificate of
incorporation or bylaws. The FBG Bylaws provide that special meetings of FBG's
stockholders may only be called by the Board of Directors of FBG, the Chairman
of the Board, the President or the Secretary.
Kansas law provides that special meetings of stockholders of a corporation
may be called by the corporation's board of directors or by such other persons
as may be authorized in the corporation's articles of incorporation or bylaws.
The AmVestors Bylaws provide that a special meeting may be called by the
Chairman of the Board, the President, or by a majority of the Board of
Directors, and shall be called at any time by the Chairman of the Board, the
President, the Secretary or the Treasurer upon the request of stockholders
owning fifty percent (50%) of the outstanding stock of the corporation entitled
to vote at such meeting.
VOTE ON EXTRAORDINARY CORPORATE TRANSACTIONS
Delaware law provides that, unless otherwise specified in a corporation's
certificate of incorporation or unless the provisions of Delaware law relating
to "business combinations" discussed below are applicable, a sale or other
disposition of all or substantially all of the corporation's assets or a merger
or consolidation of the corporation with another corporation or a dissolution of
the corporation requires the affirmative vote of the Board of Directors (except
in certain limited circumstances) plus, with certain exceptions, the affirmative
vote
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of a majority of the outstanding stock entitled to vote thereon. The foregoing
provisions apply to FBG and its stockholders.
Kansas law is similar to Delaware law in that, except as described below
with respect to "business combinations," a sale or other disposition of all or
substantially all of the corporation's assets, a merger of the corporation with
and into another corporation or a dissolution of the corporation requires the
affirmative vote of the Board of Directors (except in certain limited
circumstances) plus, with certain exceptions, the affirmative vote of a majority
of all shares of stock entitled to vote thereon. The AmVestors Articles
increases the statutory requirement. It provides that these extraordinary
corporate transactions require the affirmative vote of two-thirds (2/3) of the
outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors.
DIVIDENDS
Subject to any restrictions contained in a corporation's certificate of
incorporation, Delaware law generally provides that a corporation may declare
and pay dividends out of a surplus (defined as the excess, if any, of net assets
over capital) or, when no surplus exists, out of net profits for the fiscal year
in which the dividend is declared and/or the preceding fiscal year. Dividends
may not be paid out of net profits if the capital of the corporation is less
than the amount of capital represented by the issued and outstanding stock of
all classes having a preference upon the distribution of assets. The FBG
Certificate contains no additional restrictions on the declaration or payment of
dividends.
Kansas law provides that, subject to any restrictions contained in a
corporation's articles of incorporation, the directors of a corporation may
authorize the payment of dividends to that corporation's stockholders either (i)
out of its surplus or (ii) if no surplus exists, out of its net profits for the
fiscal year in which the dividend is declared or the preceding fiscal year.
Provided, however, that no such dividend may be paid out of net profits if the
capital of the corporation shall have been diminished to an amount less than the
aggregate amount of the capital represented by the issued and outstanding stock
of all classes having a preference upon the distribution of assets until such
deficiency is repaired. Other than the restrictions imposed by Kansas law, the
Bylaws and Articles of AmVestors contain no additional restrictions on the
declaration or payment of dividends.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Under Delaware law, a stockholder of a Delaware corporation is generally
entitled to demand appraisal of and obtain payment of the fair value of his or
her shares in the event of any plan of merger or consolidation to which the
corporation, the shares of which he holds, is a party. However, this right to
demand appraisal does not apply to stockholders if: (1) they are stockholders of
a surviving corporation and if a vote of the stockholders of such corporation is
not necessary to authorize the merger or consolidation; (2) the shares held by
the stockholders are of a class or series registered on the New York Stock
Exchange or the American Stock Exchange, designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or are held of record by more than 2,000 stockholders
on the date set to determine the stockholders entitled to vote on the merger or
consolidation. Notwithstanding the above, appraisal rights are available for the
shares of any class or series of stock of a Delaware corporation if the holders
thereof are required by the terms of an agreement of merger or consolidation to
accept for their stock anything except: (i) shares of stock of the corporation
surviving or resulting from the merger or consolidation; (ii) shares of stock of
any other corporation which at the effective date of the merger or consolidation
will be listed on the New York Stock Exchange or the American Stock Exchange,
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 stockholders; (iii) cash in lieu of fractional shares of the
corporations described in (i) and (ii); or (iv) any combination of the shares of
stock and cash in lieu of fractional shares described in (i), (ii) and (iii).
A Delaware corporation may provide in its certificate of incorporation that
appraisal rights shall be available for the shares of any class or series of its
stock as the result of an amendment to its certificate of
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incorporation, any merger or consolidation to which the corporation is a party,
or a sale of all or substantially all of the assets of the corporation.
Pursuant to Delaware law, any holder of FBG Common Stock (i) who files a
proper demand for appraisal in writing prior to the vote taken at the FBG
Special Meeting and (ii) whose shares are not voted in favor of the Merger,
shall be entitled to appraisal rights under Section 262 of the Delaware General
Corporation Law. See "Dissenter's Rights."
Kansas law requires the corporation surviving or resulting from any merger
or consolidation to provide stockholders notice of the effectiveness of the
merger or consolidation if such stockholders filed with the corporation a
written objection to the merger or consolidation before the taking of the vote
on the merger or consolidation, and whose shares were either not entitled to
vote or were not voted in favor of the merger or consolidation. Such
stockholders then have twenty (20) days from the mailing date of such notice to
demand in writing from the corporation payment of the value of their stock as of
the effective date of the merger or consolidation, exclusive of any element of
value arising from the expectation or accomplishment of the merger or
consolidation. If such demand is made, the corporation shall pay to the
stockholder such value within thirty (30) days from the end of the twenty (20)
day period. If the corporation and stockholder fail to agree upon the value of
such stock, the stockholder or the corporation may demand a determination of the
value of such stock by an appraiser appointed by the district court. However,
this right to demand an appraisal does not apply to stockholders if: (1) they
are stockholders of a surviving corporation and if a vote of the stockholders of
such corporation is not necessary to authorize the merger or consolidation; (2)
the shares were registered on a national securities exchange, or (3) the shares
were held of record by not less than 2,000 stockholders on the date set to
determine the stockholders entitled to vote on the merger or consolidation,
unless the articles of incorporation provide otherwise. AmVestors' stockholders
are not entitled to dissenters' or appraisal rights in connection with the
Merger because AmVestors is not a constituent corporation in the Merger. See
"Dissenter's Rights."
INDEMNIFICATION AND LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
Delaware law permits a corporation to adopt a provision in its certificate
of incorporation eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except that such provision shall not limit the liability of
a director for: (i) any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
liability under Section 174 of the Delaware General Corporation Law for unlawful
payment of dividends or stock purchases or redemptions, or (iv) any transaction
from which the director derived an improper personal benefit. The FBG
Certificate limits the personal liability of FBG's directors for monetary
damages to the fullest extent permissible under applicable law.
Under Delaware law, a corporation may indemnify any person made a party or
threatened to be made a party to any type of proceeding (other than an action by
or in the right of the corporation) because he is or was an officer, director,
employee or agent of the corporation, or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
entity, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such proceeding: (1) if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation; or (2) in the case of a
criminal proceeding, he had no reasonable cause to believe that his conduct was
unlawful. A corporation may indemnify any person made a party or threatened to
be made a party to any threatened, pending or completed action or suit brought
by or in the right of the corporation because he was an officer, director,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
other entity, against expenses actually and reasonably incurred in connection
with such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
except that there may be no such indemnification if the person is found liable
to the corporation unless, in such a case, the court determines the person is
entitled thereto. A corporation must indemnify a director, officer, employee or
agent against expenses actually and reasonably incurred by him who successfully
defends himself in a proceeding to
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which he was a party because he was a director, officer, employee or agent of
the corporation. Expenses incurred by an officer or director (or other employees
or agents as deemed appropriate by the Board of Directors) in defending a civil
or criminal proceeding may be paid by the corporation in advance of the final
disposition of such proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation. The
Delaware law indemnification and expense advancement provisions are not
exclusive of any other rights which may be granted by the bylaws, a vote of
stockholders or disinterested directors, agreement or otherwise. The FBG Bylaws
provide for the indemnification of and the advancement of defense costs to FBG's
directors, officers and employees to the extent not prohibited by Delaware law.
In addition, FBG has entered into indemnification agreements with each of its
directors and executive officers to provide for indemnification, provided the
indemnitee acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of the company and, with respect to any
criminal action or proceedings, had no reasonable cause to believe his conduct
was unlawful; and provided further, indemnification is not required with respect
to conduct that was knowingly fraudulent or dishonest, as determined in a final
judgment. In addition, the agreements require the advancement of expenses
(including attorneys' fees), subject to an undertaking to repay such amount if
ultimately determined not to be entitled to indemnification. Under the Merger
Agreement, AmVestors has agreed to provide indemnification to FBG's officers and
directors in certain circumstances. See "Plan of Merger -- Interests of Certain
Persons in the Merger -- Indemnification of Directors and Officers."
Kansas law grants a corporation power to indemnify an officer, director,
employee or agent made a party to a proceeding as a result of his status as an
officer, director, employee or agent against such expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation; and, in the case of a criminal proceeding, such
director had no reasonable grounds to believe his actions were unlawful. The
determination of whether the director has met the requisite standard of conduct
for indemnification may be made by (i) a majority vote of a quorum consisting of
directors not at that time parties to the suit; (ii) independent legal counsel
directed by a quorum of disinterested directors; or (iii) by the stockholders.
Expenses incurred by an officer or director (or other employees or agents as
deemed appropriate by the board of directors) in defending a civil or criminal
proceeding may be paid by the corporation in advance of the final disposition of
such proceeding upon receipt of an undertaking by or on behalf of such director
or officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation. A corporation can indemnify
an officer, director, employee or agent for expenses actually and reasonably
incurred by such person in connection with the defense or settlement of a suit
by or in the right of the corporation, if such person acted in good faith and in
a manner such person reasonably believed to be in or not opposed to the best
interests of the corporation. However, if such person is adjudged to be liable
to the corporation in a suit brought by or in the right of the corporation, no
indemnification shall be made unless the court in which such proceeding was
brought determines that, despite the adjudication of liability, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper. The AmVestors Articles eliminates monetary damage liability
for directors who breach their fiduciary duty except: (i) for any breach of a
director's duty of loyalty to the corporation or its stockholders, or (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, or (iii) for an unlawful payment of dividends or
unlawful stock purchase or redemption, or (iv) for any transaction from which
the director derived a personal benefit. The AmVestors Bylaws authorize
indemnification of its officers and directors to the fullest extent permitted by
Kansas law.
PREEMPTIVE RIGHTS
Neither Delaware nor Kansas law provides for preemptive rights to acquire a
corporation's unissued stock. However, such right may be expressly granted to
the stockholders in a corporation's certificate or articles of incorporation.
Neither the FBG Certificate nor the AmVestors Articles provides for preemptive
rights.
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BUSINESS COMBINATION RESTRICTIONS
In general, Delaware law prevents an "Interested Stockholder" (defined
generally as a person with 15% or more of a corporation's outstanding voting
stock, with the exception of any person who owned and has continued to own
shares in excess of the 15% limitation since December 23, 1987) from engaging in
a "Business Combination" with a Delaware corporation for three years following
the date such person became an Interested Stockholder. The term "Business
Combination" includes mergers or consolidations with an Interested Stockholder
and certain other transactions with an Interested Stockholder, including,
without limitation: (i) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition to or with the Interested Stockholder of assets (except
proportionately as a stockholder of the corporation) having an aggregate market
value equal to 10% or more of the aggregate market value of all assets of the
corporation determined on a consolidated basis or the aggregate market value of
all the outstanding stock of the corporation; (ii) any transaction which results
in the issuance or transfer by the corporation or by certain subsidiaries
thereof of stock of the corporation or such subsidiary to the Interested
Stockholder, except pursuant to a transaction which, in general, effects a pro
rata distribution to all stockholders of the corporation; (iii) any transaction
involving the corporation or certain subsidiaries thereof which has the effect,
directly or indirectly, of increasing the proportionate share of the shares of
any class or series, or securities convertible into shares of the corporation or
any subsidiary which is owned directly or indirectly by the Interested
Stockholder (except as a result of immaterial changes due to fractional share
adjustments or as a result of any purchase or redemption of any shares not
caused by the Interested Stockholder); or (iv) any receipt by the Interested
Stockholder of the benefit (except proportionately as a stockholder of such
corporation) of any loans, advances, guarantees, pledges, or other financial
benefits provided by or through the corporation or certain subsidiaries.
The three-year moratorium may be avoided if: (i) before such person became
an Interested Stockholder, the Board of Directors of the corporation approved
either the Business Combination or the transaction in which the Interested
Stockholder became an Interested Stockholder; or (ii) upon consummation of the
transaction which resulted in the stockholder becoming an Interested
Stockholder, the stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding shares
held by directors who are also officers of the corporation and by employee stock
ownership plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (iii) on or following the date on which such
person became an Interested Stockholder, the Business Combination is approved by
the Board of Directors of the corporation and authorized at an annual or special
meeting of stockholders (not by written consent) by the affirmative vote of the
stockholders of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder.
The Business Combination restrictions described above do not apply if,
among other things: (i) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by the statute; (ii)
the holders of a majority of the voting stock of the corporation approve an
amendment to its certificate of incorporation or bylaws expressly electing not
to be governed by the statute (effective twelve (12) months after the
amendment's adoption), which amendment shall not be applicable to any business
combination with a person who was an Interested Stockholder at or prior to the
time of the amendment; or (iii) the corporation does not have a class of voting
stock that is (a) listed on a national securities exchange, (b) authorized for
quotation on Nasdaq or a similar quotation system; or (c) held of record by more
than 2,000 stockholders. The statute also does not apply to certain Business
Combinations with an Interested Stockholder when such combination is proposed
after the public announcement of, and before the consummation or abandonment of,
a merger or consolidation, a sale of 50% or more of the aggregate market value
of the assets of the corporation on a consolidated basis or the aggregate market
value of all outstanding shares of the corporation, or a tender offer for 50% or
more of the outstanding voting shares of the corporation, if the triggering
transaction is with or by a person who either was not an Interested Stockholder
during the previous three years or who became an Interested Stockholder with
Board of Director approval, and if the transaction is approved or not opposed by
a majority of the current directors who were also directors prior to any person
becoming an Interested Stockholder during the previous three years.
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The FBG Certificate does not contain a provision expressly electing not to
be covered by the Business Combinations restrictions of the Delaware statute.
Kansas law relating to Business Combinations is virtually identical to
Delaware law (refer to discussion of Delaware law, above). The AmVestors
Articles does not contain a provision expressly electing not to be covered by
the Business Combinations restrictions, so such restrictions apply to AmVestors.
In addition to any action required by law, the AmVestors Articles contains a
provision that requires the affirmative vote of the holders of at least
two-thirds (2/3) of the then outstanding shares of capital stock of AmVestors
entitled to vote generally in the election of directors as a condition for
Business Combinations (defined below) involving AmVestors and an Interested
Stockholder (defined below). For purposes of the AmVestors Articles, "Business
Combination" is defined to mean: (i) any merger, share exchange or consolidation
involving AmVestors or any of its subsidiaries; (ii) any sale, lease, exchange,
pledge, transfer or other disposition by AmVestors or any of its subsidiaries of
more than 25% of its assets; (iii) any sale, lease, exchange, transfer or
disposition of more than 25% of the assets of an Interested Stockholder to
AmVestors or any subsidiary; (iv) the issuance or transfer by AmVestors or any
subsidiary of any securities of AmVestors or any subsidiary to an Interested
Stockholder in exchange for cash, securities or other properties; (v) any merger
or consolidation of an Interested Stockholder or any Affiliate of any Interested
Stockholder with or into AmVestors or any subsidiary of AmVestors; (vi) any
reclassification of securities, or recapitalization of the corporation, or any
merger or consolidation of the corporation with any of its subsidiaries or any
other transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which would have the effect of increasing the voting
power of an Interested Stockholder or any Affiliate of any Interested
Stockholder; (vii) any plan or proposal for the liquidation or dissolution of
AmVestors proposed by or on behalf of an Interested Stockholder or any Affiliate
of any Interested Stockholder; and (viii) any agreement, contract or other
arrangement providing for any of the Business Transactions defined above. An
"Interested Stockholder" is defined to mean any person who or which: (i) is the
beneficial owner of five percent (5%) or more of AmVestors' voting stock; or
(ii) is an Affiliate (defined below) of the corporation and at any time within
the five year period immediately prior to the date in question was the
beneficial owner of five percent (5%) or more of the voting stock; or (iii) is
an assignee or has otherwise succeeded to any shares of voting stock which were
at any time within the five year period immediately prior to the date in
question beneficially owned by any Interested Stockholder, if such assignment or
succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act.
The requirement of the affirmative vote of the holders of at least
two-thirds (2/3) of the then outstanding shares of capital stock of AmVestors
entitled to vote generally in the election of directors can be waived in the
following circumstances: (a) the Business Combination is approved by a majority
of the Continuing Directors (defined below); provided, however, that such
approval shall be effective only if obtained at a meeting at which a Continuing
Director Quorum (defined below) is present; or (b) the Business Combination is
solely between the corporation and another corporation 100% of which is owned
either directly or indirectly by the Corporation; or (c) certain minimum price
and procedural requirements are met. A "Continuing Director" is a director of
AmVestors who is either (i) unaffiliated with the Interested Stockholder and was
a member of the Board prior to the time that the Interested Stockholder became
an Interested Stockholder, or (ii) a member of the Board first elected by the
Board or the stockholders prior to the date on which the AmVestors Articles were
adopted, or (iii) a successor of a Continuing Director who is unaffiliated with
the Interested Stockholder and is recommended or elected to succeed a Continuing
Director by a majority of Continuing Directors at a meeting at which a
Continuing Director Quorum is present, or (iv) unaffiliated with the Interested
Stockholder and recommended or elected to fill a vacancy in the Board of
Directors arising from an increase in the number of directors, provided such
recommendation or election is made at a meeting at which a Continuing Director
Quorum is present. A "Continuing Director Quorum" means a majority of the
Continuing Directors. The term "Affiliate" has the same meaning ascribed to such
term in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934.
For a discussion of certain other aspects of the AmVestors Articles and
Kansas law, see "Description of AmVestors Capital Stock."
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AMENDMENT OF THE 1989 AMVESTORS FINANCIAL CORPORATION
NON-QUALIFIED STOCK OPTION PLAN
Subject to approval by the stockholders of AmVestors, the Board of
Directors of AmVestors has amended the AmVestors Option Plan to increase the
aggregate number of shares issuable under such plan by 275,000 shares and to
otherwise modify such plan to allow for the issuance of options to holders of
FBG Options in connection with the Merger and to certain persons who will be
employed by AmVestors after the Merger. As of September 30, 1995, 46,247 shares
remain available for future stock option grants and 907,653 are outstanding
pursuant to granted FBG Options. The approval of a majority of the stockholders
of AmVestors is a condition to the listing of the shares to be issued such
options on the NYSE. The effectiveness of the amendment to the AmVestors Option
Plan is conditioned on the consummation of the Merger. See "Plan of Merger --
Terms and Conditions of Proposed Merger -- FBG's Conditions."
PROPOSED AMENDMENT OF AMVESTORS OPTION PLAN
The AmVestors Option Plan will be amended to increase the shares of
AmVestors Common Stock that may be subject to AmVestors Options granted
thereunder by 275,000 shares and to provide that in the event AmVestors enters
into a transaction with another company which results in such company being a
direct or indirect subsidiary of AmVestors, the AmVestors Board may grant, in
substitution of options to purchase shares of such other company, or one of its
affiliates, options to purchase AmVestors Common Stock upon such terms and
conditions as the Board may determine. Such amendment will permit the granting
of AmVestors Options in substitution for FBG Options (see "Plan of Merger -- FBG
Options and Warrants") and to those certain executive officers of FBG who will
be employed by AmVestors after the consummation of the Merger. See "Plan of
Merger -- Management and Operations after the Merger -- Employment Agreements."
A copy of the amendment is attached to this Joint Proxy Statement/Prospectus as
Appendix VI, and AmVestors stockholders are urged to carefully review such
amendment.
VOTE REQUIRED TO APPROVE THE AMENDMENT TO THE AMVESTORS OPTION PLAN
The affirmative vote of a majority of the shares of AmVestors Common Stock
represented in person or by proxy at a meeting where a quorum is present, is
required to approve the amendment to the AmVestors Option Plan. A majority of
the votes entitled to be cast in the election constitutes a quorum. Shares voted
to "abstain" will be considered to be present for purposes of establishing a
quorum and will have the same effect as votes against the proposal. Shares as to
which a broker indicates it lacks authority to vote on this proposal and which
are not voted will be considered not present for purposes of determining the
existence of a quorum and the requisite majority vote.
The Board of Directors recommends a vote "FOR" the amendment of the
AmVestors Option Plan.
DESCRIPTION OF THE AMVESTORS OPTION PLAN
GENERAL. The AmVestors Option Plan currently covers 950,000 shares of
AmVestors Common Stock and was adopted by the AmVestors Board on March 16, 1989.
A copy of the full text of the AmVestors Option Plan is attached to this joint
Proxy Statement/Prospectus as Appendix VII. The AmVestors Option Plan superseded
and replaced the AmVestors Financial Corporation 1986 Incentive Stock Option
Plan, the AmVestors Financial Corporation 1986 Nonqualified Stock Option Plan,
and certain other option arrangements to purchase AmVestors Common Stock. All
such substitute options have either been exercised or have expired.
The purpose of the AmVestors Option Plan is to establish and continue as
close an identity as is feasible between the interests of AmVestors and its
subsidiaries and the directors, officers, and employees of AmVestors and its
subsidiaries, and to encourage a sense of proprietorship on the part of such
individuals, to recognize past valuable services of such individuals, to furnish
such individuals with further incentive to develop and promote the business and
financial success of AmVestors and its subsidiaries, and to induce such
individuals to continue in the service of AmVestors or its subsidiaries. The
AmVestors Option Plan also served
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to grant options in substitution for cancelled options originally granted to
certain individuals as described in the preceding paragraph.
The AmVestors Option Plan is administered by the AmVestors Board. Each
director is eligible to participate as a beneficiary in the AmVestors Option
Plan. Subject to the express provisions of the AmVestors Option Plan, the
AmVestors Board has plenary authority to make all determinations necessary or
advisable for the administration of the AmVestors Option Plan.
The AmVestors Option Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974.
Sales of shares of AmVestors Common Stock acquired by affiliates of
AmVestors, as defined by Rule 405 promulgated under the Securities Act, must
comply with the registration requirements of the Securities Act and applicable
state securities laws, or applicable exemptions therefrom.
All officers, directors and employees of AmVestors and its subsidiaries are
eligible beneficiaries under the AmVestors Option Plan. Beneficiaries who have
received options under the AmVestors Option Plan, and in certain instances their
personal representatives, legatees or devisees, are referred to herein as
"Participants." Participants are notified of a grant of options, however the
AmVestors Board does not provide regular reports to Participants as to the
amount and status of their benefits under the AmVestors Option Plan.
ELIGIBILITY, GRANTS OF NONQUALIFIED OPTIONS. The AmVestors Board has
authority, in its discretion, but subject to the express provisions of the
AmVestors Option Plan, to determine the persons who may be granted options under
the AmVestors Option Plan, the number of shares to be covered by each option,
the purchase price of the AmVestors Common Stock covered by each option, the
terms of payment, and the option period.
At the sole discretion of the AmVestors Board, options to purchase the
shares of AmVestors Common Stock subject to the AmVestors Option Plan, as well
as shares previously subject to options which terminate prior to being
exercised, may be granted under the AmVestors Option Plan to any officer,
director or employee of AmVestors or any subsidiary.
PRICE. Options under the AmVestors Option Plan are issued at no cost to the
Participant and are exercisable at a price per share determined by the AmVestors
Board, which may be less than the market price of the shares at the time of the
grant.
EXERCISE OF OPTIONS. Options granted pursuant to the AmVestors Option Plan
become exercisable at the times determined by the AmVestors Board and set forth
in the Participant's Nonqualified Stock Option Agreement. A Participant electing
to exercise an option issued under the AmVestors Option Plan must provide
AmVestors with written notice stating the number of shares subject to exercise.
The notice must be accompanied by cash payment of the full option price for the
number of shares subject to exercise.
NONTRANSFERABILITY. Options granted under the AmVestors Option Plan are not
transferable in any manner except by will or the laws of descent and
distribution, and, during the lifetime of a Participant, are exercisable only by
the Participant or his personal representative. In the event of a Participant's
death, any person previously designated by the Participant in a written notice
filed with AmVestors, or if no such person has been designated, the
Participant's executor or administrator, may exercise any of the Participant's
unexercised option rights during the option period.
DILUTION, AMENDMENT, AND TERMINATION OF PLAN. The number of shares subject
to the AmVestors Option Plan, the number of shares covered by each individual
option, and the price per share are proportionally adjusted automatically for
any increase or decrease in the number of issued and outstanding shares of
AmVestors Common Stock of AmVestors accomplished without a corresponding
increase or decrease in AmVestors's paid-in capital.
If the number of issued shares of AmVestors Common Stock of AmVestors is
increased or reduced by reason of a change in par value, a stock dividend, a
stock split, a reclassification, or similar event, the number of shares of
AmVestors Common Stock subject to outstanding options and the exercise price of
the options will be proportionally adjusted. If AmVestors is reorganized or
consolidated or merged with another
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corporation, the Participant will be entitled to receive options covering shares
of such reorganized, consolidated, or merged corporation in the same proportion,
at an equivalent price, and subject to the same conditions as his outstanding
option.
The AmVestors Board may determine the date upon which the AmVestors Option
Plan will terminate, and may amend the AmVestors Option Plan at any time.
However, no amendment may reduce the number of shares subject to any outstanding
option or change the terms or conditions thereof without the Participant's
consent. Termination of the AmVestors Option Plan will not terminate options
outstanding thereunder.
TERMINATION OF OPTIONS. Pursuant to the Nonqualified Stock Option
Agreement, unless modified by the AmVestors Board in connection with a
particular option grant, options granted under the AmVestors Option Plan not
theretofore exercised will terminate upon the first to occur of the following
dates:
(i) The date which is three months after the first day upon which the
Participant is no longer employed by AmVestors or a subsidiary of AmVestors
(except if termination of employment is by reason or death or permanent or
total disability);
(ii) The date which is twelve months after the first day on which the
Participant is no longer employed by AmVestors or a subsidiary of AmVestors
if termination of employment is by reason of the Participant's permanent
and total disability;
(iii) The date which is twelve months after the date of the
Participant's death if the Participant dies while employed by AmVestors or
a subsidiary of AmVestors; or
(iv) Such date as the AmVestors Board shall determine upon the
granting of the option.
Options granted under the AmVestors Option Plan terminate and may not be
exercised if the employment of the Participant is terminated for cause,
including, but not limited to, dishonesty, fraud, embezzlement, or any other
malicious act substantially detrimental to AmVestors or a subsidiary of
AmVestors.
RESALES OF AMVESTORS COMMON STOCK BY PARTICIPANTS. The resale of shares
acquired upon the exercise of options granted pursuant to the AmVestors Option
Plan is not restricted by the terms of the AmVestors Option Plan. However,
resales by Participants who are affiliates of AmVestors, as defined under the
Securities Act (which include but are not limited to executive officers and
directors of AmVestors), must comply with the registration requirements of the
Securities Act and applicable state securities laws.
LEGAL MATTERS
Bryan Cave LLP, St. Louis, Missouri, has rendered an opinion that the
shares of AmVestors Common Stock to be issued in the Merger have been duly
authorized and, if and when issued pursuant to the terms of the Merger
Agreement, will be validly issued, fully paid and nonassessable.
Bryan Cave LLP and Lord, Bissell & Brook, Chicago, Illinois, have rendered
the opinions to AmVestors and FBG, respectively, referred to under "Plan of
Merger -- Certain Federal Income Tax Consequences."
It is anticipated that Lord, Bissell & Brook will render an opinion to
AmVestors at the closing of the Merger with respect to certain legal matters
relating to the Merger.
It is anticipated that Harnett Lesnick Ripps & Kahn, P.A., Boca Raton,
Florida, will render an opinion to AmVestors at the closing of the Merger with
respect to certain legal matters relating to the Merger. Bertram Harnett, a
partner of such firm, owns 233,353 shares of FBG Class A Common Stock and FBG
Options exercisable for an additional 59,602 shares.
It is anticipated that Bryan Cave LLP will render an opinion to FBG at the
closing of the Merger with respect to certain legal matters relating to the
Merger.
It is anticipated that Polsinelli, White, Vardeman & Shalton, P.C. will
render an opinion to FBG at the Closing of the Merger with respect the certain
legal matters relating to the Merger.
119
140
It is anticipated that Jorden Burt Berenson & Johnson LLP, Miami, Florida,
will render an opinion to AmVestors at the closing of the Merger with respect to
certain legal matters relating to the Merger.
EXPERTS
The consolidated financial statements and the related financial statement
schedules of AmVestors as of December 31, 1994 and 1993 and for each of the
three years in the period ended December 31, 1994 included and incorporated by
reference in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports, which are included and
incorporated by reference herein, and have been so included and incorporated in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements and the related financial statement
schedules of FBG as of December 31, 1994 and 1993 and for each of the three
years in the period ended December 31, 1994 included and incorporated by
reference in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports, which are included and
incorporated by reference herein, and have been so included and incorporated in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
Such financial statements of Financial Benefit Group, Inc. are included and
incorporated by reference herein in reliance upon the respective reports of such
independent auditors given upon their authority as experts in accounting and
auditing.
120
141
INDEX TO FINANCIAL STATEMENTS
AMVESTORS FINANCIAL CORPORATION
Independent Auditors' Report.................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1993.................... F-3
Consolidated Statements of Earnings for the Three Years Ended December 31,
1994........................................................................... F-4
Consolidated Statements of Stockholders' Equity for the Three Years Ended
December 31, 1994.............................................................. F-5
Consolidated Statements of Cash Flows for the Three Years Ended December 31,
1994........................................................................... F-6
Notes to Consolidated Financial Statements...................................... F-7
Consolidated Interim Financial Statements (Unaudited)........................... F-26
FINANCIAL BENEFIT GROUP, INC.
Independent Auditors' Report.................................................... F-45
Consolidated Balance Sheets as of December 31, 1994 and 1993.................... F-46
Consolidated Statements of Operations for the Three Years Ended December 31,
1994........................................................................... F-47
Consolidated Statements of Stockholders' Equity for the Three Years Ended
December 31, 1994.............................................................. F-48
Consolidated Statements of Cash Flows for the Three Years Ended December 31,
1994........................................................................... F-49
Notes to Consolidated Financial Statements...................................... F-50
Consolidated Interim Financial Statements (Unaudited)........................... F-69
F-1
142
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, 1994 and
1993, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1994. 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, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
company adopted the provisions of Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities in
1994 and Statement of Financial Accounting Standards No. 113, Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts in 1993.
/s/ DELOITTE & TOUCHE LLP
--------------------------------------
Kansas City, Missouri
March 29, 1995
F-2
143
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
------------------------
1994 1993
---------- ---------
(000'S OMITTED,
EXCEPT PER SHARE DATA)
ASSETS
Investments:
Debt securities:
Bonds:
Held-to-maturity (market $1,145,692 and $1,104,914)..................... $1,237,185 1,066,583
Available-for-sale (cost $621,138 and market $705,738).................. 607,046 662,696
Preferred stock with mandatory redemption requirements, available-for-sale
(market $177)............................................................... -- 184
---------- ---------
1,844,231 1,729,463
---------- ---------
Equity securities, available-for-sale:
Common stock (cost $2,124 and $2,968)....................................... 2,325 3,036
Preferred Stock (cost $45 and $662)......................................... 31 876
---------- ---------
2,356 3,912
---------- ---------
Other long-term investments................................................... 58,773 39,880
Short-term investments........................................................ 520 1,911
---------- ---------
1,905,880 1,775,166
Less allowance for credit losses.............................................. (2,231) (2,500)
---------- ---------
Total investments........................................................... 1,903,649 1,772,666
---------- ---------
Cash and cash equivalents..................................................... 10,621 21,782
Accounts receivable (net of allowance for uncollectible accounts of $227 and
$348)....................................................................... 2,310 819
Amounts receivable under reinsurance agreements............................... 149,656 151,392
Amounts receivable on securities settlements in process....................... 905 1,203
Accrued investment income..................................................... 29,296 26,544
Deferred policy acquisition costs............................................. 148,871 128,671
Deferred income taxes......................................................... 11,136 8,622
Other assets.................................................................. 3,577 2,997
---------- ---------
Total assets................................................................ $2,260,021 2,114,696
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policy liabilities:
Future policy benefits.................................................... $2,148,763 2,005,339
Other policy liabilities.................................................. 2,983 4,948
---------- ---------
2,151,746 2,010,287
Amounts due on securities settlements in process.............................. 274 --
Accrued expenses and other liabilities........................................ 3,805 4,064
---------- ---------
Total liabilities........................................................... 2,155,825 2,014,351
---------- ---------
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 -- 10,034,742 shares in 1994 and 10,142,842 shares in 1993........... 12,769 12,907
Paid in capital............................................................... 63,499 64,612
Unrealized investment gains (losses) (net of deferred policy acquisition cost
amortization expense (benefit) of $(3,476) and $-0- and deferred income tax
expense (benefit) of $(2,616) and $548)..................................... (7,813) 1,064
Retained earnings............................................................. 38,876 25,183
---------- ---------
107,331 103,766
Less leveraged employee stock ownership trust (LESOP)......................... (3,135) (3,421)
---------- ---------
Total stockholders' equity.................................................. 104,196 100,345
---------- ---------
Total liabilities and stockholders' equity.................................. $2,260,021 2,114,696
========== =========
See notes to consolidated financial statements.
F-3
144
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER
31,
------------------------------
1994 1993 1992
-------- ------- -------
(000'S OMITTED,
EXCEPT PER SHARE DATA)
Revenue:
Insurance premiums and policy charges......................... $ 6,331 6,594 7,545
Net investment income......................................... 142,009 138,539 141,155
Net investment gains.......................................... 803 17,049 20,521
Income from disposal of private placement securities.......... -- -- 5,821
Other revenue................................................. 557 341 666
Total revenue.............................................. 149,700 162,523 175,708
Benefits and expenses:
Benefits, claims and interest credited to policyholders....... 112,310 113,848 128,049
Amortization of deferred policy acquisition costs............. 9,026 9,436 16,409
General insurance expenses.................................... 7,587 8,830 8,694
Premium and other taxes, licenses and fees.................... 1,252 2,395 2,519
Other expenses................................................ 239 265 276
Total benefits and expenses................................ 130,414 134,774 155,947
Operating earnings............................................ 19,286 27,749 19,761
Interest expense.............................................. -- 994 2,443
Earnings before income tax expense and extraordinary item..... 19,286 26,755 17,318
Income tax expense............................................ 5,593 8,564 118
Earnings before extraordinary item............................ 13,693 18,191 17,200
Extraordinary item: Loss on early extinguishment of debt (net
of income tax benefit of $100 and $196).................... -- (213) (382)
Net earnings.................................................. $ 13,693 17,978 16,818
Earnings per share of common stock:
Primary:
Earnings before extraordinary item......................... $ 1.32 2.62 2.94
Extraordinary item......................................... -- (.03) (.07)
Net earnings............................................... $ 1.32 2.59 2.87
Fully diluted:
Earnings before extraordinary item......................... $ 1.32 2.49 2.62
Extraordinary item......................................... -- (.03) (.06)
Net earnings............................................... $ 1.32 2.46 2.56
Average shares outstanding:
Primary....................................................... 10,341 6,860 5,770
Fully diluted................................................. 10,341 7,315 6,567
See notes to consolidated financial statements.
F-4
145
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNREALIZED RETAINED
INVESTMENT EARNINGS
COMMON PAID-IN GAINS (ACCUM. TREASURY
STOCK CAPITAL (LOSSES) DEFICIT) STOCK LESOP TOTAL
------- ------- ---------- -------- -------- ------ -------
(000'S OMITTED, EXCEPT SHARE AND PER SHARE DATA)
Balance as of January 1, 1992... $ 7,812 41,152 (858) (9,099) (6,855) (1,388) 30,936
Net earnings.................... -- -- -- 16,818 -- -- 16,818
Decrease in unrealized
investment losses............. -- -- 49 -- -- -- 49
Cash dividends to stockholders
($2.00 per share on preferred
stock)........................ -- -- -- (278) -- -- (278)
Issuance of common stock:
upon exercise of options...... 75 235 -- -- -- -- 310
upon sale to LESOP............ 299 2,201 -- -- -- (2,500) --
Issuance of preferred stock..... -- 988 -- -- -- -- 988
Issuance of warrants............ -- 440 -- -- -- -- 440
Allocation of LESOP shares...... -- -- -- -- -- 200 200
------ ------ ------- ------ ------ ------ -------
Balance as of December 31,
1992.......................... 8,186 45,016 (809) 7,441 (6,855) (3,688) 49,463
Net earnings.................... -- -- -- 17,978 -- -- 17,978
Decrease in unrealized
investment 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 -- -- -- -- 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
Increase in unrealized
investment losses............. -- -- (28,490) -- -- -- (28,490)
Remaining offering costs........ -- (135) -- -- -- -- (135)
Redemption stockholders rights
plan.......................... -- (101) -- -- -- -- (101)
Issuance of common stock:
upon exercise of options...... 28 133 -- -- -- -- 161
Tax effect exercise of
options....................... -- 10 -- -- -- -- 10
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
====== ====== ======= ====== ====== ====== =======
See notes to consolidated financial statements.
F-5
146
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
--------- -------- --------
(000'S OMITTED)
Operating Activities:
Net earnings........................................................ $ 13,693 17,978 16,818
Adjustments to reconcile net earnings to net cash provided by (used
in) operating activities:
Interest credited to policyholders.................................. 114,871 116,942 132,160
Amortization of (discounts) premiums on debt securities, net........ (2,347) (1,905) (937)
Amortization of deferred policy acquisition costs................... 9,026 9,436 16,409
Net investment (gains) losses....................................... (803) (17,049) (20,521)
Accrued investment income........................................... (2,752) (2,366) (872)
Deferred income taxes............................................... 651 4,635 (2,405)
Other, net.......................................................... (1,830) 1,982 2,235
--------- -------- --------
Net cash provided by operating activities......................... 130,509 129,653 142,887
--------- -------- --------
Investing Activities:
Purchasing of securities:
Held-to-maturity.................................................. (242,464) (578,918) (845,211)
Available-for-sale................................................ (332,647) -- --
Proceeds from sale of securities:
Held-to-maturity.................................................. 8,302 341,498 581,342
Available-for-sale................................................ 319,846 -- --
Proceeds from maturity or redemption of securities:
Held-to-maturity.................................................. 35,375 184,280 231,060
Available-for-sale................................................ 86,973 -- --
Other long-term investment, net..................................... (20,215) (20,326) (1,709)
Short-term investments, net......................................... 1,392 (487) (677)
Capitalization of deferred policy acquisition costs................. (25,750) (18,212) (14,076)
Other, net.......................................................... (413) (497) 163
--------- -------- --------
Net cash used in investing activities............................. (169,601) (92,662) (49,108)
--------- -------- --------
Financing Activities:
Premiums received................................................... 267,802 222,177 168,657
Surrender and death benefits paid................................... (246,632) (318,880) (203,134)
Surrender and risk charges collected................................ 5,409 5,161 6,768
Securities settlements in process................................... 573 (25,609) 14,070
Payments on notes payable........................................... -- (19,918) (9,000)
Issuance of common stock............................................ 27 31,400 2,810
Purchase of LESOP stock............................................. -- -- (2,500)
Other, net.......................................................... 752 (2,590) (492)
--------- -------- --------
Net cash provided by (used in) financing activities............... 27,931 (108,259) (22,821)
--------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents...................... (11,161) (71,268) 70,958
Cash and Cash Equivalents:
Beginning of year................................................... 21,782 93,050 22,092
--------- -------- --------
End of year......................................................... $ 10,621 21,782 93,050
========= ======== ========
Supplemental schedule of cash flow information:
Income tax payments................................................. $ 6,150 3,204 2,242
========= ======== ========
Interest payments................................................... $ -- 1,071 1,671
========= ======== ========
Change in net unrealized investment gains (losses) on
available-for-sale securities..................................... $ (56,823) -- --
Less: Associated reduction in amortization of deferred policy
acquisition costs................................................. 16,221 -- --
Deferred income tax benefit..................................... 13,177 -- --
--------- -------- --------
Net change in net unrealized gains (losses) on available-for-sale
securities........................................................ $ (27,425) -- --
========= ======== ========
See notes to consolidated financial statements.
F-6
147
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
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) and Omni-Tech Medical, Inc. (Omni-Tech),
(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. Beginning in 1994, debt securities
available-for-sale are carried at estimated market value, with any unrealized
gains or losses recorded in stockholders' equity. In 1993, debt securities
classified as available-for-sale were carried at the lower of aggregate cost or
estimated market value, with any unrealized loss 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.
An allowance for credit losses have been recorded to reduce total
investments by charging investment losses. The recorded allowance reflects
management's estimate of losses existing in the investment assets, which may
occur in the future due to conditions unknown to management at this time.
Management periodically reviews the adequacy of the allowance for credit losses.
As credit losses are realized, they are charged against the allowance.
Investments in common stock and non-redeemable preferred stock are carried
at market.
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 company's share of the partnerships' 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
the estimates of fair value, the estimates presented are not necessarily
indicative of the amounts that could be realized in a current market exchange.
F-7
148
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
The carrying values and estimated fair values of the company's financial
instruments as of December 31, 1994 and 1993 were as follows:
AS OF DECEMBER 31,
--------------------------------------------------
1994 1993
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
(000'S OMITTED)
Assets:
Debt securities.............................. $1,844,231 1,752,738 1,729,463 1,810,829
Equity securities............................ 2,356 2,356 3,912 3,912
Other long-term investments.................. 58,773 58,536 39,880 40,215
Short-term investments....................... 520 520 1,911 1,911
Cash and cash equivalents.................... 10,621 10,621 21,782 21,782
Amounts receivable on securities settlement
in process................................ 905 905 1,203 1,203
Accounts receivable and accrued investment
income.................................... 31,606 31,606 27,363 27,363
Liabilities:
Future policy benefits -- investment
contracts................................. 1,917,066 1,799,090 1,789,109 1,672,754
Other policy liabilities..................... 2,983 2,983 4,948 4,948
Amounts due on securities settlements in
process................................... 274 274 -- --
Accrued expenses and other liabilities....... 3,805 3,805 4,064 4,064
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 approximates the fair value of this asset.
Accounts receivable and accrued investment income -- The carrying amounts
reported in the balance sheet approximate 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.
Amounts due on securities settlements in process -- The carrying amount
reported in the balance sheet approximates the fair value of this liability.
F-8
149
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
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 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.
D. 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 at a constant rate based on the present
value of the estimated gross profits expected to be realized over the 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.
Determination of expected gross profits includes the best estimate of
certain elements over the life of the contracts, including anticipated excess
investment income, surrender charge revenues and mortality charge revenues
(single premium life insurance). Estimates of expected gross profits used as a
basis for amortization are evaluated regularly by management, and the total
amortization recorded to date is adjusted by a charge or credit to the statement
of earnings if actual experience indicates that the estimates should be revised.
Net investment gains realized in 1994, 1993 and 1992 resulted in the
company experiencing investment margins greater than those estimated. As a
result, $203,940, $4,790,523 and $8,691,521 of the unamortized balance of
deferred policy acquisition costs were expensed in 1994, 1993 and 1992,
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.
E. 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% to 9% 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.
F-9
150
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
F. 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.
G. 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.
H. 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.
I. EARNINGS PER SHARE:
Primary earnings per share of common stock are computed by dividing net
earnings (reduced by preferred dividend requirements in 1993 and 1992) 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. Fully diluted earnings per share
assumes the conversion of the convertible preferred stock outstanding during
1992. 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.
J. CONSOLIDATED STATEMENTS OF CASH FLOWS:
For purposes of reporting cash flows, cash and cash equivalents, includes
cash and money market accounts.
K. NEW ACCOUNTING STANDARDS:
Effective January 1, 1994, the company adopted to 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. Net earnings for the period
ended December 31, 1994 were not affected by the adoption of this Statement.
Effective May 1993, the company adopted the provisions of SFAS No. 113,
"Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts" and restated the financial statements of prior years to report
amounts ceded to reinsurers separately as assets in the respective consolidated
balance
F-10
151
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
sheets. Adoption of this standard increased total assets and liabilities by
$148,626,459 and $150,635,000 as of December 31, 1994 and 1993, respectively.
L. RECLASSIFICATIONS:
Certain reclassifications have been made to conform prior years' financial
statements to the December 31, 1994, presentation.
2. INVESTMENTS:
A summary of investment income is as follows:
FOR THE YEAR ENDED DECEMBER
31,
------------------------------
1994 1993 1992
-------- ------- -------
(000'S OMITTED)
Debt securities................................................. $142,469 136,533 139,089
Equity securities............................................... 50 76 89
Other long-term investments..................................... 486 3,096 1,972
Short-term investments.......................................... 830 931 2,083
------- ------- -------
143,835 140,636 143,233
Less investment expenses........................................ 1,826 2,097 2,078
------- ------- -------
Net investment income........................................... $142,009 138,539 141,155
======= ======= =======
Net investment gains (losses)
Debt securities............................................... $ (533) 18,486 23,560
Equity securities............................................. 1,335 (274) 11
Other......................................................... 1 (1,163) (3,050)
------- ------- -------
Net investment gains (losses)................................... $ 803 17,049 20,521
======= ======= =======
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 yield 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 effect the company's earnings for any given period.
F-11
152
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
The maturity of the company's debt and equity securities portfolio as of
December 31, 1994 was as follows:
AS OF DECEMBER 31, 1994
--------------------------------------------------------
HELD-TO-MATURITY AVAILABLE-FOR-SALE
-------------------------- --------------------------
ESTIMATED ESTIMATED
BOOK VALUE MARKET VALUE BOOK VALUE MARKET VALUE
---------- ------------ ---------- ------------
(000'S OMITTED)
Debt Securities:
Bonds:
One year or less............................ $ 999 1,003 23,580 22,232
Two years through five years................ 195,835 187,900 159,075 158,308
Six years through ten years................. 892,544 823,583 319,157 311,431
Eleven years and after...................... 147,807 133,206 119,326 115,075
---------- --------- ------- -------
1,237,185 1,145,692 621,138 607,046
---------- --------- ------- -------
Equity securities............................. -- -- 2,169 2,356
---------- --------- ------- -------
$1,237,185 1,145,692 623,307 609,402
========== ========= ======= =======
These tables include mortgage-backed securities based on the estimated
future cash flows of the underlying mortgages.
The book value, estimated market value and unrealized market gains and
losses of debt and equity securities as of December 31, 1994, and 1993 were as
follows:
BOOK UNREALIZED UNREALIZED ESTIMATED
VALUE GAINS LOSSES MARKET VALUE
---------- ---------- ---------- ------------
(000'S OMITTED)
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 1 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 available-for-sale............. 2,169 417 230 2,356
---------- ------- ------- ---------
$1,860,492 3,281 108,679 1,755,094
========== ======= ======= =========
F-12
153
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
BOOK UNREALIZED UNREALIZED ESTIMATED
VALUE GAINS LOSSES MARKET VALUE
---------- ---------- ---------- ------------
(000'S OMITTED)
DECEMBER 31, 1993
Bonds held-to-maturity:
Corporate debt obligations
Investment grade............................ $ 776,905 32,703 3,480 806,128
High-yield.................................. 84,063 2,799 559 86,303
---------- ------ ----- ---------
860,968 35,502 4,039 892,431
U.S. Treasury obligations...................... 3,631 14 5 3,640
Mortgage-backed securities..................... 201,984 6,905 46 208,843
---------- ------ ----- ---------
Bonds held-to-maturity......................... 1,066,583 42,421 4,090 1,104,914
---------- ------ ----- ---------
Bonds available-for-sale:
Corporate debt obligations
Investment grade............................ 198,636 19,943 -- 218,579
U.S. Treasury obligations................... 9,954 12 -- 9,966
Mortgage-backed securities.................. 454,106 23,087 -- 477,193
---------- ------ ----- ---------
Bonds available-for-sale.................... 662,696 43,042 -- 705,738
---------- ------ ----- ---------
Total bonds.................................... 1,729,279 85,463 4,090 1,810,652
Preferred stock with mandatory redemption
requirements................................... 184 -- 7 177
Equity securities................................ 3,630 795 513 3,912
---------- ------ ----- ---------
$1,733,093 86,258 4,610 1,814,741
========== ====== ===== =========
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 WRITE-DOWNS VALUE MARKET VALUE
-------- ----------- -------- ------------
(000'S OMITTED)
December 31, 1994................................... $9,535 7,814 1,721 1,721
December 31, 1993................................... $7,611 7,582 29 76
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.
F-13
154
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
The book value, estimated market value and unrealized market gains and
losses by type of mortgage-backed security as of December 31, 1994, and December
31, 1993 were as follows:
BOOK UNREALIZED UNREALIZED ESTIMATED
VALUE GAINS LOSSES MARKET VALUE
-------- ---------- ---------- ------------
(000'S OMITTED)
DECEMBER 31, 1994
Government agency mortgage-backed securities:
Planned amortization 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
======== ====== ====== =======
DECEMBER 31, 1993
Government agency mortgage-backed securities:
Planned amortization classes...................... $104,528 5,064 -- 109,592
Targeted amortization classes and accretion
directed classes............................... 7,646 436 -- 8,082
Sequential classes................................ 37,220 1,171 -- 38,391
Pass-throughs..................................... 60 6 -- 66
-------- ------ ------ -------
Total government agency mortgage-backed
securities................................... 149,454 6,677 -- 156,131
-------- ------ ------ -------
Government sponsored enterprise mortgage-backed
securities:
Planned amortization classes...................... 340,328 17,588 -- 357,916
Sequential classes................................ 5,612 58 -- 5,670
Pass-throughs..................................... 428 30 -- 458
-------- ------ ------ -------
Total government sponsored enterprise mortgage-
backed securities............................ 346,368 17,676 -- 364,044
-------- ------ ------ -------
Other mortgage-backed securities:
Planned amortization classes...................... 47,887 983 31 48,839
Sequential classes................................ 101,852 4,306 15 106,143
Pass-throughs..................................... 19 1 -- 20
Subordinated classes.............................. 10,510 349 -- 10,859
-------- ------ ------ -------
Total other mortgage-backed securities......... 160,268 5,639 46 165,861
-------- ------ ------ -------
Total mortgage-backed securities.................... $656,090 29,992 46 686,036
======== ====== ====== =======
F-14
155
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
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 21.6% and 22.1% of the carrying value of the
company's mortgage-backed securities as of December 31, 1994 and December 31,
1993, 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 76.8% and 76.3% of the carrying
value of the company's mortgage-backed securities as of December 31, 1994 and
December 31, 1993, respectively. The company does not invest in support class
securities or principal-only ("PO") and interest-only ("IO") strips.
As of December 31, 1994, 76.4% of the company's mortgage-backed securities
were issued by either government agencies or government sponsored enterprises,
compared to 75.6% as of December 31, 1993. The credit risk associated with these
securities is generally less than other mortgage-backed securities. With the
exception of four issues, with a carrying value of $15,186,000 as of December
31, 1994, 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, 1994, exceeded ten
percent of stockholders' equity:
AS OF DECEMBER 31,
--------------------------------------------------
1994 1993
----------------------- -----------------------
ESTIMATED ESTIMATED
BOOK VALUE MARKET BOOK VALUE MARKET
---------- --------- ---------- ---------
(000'S OMITTED)
10% of Stockholders' Equity......................... $ 10,420 $ 10,035
======= ======
Bonds:
Ashland Oil, Inc., various interest rates and due
dates through 2004................................ $ 13,731 13,383
CBC Holdings, Inc., 10.33%, due 08-1997............. 16,395 16,110 16,598 17,057
Countrywide Funding Corp., various interest rates
and due dates through 2023........................ 16,733 14,811 12,127 12,145
D&P CBO Partners & Corporation, 9.93%, due
01-1995........................................... 13,033 13,038 14,999 15,095
FHLMC 1142 G, 7.95%, due 06-2000.................... 12,725 12,582 14,935 15,403
FHLMC 1295, J 7.5%, due 11-2005..................... 14,678 13,938 14,676 15,586
FHLMC 1435 G, 7%, due 10-2000....................... 13,784 13,233
FHLMC 1496 G, 4%, due 05-2003....................... 11,780 11,555
FHLMC 1497 D, 6.4%, due 01-2003..................... 12,738 12,441
FHLMC 1538 H, 6.5%, due 04-2007..................... 13,726 13,055
FHLMC 1564 G, 6.25%, due 02-2030.................... 12,996 12,447
FHLMC 1698 G, 6%, due 06-2003....................... 13,725 13,050
FHLMC 1701 PG, 6.25%, due 10-2002................... 13,704 12,903
FHLMC 1693 G, 6%, due 04-2003....................... 13,649 13,008
FNMA REMIC 90 138 G P11, 8.5%, due 01-1999.......... 13,961 13,860 14,039 14,630
FNMAG 30 PG, 8.2%, due 03-1997...................... 14,843 14,855 14,816 15,492
FNMA 92 24 G P11, 7.5%, due 03-2000................. 15,251 14,391 15,293 15,492
F-15
156
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
AS OF DECEMBER 31,
--------------------------------------------------
1994 1993
----------------------- -----------------------
ESTIMATED ESTIMATED
BOOK VALUE MARKET BOOK VALUE MARKET
---------- --------- ---------- ---------
(000'S OMITTED)
FNMA 92 15H, 6.75%, due 12-2006..................... 15,105 13,111 15,106 15,272
FNMAG 93 G01, 7%, due 02-2003....................... 14,822 13,402 14,815 15,342
FNMA 92 210 H, 6.5%, due 02-2006.................... 12,153 11,604
FNMA 92 192 H P11, 6.5%, due 12-2001................ 14,541 13,570 14,489 15,070
FNMAG 92 G64 G, 7%, due 11-2002..................... 16,236 14,783 16,221 16,887
FNMAG 92 66 G, 7%, due 01-2003...................... 14,853 13,477 14,849 15,314
FNMAG 93 G02, 7%, due 12-2002....................... 14,803 13,439 14,795 15,319
FNMA 93 85 PH, 6.5%, due 11-2007.................... 11,449 11,088
FNMA 94 34 PG, 6%, due 09-2003...................... 13,697 13,013
FNMA 94 86 PH, 6%, due 07-2005...................... 13,291 12,558
FNMA 94 83 B, 7.5%, due 12-2007..................... 19,177 18,031
FNMA 89 65 G, 8.65%, due 01-1998.................... 12,069 11,955 12,112 12,514
Greentree 94-1, 6.9%, due 05-2002................... 14,814 13,758
Hydro Quebec Ser IF, 7.375%, due 02-2003............ 11,997 11,177
Liberty Mutual Capital Corp., 8.10%, due 01-2005.... 12,208 10,647 12,292 12,062
Ontario Province, various interest rates and due
dates through 2004................................ 19,418 18,464
Paramount Communications Inc., 7.5%, due 01-2002.... 10,665 9,831 10,630 11,110
Prudential Home Mtg 92-A B 31 Sub, 7.85% due
09-1995........................................... 10,546 9,195 10,510 10,859
RFC 1992, various interest rates and due dates
through 1997...................................... 19,517 18,772
RTC 1991 6 CL B5, 8.839%, due 02-1997............... 14,989 14,972 14,985 15,375
Texas Utilities Electric, various interest rates and
due dates through 2005............................ 10,905 10,309
Three Rivers CBO LP, 9.62% due 10-1998.............. 11,710 11,385 11,782 12,072
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.
F-16
157
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
The consideration received on sales of debt and equity securities, carrying
value and realized gains and losses on those sales were as follows:
FOR THE YEAR ENDED DECEMBER
31,
------------------------------
1994 1993 1992
-------- ------- -------
(000'S OMITTED)
Consideration received.......................................... $462,138 393,142 693,532
Carrying value.................................................. 461,335 374,584 673,870
-------- ------- -------
Net investment gains (losses)................................. $ 803 18,558 19,662
======== ======= =======
Investment gains................................................ $ 4,268 18,677 26,851
Investment losses............................................... (3,465) (119) (7,189)
-------- ------- -------
Net investment gains (losses)................................... $ 803 18,558 19,662
======== ======= =======
The above table includes bonds of one issuer which the company had
classified as held-to-maturity. These bonds have a book value of $8,507,732 and
the sale resulted in a realized loss of $205,526. The decision to sell these
bonds was based upon a significant deterioration in the issuer's
creditworthiness.
In addition to the above sales, the company transferred bonds of two
issuers from held-to-maturity to available-for-sale as a result of an increase
in the risk weights used for regulatory risk-based capital purposes. The book
value of these bonds was $16,960,874. Bonds of another issuer with a book value
of $1,721,460 were also transferred from held-to-maturity to available-for-sale
based upon a significant deterioration in the issuer's creditworthiness.
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:
NET UNREALIZED GAINS (LOSSES)
-----------------------------------------------------
DEBT DEBT EQUITY
SECURITIES SECURITIES SECURITIES OTHER
HELD-TO- AVAILABLE- AVAILABLE- LONG-TERM
MATURITY FOR-SALE FOR-SALE INVESTMENTS
---------- ---------- ---------- -----------
(000'S OMITTED)
Balance as of January 1, 1992....................... $ 45,063 -- (858) --
1992 Net Change..................................... (7,643) 4,115 49 --
--------- ------- ----- ------
Balance as of December 31, 1992..................... 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 --
========= ======= ===== ======
At December 31, 1994 and 1993, investments with statutory carrying values
of $1,866,074,033 and $1,736,404,701 respectively, were on deposit with various
insurance departments. These amounts exceeded the minimum required deposits by
$66,325,834 and $57,640,783 as of December 31, 1994 and 1993, respectively.
3. RELATED PARTY TRANSACTIONS:
On January 22, 1991, the company made a $504,000, 30 year, first mortgage
loan on the personal residence of a Director. At the time the loan was made, it
represented a loan to value of 80%. This loan originally provided for interest
at the rate equal to the cost of funds of the Eleventh District of the Federal
F-17
158
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
Reserve, plus two percent and had a final payment due February 1, 2021. On
December 10, 1992 the terms of the loan were renegotiated to provide for
interest to be fixed at a rate of 7.5% and a final payment due January 10, 2008.
The outstanding principal balances on this loan were $11,815 and $205,059 as of
December 31, 1994 and 1993, respectively.
4. OTHER ASSETS:
Other assets consists of the following:
AS OF DECEMBER
31,
---------------
1994 1993
------ -----
(000'S OMITTED)
Property and equipment at cost:
Home office building (including land of $352).............................. $2,152 2,113
Furniture and equipment.................................................... 3,464 3,328
Automobiles................................................................ 115 100
------ -----
5,731 5,541
Less accumulated depreciation.............................................. 3,336 3,174
------ -----
2,395 2,367
Other........................................................................ 1,182 630
------ -----
$3,577 2,997
====== =====
5. 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)
FOR THE YEAR
ENDED CEDED TO OTHER
DECEMBER 31, DESCRIPTIONS GROSS AMOUNT COMPANIES NET AMOUNT
- ------------ -------------------------------------------- ------------ -------------- ----------
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
1992 Life insurance in force..................... 384,179 306,506 77,673
Insurance premiums and policy charges....... 9,312 1,767 7,545
Future policy benefits...................... 1,984,013 150,194 1,833,819
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
$149,656,094 and $151,392,088 as of December 31, 1994, and December 31, 1993,
respectively. Of the amounts, $147,949,099 and
F-18
159
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
$149,468,739 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. Reimbursements
received from ERC for amounts paid by the Company on the reinsured risks
totalled $9,740,717, $7,991,680 and $10,338,954 for the years ended December 31,
1994, 1993 and 1992, respectively.
The following table identifies the components of the amounts receivable
from ERC:
AS OF DECEMBER 31,
-------------------
1994 1993
-------- -------
(000'S OMITTED)
Reserve for future policy benefits....................................... $146,919 148,712
Reimbursement for benefit payments....................................... 1,030 757
-------- --------
$147,949 149,469
======== ========
6. 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. Under the terms of this agreement, the
Lenders have committed to lend up to $25,000,000 in the form of a 5-year
reducing revolving credit facility. 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.
Interest on the borrowing 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.
At December 31, 1994, there had been no borrowings under this agreement.
7. 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, 1994.
The company sponsors a Leveraged Employee Stock Ownership Plan (LESOP) for
all full-time employees with one year of service.
F-19
160
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
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 $3,336,038 and $3,639,922 as of December 31, 1994 and
1993, respectively.
Each year, the company makes 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
368,079 shares of the company's common stock now owned by the LESOP, 99,704
shares have been allocated to the participating employees with the remaining
268,375 shares 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, 1994, 1993 and 1992 were $285,565, $266,886 and
$200,226, 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 to 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.
As of December 31, 1994, five of the company's directors qualified for
benefits under the plan. A liability in the amount of $521,180, representing the
present value of future benefits, has been established. Charges (credits) to
earnings relating to the plans were ($40,244), $(3,282) and $564,706, for the
years ended December 31, 1994, 1993 and 1992, 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, 1994 and 1993, were $215,664 and $213,059, respectively.
8. 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, 1994, surplus profits of
American were $12,996,673 and 10% of statutory capital and surplus was
$8,752,120. 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 $100,000 each. As of December 31, 1994 and 1993 American's statutory
capital and surplus was $87,521,204 and $87,146,052, respectively. Statutory net
income (loss) for the years 1994, 1993 and 1992 was $4,167,120, ($1,469,786) and
$1,853,297, 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
F-20
161
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
(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 permitted accounting practice increased statutory surplus as of
December 31, 1992, by $8,167,587. Gains and losses for years subsequent to 1992
are recorded in accordance with prescribed statutory accounting practices.
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
859,837 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.
Changes during the years were as follows:
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1993 1992
------------ ------------ ------------
Options outstanding, beginning of year.............. 816,107 757,340 797,632
Options granted..................................... 95,000 413,000 81,574
Options exercised................................... (22,200) (227,561) (58,264)
Options expired..................................... (29,070) (126,659) (63,602)
Options cancelled................................... -- (13) --
Options outstanding, end of year.................... 859,837 816,107 757,340
Outstanding options exercisable at end of year...... 764,837 403,107 675,766
Options reserved for future grants at end of year... 132,247 145,677 3,802
Option prices per share:
Exercised, during the year........................ $5.31-$ 7.50 $4.84-$ 9.60 $ 5.31
Outstanding, end of year.......................... $4.84-$12.66 $4.84-$13.75 $4.84-$13.75
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, 1994
------------------
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........................................... -0- 30,000
======= =======
Rights reserved for future grants......................................... 5,000 5,000
======= =======
F-21
162
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
The company recorded compensation expense relating to stock appreciation
rights of $-0-, $1,875 and $121,875, for the years ended December 31, 1994,
1993, and 1992, 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.
In conjunction with its 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:
WARRANT ISSUE NUMBER EXERCISE EXPIRATION
HOLDER DATE OF SHARES PRICE DATE
------------------------------- -------- --------- -------- ----------
Morgan Guaranty................ 12/08/88 75,000 $ 3.9688 12/09/98
04/30/92 95,002 6.3855 05/01/02
-------
170,002
=======
9. 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.
10. INCOME FROM DISPOSAL OF PRIVATE PLACEMENT SECURITIES:
Income from disposal of private placement securities was $5.8 million in
1992. During 1988, 1989, and 1990, American purchase private placement
securities believed to have a quality rating equivalent to "BBB" by S&P. In
1992, the company engaged an independent firm to review the private placement
portfolio. That review determined those securities would have been rated "BB" --
"B" if they had been rated by S&P when issued and that the total market value of
the securities at the time of the report was approximately $5.8 million less
than the par value of those securities. On September 21, 1992, an affiliate of
the placement agent agreed to purchase the bonds at their par value, which
approximated the company's cost. Several of these bonds had been written down in
an amount totalling $2.1 million during 1990, 1991 and 1992 when declines in
value were considered to be other than temporary. The effect on 1992 operations
of this transaction was a net investment loss of $4.3 million representing the
difference between the market value at the time of the sale and the GAAP book
carrying value of the securities, and $5.8 million of income from the disposal
of private placement securities, representing the amount received in excess of
market value. There were no similar transactions in 1994 or 1993.
11. 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
F-22
163
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
administrative allowance of $31.50 per policy per year. The total allowance
received in 1994, 1993 and 1992 was $129,972, $136,912 and $143,370,
respectively.
During 1993 and 1992, the company received amounts of $51,000 and $472,000,
respectively representing recoveries of amounts paid during 1991 as a result of
the settlement of legal claims which resulted from agent fraud.
12. INCOME TAXES:
The provision for income taxes charged to operations was as follows:
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1994 1993 1992
------ ----- ------
(000'S OMITTED)
Current income tax expense........................................... $4,943 4,477 2,523
Deferred income tax expense (benefit)................................ 650 4,087 (2,405)
------ ----- ------
Total income tax expense (benefit)................................... $5,593 8,564 118
====== ===== ======
The net deferred tax asset was comprised of the following:
FOR THE YEAR ENDED
DECEMBER 31,
-------------------
1994 1993
-------- -------
(000'S OMITTED)
Gross deferred tax assets:
Investments............................................................ $ 7,178 2,359
Accrued investment income.............................................. -- 10
Property and equipment................................................. 341 107
Other assets........................................................... 11 2
Reserves for future policy benefits.................................... 107,448 101,816
Accrued expenses and other liabilities................................. 1,828 1,943
-------- -------
116,806 106,237
-------- -------
Gross deferred tax liabilities:
Investments............................................................ $ 1,011 2,299
Accounts receivable.................................................... 51,940 51,098
Accrued investment income.............................................. 193 --
Deferred policy acquisition costs...................................... 49,653 41,807
Policy and contract claims............................................. 279 101
-------- -------
103,076 95,305
-------- -------
13,730 10,932
Less valuation allowance................................................. (2,594) (2,310)
-------- -------
Net deferred tax asset................................................... $ 11,136 8,622
======== =======
F-23
164
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
The Company's net deferred tax asset 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 net 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 against its net
deferred tax asset.
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:
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1994 1993 1992
------ ----- ------
(000'S OMITTED)
Expected tax expense................................................. $6,750 9,091 5,873
State income tax..................................................... 254 201 45
Tax exempt municipal bond interest and dividends received
deductions......................................................... -- -- (2)
Capital loss carryforward............................................ -- -- (6,130)
Book/tax capital difference on bond dispositions..................... -- -- (225)
Operating loss carryforward not tax effected......................... -- -- --
Stock options exercised.............................................. -- -- (92)
Change in valuation allowance on future deductions................... (153) (470) 1,238
Change in valuation allowance on capital loss temporary
differences........................................................ (597) (555) (638)
Change in expected tax rate on future deductions..................... (321) -- --
Change in other net temporary differences, not previously tax
effected........................................................... (340) 297 49
------ ----- ------
Actual income tax expense (benefit).................................. $5,593 8,564 118
====== ===== ======
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 components of the deferred income tax provision are as
follows:
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------
1994 1993 1992
------- ------ ------
(000'S OMITTED)
Investments........................................................ $ (692) 938 (2,545)
Accounts receivable................................................ 842 4,447 1,531
Accrued investment income.......................................... 204 (10) --
Deferred policy acquisition costs.................................. 6,629 2,488 (1,776)
Property and equipment............................................. (234) (107) --
Other assets....................................................... (9) (1) --
Future policy benefits............................................. (5,632) (2,485) (1,893)
Policy and contract claims......................................... 178 -- 32
Accrued expenses and other liabilities............................. 114 (440) (807)
Operating loss carryforward........................................ -- 282 (282)
Valuation allowance on future deductions and capital loss
differences...................................................... (750) (1,025) 3,335
------- ------ ------
Deferred income tax expense (benefit).............................. $ 650 4,087 (2,405)
======= ====== ======
As of December 31, 1994, the company had no capital loss carryforwards
available to offset future realized investment gains.
F-24
165
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 -- (CONTINUED)
13. 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 1994, 1993 and 1992 income before taxes by
approximately $(368,000), $1,594,000 and $1,834,000, respectively. The company
expects that further changes to income may be required in the future and will
record such amounts when they become known.
14. QUARTERLY RESULTS (UNAUDITED):
The company's quarterly results are set forth in the following table:
1994 QUARTER ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
(000'S OMITTED, EXCEPT PER SHARE DATA)
Total revenue.............................................. $37,491 35,954 37,519 38,188
======= ====== ====== ======
Earnings before income taxes............................... $ 5,412 3,771 4,833 5,270
Income tax expenses........................................ 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
======= ====== ====== ======
1993 QUARTER ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
Total revenue.............................................. $45,927 39,359 38,336 38,901
======= ====== ====== ======
Earnings before income taxes and extraordinary item........ $ 7,843 5,163 6,990 6,743
Income tax expense......................................... 2,353 1,549 2,497 2,149
------- ------ ------ ------
Net earnings before extraordinary item..................... 5,490 3,614 4,493 4,594
Extraordinary item......................................... -- -- -- (213)
------- ------ ------ ------
Net earnings............................................... $ 5,490 3,614 4,493 4,381
======= ====== ====== ======
Per share of common stock:
Primary:
Net earnings before extraordinary item................... $ .84 .55 .69 .57
Extraordinary item....................................... -- -- -- (.03)
------- ------ ------ ------
Net earnings............................................. $ .84 .55 .69 .54
======= ====== ====== ======
Fully diluted:
Net earnings before extraordinary item................... $ .78 .52 .65 .54
Extraordinary item....................................... -- -- -- (.02)
------- ------ ------ ------
Net earnings............................................. $ .78 .52 .65 .52
======= ====== ====== ======
F-25
166
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
1995 1994
---------- ---------
(UNAUDITED)
(000'S OMITTED)
ASSETS
Investments:
Debt securities:
Bonds:
Held-to-maturity (market $1,206,446 and $1,145,692)............... $1,184,634 1,237,185
Available-for-sale (cost $752,253 and $621,138)................... 781,259 607,046
---------- ---------
1,965,893 1,844,231
---------- ---------
Equity Securities, available-for-sale:
Common stock (cost $557 and $2,124).................................. 882 2,325
Preferred stock (cost $4,704 and $45)................................ 4,761 31
---------- ---------
5,643 2,356
---------- ---------
Other long-term investments............................................ 41,694 58,773
Short-term investments................................................. 460 520
---------- ---------
2,013,690 1,905,880
Less allowance for credit losses....................................... (1,580) (2,231)
---------- ---------
Total investments................................................. 2,012,110 1,903,649
---------- ---------
Cash and cash equivalents................................................ 16,708 10,621
Accounts receivable (net of allowance for uncollectible accounts of $267
and $227).............................................................. 1,084 2,310
Amounts receivable under reinsurance agreements.......................... 146,218 149,656
Amounts receivable on securities settlements in process.................. 3,789 905
Accrued investment income................................................ 28,632 29,296
Deferred policy acquisition costs........................................ 155,047 148,871
Deferred income taxes.................................................... -- 11,136
Other assets............................................................. 4,549 3,577
---------- ---------
Total assets...................................................... $2,368,137 2,260,021
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policy liabilities:
Future policy benefits............................................... $2,209,756 2,148,763
Other policy liabilities............................................. 4,965 2,983
---------- ---------
2,214,721 2,151,746
Amounts due on securities settlements in process....................... 7,565 274
Deferred income taxes.................................................. 4,306 --
Accrued expenses and other liabilities................................. 4,197 3,805
---------- ---------
Total liabilities................................................. 2,230,789 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
10,135,175 shares in 1995 and 10,034,742 shares in 1994................ 12,897 12,769
Paid in capital.......................................................... 64,250 63,499
Unrealized investment gains (losses) (net of deferred policy acquisition
cost amortization expense (benefit) of $7,347 and $(3,476) and deferred
income tax expense (benefit) of $7,715 and $(2,616).................... 14,327 (7,813)
Retained earnings........................................................ 49,009 38,876
---------- ---------
140,483 107,331
Less leveraged employee stock ownership trust (LESOP).................... (3,135) (3,135)
---------- ---------
Total stockholders' equity........................................ 137,348 104,196
---------- ---------
Total liabilities and stockholders' equity........................ $2,368,137 2,260,021
========== =========
See notes to consolidated financial statements.
F-26
167
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
1995 1994
-------- -------
(000'S OMITTED,
EXCEPT PER SHARE DATA)
(UNAUDITED)
Revenue:
Insurance premiums and policy changes............................. $ 6,554 4,831
Net investment income............................................. 114,724 105,361
Net investment gains (losses)..................................... (993) 328
Other revenue..................................................... 683 443
------- ------
Total revenue............................................. 120,968 110,963
------- ------
Benefits and expenses:
Benefits, claims and interest credited to policyholders........... 88,588 83,198
Amortization of deferred policy acquisition costs................. 8,085 7,524
General insurance expenses........................................ 6,315 5,301
Premium and other taxes, licenses and fees........................ 1,256 682
Other expenses.................................................... 214 176
------- ------
Total benefits and expenses............................... 104,458 96,881
------- ------
Operating earnings.................................................. 16,510 14,082
Income tax expense.................................................. 5,617 4,816
------- ------
Net earnings........................................................ $ 10,893 9,266
======= ======
Earnings per share of common stock:
Primary:
Net earnings................................................... $ 1.05 .90
======= ======
Fully diluted:
Net earnings................................................... $ 1.05 .89
======= ======
Average share outstanding:
Primary........................................................... 10,330 10,352
Fully diluted..................................................... 10,378 10,358
See notes to consolidated financial statements.
F-27
168
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(000'S OMITTED, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
UNREALIZED
INVESTMENT
COMMON PAID-IN GAINS RETAINED TREASURY
STOCK CAPITAL (LOSSES) EARINGS STOCK LESOP TOTAL
------- ------- ---------- -------- -------- ------ --------
Balance as of January 1, 1994..... $12,907 64,612 1,064 25,183 -- (3,421) $100,345
Net earnings...................... -- -- -- 13,693 -- -- 13,693
Cumulative effect of adoption of
SFAS 115........................ -- -- 19,613 -- -- -- 19,613
Increase in unrealized investment
losses.......................... -- -- (28,490) -- -- -- (28,490)
Remaining offering costs.......... -- (135) -- -- -- -- (135)
Redemption of stockholders rights
plan............................ -- (101) -- -- -- -- (101)
Issuance of common stock: upon
exercise of options............. 28 133 -- -- -- -- 161
Tax effect of option exercises.... -- 10 -- -- -- -- 10
Purchase of treasury shares....... -- -- -- -- (1,186) -- (1,186)
Retirement of treasury stock...... (166) (1,020) -- -- 1,186 -- 0
Allocation of LESOP shares........ -- -- -- -- -- 286 286
------- ------ ------- ------ ------ ------ --------
Balance as of December 31, 1994... 12,769 63,499 (7,813) 38,876 -- (3,135) 104,196
Net earnings...................... -- -- -- 10,893 -- -- 10,893
Decrease in unrealized investment
losses.......................... -- -- 22,140 -- -- -- 22,140
Cash dividends to stockholders
($.075 cents per share on common
stock).......................... -- -- -- (760) -- -- (760)
Issuance of common stock: upon
exercise of options............. 128 634 -- -- -- -- 762
Tax effect of option exercises.... -- 117 -- -- -- -- 117
------- ------ ------- ------ ------ ------ --------
Balance September 30, 1995........ $12,897 64,250 14,327 49,009 -- (3,135) $137,348
======= ====== ======= ====== ====== ====== ========
See notes to consolidated financial statements.
F-28
169
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
1995 1994
--------- --------
(UNAUDITED)
(000'S OMITTED)
Operating Activities:
Net earnings................................................................... $ 10,893 9,266
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Interest credited to policyholders........................................... 90,145 84,935
Amortization of (discounts) premiums on debt securities, net................. (755) (2,062)
Amortization of deferred policy acquisition costs............................ 8,085 7,524
Net investment (gains) losses................................................ 993 (328)
Accrued investment income.................................................... 664 (533)
Deferred income taxes........................................................ 5,111 (486)
Other, net................................................................... 2,233 (1,149)
--------- ---------
Net cash provided by operating activities.................................. 117,369 97,167
--------- ---------
Investing Activities:
Purchases of Securities:
Held-to-maturity............................................................. (5,118) (236,642)
Available-for-sale........................................................... (232,752) (274,764)
Proceeds from sale of securities:
Held-to-maturity............................................................. -- 8,302
Available-for-sale........................................................... 72,830 277,441
Proceeds from maturity or redemption of securities:
Held-to-maturity............................................................. 26,303 32,098
Available-for-sale........................................................... 56,193 72,448
Other long-term investments, net............................................... 17,067 (4,120)
Short-term investments, net.................................................... 60 1,287
Capitalization of deferred policy acquisition costs............................ (25,085) (19,517)
Other, net..................................................................... (1,218) (385)
--------- ---------
Net cash used in investing activities...................................... (91,720) (143,852)
--------- ---------
Financing Activities:
Premiums received.............................................................. 256,815 206,889
Surrender and death benefits paid.............................................. (290,210) (181,223)
Surrender and risk charges collected........................................... 5,274 4,199
Securities settlements in process.............................................. 4,407 2,811
Cash dividends to stockholders................................................. (760) --
Issuance of common stock....................................................... 762 (64)
Other, net..................................................................... 4,150 1,426
--------- ---------
Net cash provided by (used in) financing activities........................ (19,562) 34,038
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents................................. 6,087 (12,647)
Cash and Cash Equivalents:
Beginning of year.............................................................. 10,621 21,782
--------- ---------
End of year.................................................................... $ 16,708 9,135
========= =========
Supplemental schedule of cash flow information:
Income tax payments.............................................................. $ (1,332) 5,305
========= =========
Interest payments................................................................ $ 0 0
========= =========
Change in net unrealized investment gains (losses) on available-for-sale
securities..................................................................... $ 43,294 (2,166)
Less: Associated (increase) reduction in amortization of deferred policy
acquisition costs.............................................................. (10,823) (387)
Deferred income tax (expense) benefit.......................................... (10,331) 877
--------- ---------
Net change in net unrealized gains (losses) on available-for-sale securities... $ 22,140 (1,676)
========= =========
See notes to consolidated financial statements.
F-29
170
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
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) and Omni-Tech Medical, Inc. (Omni-Tech),
(collectively the company). All significant inter-company 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 September 30, 1995 and the results of earnings and the
statements of cash flow for the nine month periods ended September 30, 1995 and
1994.
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 the 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.
An allowance for credit losses has been recorded to reduce total
investments by charging investment losses. The recorded allowance reflects
management's estimate of losses existing in the company's invested assets, which
may occur in the future due to conditions unknown to management at this time.
Management periodically reviews the adequacy of the allowance for credit losses.
As credit losses are realized, they are charged against the allowance.
Investments in common stock and non-redeemable preferred stock are carried
at market.
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 company's share of the partnerships' estimated market value with
any unrealized gains or losses recorded in net investment income.
F-30
171
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
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 September 30, 1995, and December 31, 1994, were as follows:
1995 1994
----------------------- ----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- --------- --------- ---------
(000'S OMITTED)
Assets:
Debt securities................................ $1,965,893 1,987,705 1,947,873 1,844,231
Equity securities.............................. 5,643 5,643 2,356 2,356
Other long-term investments.................... 41,694 41,726 58,773 58,536
Short-term investments......................... 460 460 520 520
Cash and cash equivalents...................... 16,708 16,708 10,621 10,621
Accounts receivable on securities settlements
in process.................................. 3,789 3,789 905 905
Accounts receivable and accrued investment
income...................................... 29,716 29,716 31,606 31,606
Liabilities:
Future policy benefits -- investment
contracts................................... 1,974,495 1,855,570 1,917,066 1,799,090
Other policy liabilities....................... 4,965 4,965 2,983 2,983
Amounts due on securities settlements in
process..................................... 7,565 7,565 274 274
Accrued expenses and other liabilities......... 4,197 4,197 3,805 3,805
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 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.
F-31
172
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
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 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. 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 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.
Determination of expected gross profits includes management's best estimate
of certain elements over the life of the contracts, including anticipated excess
investment income, surrender charge revenues and mortality charge revenues
(single premium life insurance). Estimates of expected gross profits used as a
basis for amortization are evaluated regularly by management, and the total
amortization recorded to date is adjusted by a charge or credit to the statement
of earnings if actual experience indicates that the estimates should be revised.
Net investment gains (losses) will result in the company experiencing
investment margins greater than or less than those estimated. As a result of
losses experienced during the first nine months of 1995, amortization of
deferred policy acquisition costs was reduced by $229,637. Gains experienced
during the same period of 1994 resulted in additional amortization of $78,480.
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.
F-32
173
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
G. 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.
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.
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 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.
K. CONSOLIDATED STATEMENTS OF CASH FLOWS:
For purposes of reporting cash flows, cash and cash equivalents includes
cash and money market accounts.
L. 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.
M. RECLASSIFICATION:
Certain reclassifications have been made to conform the September 30, 1994
and December 31, 1994 financial statements to the September 30, 1995
presentation.
F-33
174
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
2. INVESTMENTS:
A summary of investment income is as follows:
FOR THE PERIOD
ENDED SEPTEMBER 30,
-------------------
1995 1994
-------- -------
(000'S OMITTED)
Debt securities.......................................................... $109,827 105,999
Equity securities........................................................ 70 38
Other long-term investments.............................................. 5,258 69
Short-term investments................................................... 1,173 642
------- -------
116,328 106,748
Less investment expenses................................................. 1,604 1,387
------- -------
Net investment income.................................................... $114,724 105,361
======= =======
Net investment gains (losses):
Debt securities........................................................ $ (1,119) (252)
Equity securities...................................................... 475 580
Increase in allowance for credit losses................................ (325) --
Other.................................................................. (24) --
------- -------
Net investment gains (losses)............................................ $ (993) 328
======= =======
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
June 30, 1995 was as follows:
HELD-TO-MATURITY AVAILABLE-FOR-SALE
----------------------- --------------------
ESTIMATED ESTIMATED
BOOK MARKET BOOK MARKET
VALUE VALUE VALUE VALUE
---------- --------- ------- ---------
(000'S OMITTED)
AS OF SEPTEMBER 30, 1995
Debt securities:
One year or less.................................. $ 6,499 6,580 25,457 24,011
Two years through five years...................... 251,640 256,462 178,267 182,753
Six years through ten years....................... 821,049 837,594 415,375 436,531
Eleven years and after............................ 105,446 105,810 133,154 137,964
---------- --------- ------- -------
1,184,634 1,206,446 752,253 781,259
Equity securities................................. -- -- 5,261 5,643
---------- --------- ------- -------
$1,184,634 1,206,446 757,514 786,902
========== ========= ======= =======
These tables include mortgage-backed securities based on the estimated cash
flows of the underlying mortgages.
As used in the above table and elsewhere in this report, book value is
defined as amortized cost, including adjustments for any other than temporary
dimunitions in value, prior to any market value adjustments.
F-34
175
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
The book value, estimated market value and unrealized market gains and
losses of debt and equity securities as of June 30, 1995, and December 31, 1994,
were as follows:
BOOK UNREALIZED UNREALIZED ESTIMATED
VALUE GAINS LOSSES MARKET VALUE
---------- ---------- ---------- ------------
(000'S OMITTED)
SEPTEMBER 30, 1995
Bonds held-to-maturity:
Corporate debt obligations
Investment grade............................. $ 771,556 20,595 8,501 783,650
High-yield................................... 101,790 3,381 1,272 103,899
---------- ------ ------- --------
873,346 23,976 9,773 887,549
U.S. Treasury obligations....................... 8,298 277 100 8,475
Mortgage-backed securities...................... 302,990 8,151 719 310,422
---------- ------ ------- --------
Bonds held-to-maturity.......................... 1,184,634 32,404 10,592 1,206,446
---------- ------ ------- --------
Bonds available for sale:
Corporate debt obligations
Investment grade............................. 323,906 18,111 137 341,880
High-yield................................... 40,670 421 958 40,133
---------- ------ ------- --------
364,576 18,532 1,095 382,013
U.S. Treasury obligations....................... 44,362 21 124 44,259
Mortgage-backed securities...................... 343,315 13,266 1,594 354,987
---------- ------ ------- --------
Bonds available-for-sale........................ 752,253 31,819 2,813 781,259
---------- ------ ------- --------
Total bonds..................................... 1,936,887 64,223 13,405 1,987,705
Equity securities available-for-sale.............. 5,261 713 331 5,643
---------- ------ ------- --------
$1,942,148 64,936 13,736 1,993,348
========== ====== ======= ========
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 1 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 available-for-sale.............. 2,169 417 230 2,356
---------- ------ ------- --------
$1,860,492 3,281 108,679 1,755,094
========== ====== ======= ========
F-35
176
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
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:
ACCUMULATED CARRYING ESTIMATED
ORIGINAL COST WRITE DOWNS VALUE MARKET VALUE
------------- ----------- -------- ------------
(000'S OMITTED)
September 30, 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 book value, estimated market value and unrealized market gains and
losses by type of mortgage-backed security as of June 30, 1995, and December 31,
1994 were as follows:
ESTIMATED
UNREALIZED UNREALIZED MARKET
BOOK VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ---------
(000'S OMITTED)
SEPTEMBER 30, 1995
Government agency mortgage-backed securities:
Planned amortization classes...................... $ 75,647 650 -- 76,297
Targeted amortization classes and accretion
directed classes............................... 7,796 242 -- 8,038
Pass-throughs..................................... 33 3 -- 36
-------- ------ ----- -------
Total government agency mortgage-backed
securities........................................ 83,476 895 -- 84,371
-------- ------ ----- -------
Government-sponsored enterprise mortgage-backed
securities:
Planned amortization classes...................... 389,770 16,314 334 405,750
Sequential classes................................ 19,603 1,025 -- 20,628
Pass-throughs..................................... 3,286 12 -- 3,298
-------- ------ ----- -------
Total government-sponsored enterprise
mortgage-backed securities........................ 412,659 17,351 334 429,676
-------- ------ ----- -------
Other mortgage-backed securities:
Planned amortization classes...................... 19,486 109 -- 19,595
Sequential classes................................ 116,442 3,061 385 119,118
Pass-throughs..................................... 11 1 -- 12
Subordinated classes.............................. 14,231 -- 1,594 12,637
-------- ------ ----- -------
Total other mortgage-backed securities............ 150,170 3,171 1,979 151,362
-------- ------ ----- -------
Total mortgage-backed securities.................... $646,305 21,417 2,313 665,409
======== ====== ===== =======
F-36
177
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
ESTIMATED
UNREALIZED UNREALIZED MARKET
BOOK VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ---------
DECEMBER 31, 1994
Government agency mortgage-backed securities:
Planned amortization 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
======== === ===== =======
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 21.6% and 21.6% of the carrying value of the
company's mortgage-backed securities as of September 30, 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 76.2% and 76.8% of the carrying value of the company's
mortgage-backed securities as of September 30, 1995 and December 31, 1994.
As of September 30, 1995, 76.8% 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 6 issues, with a carrying value of $20,288,693 as of September 30,
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 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
F-37
178
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
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:
FOR THE PERIOD
ENDED SEPTEMBER 30,
-------------------
1995 1994
-------- -------
(000'S OMITTED)
Consideration received................................................... $175,505 400,561
Carrying value........................................................... 176,149 400,233
------- -------
Net investment gains (losses).......................................... $ (644) 328
======= =======
Investment gains......................................................... $ 1,533 3,388
Investment losses........................................................ (2,177) (3,060)
------- -------
Net investment gains (losses).......................................... $ (644) 328
======= =======
During 1995, the company transferred bonds of nine issuers from
held-to-maturity to available-for-sale based upon a significant deterioration in
the issuers' credit worthiness. The book value of these bonds was $30,671,714.
Included in the above table are 1995 losses of $2,096,881 on the sale of
bonds of four issuers which the company had transferred from held-to maturity to
available-for-sale.
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:
NET UNREALIZED GAINS (LOSSES)
-----------------------------------------------------
DEBT DEBT EQUITY
SECURITIES SECURITIES SECURITIES OTHER
HELD-TO- AVAILABLE- AVAILABLE- LONG TERM
MATURITY FOR-SALE FOR-SALE INVESTMENTS
---------- ---------- ---------- -----------
(000'S OMITTED)
Balance as of January 1, 1994....................... $ 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..................................... 113,305 43,098 195 --
--------- ------- --- ------
Balance as of September 30, 1995.................... $ 21,812 29,006 382 --
========= ======= === ======
At September 30, 1995, and December 31, 1994, investments with statutory
carrying values of $1,948,676,266 and $1,866,074,033, respectively, were on
deposit with various insurance departments. These amounts exceeded the minimum
required deposits by $67,474,357 and $66,325,834 as of September 30, 1995, and
December 31, 1994, respectively.
F-38
179
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
3. OTHER ASSETS:
Other assets consist of the following:
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(000'S OMITTED)
Property and equipment at cost:
Home office building (including land of $352)..................... $ 3,160 2,152
Furniture and equipment........................................... 3,644 3,464
Automobiles....................................................... 115 115
------ -----
6,919 5,731
Less accumulated depreciation....................................... 3,635 3,336
------ -----
3,284 2,395
Other............................................................. 1,265 1,182
------ -----
$ 4,549 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):
CEDED TO
GROSS OTHER
FOR THE PERIOD ENDED DESCRIPTIONS AMOUNT COMPANIES NET AMOUNT
- -------------------- ---------------------------------------- ---------- --------- ----------
September 30, 1995 Life insurance in force................. $ 318,346 243,301 75,045
Insurance premiums and policy charges... 7,267 713 6,554
September 30, 1994 Life insurance in force................. 336,808 264,858 71,950
Insurance premiums and policy charges... 5,558 727 4,831
September 30, 1995 Future policy benefits.................. 2,209,756 145,512 2,064,244
December 31, 1994 Future policy benefits.................. 2,148,763 148,575 2,000,188
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
$146,217,620 and $149,656,094 as of September 30, 1995, and December 31, 1994,
respectively. Of the amounts, $144,509,068 and $147,949,099 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. Reimbursements received from ERC for amounts paid by the company
on the reinsured risks totalled $9,564,575 and $7,011,990 for the nine months
ended September 30, 1995 and 1994, respectively.
F-39
180
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
The following table identifies the components of the amounts receivable
from ERC:
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(000'S OMITTED)
Reserve for future policy benefits.................................. $ 143,835 146,919
Reimbursement for benefit payments and administrative allowance..... 674 1,030
-------- -------
$ 144,509 147,949
======== =======
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.
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. The July 28, 1995
amendment deferred the minimum cash flow coverage ratio until December 31, 1995
and added a covenant requiring American to have statutory operating income in
each quarter until the cash flow coverage ratio becomes effective.
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.
At September 30, 1995, there had been no borrowings under this agreement.
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 nine months ended September 30,
1995 or 1994.
The company sponsors a Leveraged Employee Stock Ownership Plan (LESOP) for
all full-time employees with one year of service.
The LESOP has acquired shares of the company aggregating 370,244 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 $3,336,038 as of September 30, 1995, and December
31, 1994.
F-40
181
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
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 361,735 shares of the company's common stock now owned by the LESOP, 93,360
shares have been allocated to the participating employees with the remaining
268,375 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 $229,173, and $214,174, for the nine months
ended September 30, 1995, and 1994, respectively.
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 $229,173 and $214,174 for the nine months ended
September 30, 1995 and 1994, 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.
As of September 30, 1995, three of the company's directors qualified for
benefits under the plan. A liability in the amount of $433,419, representing the
present value of future benefits, has been established. Charges (credits) to
earnings related to the plans were ($87,761) and $(10,662) for the nine months
ended September 30, 1995 and 1994, 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 nine
months ended September 30, 1995, and 1994 were $166,292 and $146,277,
respectively.
7. STOCKHOLDERS' EQUITY:
Dividends by American to AmVestors are limited by laws applicable to
insurance companies. Under Kansas law, American may pay a dividend, without
prior consent of the Kansas Commissioner of Insurance, in an amount equal to 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, 1994, surplus profits of
American were $12,996,673 and 10% of statutory capital and surplus was
$8,752,120. Statutory net gain (loss) from operations for the year 1994 was
$5,645,097. 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 $100,000 each. As of September 30, 1995, and December 31, 1994,
American's statutory capital and surplus was $86,852,958 and $87,521,204,
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,
F-41
182
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
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 permitted accounting practice increased statutory surplus as of
December 31, 1992, by $8,167,587. Gains and losses for years subsequent to 1992
are recorded in accordance with prescribed statutory accounting practices.
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 845,404 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.
Changes during the periods were as follows:
FOR THE PERIOD ENDED
----------------------------
SEPTEMBER
30, DECEMBER 31,
1995 1994
------------ ------------
Options outstanding, beginning of period......................... 859,837 816,107
Options granted.................................................. 86,000 95,000
Options exercised................................................ (100,433) (22,200)
Options expired.................................................. -- (29,070)
Options outstanding, end of period............................... 845,404 859,837
Outstanding options exercisable at end of period................. 704,404 764,837
Options reserved for future grants at end of period.............. 46,247 132,247
Options prices per share:
Exercised, during the period................................... $4.84-$10.63 $5.31-$7.50
Outstanding, end of period..................................... $4.84-$12.66 $4.84-$12.66
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 PERIOD ENDED
-----------------------------
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
Rights outstanding, beginning of period............................. -- 30,000
Rights granted...................................................... -- --
Rights exercised.................................................... -- (30,000)
Rights expired...................................................... -- --
Rights cancelled.................................................... -- --
----- -------
Rights outstanding, end of period................................... -0- -0-
===== =======
Rights reserved for future grants at end of period.................. 5,000 5,000
===== =======
F-42
183
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
The company recorded no compensation expense relating to stock appreciation
rights for the nine months ended September 30, 1995, and 1994, 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.
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:
NUMBER OF
WARRANT HOLDER ISSUE DATE SHARES EXERCISE PRICE EXPIRATION 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 during the nine months ended September 30, 1995 and
1994 was $92,103 and $98,148, respectively.
10. INCOME TAXES:
The provision for income taxes charged to operations was as follows:
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
----------------
1995 1994
------ ------
(000'S OMITTED)
Current income tax expense (benefit)........................................ $ 506 5,302
Deferred income tax expense (benefit)....................................... 5,111 (486)
------ ------
Total income tax expense.................................................... $5,617 4,816
====== ======
F-43
184
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
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
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 shareholders of FBG and the
company and the fulfillment of certain other conditions set forth in the merger
agreement. In addition, approval of the Commission of Insurance of the State of
Florida is required prior to consummation of this transaction.
The company expects to receive all necessary approvals so that a closing
may occur prior to January 31, 1996.
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. 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 1994 and 1993 income before taxes by
approximately $(368,000) and $1,594,000, 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-44
185
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, 1994 and 1993, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1994. 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, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 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.
DELOITTE & TOUCHE LLP
Miami, Florida
March 10, 1995
F-45
186
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
1994 1993
-------- -------
(IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
INVESTMENTS (Notes 1, 2, 10, 11):
Fixed maturities available-for-sale.................................... $289,787
Fixed maturities held-to-maturity...................................... 190,836
Fixed maturities....................................................... 526,537
Real estate investments................................................ 3,230 3,296
Mortgage loans on real estate.......................................... 3,903 3,903
Equity securities...................................................... 800 800
-------- -------
Total investments................................................. 488,556 534,536
CASH AND CASH EQUIVALENTS................................................ 27,462 30,240
ACCRUED INVESTMENT INCOME................................................ 8,152 7,984
DEFERRED POLICY ACQUISITION COSTS (Note 1)............................... 73,959 73,151
FUTURE POLICY BENEFITS RECOVERABLE FROM REINSURER (Note 4)............... 123,076 134,542
OTHER ASSETS (Note 3).................................................... 9,698 9,116
-------- -------
TOTAL.................................................................... $730,903 789,569
======== =======
LIABILITIES
FUTURE POLICY BENEFITS AND CLAIMS ACCRUAL (Notes 1, 4)................... $682,039 738,150
OTHER LIABILITIES AND ACCRUED EXPENSES................................... 5,588 6,943
LONG-TERM DEBT (Note 5).................................................. 16,000 15,000
-------- -------
Total liabilities........................................................ 703,627 760,093
-------- -------
SHAREHOLDERS' EQUITY (Notes 5, 6):
CLASS A COMMON STOCK, $.01 par value:
Authorized 25,000,000 shares; issued 6,898,622 shares in 1994 and
6,028,673 shares in 1993; outstanding 6,411,797 in 1994 and 5,542,048
in 1993................................................................ 68 60
CLASS B COMMON STOCK, $.01 par value:
Authorized 1,750,000 shares; issued 416,822 shares in 1994 and 462,322
shares in 1993; outstanding 328,374 in 1994 and 373,874 in 1993........ 5 5
ADDITIONAL PAID-IN CAPITAL............................................... 22,313 20,319
RETAINED EARNINGS........................................................ 9,923 11,078
NET UNREALIZED DEPRECIATION ON AVAILABLE-FOR-SALE SECURITIES NET OF
DEFERRED POLICY ACQUISITION COSTS OF $7,630 AND OF TAXES $1,768........ (3,378)
SUBSCRIPTIONS RECEIVABLE -- ESOP (Note 7)................................ (159) (490)
COMMON STOCK IN TREASURY, at cost........................................ (1,496) (1,496)
-------- -------
Total shareholders' equity........................................ 27,276 29,476
-------- -------
TOTAL.................................................................... $730,903 789,569
======== =======
See notes to consolidated financial statements.
F-46
187
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
--------- ---------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
REVENUE:
Net investment income:
Fixed maturities available-for-sale...................... $27,417
Fixed maturities held-to-maturity........................ 15,709
Fixed maturities......................................... 53,006 61,954
Realized gains on investments (Note 2)..................... 2,668 21,827 13,101
Commissions and marketing fees............................. 1,423 1,062 1,209
Other income............................................... 3,846 4,074 4,940
Total revenue.............................................. 51,063 79,969 81,204
BENEFITS AND EXPENSES:
Increase in liability for future policy benefits........... 28,067 41,468 63,700
General and administrative expenses........................ 3,333 4,176 2,742
Payroll and related expenses............................... 2,860 2,447 2,317
Amortization of deferred acquisition costs................. 11,952 16,168 (2,008)
Interest expense........................................... 1,406 1,476 677
Depreciation and amortization.............................. 194 262
Total benefits and expenses.............................. 47,812 65,997 67,707
INCOME BEFORE INCOME TAX EXPENSE AND EXTRAORDINARY
CHARGE................................................... 3,251 13,972 13,497
INCOME TAX EXPENSE (Note 8)................................ 725 4,854 3,531
INCOME BEFORE EXTRAORDINARY CHARGE......................... 2,526 9,118 9,966
EXTRAORDINARY CHARGE ON EXTINGUISHMENT OF DEBT, NET OF TAX
BENEFIT OF APPROXIMATELY $200............................ (1,800)
NET INCOME................................................. $ 726 9,118 9,966
EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENT:
Primary:
Weighted average shares.................................. 8,466,144 8,203,291 7,491,538
Earnings before extraordinary charge..................... $ .30 1.11 1.33
Extraordinary charge..................................... (.21)
Net income............................................ $ .09 1.11 1.33
Fully Diluted:
Weighted average shares.................................. Not 17,982,767 8,409,472
Applicable
Net income............................................ .51 1.19
See notes to consolidated financial statements.
F-47
188
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
NET UNREALIZED
APPRECIATION
CLASS CLASS (DEPRECIATION)
A B ADDITIONAL RETAINED ON AVAILABLE- SUBSCRIPTIONS COST OF TOTAL
COMMON COMMON PAID-IN EARNINGS FOR-SALE RECEIVABLE TREASURY SHAREHOLDERS'
STOCK STOCK CAPITAL (DEFICIT) SECURITIES ESOP STOCK EQUITY
------ ------ ---------- -------- -------------- ------------- -------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Balance, January 1, 1992.... $ 56 5 19,701 (7,484 ) (29) (1,156) (1,496 ) 9,597
Stock dividend of one Class
A Common share for twenty
Class A or B Common
shares.................... 3 519 (522 )
Exercise of stock options... 56 56
Payment received on ESOP
subscriptions............. 321 321
Net changes in unrealized
appreciation on equity
securities................ 80 80
Net income.................. 9,966 9,966
--- ------- ------- -------- -------- -------- -------
--
Balance, December 31,
1992...................... 59 20,276 1,960 51 (835) (1,496 ) 20,020
5
Exercise of stock options... 1 43 44
Net changes in unrealized
appreciation on equity
securities................ (51) (51)
Payment received on ESOP
subscriptions............. 345 345
Net income.................. 9,118 9,118
--- ------- ------- -------- -------- -------- -------
--
Balance, December 31,
1993...................... 60 20,319 11,078 0 (490) (1,496 ) 29,476
5
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 22,313 9,923 (3,378) (159) (1,496 ) 27,276
5
=== ======= ======= ======== ======== ======== =======
==
See notes to consolidated financial statements.
F-48
189
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
--------- -------- --------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income................................................. $ 726 9,118 9,966
Adjustments to reconcile net income to net cash used in
operating activities:
Extraordinary charge on extinguishment of debt, net of tax
benefit................................................. 1,800
Interest credited to policyholders......................... 28,067 41,468 63,700
Realized investment (gains) losses, net.................... (2,668) (21,827) (13,101)
Depreciation and amortization.............................. 194 262 279
Change in deferred policy acquisition costs................ (791) 9,325 (13,448)
Change in accrued investment income........................ (168) 3,636 (148)
Change in deferred taxes, net.............................. 1,361 247 5,563
Change in other assets and liabilities, net................ 1,585 3,291 (5,093)
--------- -------- --------
Total adjustments.......................................... 29,380 36,402 37,752
--------- -------- --------
Net cash used in operating activities........................ 30,106 45,520 47,718
--------- -------- --------
INVESTING ACTIVITIES:
Purchase of available-for-sale securities.................... (146,381)
Purchase of held-to-maturity securities...................... (41,672)
Purchase of investments...................................... (690,364) (496,287)
Proceeds from sales of available-for-sale securities......... 214,339
Proceeds from sales of investments........................... 651,380 413,605
Proceeds from maturities and redemptions of
available-for-sale securities and held-to-maturity
securities................................................. 10,429
Proceeds from maturity of investments........................ 71,576 11,640
Purchase of property and equipment........................... (198) (137) (144)
--------- -------- --------
Net cash provided by (used in) investing activities........ 36,517 32,455 (71,186)
--------- -------- --------
FINANCING ACTIVITIES:
Premiums received............................................ 76,533 57,777 110,476
Surrender and other benefits paid............................ (145,386) (104,767) (176,727)
Borrowings under long-term debt.............................. 16,000 5,000 15,000
Principal payments on long-term debt......................... (15,000) (7,119) (1,627)
Payment to extinguish debt................................... (2,000)
Exercise of stock options.................................... 121 44 56
Payment received on ESOP subscription........................ 331 345 321
--------- -------- --------
Net cash provided by (used in) financing activities..... (69,401) (48,720) (52,501)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... (2,778) 29,255 (75,969)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................. 30,240 985 76,954
--------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR....................... $ 27,462 30,240 985
========= ======== ========
See notes to consolidated financial statements.
F-49
190
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
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., Financial Institution
Insurance Associates 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.
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 "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). During 1994, the Company transferred available-for-sale
securities with a fair value of $82,730,000 to securities held-to-maturity. The
unrealized depreciation at the date of transfer of $4.2 million (net of deferred
policy acquisition costs of $2.5 million and a deferred tax benefit of $940,000)
is included as a separate component of shareholders' equity and will be
amortized to interest income over the life of the securities.
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.
For 1993 and 1994, the Company has submitted its lone common stock
investment, a non-publicly traded issue, to the Security Valuation Office
("SVO") for valuation. To date, the SVO has not priced the issue. Accordingly,
the carrying value at December 31, 1994 and 1993 is based on cost.
Real estate held for sale is carried at the lower of cost or fair value.
Real estate held for investment is carried at cost. The return on and the
ultimate recovery of these investments are generally dependent on the successful
operation, sale or refinancing of the real estate. The Company monitors the
effects of current and expected market conditions and other factors on the
realizability of the Company's direct real estate investments. When, in
management's judgment, these assets are impaired, appropriate losses are
recorded. Such estimates necessarily include assumptions, which may often
include anticipated improvements in market
F-50
191
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
conditions, which may or may not occur. The more significant assumptions
management considers involve estimates of the following: rental rates, occupancy
rates, operating expenses, and inflation.
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 1992, 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 1991, 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, 1994 and
1993, 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 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 -- $25,088,000 and $27,988,000 as of
December 31, 1994 and 1993, respectively) with maturities under three months are
considered to be cash equivalents. Cash of $2,374,000 and $2,252,000 as of
December 31, 1994 and 1993 is invested at a rate of 5.8% and 2.2%, 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
and 1992 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 and
1992 were adjusted by $1,147,000 and $119,000, respectively, for net interest
less the tax effect. As of April 22, 1994, the Company paid $2.0 million, to
accelerate the payment of the subordinated convertible debenture
F-51
192
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
resulting in the extinguishment of the conversion rights (see Note 5). As to the
options and warrants, the year-end common stock price of $3.00, $3.375, and
$1.85 for 1994, 1993, and 1992, respectively, was used in the calculation. As of
December 31, 1994, there were no dilutive securities other than the common stock
equivalents used in computing primary earnings per share.
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:
DECEMBER 31, 1994
-------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED FAIR
COST GAIN LOSS VALUE
--------- ---------- ---------- --------------
(IN THOUSANDS)
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 (1,942) 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
======== ====== ======= =======
DECEMBER 31, 1993
-------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED FAIR
COST GAIN LOSS VALUE
--------- ---------- ---------- --------------
(IN THOUSANDS)
Fixed maturities:
Bonds:
United States Government and government
agencies and authorities.................. $ 162,685 7,344 0 170,029
Public utilities.......................... 61,180 3,793 20 64,953
Investment grade corporate bonds.......... 237,535 18,273 1,259 254,549
High yield corporate bonds................ 57,437 4,414 0 61,851
-------- ------ ------- -------
Total bonds................................. 518,837 33,824 1,279 551,382
Preferred stock.................................. 7,700 0 0 7,700
-------- ------ ------- -------
Total fixed maturities...................... $ 526,537 33,824 1,279 559,082
======== ====== ======= =======
F-52
193
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
The cost and fair value by maturity date for investment securities is as
follows:
1994
-----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
(IN THOUSANDS)
Available-for-sale
1996-2000................................................. $ 37,934 39,303
2001-2005................................................. 145,857 141,249
After 2005................................................ 118,551 109,237
-------- -------
$ 302,342 289,787
======== =======
Held-to-maturity
1995...................................................... $ 7,928 8,029
1996-2000................................................. 70,181 68,686
2001-2005................................................. 71,886 65,161
After 2005................................................ 40,841 35,007
-------- -------
$ 190,836 176,883
======== =======
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 $3,230,000 and $3,296,000 for 1994 and 1993,
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 and another on May 27, 1993. In addition, the
Company gave up one property in a foreclosure proceeding during 1993 (see Note
5). Losses of $3.8 million and $686,000 for 1993 and 1992, respectively, were
incurred on these dispositions. In connection with the sales occurring in 1993,
the Company received four mortgage loans on these properties for $3.9 million.
Interest rates on the mortgages range from 7.5% to 9% and the mortgages are due
in varying installments over the next twelve years. The remaining property is
held for sale.
F-53
194
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
The following table summarizes investment income for all securities for the
periods indicated.
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- ------ ------
(IN THOUSANDS)
United States Government bonds..................................... $11,578 12,512 16,148
Other bonds........................................................ 29,053 37,141 43,519
Cash on deposit and short-term investments......................... 1,284 1,857 1,811
Common and preferred stock......................................... 773 837 632
Real estate and mortgages.......................................... 570 823 3
----- ----- ------
43,258 53,170 62,113
Investment expense................................................. (132) (164) (159)
----- ----- ------
Net investment income.............................................. $43,126 53,006 61,954
===== ===== ======
At December 31, 1994 and 1993, approximately $3.5 million was on deposit
with state regulatory authorities for policyholder protection.
Cost of marketable equity securities was $800,000 in 1994 and 1993.
Operating data concerning sales of securities is as follows:
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993 1992
-------- ------- -------
(IN THOUSANDS)
Proceeds from sales of available-for-sale securities............ $214,339
Proceeds from sales of investment securities.................... 651,380 413,605
Gross realized gains from sales of available-for-sale
securities.................................................... 2,946
Gross realized losses from sales of available-for-sale
securities.................................................... 454
Gross realized gains from sales of investment securities........ 26,001 15,885
Gross realized losses from sales of investment securities....... 852 2,098
Realized losses recognized for impairment of real estate investments were
$-0-, $3,322,000 and $686,000 in 1994, 1993 and 1992, respectively. There were
no realized losses recognized for impairment of high-yield corporate bonds in
any of the last three years.
F-54
195
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
3. OTHER ASSETS
Other assets consist of the following:
DECEMBER 31,
-----------------
1994 1993
------- ------
(IN THOUSANDS)
Property and equipment, at cost:
Land and improvements..................................... $ 715 715
Building and improvements................................. 2,731 2,730
Furniture and equipment................................... 1,245 1,048
------- -------
4,691 4,493
Less accumulated depreciation............................... (1,787) (1,594)
------- -------
2,904 2,899
Deferred taxes.............................................. 1,384 980
Due from reinsurer.......................................... 1,857 1,404
Income tax recoverable...................................... 1,375 1,730
Other assets................................................ 2,178 2,103
------- -------
$ 9,698 9,116
======= =======
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 had been received through
January 1, 1995 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 or 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 $7.0 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 $133.9
million and $148.9 million as of December 31, 1994 and 1993, respectively. In
addition, the DAC was $10.8 million and $15.0 million as of December 31, 1994
and 1993, respectively.
F-55
196
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
5. LONG-TERM DEBT
DECEMBER 31,
-------------------------
1994 1993
----------- ----------
Revolving note....................................... $16,000,000
Senior term loan..................................... 5,000,000
Subordinated convertible debenture................... 10,000,000
----------- ----------
$16,000,000 15,000,000
=========== ==========
The principal required to be paid for the next five years is as follows:
1995.............................................................. $ 500,000
1996.............................................................. 2,000,000
1997.............................................................. 3,000,000
1998.............................................................. 4,000,000
1999.............................................................. 6,500,000
Interest paid on all outstanding debt was $1,406,075 in 1994, $1,494,841 in
1993 and $1,328,983 in 1992.
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 $16.0 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 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 Financial Benefit Life.
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, 1994, the Company failed to meet covenants regarding
maintaining a minimum ratio of investment grade securities to total securities,
the capital expenditure limitation, meeting minimum GAAP earnings and meeting a
specified interest coverage ratio. The Company obtained a written waiver in
March 1994 from the Bank waiving such non-compliance.
SENIOR TERM NOTE AND LOAN
On February 18, 1992, the Company executed a $5.0 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.
F-56
197
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
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 $5.0 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 $10.0 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 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.
F-57
198
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
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, 1994.................................... $30,256 43,181
(Unaudited)
December 31, 1993.................................... $31,092 44,636
Net income (loss) for period ended:
December 31, 1994.................................... $ 1,674 2,918
(Unaudited)
December 31, 1993.................................... $ 3,502 9,313
December 31, 1992.................................... $(7,574) 8,854
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 whereas 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
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.
Dividends by Financial Benefit Life to the Company are limited by laws
applicable to insurance companies. Under Florida law, Financial Benefit Life may
pay a dividend from its available and accumulated surplus funds which is derived
from realized net operating profits and net realized capital gains. Such
dividends, unless otherwise approved by the Florida Insurance Department, shall
not exceed 10% of such surplus in any one year in addition to the entire net
operating profit and realized net capital gains derived during the immediately
preceding calendar year.
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 June 15, 1992, the shareholders approved an amendment to the Articles
of Incorporation which provided for an increase in the number of authorized
Class A common shares from 15,000,000 to 25,000,000 and a new class of 5,000,000
Preferred Shares.
F-58
199
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
D. 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.
E. 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.
F. 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.
7. EMPLOYEE BENEFIT 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 1994, 1993 and 1992 was
$372,000, $479,000 and $468,000, 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 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.
F-59
200
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
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.
CLASS A SHARES CLASS B SHARES
------------------------ ------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------ ------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
Options and warrants outstanding, beginning of
year......................................... 1,570,031 1,436,335 445,130 413,130
Granted........................................ 119,000 32,000
Increased by dividends......................... 90,558 95,961
Exercised...................................... (190,798) (66,965)
Cancelled or expired........................... (13,190) (14,300)
--------- --------- ---------- ----------
Options and warrants outstanding, end of
year......................................... 1,456,601 1,570,031 445,130 445,130
========= ========= ========== ==========
Outstanding options and warrants exercisable at
end of year.................................. 896,974 1,006,563 251,463 246,463
========= ========= ========== ==========
Option and warrant prices per share:
Outstanding, end of year..................... $.59-$3.10 $.62-$3.77 $.59-$4.50 $.62-$4.50
========= ========= ========== ==========
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 1994, 1993 and 1992, the Company
incurred $354,000, $386,000 and $385,000, respectively, of expense in connection
with this plan.
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 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. Reinsurance transactions which result in taxable income when
premium is ceded to the reinsurer and create tax deductions when the
provision is recaptured.
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.
F-60
201
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
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.
The following are the components of income tax expense (benefit) for the
periods indicated:
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------ ----- ------
(IN THOUSANDS)
Current................................................ $ (836) 4,607 (2,032)
Deferred............................................... 1,361 247 5,563
----- ------
$ 525 4,854 3,531
===== ======
The following are the components of the deferred tax provision:
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------ ------ -----
(IN THOUSANDS)
Deferred acquisition cost.............................. $ (698) (8,884) (985)
Future policy benefits................................. 1,928 9,590 3,569
Reinsurance transactions............................... 2,951
Other.................................................. 131 (459) 28
----- ------
$1,361 247 5,563
===== ======
A reconciliation of income tax expense (benefit) to federal statutory tax
rates is as follows for each of the periods indicated (tax rates were 34% for
1994, 1993 and 1992):
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
----- ----- -----
(IN THOUSANDS)
Expected tax at statutory rate.......................... $ 423 4,750 4,589
Benefit of non-life net operating and capital loss
carryforward.......................................... (867)
Tax benefit of temporary differences not previously
fully tax effected.................................... (71) (427) (466)
Limitation on deductibility of capital and non-life
losses................................................ 759 105
Settlement of tax examination contingency............... (623)
State tax and other..................................... 37 426 275
---- ----- -----
$ 525 4,854 3,531
==== ===== =====
At December 31, the net deferred tax asset consisted of the following:
1994 1993
-------- -------
Deferred acquisition costs................................ $(19,990) (20,687)
Future policy benefits.................................... 20,805 22,732
Other..................................................... 1,324 (527)
-------- -------
Net deferred tax assets................................... 2,139 1,518
Less valuation allowance.................................. 755 538
-------- -------
Net....................................................... $ 1,384 980
======== =======
F-61
202
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Financial Benefit Life has no net realized capital loss carry-forwards
available to offset future capital gains for financial statement purposes.
A valuation allowance was established to the extent future reversals of
existing taxable temporary differences were not available.
Income tax paid (refunded) was ($1,683,000), $6,175,000 and ($2,300,000) in
1994, 1993 and 1992, 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, 1994 and 1993, the minimum statutory capital requirements are
the greater of $1.5 million or 4% of statutory liabilities (approximately $20.0
million and $21.4 million, respectively). Financial Benefit Life's statutory
capital, as reported in its Annual Statement to the Department as of December
31, 1994 and 1993, was $30.3 million (unaudited) and $31.1 million,
respectively. Statutory capital does not include the asset valuation reserve or
the interest maintenance reserve.
During January 1992, the Department notified Financial Benefit Life that a
reinsurance treaty then in effect ($6.0 million) would not qualify for reserve
credit and certain amounts due from the Company ($2.9 million) would not qualify
under Florida law as admitted assets. The Department allowed both transactions
to count towards statutory capital when Financial Benefit Life filed its 1991
Annual Statement, subject to review by the Department of certain actions taken
by Financial Benefit Life.
During February 1992, Financial Benefit Life fully recaptured the
reinsurance contract and the Company repaid to Financial Benefit Life the
intercompany debt. To offset the effects on surplus of these transactions, the
Company entered into a $5.0 million term note agreement (see Note 5) and
contributed $4.0 million to Financial Benefit Life as additional surplus and
realized capital gains on certain government securities of approximately $4.5
million.
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 $10.0 million convertible
subordinated debenture (see Note 5) and contribution of $7.0 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 (see Note 5). 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.
F-62
203
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
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 $123.0 million and $134.0 million in its 1994 and 1993
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 1994 and 1993, respectively, for statutory
purposes of this arrangement was (a) to recognize liability gains of
approximately $12.0 million, net of tax in 1993, and (b) to reduce policyholder
liabilities by approximately $123.0 million and $134.0 million and therefore
reduce the amount of surplus that otherwise would have been required by
approximately $5.3 million and $6.0 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, 1994 of
$38.9 million (surplus and asset valuation reserve) exceeded all the RBC levels.
The required RBC levels were as follows: Company action level RBC of $18.7
million; Regulatory action level RBC of $14.0 million; Authorized control level
RBC of $9.3 million; and Mandatory control level RBC of $6.5 million. The
Company anticipates continuing to meet RBC requirements in 1995.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
1994 1993
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
Financial assets:
Cash and short-term investments..................... $ 27,462 $ 27,462 $ 30,240 $ 30,240
Available-for-sale securities....................... 289,787 289,787
Held-to-maturity securities......................... 190,689 176,736
Fixed maturities.................................... 526,537 559,082
Equity Securities................................... 800 800 800 800
Mortgage Loans...................................... 3,903 3,903 3,903 3,903
Future policy benefits recoverable from reinsurer... 123,076 134,542
Financial liabilities:
Annuity contracts................................... 677,775 610,891 733,490 654,115
Revolving note...................................... 16,000 16,000
Senior term note.................................... 5,000 5,000
Subordinated convertible debenture.................. 10,000
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.
F-63
204
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
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. With respect to subordinated debentures in 1993, the market price of the
Company shares exceeded the conversion price. However, it was not deemed
practicable to estimate what the effect of a large block of shares traded would
be on the price of shares in the market place and therefore it was deemed
impractical to estimate fair value.
Mortgage Loans -- Since all mortgage loans were made in 1993 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.
11. INVESTMENTS OVER TEN PERCENT
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 of total stockholders' equity consisted of
the following:
NAME
- ---------------------------------AMORTIZED COST
--------------
(IN THOUSANDS)
Aetna Life & Casualty............ $ 3,497
American Life $2.32 Cum.
Preferred...................... 3,000
B.H.P. Co. Ltd. ................. 7,965
Bank of Scotland................. 2,997
Broad, Inc. ..................... 3,000
Capstead 1994 -- H2 15A3......... 3,534
Chase 1994-IA4................... 4,187
Dayton Hudson Corp. ............. 4,494
Deere (John) Capital Corp. ...... 5,870
Detroit Edison................... 4,996
Dial Corp........................ 5,000
Dillard Department Stores........ 2,992
DLJ Cumulative Exch. Pfd. ....... 3,000
DLJ Mortgage Acceptance Corp. ... 3,000
DLJ Mortgage Acceptance Corp. ... 3,954
Equitable Co.'s Inc. ............ 4,975
First Chicago Corp. ............. 3,991
FMC Corp......................... 4,478
GATC............................. 2,996
NAME
- ---------------------------------
AMORTIZED COST
--------------
(IN THOUSANDS)
General Motors Corp. ............ $ 7,000
Georgia Pacific Corp. ........... 5,000
GTE Corp. ....................... 2,991
Home Mac Mtg. Secs. 87-3d........ 3,424
Illinois Power Co. .............. 4,970
John Hancock..................... 5,952
Long Island Lighting............. 4,984
Louisiana Power & Light.......... 10,000
Mass Mutual Life................. 4,978
Morgan Stanley Group............. 4,984
Newscorp......................... 5,037
Paramount Communications......... 4,936
Province of Quebec............... 9,949
Scott Paper Notes................ 2,998
Secured Finance Inc. ............ 3,693
Spartan Holdings Inc. ........... 5,207
Texas Utilities Elec. Co. ....... 4,991
Time Warner Entertainment........ 3,962
USX Corp. ....................... 8,235
F-64
205
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
At December 31, 1993, direct investment 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:
NAME
- ---------------------------------AMORTIZED COST
--------------
(IN THOUSANDS)
Aetna Life & Casualty............ $ 3,497
American Life $2.32 Cum.
Preferred...................... 3,000
B.H.P. Co. Ltd. ................. 7,964
Broad, Inc. ..................... 3,000
Columbia Healthcare Corp. ....... 4,959
Continental Cablevision.......... 3,000
Dayton Hudson Corp. ............. 4,492
Deere (John) Capital Corp. ...... 5,827
Detroit Edison................... 8,996
Dillard Department Stores........ 2,989
DLJ Cumulative Exch. Pfd. ....... 3,000
DLJ Mortgage Acceptance Corp. ... 3,000
DLJ Mortgage Acceptance Corp. ... 4,014
Dole Food Company................ 4,975
First Chicago Corp. ............. 3,990
FMC Corp. ....................... 4,476
GATC Entertainment............... 2,995
General Motors Corp. ............ 7,000
Georgia Pacific Corp. ........... 5,000
NAME
- ---------------------------------
AMORTIZED COST
--------------
(IN THOUSANDS)
GTE Corp. ....................... $ 2,989
Hertz Corp. ..................... 4,994
Home Mac Mtd. Secs. 87-3D........ 3,973
Housing Securities............... 12,949
Illinois Power and Light......... 4,970
Louisiana Power and Light........ 10,000
Morgan Stanley Group............. 4,986
Newscorp......................... 5,037
Paramount Communications......... 4,935
Philadelphia Electric............ 3,892
RJR Nabisco Hldgs. Cap. ......... 3,810
Scott Papers Notes............... 2,997
Secured Finance Inc. ............ 3,692
Spartan Holdings Inc. ........... 5,280
Sprint Corp. .................... 5,000
Texas Utilities Elec. Co. ....... 4,991
Time Warner Entertainment........ 3,982
Union Carbide.................... 4,996
USX Corp. ....................... 2,995
F-65
206
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
12. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
CONDENSED BALANCE SHEETS -- PARENT COMPANY
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- ------ ------
(IN THOUSANDS)
ASSETS
Cash............................................................... $ 93 19 471
Investment in life insurance subsidiary............................ 43,181 44,636 35,375
Investments in other subsidiaries.................................. 542 846 2,114
Property and equipment (net)....................................... 16 25 25
Income tax recoverable and deferred taxes.......................... 2,722 1,732
Other assets....................................................... 502 482 220
------- ------ ------
Total assets....................................................... $47,056 47,740 38,205
======= ====== ======
LIABILITIES AND SHAREHOLDERS -- EQUITY
Liabilities:
Revolving note................................................... $16,000
Senior term loan................................................. 5,000 5,000
Subordinated convertible debenture............................... 10,000 10,000
Accounts payable................................................. 231 314 242
Accrued interest payable......................................... 214 284
Accounts payable to subsidiaries................................. 3,549 2,736 2,659
------- ------ ------
Total liabilities.................................................. 19,780 18,264 18,185
------- ------ ------
Shareholders' equity:
Class A Common Stock............................................. 68 60 59
Class B Common Stock............................................. 5 5 5
Additional paid-in capital....................................... 22,313 20,319 20,276
Retained earnings................................................ 9,923 11,078 1,960
Net unrealized appreciation (depreciation) on securities......... (3,378) 51
Subscriptions receivable -- ESOP................................... (159) (490) (835)
------- ------ ------
28,772 30,972 21,516
Less treasury stock, at cost....................................... (1,496) (1,496) (1,496)
------- ------ ------
Total shareholders' -- equity...................................... 27,276 29,476 20,020
------- ------ ------
Total liabilities and shareholders' -- equity...................... $47,056 47,740 38,205
======= ====== ======
F-66
207
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
CONDENSED STATEMENTS OF INCOME -- PARENT COMPANY
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ----- -----
(IN THOUSANDS)
Net interest income.................................................. $ 20 6
Dividend income from subsidiaries.................................... 1,706 1,440
Other income......................................................... 60 65
------ ----- -----
Total income....................................................... 1,726 1,500 71
------ ----- -----
General expenses..................................................... 638 462 345
Interest expense..................................................... 1,399 1,476 642
------ ----- -----
Total expenses..................................................... 2,037 1,938 987
------ ----- -----
Income (loss) from operations before income taxes and extraordinary
charge............................................................. (311) (438) (916)
Provision for income (taxes) benefit................................. 1,225 1,011 1,802
Equity in undistributed net income (loss) of subsidiaries............ 1,612 8,545 9,080
------ ----- -----
Income before extraordinary charge................................. 2,526 9,118 9,966
------ ----- -----
Extraordinary charge on extinguishment of debt, net of tax of
approximately $200,000............................................. (1,800)
------ ----- -----
Net income........................................................... $ 726 9,118 9,966
====== ===== =====
F-67
208
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
CONDENSED STATEMENTS OF CASH FLOWS -- PARENT COMPANY
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
-------- ------ -------
(IN THOUSANDS)
Operating Activities:
Net income..................................................... $ 726 9,118 9,966
Adjustment to reconcile net income to net cash provided by
operating activities:
Equity in undistributed net income of subsidiaries.......... (1,612) (8,545) (9,080)
Extraordinary charge on extinguishment of debt net of the
benefit........................................................ 1,800
Depreciation and amortization............................... 8 15 25
Change in other assets and other liabilities, net........... (304) (1,914) (4,207)
Other, net.................................................. 500 101
-------- ------ -------
Net cash provided by (used in) operating activities............ 618 (826) (3,195)
-------- ------ -------
Financing activities:
Borrowings under long-term debt................................ 16,000 5,000 15,000
Principal payments under long-term debt........................ (15,000) (5,000) (1,629)
Payment to extinguish debt..................................... (2,000)
Exercise of stock options...................................... 125 44 56
Subscriptions receivable -- ESOP............................... 331 345 321
-------- ------ -------
Net cash provided by (used in) financing activities............ (544) 389 13,748
Cash flows from investing activities:
Acquisition property........................................... (15) (10)
Investments in subsidiaries.................................... (11,000)
-------- ------ -------
Net cash provided by (used in) investing activities............ (15) (11,010)
-------- ------ -------
Net change in cash............................................... 74 (452) (457)
Cash, beginning of year.......................................... 19 471 928
-------- ------ -------
Cash, end of year................................................ $ 93 19 471
======== ====== =======
F-68
209
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM BALANCE SHEETS
DECEMBER 31,
1994
------------
SEPTEMBER 30,
1995
-------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
INVESTMENTS:
Fixed maturities available for sale at fair value................. $ 341,238 289,787
Fixed maturities held to maturity at amortized cost (market value
$183,888 at September 30, 1995, $176,883 at December 31,
1994).......................................................... 181,721 190,836
Equity securities at market, cost $1,300 at September 30, 1995 and
$800 at December 31, 1994...................................... 792 800
Mortgage loans on real estate, at amortized cost.................. 5,901 3,903
Real estate investments........................................... -- 3,230
-------- -------
Total Investments............................................ 529,652 488,556
CASH AND CASH EQUIVALENTS........................................... 10,204 27,462
ACCRUED INVESTMENT INCOME........................................... 7,479 8,152
DEFERRED POLICY ACQUISITION COSTS................................... 51,841 73,959
FUTURE POLICY BENEFITS RECOVERABLE FROM REINSURER................... 111,906 123,076
OTHER ASSETS........................................................ 8,833 9,698
-------- -------
TOTAL ASSETS...................................................... $ 719,915 730,903
======== =======
LIABILITIES
FUTURE POLICY BENEFITS AND CLAIMS ACCRUAL........................... $ 656,375 682,039
OTHER LIABILITIES AND ACCRUED EXPENSES.............................. 10,653 5,588
LONG-TERM DEBT...................................................... 15,500 16,000
------------- ------------
682,528 703,627
SHAREHOLDERS' EQUITY
Class A Common Stock, $.01 par value:
Authorized 25,000,000 shares; Issued 6,915,053 shares in 1995 and
6,898,622 shares in 1994; outstanding 6,428,428 in 1995 and
6,411,797 in 1994.............................................. 69 68
Class B Common Stock, $.01 par value:
Authorized 1,750,000 shares; Issued 412,115 shares in 1995 and
416,822 in 1994; outstanding 323,667 shares in 1995 and 328,374
in 1994........................................................ 5 5
Additional paid-in capital.......................................... 22,319 22,313
Retained earnings................................................... 13,189 9,923
Net unrealized appreciation (depreciation) on available-for-sale
securities net of deferred policy acquisition costs and taxes..... 3,301 (3,378)
Subscriptions receivable -- ESOP.................................... -- (159)
Less common stock in treasury, at cost.............................. (1,496) (1,496)
------------- ------------
Total shareholders' equity................................... 37,387 27,276
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................... $ 719,915 730,903
========== ==========
F-69
210
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1995 1994
--------- ---------
(UNAUDITED)
(IN THOUSANDS EXCEPT
SHARE DATA)
REVENUE:
Net investment income:
Fixed maturities available-for-sale............................... $20,623 20,915
Fixed maturities held-to-maturity................................. 11,677 11,842
Realized gains on investments..................................... 1,907 2,115
Commissions and marketing fees.................................... 2,344 1,109
Other Income...................................................... 4,348 2,799
40,899 38,780
BENEFITS AND EXPENSES:
Increase in future policy benefits................................... 20,900 20,463
General and administrative expenses.................................. 3,712 2,969
Payroll and related expenses......................................... 2,083 2,209
Amortization of deferred acquisition costs........................... 8,223 9,375
Interest expense..................................................... 1,165 1,060
Depreciation and amortization........................................ 151 141
36,234 36,217
INCOME BEFORE INCOME TAX EXPENSE AND EXTRAORDINARY CHARGE.............. 4,665 2,563
INCOME TAX EXPENSE..................................................... 1,400 892
INCOME BEFORE EXTRAORDINARY CHARGE..................................... 3,265 1,671
EXTRAORDINARY CHARGE ON EXTINGUISHMENT OF DEBT, NET OF TAX............. -- (1,637)
NET INCOME ............................................................ 3,265 34)
EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENT:
Primary:
Weighted Average Shares........................................... 8,581,174 8,434,454
Earnings Before Extraordinary Charge.............................. $ .38 .20
Extraordinary Charge.............................................. -- (.19)
Net Income ....................................................... $ .38 .01
Fully Diluted:
Weighted Average Shares........................................... 8,400,407
Earnings Before Extraordinary Charge.............................. NOT .20
Extraordinary Charge.............................................. (.19)
Net Income ....................................................... APPLICABLE .01
F-70
211
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF SHAREHOLDERS' EQUITY
NET UNREALIZED
APPRECIATION
CLASS CLASS (DEPRECIATION)
A B ADDITIONAL ON AVAILABLE- SUBSCRIPTIONS TOTAL
COMMON COMMON PAID-IN RETAINED FOR-SALE RECEIVABLE- COST OF SHAREHOLDERS'
STOCK STOCK CAPITAL EARNINGS SECURITIES ESOP TREASURY STOCK EQUITY
------ ------ ---------- -------- -------------- ------------- -------------- -------------
(IN THOUSANDS EXCEPT SHARE DATA)
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
appreciation on equity
securities............... (51) (51)
Payment received on ESOP
subscriptions............ 345 345
Net income................. 9,118 9,118
--- ------ ------ ------ ---- ------ -------
-
Balance, December 31,
1993..................... 60 20,319 11,078 0 (490) (1,496) 29,476
5
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 22,313 9,923 (3,378) (159) (1,496) 27,276
5
Exercise of Stock
Options.................. 1 6 7
Payment received on ESOP
subscriptions............ 159 159
Net changes in unrealized
appreciation on
available-for-sale
securities............... 6,679 6,679
Net income................. 3,266 3,266
--- ------ ------ ------ ---- ------ -------
-
Balance, September 30,
1995..................... $ 69 22,319 13,189 3,301 0 (1,496) $37,387
5
=== ====== ====== ====== ==== ====== =======
=
F-71
212
FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1994
--------- --------
(UNAUDITED)
(IN THOUSANDS)
Cash Flow from Operating Activities:
Net income........................................................... $ 3,266 34
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to policyholders................................ 20,900 20,463
Realized investment gains, net.................................... (1,908) (2,114)
Depreciation and amortization..................................... 152 141
Change in deferred policy acquisition costs....................... 3,147 2,991
Change in accrued investment income............................... 673 (643)
Change in deferred taxes, net..................................... 1,400 529
Change in other assets and liabilities, net....................... 1,539 (4,975)
--------- --------
Total adjustments................................................. 25,903 16,392
--------- --------
Net cash provided by operating activities......................... 29,169 16,426
Cash Flows from Investing Activities:
Proceeds from sales of available-for-sale securities................. 230,758 204,134
Proceeds from maturities and redemptions of available-for-sale
securities and held-to-maturity securities........................ 3,786 2,754
Purchase of available-for-sale securities............................ (247,228) (147,540)
Purchase of held-to-maturity securities.............................. (600) (8,446)
Purchase of property and equipment................................... (56) (198)
--------- --------
Net cash provided by (used in) investing activities.................. (13,340) 50,704
--------- --------
Cash Flows from Financing Activities:
Premiums received.................................................... 46,005 59,684
Surrenders and other benefits paid................................... (78,757) (128,859)
Borrowing under revolving credit agreement........................... -- 16,000
Principal payments on long-term debt................................. (500) (15,000)
Exercise of Stock Options............................................ 7 104
Collection of Subscriptions receivable -- ESOP....................... 159 272
--------- --------
Net cash used in financing activities................................ (33,086) (67,799)
--------- --------
Net decrease in cash and cash equivalents.............................. (17,257) (669)
Cash and cash equivalents at beginning of period....................... 27,462 30,240
--------- --------
Cash and cash equivalents at end of period............................. $ 10,204 29,571
========= ========
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FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company's subsidiary, Financial Benefit Life, sold its only
non-occupied remaining real estate investment, Causeway manufactured home
community of Fort Pierce, Florida, on June 30, 1995. Cash proceeds were not
received until July 5, 1995.
Selling Price (net).................................................. $3,540
Mortgage assumed..................................................... 2,000
------
Cash received........................................................ $1,540
======
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FINANCIAL BENEFIT GROUP, INC. AND SUBSIDIARIES
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.
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APPENDIX I -- MERGER AGREEMENT, AS AMENDED
216
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of September 8, 1995, by and among
Financial Benefit Group, Inc., a Delaware corporation (the "Company"), AmVestors
Financial Corporation, a Kansas corporation ("Parent"), and AmVestors
Acquisition Subsidiary, Inc., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Merger Subsidiary").
WHEREAS, the Boards of Directors of Parent, Merger Subsidiary and the
Company deem it advisable and in the best interests of their respective
stockholders that Parent acquire the Company, and such Boards of Directors have
approved the merger of the Company with and into the Merger Subsidiary upon the
terms and subject to the conditions set forth herein;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, Parent wishes for no more than 150,000 shares of Parent Stock (as
hereinafter defined) to be issuable pursuant to the exercise of FBG Options (as
hereinafter defined) after the Closing Date (as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1. The Merger. (a) Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.1(b)), the Company
shall be merged with and into the Merger Subsidiary (the "Merger") in accordance
with the Delaware General Corporation Law (the "DGCL"), whereupon the separate
existence of the Company shall cease, and the Merger Subsidiary shall be the
surviving corporation (the "Surviving Corporation").
(b) The consummation of the Merger (the "Closing") shall take place (i) at
the offices of Bryan Cave LLP, St. Louis at 10:00 A.M., on such date (the
"Closing Date") as Parent shall notify the Company in writing not less than five
days prior thereto, which date shall not be more than 10 days after the last of
the conditions set forth in Article 8 hereof shall be satisfied or waived in
accordance with this Agreement, or (ii) such other place, time and date as the
parties hereto shall agree. Prior to the Closing, Merger Subsidiary and the
Company shall execute and deliver to the Secretary of State of the State of
Delaware, a Certificate of Merger in proper form for filing under the DGCL on
the day of the Closing, and the Merger shall become effective upon the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
or at such later time as may be specified in the Certificate of Merger, such
time being herein called the "Effective Time."
(c) The Merger shall have the effects set forth in the DGCL. Without
limiting the generality of the foregoing, at the Effective Time (i) the
Surviving Corporation shall possess all assets and property of every
description, and every interest therein, wherever located, and the rights,
privileges, immunities, powers, franchises, and authority, of a public as well
as of a private nature, of each of the Company and the Merger Subsidiary and all
obligations belonging to or due each of them shall be vested in the Surviving
Corporation without further act or deed; (ii) title to any real estate or any
interest therein vested in either of the Company or the Merger Subsidiary shall
not revert or in any way be impaired by reason of the Merger; (iii) all rights
of creditors and all liens on any property of the Company and the Merger
Subsidiary shall be preserved unimpaired; and (iv) the Surviving Corporation
shall be liable for all the obligations of the Company and the Merger
Subsidiary, and any claim existing, or action or proceeding pending, by or
against either of them, may be prosecuted to judgment with the right of appeal,
as if the Merger had not taken place.
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SECTION 1.2. Conversion of Shares. (a) Prior to the Effective Time, each
issued and outstanding share of the Company's Class B common stock, par value
$.01 per share ("Company B Stock") shall be converted into 1.35 shares of the
Company's Class A common stock ("Company A Stock") (the shares of Company B
Stock and Company A Stock are hereinafter referred to collectively as "Shares"
and in the singular as a "Share"), in accordance with the provisions of the
Company's restated Certificate of Incorporation.
(b) At the Effective Time, by virtue of the Merger and without any action
on the part of the holder thereof:
(i) each Share held by the Company as treasury stock or owned by
Parent or any subsidiary of Parent immediately prior to the Effective Time
shall be canceled, retired, and shall cease to exist, and no payment shall
be made with respect thereto;
(ii) each share of common stock of Merger Subsidiary issued and
outstanding immediately prior to the Effective Time shall be converted into
and become one share of common stock of the Surviving Corporation with the
same rights, powers and privileges as the shares so converted and such
shares in the aggregate shall constitute the only outstanding shares of
capital stock of the Surviving Corporation; and
(iii) each Share outstanding immediately prior to the Effective Time
shall, except as otherwise provided in Section 1.2(b)(i), be converted into
the right to receive (X) the Cash Portion Per Share (as defined in Section
1.2(d)), plus (Y) a Parent Warrant Fraction (as defined in Section 1.2(e))
of a Parent Warrant (as defined in Section 1.2(e)) as determined pursuant
to Section 1.2(e)), plus (Z) that number of shares of common stock, no par
value, of Parent (the "Parent Stock") equal to $5.00 minus the Cash Portion
Per Share ("Stock Portion Per Share"), divided by the Parent Stock Price
(as defined below), if the Parent Stock Price is greater than or equal to
$10.50 and less than or equal to $13.25; that number of shares of Parent
Stock equal to the Stock Portion Per Share divided by $10.50, if the Parent
Stock Price is less than $10.50; and that number of shares equal to the
Stock Portion Per Share divided by $13.25 if the Parent Stock Price is
greater than $13.25, in any such case carried to the fourth decimal place
(such amount of stock as so determined being herein referred to as the
"Stock Per Share Amount"). If the Parent Stock Price is greater than $14.50
or less than $9.50 this Agreement may be terminated in accordance with the
provisions of Section 9.1(h) hereto.
(c) The average of the closing prices of the Parent Stock for the twenty
trading day period ending the third trading day prior to the Closing ("Pricing
Date") shall be defined as the "Parent Stock Price". The closing price for each
day shall be the last sale price, regular way, as reported in the principal
consolidated transaction reporting system for securities listed on New York
Stock Exchange.
(d) The "Cash Portion Per Share" shall be equal to the amount obtained by
dividing (i) $10 million (or such greater amount not exceeding $15 million that
Parent may determine in its sole discretion) minus any amounts payable to
holders of FBG Options (as defined in Section 3.7(b)) pursuant to Sections
1.5(c), 1.5(d) and 1.5(e), by (ii) the number of Shares outstanding immediately
prior to the Effective Time.
(e) A "Parent Warrant" shall be the right to purchase one share of Parent
Stock. The "Parent Warrant Fraction" shall be that fraction of a Parent Warrant
equal in value to $.31 as determined by the Black-Scholes model in the Equity
Option Calculator licensed by Bloomberg L.P. with the following assumptions used
for such model: (i) a Parent Warrant shall be exercisable for a period of six
years following the Pricing Date; (ii) the exercise price shall be equal to 135%
of the Parent Stock Price; (iii) the option type will be American; (iv) the
options will be "dilutive"; (v) the volatility rate shall be the rate prescribed
by the Bloomberg model as of the Pricing Date; (vi) the semi-annual risk-free
interest rate as prescribed by the Bloomberg model as of the Pricing Date shall
be used; (vii) a cash dividend of $.075 per share of Parent Stock on April 13 of
each year; and (viii) the number of shares of Parent Stock outstanding following
the Merger. Parent Warrants shall be represented by warrant certificates with
the terms attached as Schedule IV hereto and issued pursuant to a warrant
agreement, the language of which will be negotiated by the parties prior to the
mailing of the proxy statements as described herein ("Warrant Agreement").
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(f) The Cash Portion Per Share, and the fraction of Parent Warrant and the
Parent Stock into which a Share is converted pursuant to the Merger, are
referred to herein as the "Merger Consideration".
SECTION 1.3. Surrender and Payment. (a) Prior to the Effective Time, Parent
shall appoint an agent (the "Exchange Agent") for the purpose of exchanging
certificates representing Shares for the Merger Consideration. At and after the
Effective Time as required, Parent will deposit with the Exchange Agent the
Merger Consideration to be paid in respect of the Shares. Promptly after the
Effective Time, Parent will send, or will cause the Exchange Agent to send, to
each holder of Shares at the Effective Time a letter of transmittal for use in
such exchange (which, among other things, shall specify that the delivery shall
be effected, and risk of loss and title shall pass, only upon proper delivery of
the certificates representing Shares to the Exchange Agent).
(b) Each holder of Shares, upon surrender to the Exchange Agent of a
certificate or certificates representing such Shares together with a properly
completed letter of transmittal covering such Shares, will receive the Merger
Consideration payable in respect of such Shares. Until so surrendered, each such
certificate shall, after the Effective Time, represent for all purposes only the
right to receive such Merger Consideration. The shares of Parent Stock
constituting the Merger Consideration shall be deemed to have been issued at the
Effective Time.
(c) If any portion of the Merger Consideration is to be paid to a Person
other than the registered holder of the Shares represented by the certificate or
certificates surrendered in exchange therefor, it shall be a condition to such
payment that the certificate or certificates so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and the Person requesting
such payment shall pay to the Exchange Agent any transfer or other taxes
required as a result of such payment to a Person other than the registered
holder of such Shares or establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not applicable. For purposes of this
Agreement, "Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
(d) After the Effective Time, there shall be no further registration of
transfers of Shares by the Company. If, after the Effective Time, certificates
representing Shares are presented to the Surviving Corporation, they shall be
canceled and exchanged for the Merger Consideration provided for, and in
accordance with the procedures set forth, in this Article 1.
(e) Any portion of the Merger Consideration made available to the Exchange
Agent pursuant to Section 1.3(a) and not exchanged for Shares shall be returned
by the Exchange Agent to Parent at such time and from time to time as Parent may
request, provided that such return shall not relieve Parent of its obligation to
make cash and Parent Stock available to the Exchange Agent as required by
Section 1.3(a). At such time as Parent may determine, provided that such time
shall not be earlier than six (6) months following the Effective Time, Parent
may discharge the Exchange Agent, in which event Parent shall thereafter act as
Exchange Agent.
(f) No holder of any unsurrendered certificates representing Shares shall
have the right to vote the Parent Stock receivable in exchange for such
certificates until such certificates are surrendered as provided in this Section
1.3. Following such surrender, such holder shall have the right to vote the
Parent Stock for any meeting the record date of which is after the date of such
surrender. No dividends or other distributions with respect to the Parent Stock
constituting part of the Merger Consideration shall be paid to the holder of any
unsurrendered certificates representing Shares until such certificates are
surrendered as provided in this Section 1.3. Upon such surrender, there shall be
paid, without interest, to the person in whose name the certificates
representing the Parent Stock into which such Shares were converted are
registered, all dividends and other distributions payable in respect of such
Parent Stock on a date subsequent to, and in respect of a record date after, the
Effective Time and prior to such surrender. Such holder shall be also entitled
to receive, on the payment date therefor, any dividend or distribution the
record date for which occurred prior to such surrender and the payment date for
which occurred following such surrender. In no event shall any holder be
entitled to receive interest on the Cash Portion Per Share to be received in the
Merger. Notwithstanding anything in this Agreement to the contrary, none of
Parent, Merger Subsidiary or the Exchange Agent nor any
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other party hereto shall be liable to a holder of Shares, for Parent Stock,
dividends or distributions thereon, the Cash Portion Per Share, or cash in lieu
of fractional shares, delivered to a public official pursuant to applicable
escheat laws.
SECTION 1.4. [INTENTIONALLY LEFT BLANK]
SECTION 1.5. Stock Options. (a) Upon the conversion of the Company B Stock
into Company A Stock as provided in Section 1.2(a) and Section 3.7(a), each FBG
Option to purchase one share of Company B Stock shall be converted into an
option to purchase 1.35 shares of Company A Stock.
(b) At the Effective Time, the holder of an FBG Option that has been
properly exercised prior to the Effective Time in accordance with its terms
shall be entitled to receive the Merger Consideration in accordance with Section
1.2(b)(iii), for each share of Company A Stock acquired or to be acquired by
virtue of the exercise of such FBG Option.
(c) At the Effective Time, each FBG Option outstanding pursuant to
Financial Benefit Group, Inc.s Non-Qualified Option Plan, whether or not
exercisable, and whether or not vested, shall terminate and the Surviving
Corporation shall pay to each holder of such an FBG Option cash in an amount
equal to the product of: (x) the excess of the Merger Consideration (with the
Parent Stock portion of the Merger Consideration valued at the Parent Stock
Price and the Parent Warrant portion of the Merger Consideration valued at $.31)
over the exercise price per Share of such Option, and (y) the number of Shares
subject to such option.
(d) At the Effective Time, if the holder of an FBG Option outstanding
pursuant to Financial Benefit Group, Inc.'s Equity Incentive Non-Qualified
Warrant/Option Program, whether or not exercisable, and whether or not vested,
has elected (on or prior to ten days preceding the Effective Time) to receive
cash for such Option, such Option shall terminate and the Surviving Corporation
shall pay to each holder of such an FBG Option cash in an amount equal to the
product of (x) the excess of the Merger Consideration (with the Parent Stock
portion of the Merger Consideration valued at the Parent Stock Price and the
Parent Warrant portion of the Merger Consideration valued at $.31) over the
exercise price per Share of such Option, and (y) the number of Shares subject to
such option.
(e) The holder of an FBG Option outstanding pursuant to Financial Benefit
Group, Inc.'s Employee Incentive Stock Option Plan, whether or not exercisable,
and whether or not vested, will be given the opportunity to request the Company
(on or prior to ten days preceding the Effective Time) to allow such holder to
receive cash from the Surviving Corporation for such Option in an amount equal
to the product of (x) the excess of the Merger Consideration (with the Parent
Stock portion of the Merger Consideration valued at the Parent Stock Price and
the Parent Warrant portion of the Merger Consideration valued at $.31) over the
exercise price per Share of such Option, and (y) the number of Shares subject to
such option. If the Company consents to any such request, such Option shall
terminate at the Effective Time and such holder shall receive such amount.
(f) At the Effective Time, if the holder of an FBG Option outstanding
pursuant to Financial Benefit Group, Inc.'s Employee Incentive Stock Option
Plan, whether or not exercisable, and whether or not vested, has not elected (on
or prior to ten days preceding the Effective Time) to receive cash for such FBG
Option, such FBG Option shall in accordance with the provisions of such plan
become an option to acquire shares of Parent Stock (an "ISO Continuing Option").
The number of shares of Parent Stock subject to ISO Continuing Options shall be
computed in compliance with the requirements of Section 424(a) of the Code.
Subject to the foregoing, (x) the number of shares of Parent Stock subject to
any such ISO Continuing Option will be determined by multiplying the number of
Shares subject to such FBG Option immediately prior to the Effective Time by the
"Exchange Ratio" (with the "Exchange Ratio" defined as the sum of (i) the number
of shares of Parent Stock receivable for each Share pursuant to Section
1.2(b)(iii), plus (ii) a number of shares equal to the Cash Portion Per Share
divided by the Parent Stock Price, plus (iii) a number of shares equal to $.31
divided by the Parent Stock Price), and (y) the exercise price under any such
ISO Continuing Option will be determined by dividing the exercise price per
Share in effect immediately prior to the Effective Time of the Merger by the
Exchange Ratio, and rounding the exercise price thus determined to the nearest
whole cent (a half cent shall be rounded to the next higher whole cent). Such
ISO Continuing
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Options shall be subject to substantially all of the other terms and conditions
of the original options to which they relate. Each holder of ISO Continuing
Options shall surrender their current option agreements and execute new option
agreements with Parent with respect to such Continuing Options and shall be
required to execute an appropriate release.
(g) At the Effective Time, if the holder of an FBG Option outstanding
pursuant to Financial Benefit Group, Inc.'s Equity Incentive Non-Qualified
Warrant/Option Program, whether or not exercisable, and whether or not vested,
has not elected (on or prior to ten days preceding the Effective Time) to
receive cash for such Option, such Option shall, in accordance with the
provisions of such plan, become an option to acquire shares of Parent Stock (an
"NQO Continuing Option"). The number of shares of Parent Stock subject to any
such NQO Continuing Option will be determined by multiplying the number of
Shares subject to such FBG Option immediately prior to the Effective Time of the
Merger by the Exchange Ratio. The exercise prices under any such NQO Continuing
Option will be determined by dividing the exercise price per Share in effect
immediately prior to the Effective Time of the Merger by the Exchange Ratio, and
rounding the exercise price thus determined to the nearest whole cent (a half
cent shall be rounded to the next higher whole cent). Such NQO Continuing
Options shall be subject to substantially all of the other terms and conditions
of the original options to which they relate. Each holder of NQO Continuing
Options shall surrender their current option agreements and execute new option
agreements with Parent with respect to such Continuing Options and shall be
required to execute an appropriate release.
(h) To make the elections for cash described in Section 1.5(d), any such
holder must deposit with the Exchange Agent a properly completed letter of
election (including an appropriate release) and the Option Agreements relating
to any such FBG Options for which such election is made. Such election shall be
irrevocable. Following the Effective Time, each holder shall be sent the amount
receivable upon such election. No interest shall be paid on such amount. If the
Merger is not consummated, the Option Agreements shall be returned to each such
holder. To make the request for cash described in Section 1.5(e), any such
holder must deposit with the Company a properly completed letter of request
(including an appropriate release) and the Option Agreements relating to any
such FBG Options for which such offer is accepted. Such request shall be
irrevocable. If the Company consents, following the Effective Time, each holder
shall be sent the amount receivable. No interest shall be paid on such amount.
If the Merger is not consummated, the Option Agreements shall be returned to
each such holder.
SECTION 1.6. Adjustments. If at any time during the period between the date
of this Agreement and the Effective Time, any change in the outstanding shares
of capital stock of Parent shall occur by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any stock dividend thereon, the number of shares of Parent Stock
constituting all or part of the Merger Consideration shall be appropriately
adjusted.
SECTION 1.7. Fractional Shares and Warrants. No fractional shares of Parent
Stock shall be issued in the Merger. All fractional shares of Parent Stock that
a holder of Shares would otherwise be entitled to receive as a result of the
Merger shall be aggregated and if a fractional share results from such
aggregation, such holder shall be entitled to receive from Parent, in lieu
thereof, upon surrender of stock certificates for exchange pursuant to this
Article 1, an amount in cash determined by multiplying the Parent Stock Price by
the fraction of a share of Parent Stock to which such holder would otherwise
have been entitled. No interest shall be paid with respect to such cash payment.
No fractions of a Parent Warrant shall be issued in the Merger. All fractions of
a Parent Warrant that a holder of Shares would otherwise be entitled to receive
as a result of the Merger shall be aggregated and if a fractional Parent Warrant
results from such aggregation, such holder shall be entitled to receive from
Parent, in lieu thereof, upon surrender of stock certificates for exchange
pursuant to this Article 1, an amount in cash determined by multiplying such
fraction by an amount equal to $.31 divided by the Parent Warrant Fraction. No
interest shall be paid with respect to such cash payment.
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ARTICLE 2
THE SURVIVING CORPORATION
SECTION 2.1. Certificate of Incorporation. The certificate of incorporation
of Merger Subsidiary in effect at the Effective Time shall be the certificate of
incorporation of the Surviving Corporation until amended in accordance with
applicable law.
SECTION 2.2. Bylaws. The bylaws of Merger Subsidiary in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with the applicable law.
SECTION 2.3. Directors and Officers. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, (a) the directors of Merger Subsidiary at the Effective Time
shall be the directors of the Surviving Corporation, and (b) the officers of the
Merger Subsidiary at the Effective Time shall be the officers of the Surviving
Corporation.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to Parent that, except as otherwise
disclosed on a disclosure schedule delivered on or prior to the date hereof to
Parent by the Company (the "Company Disclosure Schedule"):
SECTION 3.1. Corporate Existence and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted other than any such licenses, authorizations, permits, registrations,
consents and approvals the failure of which to have would not, individually or
in the aggregate, have a Company Material Adverse Effect (as defined below). The
Company is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary,
except for those jurisdictions where the failure to be so qualified would not,
individually or in the aggregate, have a Company Material Adverse Effect. The
Company has heretofore delivered to Parent true and complete copies of the
Company's certificate of incorporation and bylaws as currently in effect. For
purposes of this Agreement, a "Company Material Adverse Effect" means, a
material adverse effect on the assets, liabilities, business, operations,
condition (financial or otherwise), or results of operations of the Company and
any of its subsidiaries identified pursuant to Section 3.2 (the "Company
Subsidiaries") taken as a whole, or on the ability of the Company to perform its
obligations hereunder. For purposes of this Agreement, any reference to any
event, change or effect being "material" with respect to any Person means an
event, change or effect, whether existing or prospective, which is material in
relation to the assets, liabilities, business, operations, condition (financial
or otherwise), or results of operations of such Person and its Subsidiaries
taken as a whole or on the ability of such Person to perform its obligations
hereunder.
SECTION 3.2. Subsidiaries. The Company Disclosure Schedule contains a true
and complete list of all of the Company Subsidiaries. Said list sets forth the
authorized capital stock, the number of shares duly issued and outstanding, the
number so owned by the Company and the jurisdiction of incorporation of each
corporation. The shares of capital stock of the Company Subsidiaries owned
directly or indirectly by Company are validly issued, fully paid and
non-assessable (subject to statutory obligations of holders, if any), and are
owned free and clear of any liens, claims, charges or encumbrances except as set
forth on such list. The Company (i) does not have any direct or indirect
subsidiaries other than the Company Subsidiaries, and (ii) other than in the
ordinary course of business of the Company, has not made any advances to or
investments in, and does not own any securities of or other interests in, any
Person. Each of the Company Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power to own or lease its properties and carry
on its business
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as now being conducted, and is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities makes
such qualification necessary, except where the failure so to qualify would not
have a Company Material Adverse Effect.
SECTION 3.3. Corporate Records. The corporate record books, transfer books
and stock ledgers of the Company and the Company Subsidiaries are complete and
accurate in all material respects.
SECTION 3.4. Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby are within the Company's corporate
powers subject to the conditions set forth in this Agreement and, except for the
approval by the Company's stockholders of this Agreement, the Merger, and the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action. Subject to the approval of the Company's stockholders of this
Agreement, this Agreement constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting generally the enforcement of creditors rights and by
the availability of equitable remedies. The Board of Directors has unanimously
voted to recommend the approval of this Agreement, the Merger and the
transactions contemplated hereby, by the Company's shareholders.
SECTION 3.5. Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation of the Merger
by the Company require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than (a) the filing of a
certificate of merger in accordance with the DGCL; (b) compliance with any
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"); (c) compliance with any applicable
requirements of the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder (the "Exchange Act"), including, without
limitation, the filing by the Company with the Securities and Exchange
Commission (the "SEC") of the Company Proxy Statement (as hereinafter defined);
(d) compliance with any applicable requirements under the insurance laws of
Florida, Kansas and any other applicable state; (e) compliance with the
applicable requirements of the 1933 Act; (f) compliance with any applicable
foreign or state securities or Blue Sky laws; (g) compliance with state
takeover, antitrust and competition law filings and approvals; and (h) such
actions by or filings with governmental bodies, agencies, officials or
authorities, the failure of which to obtain or make would not reasonably be
expected to: (1) have, individually or in the aggregate, a Company Material
Adverse Effect; (2) impair the ability of the Company to perform its obligations
under this Agreement; or (3) prevent the consummation of the transactions
contemplated by this Agreement.
SECTION 3.6. Non-Contravention. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not (a) contravene or conflict
with the certificate of incorporation or bylaws of the Company or any of the
Company Subsidiaries, or (b) except for any such matters that, individually or
in the aggregate, have not had, and would not reasonably be expected to have, a
Company Material Adverse Effect, (i) assuming compliance with the matters
referred to in Section 3.5, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to the Company, any Company Subsidiary or
any of their respective properties or assets, (ii) result in a violation or
breach of, or constitute a default under, or give rise to a right of
termination, cancellation or acceleration of any right or obligation of the
Company or any Company Subsidiary or to a loss of any benefit to which the
Company or any Company Subsidiary is entitled under any provision of any
agreement, contract or other instrument binding upon the Company or to which the
Company or such Company Subsidiary is a party or by which it is affected or any
license, franchise, permit or other similar authorization held by the Company or
such Company Subsidiary or to which the Company or such Company Subsidiary is a
party or by which it is affected or (iii) result in the creation or imposition
of any Lien on any asset of the Company or any Company Subsidiary. For purposes
of this Agreement, "Lien" means, with respect to an asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset.
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SECTION 3.7. Capitalization. (a) The authorized capital stock of the
Company consists of 25,000,000 shares of Company A Stock and 1,750,000 shares of
Company B Stock and 5,000,000 shares of preferred stock. As of the date hereof,
there are outstanding 6,428,428 shares of Company A Stock and 323,667 shares of
Company B Stock and no shares of preferred stock. All shares of Company B Stock
outstanding prior to Closing will be converted into Company A Stock prior to
Closing. As of the Closing, there will be no shares of Company A Stock or
Company B Stock outstanding other than those outstanding as of the date hereof,
those issued pursuant to the exercise of FBG Options (as defined herein) or
Warrants (as defined herein) outstanding as of the date hereof, or those issued
pursuant to the conversion into Company A Stock of the Company B Stock
outstanding as of the date hereof or Company B Stock issued upon exercise of
options for Company B Stock outstanding on the date hereof.
(b) As of the date hereof, there are outstanding options and warrants
(other than Warrants as defined in Section 3.7(h)) (collectively, "FBG Options")
to purchase an aggregate of 1,453,975 Shares of Company A Stock and to purchase
an aggregate of 445,130 shares of Company B Stock. All of such FBG Options were
issued pursuant to either Financial Benefit Group, Inc.'s Non-Qualified Option
Plan, Financial Benefit Group, Inc.'s Equity Incentive Non-Qualified
Warrant/Option Program, or Financial Benefit Group, Inc.'s Employee Incentive
Stock Option Plan. Included in the Company Disclosure Schedule are true correct
and complete copies of such plans and standard agreements thereunder. Upon the
conversion of the Company B Stock into Company A Stock as provided in Section
1.2(a) and Section 3.7(a), each option to purchase one share of Company B Stock
pursuant to its terms shall be automatically converted into an option to
purchase 1.35 shares of Company A Stock. Prior to such conversion, as of Closing
there will be FBG Options to purchase a number of Shares of Company A Stock and
Company B Stock equal to the amounts indicated in the first sentence of this
Section 3.7(b), less Shares of Company A Stock and Company B Stock issued
pursuant to FBG Options exercised following the date hereof and prior thereto.
As of the date hereof, FBG Options to purchase 1,179,977 shares of Company A
Stock are exercisable with the remaining FBG Options to purchase Company A Stock
not exercisable, and FBG Options to purchase 329,796 shares of Company B Stock
are exercisable with the remaining FBG Options to purchase Company B Stock not
exercisable.
(c) The number of Shares (consisting entirely of Company A Stock)
purchasable upon exercise of outstanding FBG Options issued pursuant to
Financial Benefit Group, Inc.'s Non-Qualified Option Plan (whether currently
exercisable) is equal to 12,500. All of such FBG Options are non-qualified stock
options. The terms of such Plan and the FBG Options issued thereunder require
that (i) such FBG Options must be cashed out in connection with the Merger
whether such FBG Options are exercisable or not, and (ii) the Company must pay
cash to holders of such FBG Options as specified in Section 1.5(c). If the
Merger is consummated, the amount of cash required to be paid by the terms of
such Plan and the FBG Options issued thereunder is equal to the Merger
Consideration (with the Parent Stock portion of the Merger Consideration valued
at the Parent Stock Price and the Parent Warrant portion of the Merger
Consideration valued at $.31) less the exercise prices thereof, multiplied by
the number of shares of Company A Stock covered by any such Option. The payment
of such amount following the Effective Time does not violate the terms of such
FBG Options. No payment of such amount is required if the Merger is not
consummated. There are no such Options for which the Merger Consideration (with
the Parent Stock portion of the Merger Consideration valued at the Parent Stock
Price and the Parent Warrant portion of the Merger Consideration valued at $.31)
is less than or equal to the exercise price. None of such FBG Options, whether
or not exercisable, would terminate pursuant to their terms, or may be canceled,
without requiring the payment of cash described in Section 1.5(c), following or
in connection with the Merger. All of such FBG Options were issued in
transactions exempt from registration under the Securities Act and all
applicable state securities laws. The Company Disclosure Schedule lists all
holders of Shares issued upon exercise of such FBG Options, which such
transactions were exempt from registration under the Securities Act and all
applicable state securities laws. The certificates for the Shares issued upon
such exercise contain appropriate legends.
(d) The number of Shares purchasable upon exercise of outstanding FBG
Options issued pursuant to Financial Benefit Group, Inc.'s Equity Incentive
Non-Qualified Warrant/Option Program (whether or not currently exercisable) is
equal to 1,060,838 (consisting of FBG Options for 858,338 shares of Company A
Stock and for 150,000 shares of Company B Stock). All of such FBG Options are
non-qualified stock options
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or warrants, as the case may be. The terms of such Program and the FBG Options
issued thereunder require the Company to pay cash upon the election described in
1.5(d) hereof, but do not require the holders thereof to accept any such cash
payment. If the Merger is consummated, the amount of cash required to be paid
upon such election by the terms of such Program and the FBG Options issued
thereunder is equal to the Merger Consideration (with the Parent Stock portion
of the Merger Consideration valued at the Parent Stock Price and the Parent
Warrant portion of the Merger Consideration valued at $.31) less the exercise
prices thereof, multiplied by the number of shares of Company A Stock covered by
any such Option. The payment of such amount following the Effective Time does
not violate the terms of such FBG Options. No payment of such amount is required
if the Merger is not consummated. The terms of such Plan and the FBG Options
issued thereunder provide that following the Effective Time, such FBG Options
for which the holders do not elect to receive cash, shall be exercisable for the
number of shares of Parent Stock, and the exercise prices, as determined
pursuant to Section 1.5(g), whether such FBG Options are exercisable or not,
without any consent of any holder thereof. Any such FBG Options which currently
are not exercisable shall become exercisable as provided in such Options; none
of the signing of this Agreement, the approval of this Agreement by the Board of
Directors of the Company, the Merger, the other transactions contemplated by
this Agreement or any action taken in connection with the foregoing, will
accelerate or lengthen the term of any of such FBG Options. None of such FBG
Options, whether or not exercisable, would terminate pursuant to their terms, or
may be canceled, without the payment of cash pursuant to Section 1.5(d) or the
continuation of such Option as specified in Section 1.5(g), following or in
connection with the Merger. All of such FBG Options were issued in transactions
exempt from registration under the Securities Act and all applicable state
securities laws. The Company Disclosure Schedule lists all holders of Shares
issued upon exercise of such FBG Options, which such transactions were exempt
from registration under the Securities Act and all applicable state securities
laws. The certificates for the Shares issued upon such exercise contain
appropriate legends.
(e) The number of Shares purchasable upon exercise of outstanding FBG
Options issued pursuant to Financial Benefit Group, Inc.'s Employee Incentive
Stock Option Plan, (whether or not currently exercisable) is equal to 981,563
(consisting of FBG Options for 583,137 shares of Company A Stock and for 295,130
shares of Company B Stock). All of such FBG Options were incentive stock options
within the meaning of Section 422 of the Internal Revenue Code when granted and
nothing has occurred since the date of granting such options to disqualify them
as incentive stock options. The terms of such Plan and the FBG options issued
thereunder do not require the Company to pay cash upon the election described in
1.5(e) hereof. The payment of such amount following the Effective Time does not
violate the terms of such FBG Options. The terms of such Plan and the FBG
Options issued thereunder provide that following the Effective Time, such FBG
Options for which the holders do not elect to receive cash, shall be exercisable
for the number of shares of Parent Stock, and the exercise prices, as determined
pursuant to Section 1.5(f), whether such FBG Options are exercisable or not,
without any consent of any holder thereof. Any such FBG Options which currently
are not exercisable shall become exercisable as provided in such Options; none
of the signing of this Agreement, the approval of this Agreement by the Board of
Directors of the Company, the Merger, the other transactions contemplated by
this Agreement or any action taken in connection with the foregoing, will
accelerate or lengthen the term of any of such FBG Options. None of such FBG
Options, whether or not exercisable, would terminate pursuant to their terms, or
may be canceled, without the payment of cash pursuant to Section 1.5(e) or the
continuation of such Option as specified in Section 1.5(f), following or in
connection with the Merger. The terms of such FBG Options require that they
remain incentive stock options; none of such FBG Options, whether or not
exercisable, could become non-qualified stock options. The numbers of shares,
and exercise prices set forth expressly in Section 1.5(f), without reference to
second sentence thereof, shall not have to be adjusted as a result of Section
424(a) of the Code.
(f) Set forth in Section 3.7(f) of the Company Disclosure Schedule is a
true and complete list of all FBG Options, the Company Stock for which they are
exercisable, whether such FBG Options are incentive stock options or
non-qualified stock options or warrants, the issue date thereof, the company
plan under which such FBG Options were issued, the exercise prices thereof
(indicating whether such exercise prices relate to Company A Stock or Company B
Stock) and the dates on which such FBG Options become exercisable. The
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aggregate difference between $5.31 and the exercise prices of all FBG Options
(assuming the conversion of Company B FBG Options into Company A FBG Options) is
equal to $8,929,359.
(g) Set forth in Section 3.7(g) of the Company Disclosure Schedule is a
true and complete list of all FBG Options held by the officers of the Company
named therein, the Company Stock for which they are exercisable, whether such
FBG Options are incentive stock options or non-qualified stock options, the
issue date thereof, the company plan under which such FBG Options were issued,
the exercise prices thereof, and the dates on which such FBG Options become
exercisable. Such FBG Options shall be exercised prior to Closing or cash shall
be elected or requested pursuant to Sections 1.5(d) or (e) with respect to such
FBG Options.
(h) As of the date hereof, there are outstanding warrants to purchase
643,781 Shares of Company A Stock and no Shares of Company B Stock, other than
warrants included in the definition of FBG Options ("Warrants"). True and
correct copies of such Warrants are included in the Company Disclosure Schedule.
All of such Warrants are currently exercisable. Pursuant to their terms, upon
exercise and payment of the exercise price thereof following the Closing, the
holder of the Warrants will be entitled to receive the cash and Parent Stock
they would have been entitled to receive had they exercised such Warrants
immediately prior to Closing (and to the extent such Warrants are for Company B
Stock, had they exercised such Warrants, and converted the Company B Stock
received into Company A Stock, immediately prior to Closing). None of such
Warrants, whether or not exercisable, would terminate pursuant to their terms,
or are cancelable, following or in connection with the Merger. None of such
Warrants could be exchanged for cash or paid out in cash without the consent of
the holders thereof. The aggregate difference between $5.31 and the exercise
price of the Warrants is equal to $2,768,477.
(i) Following the cash payment for FBG Options as described in Sections
1.5(c), and following the cash payments for those holders who elect or request
to receive cash as described in Sections 1.5(d) or 1.5(e), the number of shares
of Parent Stock subject to options issuable in exchange for FBG Options under
Sections 1.5(f) or 1.5(g) will be no more than 150,000.
(j) All outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable and free of
pre-emptive rights. Except as set forth in this Section, there are outstanding
(i) no other shares of capital stock or other voting securities of the Company,
(ii) no securities of the Company convertible into or exchangeable for shares of
capital stock or voting securities of the Company, and (iii) no other options or
other rights to acquire from the Company, and no obligation of the Company to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company (the items in
clauses (i), (ii) and (iii) being referred to collectively as the "Company
Securities"). There are no outstanding obligations of the Company to repurchase,
redeem or otherwise acquire any Company Securities.
SECTION 3.8. SEC Filings. (a) The Company has filed all reports required to
be filed with the SEC pursuant to the Exchange Act since December 31, 1991 (the
"Company SEC Reports"). The Company has delivered or made available to Parent
(i) the annual report on Form 10-K for its fiscal year ended 1994, (ii) its
quarterly reports on Form 10-Q for its fiscal quarters ended March 31, 1995 and
June 30, 1995 (iii) its proxy statement dated June 7, 1995, and (iv) all of its
other reports, statements, schedules and registration statements filed with the
SEC since June 30, 1995 (collectively, with the Company SEC Reports, the
"Company Filings").
(b) As of its filing date, no Company Filing contained any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.
(c) No such registration statement as amended or supplemented, if
applicable, filed pursuant to the 1933 Act when such statement or amendment
became effective contained any untrue statement of a material fact or omitted to
state any 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.
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SECTION 3.9. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the Company Filings fairly present, in conformity with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated in the notes thereto), the financial position of the Company
and the Company Subsidiaries as of the dates thereof and their results of
operations and cash flow for the periods then ended (subject to normal year-end
adjustments in the case of any unaudited interim financial statements). For
purposes of this Agreement, "Company Balance Sheet" means the Company's balance
sheet dated as of June 30, 1995, as set forth in the Company's Form 10-Q report
for the second quarter of 1995 and "Company Balance Sheet Date" means June 30,
1995.
(b) Except as and to the extent set forth on the Company Balance Sheet, the
Company and the Company Subsidiaries do not have any liability or obligation of
any nature (whether accrued, absolute, contingent or otherwise), except for
liabilities and obligations incurred since the Company Balance Sheet Date which
would not, individually or in the aggregate, have a Company Material Adverse
Effect.
SECTION 3.10. Statutory Financial Statements and Filings. (a) The statutory
financial statements ("SAP Statements") of Financial Benefit Life Insurance
Company (the "Company Insurance Subsidiary") for each of the three years in the
three-year period ended December 31, 1994, and for the quarter ended June 30,
1995, have been prepared in accordance with statutory accounting practices
prescribed or permitted by the National Association of Insurance Commissioners
("SAP") and such accounting practices have been applied on a consistent basis
throughout the period involved, except as disclosed therein. The Company has
heretofore delivered to Parent true and complete copies of all such statements.
Such SAP Statements (i) present fairly in all material respects, to the extent
required and in conformity with SAP, the financial condition of the Company
Insurance Subsidiary at their respective dates, and its results of operations,
changes in capital and surplus, and cash flows for each of the periods then
ended; (ii) were correct in all material respects when filed; and (iii) were
timely filed. The Company has not received written notice from the Florida
Commissioner of Insurance asserting any deficiency with respect to such SAP
Statements nor, to the best knowledge of the Company, has the Florida
Commissioner of Insurance threatened to assert any such deficiency.
(b) Since June 30, 1995, the Company Insurance Subsidiary has filed all
reports and other filings, together with any amendments required to be made with
respect thereto, that it has been required to file with state insurance
regulatory authorities (the "Company Insurance Filings"), and all of the Company
Insurance Filings filed prior to the date hereof complied, and all such filings
made hereafter prior to the Effective Time will comply, in all material respects
with applicable insurance laws, rules and regulations, and, except as disclosed
in the Company Disclosure Schedule, there are no material open or unresolved
issues raised by any insurance or securities regulatory authority with respect
to any of such filings.
(c) The Company has no reason to believe that any material amount
recoverable pursuant to any material reinsurance, coinsurance, excess insurance,
ceding of insurance, assumption of insurance or indemnification with respect to
insurance or similar material arrangements applicable to the Company Insurance
Subsidiary or its properties or assets (collectively, "Reinsurance Agreements")
is not fully collectible in due course. The Company Insurance Subsidiary is
entitled to take full credit in its SAP Statements pursuant to applicable
insurance laws, rules and regulations for such reinsurance, coinsurance or
excess insurance ceded pursuant to any such Reinsurance Agreement. The Company
Disclosure Schedule sets forth all assumption reinsurance contracts or
arrangements entered into by the Company or any of the Company Subsidiaries in
which the Company or such subsidiary has ceded risk to any person.
(d) Each material reserve and other material liability of the Company
Insurance Subsidiary reflected in, or included with, the SAP Statements was
determined in accordance with generally accepted actuarial standards
consistently applied throughout the specified period and the immediately
preceding prior period, was based on actuarial assumptions that were in
accordance with or more conservative than those called for in relevant policy
and contract provisions, is fairly stated in accordance with sound actuarial
principles and is in compliance with the requirements of applicable insurance
laws, rules and regulations. Except as may be affected by deviations from
investment assumptions, such reserves and liabilities were adequate in the
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aggregate to cover the total amount of all reasonably anticipated liabilities of
the Company Insurance Subsidiary under all outstanding insurance policies,
funding agreements, Reinsurance Agreements and annuity, coinsurance and other
similar arrangements as of the respective dates of such SAP Statements. Such
investment assumptions were reasonable as of such respective dates. The admitted
assets of the Company Insurance Subsidiary as determined under applicable
insurance laws, rules and regulations is in an amount equal to the sum of all
such reserves and liabilities and the statutory capital and surplus yielding an
authorized control level risk based capital ratio of 484%, meeting such laws,
rules and regulations.
SECTION 3.11. Actuarial Report. The Company has delivered to Parent a true
and complete copy of any actuarial reports prepared by independent actuaries
with respect to the Company or the Company Subsidiaries in the last 12 months,
and all attachments, addenda, supplements and modifications thereto (the
"Company Actuarial Analyses"). To the knowledge of the Company, the policy
information and experience data furnished by the Company to its independent
actuaries in connection with the preparation of the Company Actuarial Analyses
were accurate in all material respects, except insofar as any inaccuracy shall
not have materially affected the accuracy of the Company Actuarial Analyses.
SECTION 3.12. Disclosure Documents. (a) The proxy statement required to be
filed by the Company with the SEC in connection with the transactions
contemplated by this Agreement (the "Company Proxy Statement"), and any
amendments or supplements thereto will, when filed, comply as to form in all
material respects with the applicable requirements of the Exchange Act.
(b) At the time the Company Proxy Statement or any amendment or supplement
thereto is first mailed to stockholders of the Company, at the time such
stockholders vote on approval of this Agreement and at the Effective Time, the
Company Proxy Statement, as supplemented or amended, if applicable, will not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The representations
and warranties contained in this Section 3.12(b) will not apply to statements
in, or omissions from, the Company Proxy Statement based upon information
furnished to the Company, or omitted therefrom, by Parent specifically for use
therein.
(c) The information with respect to the Company that the Company furnishes
to Parent in writing specifically for use in the Registration Statement (as
defined in Section 4.16) will not contain at the time the Registration Statement
becomes effective or at the Effective Time any untrue statement or a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements made therein, not misleading.
SECTION 3.13. Absence of Certain Changes. Since the Company Balance Sheet
Date, the Company and the Company Subsidiaries have conducted their business in
the ordinary course consistent with past practices and there has not been:
(a) any event, occurrence or occurrences which has had or reasonably could
be expected to have, individually or in the aggregate, a Company Material
Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company of any outstanding
shares of capital stock or other ownership interests in, the Company;
(c) any incurrence, assumption or guarantee by the Company or any of the
Company Subsidiaries of any outstanding amount of indebtedness for borrowed
money other than in the ordinary course of business in accordance with their
customary practices;
(d) any transaction or commitment made, or any contract or agreement
entered into, by the Company or any of the Company Subsidiaries relating to
their respective assets or businesses (including the acquisition or disposition
of any assets) or any loss or relinquishment by the Company or any of the
Company Subsidiaries of any material contract or other material right, other
than transactions and commitments in the ordinary course of business in
accordance with their customary practices;
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(e) any material change in any method of accounting or accounting practice
or policy or application thereof by the Company or any of the Company
Subsidiaries;
(f) any increase in (or commitment, oral or written, to increase) the rate
or terms (including, without limitation, any acceleration of the right to
receive payment) of compensation payable or to become payable by the Company or
any of the Company Subsidiaries to their directors, officers, employees or
consultants, except increases occurring in the ordinary course of business in
accordance with their customary practices; or
(g) any increase in (or commitment, oral or written, to increase) the rate
or terms (including, without limitation, any acceleration of the right to
receive payment) of any bonus, insurance, pension or other employee benefit plan
or contract, payment or arrangement made to, for or with any director, officer,
employee or consultant of the Company or any of the Company Subsidiaries, except
increases occurring in the ordinary course of business in accordance with their
customary practices.
SECTION 3.14. Litigation. There is no (nor to the knowledge of the Company
any grounds for any) action, suit, investigation or proceeding pending against,
nor to the knowledge of the Company threatened against or affecting, the Company
or the Company Subsidiaries or any of their respective properties before any
court or arbitrator or any governmental body, agency or official which, if
determined or resolved adversely to the Company in accordance with the
plaintiff's demands, would reasonably be expected to have a Company Material
Adverse Effect or which in any manner challenges or seeks to prevent, enjoin,
alter or delay the Merger or any of the other transactions contemplated hereby.
SECTION 3.15. Employee Benefit Plans. (a) The Company Disclosure Schedule
contains a list of each employee benefit plan (as defined in section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which are
hereinafter referred to individually as a "Plan" and collectively as the
"Plans") pursuant to which the Company has any present or future obligations or
liabilities with respect to its employees or former employees or their
dependents or beneficiaries. There are no negotiations, demands or proposals
(other than routine claims for benefits) which are pending or threatened which
concern matters now covered, or that would be covered, by the foregoing types of
Plans.
(b) The Company has delivered or made available to Parent, or will deliver
or make available prior to the Closing, copies of the following documents, as
they may have been amended to the date hereof, embodying or relating to the
Plans: (i) each of the Plans listed in the Company Disclosure Schedule,
including all amendments thereto, and any related trust agreements, group
annuity contracts insurance policies or other funding agreements or (ii) the
most recent determination letter, if any, from the Internal Revenue Service with
respect to the plans that are pension plans as defined in Section 3(2)(A) of
ERISA (hereinafter referred to as "Pension Plans"); (iii) current summary plan
descriptions and prospectuses; (iv) the most recently filed annual return/report
on Form 5500 for each of the Plans; (v) general notification to employees of
their rights under Code Section 4980B and form of letter(s) distributed upon the
occurrence of a qualifying event described in Code Section 4980B, in the case of
a plan that is a "group health plan" as defined in Code Section 1621(i); and
(vi) ruling letter and any outstanding request for a ruling letter with respect
to the tax-exempt status of any VEBA which is implementing such Plan.
(c) Except as set forth in the Company Disclosure Schedule: (i) the written
terms of each of the Plans and any related trust agreement, group annuity
contract, insurance policy or other funding arrangement are in full compliance
with ERISA, the Code and all other applicable legal requirements, and each of
the Plans has been administered in full compliance with, and has no direct or
indirect liability in connection with such regulatory requirements, (ii) each of
the Plans has been administered in compliance with its terms; (iii) each Plan
which is a Pension Plan meets the requirements of section 401(a), and, if
applicable, Sections 409 and 4975(e), of the Code and has been so qualified
since its inception date to the date of this Agreement and each trust forming a
part thereof is exempt from income tax pursuant to section 501(a) of the Code;
(iv) the Company has not engaged in any "prohibited transaction" (as defined in
section 4975 of the Code or section 406 or 407 of ERISA) which could subject the
Company to any tax or penalty under section 4975 of the Code or Title I of
ERISA; (v) as of the date of this Agreement, there are no actions, suits,
arbitrations or claims pending (other than routine claims for benefits), legal,
administrative or other proceedings or governmental investigations pending or,
to the Company's knowledge, threatened, against (X) the Plans, the
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Plan fiduciaries or the Plan assets, or (Y) the Company or the Company
Subsidiaries with respect to claims related to such Plans, and to the Company's
knowledge, there is no basis for any such action, claim proceeding or
investigation; (vi) all contributions due and payable from the Company with
respect to each of the Plans and all expenses and liabilities relating to each
of the Plans for all calendar (plan) years through December 31, 1994 are
reflected on the financial statements of the Company and each of the Company
Subsidiaries; (vii) no Pension Plan which is a "single-employer plan," within
the meaning of section 4001(a)(15) of ERISA, nor any single-employer plan of any
entity which is considered a predecessor of the Company or one employer with the
Company under section 4001 of ERISA or section 414 of the Code (an "ERISA
Affiliate") is subject to section 412 of the Code or Title IV of ERISA; (viii)
no Plan currently maintained by the Company or an ERISA affiliate, and no other
"employee benefit plan" under which the Company or an ERISA affiliate has any
liability or other obligation, is or was a "multiple employer plan" (within the
meaning of section 413(c) of the Code) or a "multiemployer plan" (as defined in
section 3(37) of ERISA); (ix) neither the Company nor any of its ERISA
Affiliates has incurred any withdrawal liability under Subtitle E of Title IV of
ERISA with respect to a multiemployer plan; (x) neither the Company nor any of
the Company Subsidiaries has any obligations for retiree health, life or other
welfare benefits under any Plan (xi) a request for a favorable determination
letter relating to the tax qualified status of each of the Plans under the Code
has been filed, is pending, and no indication of an adverse response has been
received; and (xii) the Company and the Company's ERISA Affiliates have complied
with all applicable notice requirements and has provided group health care
continuation and conversion coverage under section 4980B of the Code and/or any
other applicable law.
(d) The Company Disclosure Schedule lists each employment, severance or
other similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits or for deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post retirement insurance, compensation
or benefits which (i) is not one of the Company's Plans, (ii) is entered into,
maintained or contributed to, as the case may be, by the Company or any of its
ERISA Affiliates. Such contracts, plans and arrangements as are described above,
copies of descriptions of all of which have been furnished previously to Parent,
are referred to collectively herein as the "Benefit Arrangements." Each Benefit
Arrangement has been maintained in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
that are applicable to such Benefit Arrangement. Neither the Company nor any of
the Company Subsidiaries has any obligations for post retirement benefits under
any Benefit Arrangement. There are no negotiations, demands or proposals (other
than routine claims for benefits) which are pending or threatened which concern
matters now covered, or that would be covered, by the foregoing types of Benefit
Arrangements.
(e) Except as disclosed on the Company Disclosure Schedule, the Company is
not a party to or subject to any collective bargaining agreement with any union
or any employment contract or arrangement providing for annual future
compensation of any officer, consultant, director or employee.
(f) No Plan or Benefit Arrangement (including any Plan or Benefit
Arrangement covering former employees of the Company) restricts the ability of
either the Company or the Parent to amend or terminate the Plan on or any time
after the Closing.
(g) The Company represents that there will be no acceleration of vesting,
benefit accrual or benefit entitlement under either the Plans or the Benefit
Arrangements, and, except as disclosed on the Company Disclosure Schedule, there
will be no incidence of severance payments or any other termination benefits for
which Parent or Surviving Corporation will be responsible as a result of the
transaction contemplated hereby or otherwise.
(h) The Company is not, as of the date hereof, nor will be at the Closing
Date, liable for any future payment to any current or former employee resulting
from the long- or short-term disability of such person, whether such payments
are to be made pursuant to the Company's disability plan, if any, or otherwise.
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SECTION 3.16. Taxes. (a) All tax returns, including estimated tax and
informational returns ("Tax Returns"), of or relating to any Taxes heretofore
required to be filed by the Company or any of the Company Subsidiaries have been
duly filed on a timely basis, other than any such Tax Returns, the failure of
which to file would not, individually or in the aggregate, have a Company
Material Adverse Effect. All such Tax Returns were complete and accurate in all
material respects and the Company and each of the Company Subsidiaries have
timely paid or made adequate provision for the payment of all Taxes shown as due
and payable on such Tax Returns. There are no grounds for the assertion or
assessment of any additional Taxes against the Company, any of the Company
Subsidiaries or their assets with respect to such periods. All unpaid Taxes are
properly accrued on the Company or the Company Subsidiaries' books. Set forth on
the Company Disclosure Schedule are all Tax Returns for periods up to and
including the Closing Date (whether the period ends on such date) which have not
been filed as of the Closing Date.
(b) There are no audits or administrative proceedings, court proceedings or
claims pending against the Company or any of the Company Subsidiaries with
respect to any Taxes and no assessment, deficiency or adjustment has been
asserted or, to the knowledge of the Company, proposed with respect to any Tax
Return of or with respect to the Company or any of the Company Subsidiaries and
there are no liens for Taxes upon the assets or properties of the Company or any
of the Company Subsidiaries, except for liens for Taxes not yet due and owing.
(c) Since their formation, the Company and all of the Company Subsidiaries
have been members of an affiliated group of corporations within the meaning of
section 1504 of the Code, with respect to which the Company is and at all times
has been the common parent. The Company and each of the Company Subsidiaries
have not been members of any other affiliated group of corporations within the
meaning of section 1504 of the Code.
(d) Neither the Company nor any of the Company Subsidiaries are a party to
or bound by any affiliated group consolidated return tax allocation agreement,
tax sharing agreement or tax indemnification agreement.
(e) Neither the Company nor any of the Company Subsidiaries are required to
include in income any adjustment under section 481(a) of the Code by reason of a
change in accounting method initiated by the Company or any of the Company
Subsidiaries and the Internal Revenue Service has not proposed any such
adjustment or change in accounting method.
(f) The Company is not a U.S. Real Property Holding Company within the
meaning of section 897(c) of the Code.
(g) Neither the Company nor any of the Company Subsidiaries is a partner in
any joint venture, partnership or other arrangement or contract that could be
treated as a partnership for federal income tax purposes.
(h) There are no material intercompany transactions within the meaning of
Treasury Regulation section 1.1502-13 in which gain has been deferred.
(i) The Company and each of the Company Subsidiaries have complied with all
laws relating to the withholding of Taxes and the payment thereof (including,
without limitation, withholding of Taxes under sections 1441 and 1442 of the
Code, or similar provision under foreign laws), and has timely and properly
withheld from employee wages and paid over to the proper tax authorities all
amounts required to be withheld and be paid over under applicable law.
(j) Neither the Company nor any of the Company Subsidiaries are a party to
any safe harbor lease within the meaning of section 168(f)(8) of the Code, as in
effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of
1982. None of the assets of the Company or any of the Company Subsidiaries have
been financed with or directly or indirectly secures any industrial revenue
bonds or debt the interest on which is tax-exempt under section 103(a) of the
Code. Neither the Company nor any of the Company Subsidiaries are the borrower
or guarantor of any outstanding industrial revenue bonds, and are not a tenant,
principal user or related person to any principal user (within the meaning of
section 144(a) of the Code) of any property which has been financed or improved
with the proceeds of any industrial revenue bonds.
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(k) As used in this Agreement, "Taxes" means all taxes, charges, fees,
levies, or other like assessments, including without limitation income, gross
receipts, ad valorem, value added, premium, excise, real property, personal
property, windfall profit, sales, use, transfer, license, withholding,
employment, payroll, and franchise taxes imposed by: the United States or any
other nation, state, or bilateral or multilateral governmental authority, any
local governmental unit or subdivision thereof, or any branch, agency, or
judicial body thereof ("Government"); and shall include any interest, fines,
penalties, assessments, or additions to tax resulting from, attributable to, or
incurred in connection with any such Taxes or any contest or dispute thereof.
SECTION 3.17. Compliance with Laws. Except as disclosed in the Company SEC
Reports, and except for any matter that would not reasonably be expected to have
a Company Material Adverse Effect, neither Company nor any Company Subsidiary is
in violation of, or has violated, any applicable provisions of any laws,
statutes, ordinances or regulations.
SECTION 3.18. Finders' Fees. Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), a copy of whose engagement agreement has been provided to
Parent, is entitled to fees from the Company in accordance with the provisions
of said engagement letter by virtute of the transactions contemplated hereby.
Based on the capitalization of the Company set forth in this Agreement, such
fees would be in the aggregate amount of $1,266,406 plus reimbursement of
out-of-pocket expenses (assuming the Parent Stock Price is greater than or equal
to $10.50 and less than or equal to $13.25, and further assuming the assumption
by the Surviving Corporation of $15,500,000 of Company debt, which was the
amount of debt of the Company at June 30, 1995 which would have been used to
calculate such fees had the Merger been consummated on that date). Except for
DLJ, there is no investment banker, broker, finder or other intermediary (other
than Firemark Capital, Inc., whose compensation is payable by DLJ) which has
been retained by or is authorized to act on behalf of the Company who might be
entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement. The compensation payable to DLJ shall be
computed without regard to the value of the Parent Warrants.
SECTION 3.19. Fairness Opinion. The Company's Board of Directors has
received from DLJ, a written opinion ("DLJ Fairness Opinion"), dated the date of
this Agreement, to the effect that the consideration to be paid by Parent in the
Merger is fair to the stockholders of the Company from a financial point of
view.
SECTION 3.20. Environmental Matters. Except as would not, individually or
in the aggregate, have a Company Material Adverse Effect, the Company has not
(i) received any notice of noncompliance with, violation of, or liability or
potential liability under, any laws relating to pollution, the discharge or
release of hazardous materials or the disposal of infectious, medical or
hazardous waste into the environment ("Environmental Laws"); (ii) entered into
or agreed to any consent decree or order, and is not subject to any judgment,
decree or judicial order, under any Environmental Laws or relating to the
cleanup of any hazardous materials or wastes (including infectious and medical
wastes); or (iii) agreed to undertake, and has not undertaken, any other cleanup
of hazardous materials or wastes (including infectious and medical wastes)
relating to properties owned or leased by the Company or any of the Company
Subsidiaries or to any off-site location to which waste material has been sent
by the Company or any of the Company Subsidiaries. The Company and each of the
Company Subsidiaries is in compliance with all Environmental Laws in all
material respects.
SECTION 3.21. Insurance Licenses. The Company Disclosure Schedule sets
forth a true, correct and complete list of: (a) each of the jurisdictions in
which the Company Insurance Subsidiary is duly licensed and in good standing to
write insurance; (b) the lines of insurance that the Company Insurance
Subsidiary is authorized to write in such jurisdictions (including a notation as
to whether the Company Insurance Subsidiary is authorized to transact a variable
annuity and/or life or health insurance business therein and any restriction
that may exist with respect to any such licenses); and (c) the dates of
expiration of each of such licenses. All such licenses and regulatory
authorizations are valid and in full force and effect. The Company and the
Company Insurance Subsidiary and their employees have not breached any material
provision of, and are not in default under the material terms of, and have not
engaged in any activity which would cause revocation or suspension of, any such
licenses or regulatory authorizations and no action or proceeding looking to or
contemplating the revocation or suspension of any thereof is pending or, to the
best of the Company's
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knowledge, threatened. No such license or permit issued by any governmental
authority to the Company and the Company Insurance Subsidiary, or to any of
their present employees who presently holds such a license and uses it in the
Company's and the Company Insurance Subsidiary's business, has ever been
revoked, suspended or rescinded.
SECTION 3.22. Assets. The Company and the Company Subsidiaries have good
and clear record and marketable title to and possession of all of their
respective real and personal properties and assets, in each case free and clear
of any liens, restrictions, encumbrances, rights, title and interests of others,
except the lien of current taxes and covenants and restrictions of record, which
liens, covenants and restrictions do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of such
property by the Company and the Company Subsidiaries. There exists no
restriction on the transfer of any such properties or assets which would
materially affect the value of such properties or assets. The Company Disclosure
Schedule contains a complete and accurate list, with legal description, of each
parcel of real estate owned or leased by the Company and the Company
Subsidiaries. Neither the Company nor any of the Company Subsidiaries has any
obligation to acquire any interest in any real property other than those
described on the Company Disclosure Schedule. The real and personal properties
and assets held under lease by the Company and the Company Subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions as
do not interfere with the use made and proposed to be made of such properties
and assets by the Company and the Company Subsidiaries. No consent is necessary
under the terms of any such lease in connection with the consummation of the
transactions contemplated hereby.
SECTION 3.23. Disposal of Assets. No assets of the Company have been
disposed of outside the ordinary course of the Company's business during the two
year period preceding the Effective Time. The liabilities of the Company and the
Company Subsidiaries were incurred by the Company and the Company Subsidiaries
in the ordinary course of its business consistent with past practice.
SECTION 3.24. Insurance Policies. All material insurable properties owned
or held by the Company and the Company Subsidiaries are adequately insured by
financially sound and reputable insurers in such amounts against fire and other
risks insured against by extended coverage and public liability insurance, as is
customary with companies of the same size and in the same business. The Company
and the Company Subsidiaries have in effect the insurance coverage listed on the
Company Disclosure Schedule which coverage is believed by the Company to be
adequate for the business conducted by the Company and the Company Subsidiaries.
SECTION 3.25. Contracts. Except as set forth on the Company Disclosure
Schedule, neither the Company nor any of the Company Subsidiaries is party to or
bound by any (a) material lease or license with respect to any property, real or
personal, whether as landlord, tenant, licensor or licensee; (b) agreement,
contract, or indenture relating to the borrowing of money by the Company or any
of the Company Subsidiaries, excluding endorsements made for collection and
guarantees made in the ordinary course of business; (c) management agreement,
consulting or other similar contract or arrangement; (d) agreement with any
present or former officer, director or shareholder of the Company or any of the
Company Subsidiaries; or (e) other contract, agreement or other commitment which
is material to the business, operations, property, prospects or assets or to the
condition, financial or otherwise, of the Company or any of the Company
Subsidiaries or which involve a payment by the Company or any of the Company
Subsidiaries of more than $25,000 in one year.
SECTION 3.26. Defaults. Neither the Company nor any of the Company
Subsidiaries is in material breach or material default under any agreement or
commitment to which the Company or any of the Company Subsidiaries is a party,
or under any loan agreement, note, security agreement, guarantee or other
document pursuant to or in connection with the Company's or, any such
subsidiary's extension of credit; and there has not occurred any event which,
after the giving of notice, the lapse of time or otherwise, would constitute any
such default under, or result in any such breach of, any such agreement,
commitment or extension of credit.
SECTION 3.27. Director Severance. Set forth on the Company Disclosure
Schedule is a complete and accurate list of all persons who will be entitled to
severance payments or other compensation under the FBG
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Directors Severance Plan on or after the Closing Date, the gross amounts due to
such person, and the terms under which such amounts are to be paid.
SECTION 3.28. Employee Handbook. The Company has provided to Parent a true
and complete copy of the Company's current employee handbook.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT
Parent represents and warrants to the Company that, except as otherwise
disclosed on a disclosure schedule delivered on or prior to the date hereof to
the Company by Parent (the "Parent Disclosure Schedule"):
SECTION 4.1. Corporate Existence and Power. Parent is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Kansas, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted other than any such licenses, authorizations, permits, registrations,
consents and approvals the failure of which to have would not, individually or
in the aggregate, have a Parent Material Adverse Effect (as defined below).
Parent is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary,
except for those jurisdictions where the failure to be so qualified would not,
individually or in the aggregate, have a Parent Material Adverse Effect. Parent
has heretofore delivered to the Company true and complete copies of the Parent's
certificate of incorporation and bylaws as currently in effect. For purposes of
this Agreement, a "Parent Material Adverse Effect" means a material adverse
effect, on the assets, liabilities, business, operations, condition (financial
or otherwise), or results of operations of the Parent and/or any of its
subsidiaries identified pursuant to Section 4.2 (the "Parent Subsidiaries")
taken as a whole, or on the ability of the Parent to perform its obligations
hereunder.
SECTION 4.2. Subsidiaries. The Parent Disclosure Schedule contains a true
and complete list of all of the Parent Subsidiaries. Said list sets forth the
authorized capital stock, the number of shares duly issued and outstanding, the
number so owned by Parent and the jurisdiction of incorporation of each
corporation. The shares of capital stock of the Parent Subsidiaries owned
directly or indirectly by Parent are validly issued, fully paid and
nonassessable (subject to statutory obligations of holders, if any), and are
owned free and clear of any liens, claims, charges or encumbrances except as set
forth on such list. Except as disclosed on the Parent Disclosure Schedule,
Parent (i) does not have any direct or indirect subsidiaries other than the
Parent Subsidiaries, and (ii) other than in the ordinary course of business of
the Parent, has not made any advances to or investments in, and does not own any
securities of or other interests in, any Person. Each of the Parent Subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power to own or
lease its properties and carry on its business as now being conducted, and is
duly qualified as a foreign corporation to do business, and is in good standing,
in each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary, except
where the failure so to qualify would not have a Parent Material Adverse Effect
Merger Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Merger Subsidiary has not
engaged in any business since its date of inception.
SECTION 4.3. Corporate Authorization. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby are within the Parent's and Merger Subsidiary's corporate powers subject
to the conditions set forth in this Agreement, and have been duly authorized by
the Boards of Directors of Parent and Merger Subsidiary, and by Parent as the
sole stockholder of Merger Subsidiary, and, except for the approval of Parent's
stockholders, no other corporate proceedings on the part of Parent or Merger
Subsidiary are necessary to authorize this Agreement, the Merger, and the
transactions contemplated hereby. This
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Agreement constitutes a valid and binding agreement of the Parent and Merger
Subsidiary, enforceable against the Parent and Merger Subsidiary in accordance
with its terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting generally the enforcement of
creditors rights and by the availability of equitable remedies.
SECTION 4.4. Governmental Authorization. The execution, delivery and
performance by the Parent and Merger Subsidiary of this Agreement and the
consummation of the transactions contemplated hereby and the Merger by the
Parent and Merger Subsidiary require no action by or in respect of, or filing
with, any governmental body, agency, official or authority other than (a) the
filing of a certificate of merger in accordance with the DGCL; (b) compliance
with any applicable requirements of the HSR Act; (c) compliance with any
applicable requirements of the Exchange Act and the 1933 Act, including, without
limitation, the filing by Parent with the SEC of the Parent Proxy Statement (as
hereinafter defined); (d) compliance with any applicable requirements under the
insurance laws of Florida, Kansas and any other applicable state; (e) compliance
with any applicable foreign or state securities or Blue Sky laws; (f) compliance
with state takeover, antitrust and competition law filings and approvals; and
(g) such actions by or filings with governmental bodies, agencies, officials or
authorities, the failure of which to obtain or make would not reasonably be
expected to: (1) have, individually or in the aggregate, a Parent Material
Adverse Effect; (2) impair the ability of the Parent and Merger Subsidiary to
perform their obligations under this Agreement; or (3) prevent the consummation
of the transactions contemplated by this Agreement.
SECTION 4.5. Non-Contravention. The execution, delivery and performance by
the Parent and/or Merger Subsidiary of this Agreement and the consummation by
the Parent and the Merger Subsidiary of the transactions contemplated hereby do
not and will not (except in the case of clauses (b), (c) and (d) of this Section
4.5, for any such matters that, individually or in the aggregate, have not had,
and would not reasonably be expected to have, a Parent Material Adverse Effect):
(a) contravene or conflict with the certificate of incorporation or bylaws of
the Parent or of Merger Subsidiary, (b) assuming compliance with the matters
referred to in Section 4.4, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or instrument binding upon or applicable to the Parent and/or Merger Subsidiary
or any of their properties or assets, (c) result in a violation or breach of, or
constitute a default under, or give rise to a right of termination, cancellation
or acceleration of any right or obligation of the Parent and/or Merger
Subsidiary or to a loss of any benefit to which the Parent and/or Merger
Subsidiary is entitled under any provision of any agreement, contract or other
decree binding upon the Parent and/or Merger Subsidiary or to which the Parent
and/or Merger Subsidiary is a party or by which it is affected or any license,
franchise, permit or other similar authorization held by the Parent and/or
Merger Subsidiary or to which the Parent and/or Merger Subsidiary is a party or
by which it is affected or (d) result in the creation or imposition of any Lien
on any asset of the Parent and/or Merger Subsidiary.
SECTION 4.6. Capitalization. The authorized capital stock of the Parent
consists of 25,000,000 shares of common stock and 2,000,000 shares of preferred
stock. As of June 30, 1995, there were outstanding 10,072,926 shares of common
stock; no shares of preferred stock; stock options to purchase an aggregate of
907,653 shares of common stock of which options to purchase an aggregate of
726,653 shares were exercisable; and warrants to purchase 170,002 shares of
common stock. All outstanding shares of capital stock of the Parent have been
duly authorized and validly issued and are fully paid and nonassessable. Except
as set forth in this Section, there are outstanding (a) no other shares of
capital stock or other voting securities of the Parent, (b) no securities of the
Parent convertible into or exchangeable for shares of capital stock or voting
securities of the Parent, and (c) no other options or other rights to acquire
from the Parent, and no obligation of the Parent to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Parent (the items in clauses (a), (b) and (c)
being referred to collectively as the "Parent Securities"). There are no
outstanding obligations of the Parent to repurchase, redeem or otherwise acquire
any Parent Securities. All of the Parent Stock and Parent Warrants issuable in
exchange for Shares at the Effective Time will be, when so issued, duly
authorized, validly issued, fully paid and non-assessable. The authorized
capital stock of Merger Subsidiary consists of 1,000 shares of common stock, all
of which are validly issued and outstanding, fully paid and nonassessable and
owned by Parent.
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SECTION 4.7. SEC Filings. Parent has filed all reports required to be filed
with the SEC pursuant to the Exchange Act (the "Parent SEC Reports"). Parent has
delivered to the Company (i) its annual reports on Form 10-K for its fiscal
years ended 1992, 1993 and 1994, (ii) its quarterly reports on Form 10-Q for its
fiscal quarters March 31, 1995 and June 30, 1995, (iii) its proxy or information
statements relating to meetings of, or actions taken without a meeting by,
Parent's stockholders, and (iv) all of its other reports, statements, schedules
and registration statements filed with the SEC since June 30, 1995
(collectively, with the Parent SEC Reports, the "Parent Filings").
(b) As of its filing date, no Parent Filing contained any untrue statement
of material fact or omitted to state any material fact necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading.
(c) No such registration statement as amended or supplemented, if
applicable, filed pursuant to the 1933 Act when such statement or amendment
became effective contained any untrue statement of a material fact or omitted to
state any 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.
SECTION 4.8. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the Parent
included in the Parent Filings fairly present, in conformity with generally
accepted accounting principles applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of Parent
and the Parent Subsidiaries as of the dates thereof and their consolidated
results of operations and cash flow for the periods then ended (subject to
normal year-end adjustments in the case of any unaudited interim financial
statements.) For purposes of this Agreement, "Parent Balance Sheet" means the
Parent's balance sheet as of June 30, 1995, as set forth in the Parent's Form
10-Q report for the second quarter of 1995 and "Parent Balance Sheet Date" means
June 30, 1995.
(b) Except as and to the extent set forth on the Parent Balance Sheet,
Parent and the Parent Subsidiaries do not have any liability or obligation of
any nature (whether accrued, absolute, contingent or otherwise), except for
liabilities and obligations incurred since the Parent Balance Sheet Date which
would not, individually or in the aggregate, have a Parent Material Adverse
Effect.
SECTION 4.9. Statutory Financial Statements and Filings. (a) The SAP
Statements of the Parent's insurance subsidiary (the "Parent Insurance
Subsidiary") for each of the three years in the three-year period ended December
31, 1994, and for the quarter ended June 30, 1995, have been prepared in
accordance with statutory accounting practices prescribed or permitted by the
National Association of Insurance Commissioners and such accounting practices
have been applied on a consistent basis throughout the period involved, except
as disclosed therein. The Parent has heretofore delivered to the Company true
and complete copies of all such SAP Statements. Such financial statements (i)
present fairly in all material respects, to the extent required and in
conformity with SAP, the financial condition of the Parent Insurance Subsidiary
at their respective dates, and its results of operations, changes in capital and
surplus, and cash flows for each of the periods then ended; and (ii) were
correct in all material respects when filed. The Parent has not received written
notice from the Kansas Commissioner of Insurance asserting any deficiency with
respect to such statements nor, to the best knowledge of Parent, has the Kansas
Commissioner of Insurance threatened to assert any such deficiency.
(b) Since June 30, 1995, the Parent Subsidiaries have filed all reports and
other filings, together with any amendments required to be made with respect
thereto, that they have been required to file with state insurance regulatory
authorities (the "Parent Insurance Filings"), and all of the Parent Insurance
Filings filed prior to the date hereof complied, and all such filings made
hereafter prior to the Effective Time will comply, in all material respects with
applicable insurance laws, rules and regulations, and, except as disclosed by
the Parent in the Parent Disclosure Schedule, there are no material open or
unresolved issues raised by any insurance or securities regulatory authority
with respect to any of such filings.
(c) Each material reserve and other material liability of the Parent
Insurance Subsidiary reflected in, or included with, the SAP Statements was
determined in accordance with generally accepted actuarial standards
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consistently applied throughout the specified period and the immediately
preceding prior period, was based on actuarial assumptions that were in
accordance with or more conservative than those called for in relevant policy
and contract provisions, is fairly stated in accordance with sound actuarial
principles and is in compliance with the requirements of applicable insurance
laws, rules and regulations. Except as may be affected by deviations from
investment assumptions, such reserves and liabilities were adequate in the
aggregate to cover the total amount of all reasonably anticipated liabilities of
the Parent Insurance Subsidiary under all outstanding insurance policies,
funding agreements, Reinsurance Agreements and annuity, coinsurance and other
similar arrangements as of the respective dates of such SAP Statements. Such
investment assumptions were reasonable as of such respective dates. The admitted
assets of the Parent Insurance Subsidiary as determined under applicable
insurance laws, rules and regulations is in an amount equal to the sum of all
such reserves and liabilities and the statutory capital and surplus yielding an
authorized control level risk based capital ratio of 434%, meeting such laws,
rules and regulations.
SECTION 4.10. Disclosure Documents. The information with respect to Parent
and the Parent Subsidiaries that Parent furnishes to the Company specifically
for use in any Company Proxy Statement will not contain, any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading at the time the Company Proxy Statement or any
amendment or supplement thereto is first mailed to stockholders of the Company,
at the time the stockholders vote on adoption of this Agreement and at the
Effective Time.
SECTION 4.11. Absence of Certain Changes. Since the Parent Balance Sheet
Date, Parent and the Parent Subsidiaries have conducted their business in the
ordinary course consistent with past practice and there has not been any event,
occurrence or development of a state of circumstances or facts which could be
expected to have, a Parent Material Adverse Effect.
SECTION 4.12. Litigation. There is no action, suit, investigation or
proceeding (or any basis therefor) pending against, or to the knowledge of
Parent threatened against or affecting, Parent or any Parent Subsidiary or any
of their respective properties before any court or arbitrator or any
governmental body, agency or official which, if determined or resolved adversely
to Parent or any Parent Subsidiary in accordance with the plaintiff's demands,
would reasonably be expected to have a Parent Material Adverse Effect or which
in any manner challenges or seeks to prevent, enjoin, alter or delay the Merger
or any of the other transactions contemplated hereby.
SECTION 4.13. Employee Benefit Plans. (a) The Parent Disclosure Schedule
contains a list of each Plan pursuant to which the Parent has any material
present or future obligations or liabilities with respect to its employees or
former employees or their dependents or beneficiaries.
(b) Parent has delivered or made available to Company, or will deliver or
make available prior to the Closing, copies of the following documents, as they
may have been amended to the date hereof, embodying or relating to the Plans:
(i) each of the Plans listed in the Parent Disclosure Schedule, including all
amendments thereto, and any related trust agreements, group annuity contracts
insurance policies or other funding agreements or arrangements; (ii) the most
recent determination letter, if any, from the Internal Revenue Service with
respect to the plans that are Pension Plans as defined in Section 3(2)(A) of
ERISA; (iii) current summary plan descriptions and prospectuses; (iv) the most
recently filed annual return/report on Form 5500 for each of the Plans; and (v)
the latest actuarial reports for the Pension Plans.
(c) Except as set forth in the Parent Disclosure Schedule: (i) the written
terms of each of the Plans and any related trust agreement, group annuity
contract, insurance policy or other funding arrangement are in full compliance
with ERISA and the Code, and each of the Plans has been administered in full
compliance with its terms and all regulatory requirements; (ii) each Plan which
is a Pension Plan meets the requirements of section 401(a) of the Code and, if
applicable, Sections 409 and 4975(e), and has been so qualified since its
inception date to the date of this Agreement and each trust forming a part
thereof is exempt from income tax pursuant to section 501(a) of the Code. (iii)
the Parent has not engaged in any "prohibited transaction" (as defined in
section 4975 of the Code or section 406 or 407 of ERISA) which could subject the
Parent to any tax or penalty under section 4975 of the Code or Title I of ERISA;
(iv) as of the date of this Agreement, there
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are no actions, suits, arbitrations or claims pending (other than routine claims
for benefits), legal, administrative or other proceedings or governmental
investigations pending or, to the Parent's knowledge, threatened, against the
Plans or their assets; (v) no "reportable event" (within the meaning of section
4043(c)(l)-(13) of ERISA) as to which a thirty day notice would be required to
be filed with the PBGC has occurred with respect to the Pension Plan (other than
those that may result from the transactions contemplated by this Agreement);
(vi) no Plan currently maintained by the Parent, and no other "employee benefit
plan" under which the Parent has any liability or other obligation, is or was a
"multiple employer plan" (within the meaning of section 413(c) of the Code) or a
"multiemployer plan" (as defined in section 3(37) of ERISA); (vii) all
contributions due and payable from the Parent with respect to each of the Plans
and for all calendar (plan) years through December 31, 1994 are reflected on the
financial statements of the Parent and each of the Parent Subsidiaries; (viii)
neither any Pension Plan which is a "single-employer plan," within the meaning
of section 4001(a)(15) of ERISA, nor any single-employer plan of any entity
which is considered a predecessor of the Parent or one employer with the Parent
under section 4001 of ERISA or section 414 of the Code (an "ERISA Affiliate")
has an "accumulated funding deficiency" (whether or not waived) within the
meaning of section 412 of the Code or section 302 of ERISA, and neither the
Parent nor an ERISA Affiliate has an outstanding funding waiver; (ix) neither
the Parent nor any of the Parent Subsidiaries has provided, or is required to
provide, security to any Plan or to any single-employer plan of an ERISA
Affiliate pursuant to section 401(a)(29) of the Code; (x)(A) no Pension Plan
subject to Title IV of ERISA maintained by the Parent or any of the Parent
Subsidiaries has been terminated; and (B) no proceeding has been initiated to
terminate any such Pension Plan; (xi) no liability under Subtitle C or D of
Title IV of ERISA has been or is expected to be incurred by the Parent or any of
the Parent Subsidiaries with respect to any ongoing, frozen or terminated
"single-employer plan," within the meaning of section 4001(a)(15) of ERISA,
currently or formerly maintained by any of them or by an ERISA Affiliate; (xii)
neither the Parent nor any of the Parent Subsidiaries has incurred any
withdrawal liability under Subtitle E of Title IV of ERISA with respect to a
multiemployer plan; (xiii) the Parent has paid all premiums (and interest
charges and penalties for late payment), if any, due the PBGC as of the Closing
with respect to the Pension Plans; (xiv) neither the Parent nor any of the
Parent Subsidiaries has any obligations for retiree health and life benefits
under any Plan; (xv) a request for a favorable determination letter relating to
the tax qualified status of each of the Pension Plans under the Code has been
filed, is pending, and no indication of an adverse response has been received;
and (xvi) the Company and the Company's Erisa Affiliates have complied with all
applicable notice requirements and has provided group health care continuation
and conversion coverage under 4980B of the Code and/or any other applicable law.
(d) The Parent Disclosure Schedule lists each employment severance or other
similar contract, arrangement or policy and each plan or arrangement (written or
oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits or deferred
compensation, profit-sharing bonuses, stock options, stock appreciation or other
forms of incentive compensation or post-retirement insurance, compensation or
benefits which (i) is not one of the Parent's Plans, (ii) is entered into,
maintained or contributed to, as the case may be, by the Parent or any of its
ERISA Affiliates and (iii) covers any employee or former employee of the Parent
or any of its ERISA Affiliates. Such contracts, plans and arrangements as are
described above, copies or descriptions of all of which have been furnished
previously to the Company, are referred to collectively herein as the "Benefit
Arrangements." Each Benefit Arrangement has been maintained in full compliance
with its terms and with the requirements prescribe by any and all statutes,
orders, rules and regulations that are applicable to such Benefit Arrangement,
except where the failure to maintain such Benefit Arrangement in such compliance
would not have a Parent Material Adverse Effect.
(e) Except as disclosed on the Parent Disclosure Schedule, the Parent is
not a party to or subject to any collective bargaining agreement with any union
or any employment contract or arrangement providing for annual future
compensation of any officer, consultant, director or employee.
SECTION 4.14. Taxes. (a) All Tax Returns, including estimated tax and
informational returns, of or relating to any Taxes heretofore required to be
filed by the Parent or any of the Parent Subsidiaries have been duly filed on a
timely basis, other than any such Tax Returns, the failure of which to file
would not,
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individually or in the aggregate, have a Parent Material Adverse Effect. All
such Tax Returns were complete and accurate in all material respects and the
Parent and each of the Parent Subsidiaries have timely paid or made adequate
provision for the payment of all Taxes shown as due and payable on such Tax
Returns. There are no grounds for the assertion or assessment of any additional
Taxes against the Parent, any of the Parent Subsidiaries or their assets with
respect to such periods. All unpaid Taxes are properly accrued on the Parent or
the Parent Subsidiaries' books. Set forth on the Parent Disclosure Schedule are
(i) all Tax Returns for periods up to and including the Closing Date (whether
the period ends on such date) which have not been filed as of the Closing Date
and (ii) any exceptions to this Section 4.14.
(b) As of the date hereof, there are no audits or administrative
proceedings, court proceedings or claims pending against the Parent or any of
the Parent Subsidiaries with respect to any Taxes and no assessment, deficiency
or adjustment has been asserted or, to the knowledge of the Parent, proposed
with respect to any Tax Return of or with respect to the Parent or any of the
Parent Subsidiaries and there are no liens for Taxes upon the assets or
properties of the Parent or any of the Parent Subsidiaries, except for liens for
Taxes not yet due and owing.
SECTION 4.15. Finders' Fees. There is no investment banker, broker, finder
or other intermediary who might be entitled to any fee or commission from the
Parent or any of the Parent Subsidiaries upon consummation of the transactions
contemplated by this Agreement.
SECTION 4.16. Registration Statement. The Registration Statement to be
filed by Parent with the SEC with respect to the offering of Parent Stock and
Parent Warrants in connection with the Merger (the "Registration Statement") and
any amendments or supplements thereto will, when filed comply as to form in all
material respects with the requirements of the 1933 Act and will not contain, at
the time the Registration Statement becomes effective or at the Effective Time,
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
contained therein, not misleading; provided that the foregoing representation
shall not apply to statements or omissions in the Registration Statement based
upon information furnished to Parent or Merger Subsidiary by the Company
specifically for use therein.
SECTION 4.17. Environmental Matters. Except as would not, individually or
in the aggregate, have a Parent Material Adverse Effect or as disclosed on the
Parent Disclosure Schedule, the Parent has not (i) received any notice of
noncompliance with, violation of, or liability or potential liability under, any
laws relating to pollution, the discharge or release of hazardous materials or
the disposal of infectious, medical or hazardous waste into the environment
("Environmental Laws"); (ii) entered into or agreed to any consent decree or
order, and is not subject to any judgment, decree or judicial order, under any
Environmental Laws or relating to the cleanup of any hazardous materials or
wastes (including infectious and medical wastes); or (iii) agreed to undertaken,
and has not undertaken, any other cleanup of hazardous materials or wastes
(including infectious and medical wastes) relating to properties owned or leased
by the Parent or any of the Parent Subsidiaries or to any off-site location to
which waste material has been sent by the Parent or any of the Parent
Subsidiaries.
SECTION 4.18. Insurance Licenses. The Parent Disclosure Schedule sets forth
a true, correct and complete list of: (a) each of the jurisdictions in which the
Parent and the Parent Subsidiaries are duly licensed and in good standing to
write insurance; (b) the lines of insurance that the Parent and the Parent
Subsidiaries is authorized to write in such jurisdictions (including a notation
as to whether the Parent and the Parent Subsidiaries are authorized to transact
a variable annuity and/or life or health insurance business therein and any
restriction that may exist with respect to any such licenses); and (c) the dates
of expiration of each of such licenses. All such licenses and regulatory
authorizations are valid and in full force and effect. The Parent and the Parent
Subsidiaries and their employees have not breached any material provision of,
and are not in default under the material terms of, and have not engaged in any
activity which would cause revocation or suspension of, any such licenses or
regulatory authorizations and no action or proceeding looking to or
contemplating the revocation or suspension of any thereof is pending or, to the
best of the Parent's knowledge, threatened. No such license or permit issued by
any governmental authority to the Parent and the Parent
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Subsidiaries or to any of their present employees who presently holds such a
license and uses it in the Parent's and the Parent Subsidiaries business has
ever been revoked, suspended or rescinded.
SECTION 4.19. Actuarial Report. Parent has delivered to the Company a true
and complete copy of any actuarial reports prepared by independent actuaries
with respect to Parent or the Parent Subsidiaries in the last 12 months, and all
attachments, addenda, supplements and modifications thereto (the "Parent
Actuarial Analyses"). To the knowledge of Parent, the policy information and
experience data furnished by Parent to its independent actuaries in connection
with the preparation of the Parent Actuarial Analyses were accurate in all
material respects, except insofar as any inaccuracy shall not have materially
affected the accuracy of the Parent Actuarial Analyses.
ARTICLE 5
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 5.1. Confidentiality. Prior to the Effective Time and after any
termination of this Agreement, the Company will hold, and will use its
reasonable best efforts to cause its officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of law, all non-public documents and information concerning Parent
furnished to the Company in connection with the transactions contemplated by
this Agreement, except to the extent that such information can be shown to have
been (a) previously known on a nonconfidential basis by the Company, (b) in the
public domain through no fault of the Company or (c) later lawfully acquired by
the Company from sources other than Parent (not owing a duty of confidentiality
to Parent); provided that the Company may disclose such information to its
officers, directors, employees, accountants, counsel, consultants, advisors and
agents in connection with the transactions contemplated by this Agreement so
long as such Persons are informed by the Company of the confidential nature of
such information and are directed by the Company to treat such information
confidentially. The Company's obligation to hold any such information in
confidence shall be satisfied if it exercises the same care with respect to such
information as it would take to preserve the confidentiality of its own similar
information. If this Agreement is terminated, the Company will, and will use its
best efforts to cause its officers, directors, employees, accountants, counsel,
consultants, advisors and agents to, destroy or deliver to Parent, upon request,
all documents and other materials, and all copies thereof, obtained by the
Company or on its behalf from Parent in connection with this Agreement that are
subject to such confidence.
SECTION 5.2. Conduct of the Company. From the date hereof until the
Effective Time, unless the prior written consent of Parent is obtained, the
Company and the Company Subsidiaries (a) will carry on their business diligently
and substantially in the same manner as heretofore and will not make or
institute any unusual method of management, accounting or operation except in
the manner consistent with prior practice or enter into any transaction other
than in the ordinary course of business; (b) will not make loans or discounts or
any commitments to loan or discount in an aggregate amount greater than $25,000;
(c) will not enter into any management, maintenance, servicing or similar
contracts having a term of more than one year or providing for fees in excess of
a rate of $25,000 per year, provided, that the foregoing shall not prohibit
Seller from renewing data processing and computer servicing contracts currently
in effect which have an expiration date prior to Closing, on substantially
similar terms for no more than one year; (d) will maintain in force all
insurance policies in effect on the date of this Agreement; (e) will make
investments in the usual course of business consistent with past practice and
investment policy (and will promptly inform Parent in writing of the relevant
details of all such investments); (f) will not grant any increase in the rates
of pay of their employees or any increase in the compensation payable or to
become payable, if any, to any director, officer, employee or agent thereof, or
increase in any amount the benefits or compensation, if any, of any such
directors, officers, employees or agents of the Company or Company Subsidiaries
under any pension plan or other contract or commitment; and will not pay nor
agree to pay any bonus or commission to any director, officer, employee or agent
thereof and will not otherwise enter into or amend any employment or severance
agreement with any such directors, officers, employees or agents, provided that
the foregoing shall not prevent (X) increases in
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rates of pay to employees who are not officers or directors in amounts and at
times consistent with past practice, (Y) annual bonus payments to up to 10
employees of the Company who are not officers or directors and who customarily
receive an annual bonus, at such times and in such individual amounts as are
consistent with past practice, provided, that, in no event may such bonus
payments exceed $25,000 in the aggregate, and (Z) bonuses to officers which the
Company is obligated to pay pursuant to the terms of a currently existing bonus
plan; (g) will not enter into any material contract or commitment, or engage in
any transaction not in the usual and ordinary course of business and consistent
with past practices; (h) will not sell or dispose of any of its material assets
out of the ordinary course of business and will maintain its assets in their
present condition, reasonable wear and tear excepted; (i) will not make any
expenditure for fixed assets and will not purchase any data processing equipment
for any single item in excess of $25,000 or enter into any leases of fixed
assets providing for an annual rental of $25,000; (j) will not declare or pay
any dividend or make any other distribution, directly or indirectly, in respect
of any capital stock of the Company or Company Subsidiaries (other than
distributions from the Company Subsidiaries to the Company in an amount
necessary to support the Company's debt service or operations) nor directly or
indirectly redeem, purchase or otherwise acquire or issue any such capital
stock, or grant or issue any capital stock of the Company or Company
Subsidiaries or stock options, warrants or other rights therefor (other than
issuances of Company A Stock and Company B Stock pursuant to the exercise of
currently outstanding FBG Options or pursuant to the conversion of Company B
Stock to Company A Stock); (k) will not amend the Certificate of Incorporation
or Bylaws of the Company or any of Company Subsidiaries, or make any change in
the authorized or issued capital stock of the Company or such subsidiaries; (l)
will not do any act or omit to do any act which will cause or permit a material
breach by the Company or Company Subsidiaries of any contract, commitment or
obligations, including without limitation this Agreement; (m) will not charge
off any loans prior to Closing except in accordance with past policies and
procedures consistently applied; (n) will not acquire, purchase any assets of,
or make any investment in any entity, (other than, in the case of normal
investing activity, as allowed in (e) above); (o) will not agree or commit to do
any of the foregoing; (p) will not take or agree or commit to take any action
that would make any representation and warranty of the Company hereunder
inaccurate in any respect at, or as of any time prior to, the Effective Time, or
(r) will not omit or agree or commit to omit to take any action necessary to
prevent any such representation or warranty from being inaccurate in any respect
at any such time.
SECTION 5.3. Stockholder Meeting: Proxy Material. The Company shall cause a
meeting of its stockholders (the "Company Stockholder Meeting") to be duly
called and held as soon as reasonably practicable for the purpose of voting on
the approval of this Agreement, the Merger, and the transactions contemplated
hereby. The Directors of the Company shall recommend approval (and if the vote
of the Directors of the Company in favor of this Agreement is unanimous,
unanimously recommend approval) of this Agreement, the Merger, and the
transactions contemplated hereby by the Company's stockholders, unless the Board
of Directors of the Company determines, in good faith, at a meeting of the full
Board of Directors, that the exercise of its fiduciary duties to the Company's
shareholders under applicable law, as advised in writing by outside counsel
reasonably acceptable to the Parent, requires them to decline to make, withdraw
or modify such a recommendation. Any such declining, withdrawal or modification,
however, will not change the approval of the Merger for purposes of Section
251(b) of the DGCL. In connection with such meeting, the Company (a) as soon as
reasonably practicable, will take steps to prepare, file and clear with the SEC,
and thereafter mail to its stockholders, the Company Proxy Statement and all
other proxy materials for such meeting, and (b) will use its reasonable best
efforts to obtain the necessary approval by its stockholders of this Agreement,
the Merger, and the transactions contemplated hereby, unless the Board of
Directors of the Company determines, in good faith, at a meeting of the full
Board of Directors, that the exercise of its fiduciary duties to the Company's
shareholders under applicable law, as advised in writing by outside counsel
reasonably acceptable to the Parent, requires them not to. Nothing in this
Section 5.3 or 5.5 will be interpreted to eliminate the Company's obligation to
prepare, file and clear with the SEC, and thereafter mail to its shareholders,
the Company Proxy Statement, solicit proxies in favor of the Merger, or hold a
meeting of its stockholders to vote on the Merger as provided herein, provided
that, following the declining to make, withdrawal of or modification of the
recommendation by the Board in accordance with this Section 5.3, the
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Parent shall have to waive in writing its right to the fee described in Section
9.2(b) in order for the Company to be so obligated.
SECTION 5.4. Access to Information. From the date hereof until the
Effective Time, the Company will provide Parent, its counsel, financial
advisors, auditors and other authorized representatives full access to the
offices, properties, books and records of the Company and each of the Company
Subsidiaries and will furnish to Parent, its counsel, financial advisors,
auditors and other authorized representatives such financial and operating data
and other information as such Persons may reasonably request and will instruct
the Company's and each of the Company Subsidiaries' employees, counsel and
financial advisors to cooperate with Parent in its investigation of the business
of the Company and each of the Company Subsidiaries.
SECTION 5.5. No Solicitation of Acquisitions Proposal. Neither the Company
nor its affiliates (including directors, officers, employees, agents,
representatives and shareholders or any affiliates or associates thereof)
("Affiliates") shall, directly or indirectly, make, encourage, facilitate,
solicit, assist or initiate any inquiry or proposal, or, subject to the provisos
to this sentence, provide any information to or participate in any negotiations
with, any corporation, partnership, agent, attorney, financial advisor, person,
or other entity or group (other than the Parent and its Affiliates) ("Third
Parties") relating to any (i) liquidation, dissolution, recapitalization, merger
or consolidation of the Company or its subsidiaries (ii) outside the ordinary
course of business, sale of a significant amount of assets of the Company or its
subsidiaries (iii) purchase or sale of shares of capital stock of the Company or
its subsidiaries (iv) any similar actions or transactions involving the Company
or its subsidiaries other than the transactions contemplated by this Agreement
("Extraordinary Transactions"), or, subject to the provisos to this sentence,
agree to or consummate any Extraordinary Transactions; provided, however, that
the Company may provide information at the request of, or enter into
negotiations with a, third party or agree to or consummate any Extraordinary
Transaction if the Board of Directors of the Company determines, in good faith,
at a meeting of the full Board of Directors, that the exercise of its fiduciary
duties to the Company's shareholders under applicable law, as advised in writing
by Lord, Bissell & Brook (or other firm with a national reputation in
transactions of this nature) requires it to take any such action, and, provided
further, that the Company may not, in any event, provide to such third party any
information which it has not provided to the Parent. In addition, following
receipt of a proposal for an Extraordinary Transaction ("Acquisition Proposal"),
the Company may take and disclose to its stockholders a position contemplated by
Rule 14e-2 or Rule 14d-9 under the Exchange Act or otherwise make a disclosure
to its stockholders. The Company shall immediately inform the Parent of any
inquiry, proposal or request for information (including the terms thereof and
the person making such inquiry) which it may receive in respect of such a
transaction and provide the Parent with a copy of any such written inquiries,
proposals and offers, including without limitation any Acquisition Proposal.
SECTION 5.6. Notices of Certain Events. The Company shall promptly notify
Parent of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement;
(b) any notice or other communication from any governmental or regulatory
agency or authority in connection with the transactions contemplated by this
Agreement; and
(c) any actions, suits, claims, investigations or proceedings commenced or,
to the best of its knowledge threatened against, relating to or involving or
otherwise affecting the Company which, if pending on the date of this Agreement,
would have been required to have been disclosed pursuant to Section 3.14 or
which relate to the consummation of the transaction contemplated by this
Agreement.
SECTION 5.7. Title to Real Estate. As soon as practical after the date
hereof, but in any event no later than 60 days after the date hereof, the
Company, at its own expense, shall obtain and deliver to Parent, with respect to
all real estate owned by the Company and the Company Subsidiaries and listed on
the Company Disclosure Schedule, an owner's preliminary report of title covering
a date subsequent to the date hereof, issued by a title insurance company
reasonably acceptable to Parent, which preliminary report shall contain a
commitment of such title insurance company to issue an owner's title insurance
policy on ALTA 1970 Owner's Form B insuring the fee simple title of the Company
or such subsidiary in such real estate in an
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amount to be determined, subject only to (a) the standard exceptions to title
customarily contained in such title policies and (b) liens of current state and
local property taxes which are not delinquent or subject to penalty.
SECTION 5.8. Monthly Financial Reports. From and after the date of this
Agreement the Company shall deliver to Parent within twenty (20) days of the
last day of each calendar month, unaudited balance sheets and statements of
income of the Company and of each of the Company Subsidiaries for such month
(certified by the Chief Financial Officer of the Company (the "Monthly Reports")
The Monthly Reports: (a) will be true, correct and complete in all material
respects; (b) shall present fairly (subject to adjustments that would be
revealed by an audit, none of which is believed to be material in the aggregate)
the financial position of the Company or the Company Subsidiaries (as the case
may be) and the results of operations as of such date; and (c) shall properly
reflect all assets of the Company or such subsidiaries (as the case may be) of a
kind normally reflected in a balance sheet of such entity.
SECTION 5.9. Fairness Opinion. The Company shall use its reasonable best
efforts to obtain an update and re-issue of the DLJ Fairness Opinion at the time
of mailing of the Company Proxy Statement.
SECTION 5.10. Opinion. The Company shall use its reasonable best efforts to
obtain a written opinion from Jordan, Burt, special counsel to the Company, or
such other special counsel reasonably acceptable to Parent, dated as of the
Effective Time and substantially in the form contained in Schedule III attached
hereto or otherwise in form and substance reasonably satisfactory to Parent; the
Company shall not be required to spend more than $25,000 in this regard.
ARTICLE 6
COVENANTS OF PARENT
Parent agrees that:
SECTION 6.1. Confidentiality. Prior to the Effective Time and after any
termination of this Agreement, Parent will hold, and will use its reasonable
best efforts to cause its officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law,
all non-public documents and information concerning the Company and the Company
Subsidiaries furnished to Parent in connection with the transactions
contemplated by this Agreement, except to the extent that such information can
be shown to have been (a) previously known on a nonconfidential basis by Parent,
(b) in the public domain through no fault of Parent or (c) later lawfully
acquired by Parent from sources other than the Company; provided that Parent may
disclose such information to its officers, directors, employees, accountants,
counsel, consultants, advisors and agents in connection with the transactions
contemplated by this Agreement so long as such Persons are informed by Parent of
the confidential nature of such information to its officers, directors,
employees, accountants, counsel, consultants, advisors and agents in connection
with the transactions contemplated by this Agreement so long as such Persons are
informed by Parent of the confidential nature of such information and are
directed by Parent to treat such information confidentially. Parent's obligation
to hold any such information in confidence shall be satisfied if it exercises
the same care with respect to such information as it would take to preserve the
confidentiality of its own similar information. If this Agreement is terminated,
Parent will, and will use its best efforts to cause its officers, directors,
employees, accountants, counsel, consultants, advisors and agents to, destroy or
deliver to the Company, upon request, all documents and other materials, and all
copies thereof, obtained by Parent or on its behalf from the Company in
connection with this Agreement that are subject to such confidence.
SECTION 6.2. Conduct of Parent. From the date hereof until the Effective
Time, Parent shall use its reasonable best efforts to preserve intact its
business organizations and relationships with third parties and to keep
available the services of its present officers and employees. Parent shall not
issue any Parent Stock for consideration less than the market price for such
Parent Stock, or any options for Parent Stock with an exercise price below such
market price, provided that the foregoing shall not prevent the issuance of
Parent Stock in exercise of employee stock options, or the issuance of stock
options pursuant to the terms of such
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plans. In the event of any issuance of Parent Stock in any acquisition of
assets, or in exchange for any stock of another entity in any merger or similar
transaction, the determination by the Board of Parent as to the value of the
consideration received in such acquisition or exchange shall be conclusive and
binding.
SECTION 6.3. Access to Information. From the date hereof until the
Effective Time, Parent will provide the Company, its counsel, financial
advisors, auditors and other authorized representatives full access to the
offices, properties, books and records of Parent and each of the Parent
Subsidiaries and will furnish to the Company, its counsel, financial advisors,
auditors and other authorized representatives such financial and operating data
and other information as such Persons may reasonably request and will instruct
Parent's and each of the Parent Subsidiaries employees, counsel and financial
advisors to cooperate with the Company in its investigation of the business of
Parent and each of the Parent Subsidiaries.
SECTION 6.4. Obligations of Merger Subsidiary. Parent will take all action
necessary to cause Merger Subsidiary to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement.
SECTION 6.5. Voting of Shares. Parent agrees to vote all Shares
beneficially owned by it, if any, to approve this Agreement, the Merger and the
transactions contemplated hereby, at the Company Stockholder Meeting.
SECTION 6.6. Continuing Directors. The Board of Directors of Parent (the
"Board") will appoint to the Board three individuals from a group of qualified
nominees recommended by the Company and acceptable to Parent, with one
individual to be appointed to each of the Board's three classes of directors. If
any nominee so appointed is unable to serve the entirety of the remaining term
of the class to which such nominee is appointed, the Board will appoint another
person from such group to the Board as successor thereto.
SECTION 6.7. Registration Statement. Parent shall as soon as reasonably
practicable prepare and file with the SEC under the 1933 Act the Registration
Statement and shall use its reasonable best efforts to cause the Registration
Statement to be declared effective by the SEC. Parent shall as soon as
reasonably practicable take any action required to be taken under foreign or
state securities or Blue Sky laws in connection with the issuance of Parent
Stock in the Merger, provided Parent shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction where it is not now so qualified or required to file such a consent
or to subject itself to taxation as doing business in any jurisdiction where it
is not now so taxed.
SECTION 6.8. Stock Exchange Listing. Parent shall use its best efforts to
cause the shares of Parent Stock to be issued in connection with the Merger to
be listed on the NYSE, subject to official notice of issuance and evidence of
satisfactory distribution, and shall reserve such shares of Parent Stock for
issuance. Parent shall use its reasonable best efforts to cause the Parent
Warrants issued in connection with the Merger to be listed on an exchange or
NASDAQ National Market, subject to official notice of issuance and evidence of
satisfactory distribution, and shall reserve the shares of Parent Stock issuable
thereunder. Reasonable best efforts shall not include the payment of more than
$10,000 as an initial listing fee for such Warrants, the payment of more than
$5,500 per year for such listing, the issuance of any additional Parent
Warrants, or the imposition of unreasonable restrictions or requirements.
SECTION 6.9. Stockholder Meeting: Proxy Material. The Parent shall cause a
meeting of its stockholders to be duly called and held as soon as reasonably
practicable for the purpose of voting on the approval of this Agreement, the
Merger, and the transactions contemplated hereby. The Directors of the Parent
shall, except as otherwise provided in Section 5.5 hereof and subject to their
fiduciary duties as determined in good faith by the Board of Directors based on
advice of outside legal counsel, recommend approval of this Agreement, the
Merger, and the transactions contemplated hereby, by the Parent's stockholders.
In connection with such meeting, the Parent (a) will as soon as reasonably
practicable take steps to prepare, file and clear with the SEC, and thereafter
mail to its stockholders, its proxy statement (the "Parent Proxy Statement") and
all other proxy materials for such meeting, and (b) will use its reasonable best
efforts to obtain the necessary approval by its stockholders of this Agreement,
the Merger, and the transactions contemplated hereby.
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SECTION 6.10. Notices of Certain Events. Parent shall promptly notify the
Company of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement;
(b) any notice or other communication from any governmental or regulatory
agency or authority in connection with the transactions contemplated by this
Agreement; and
(c) any actions, suits, claims, investigations or proceedings commenced or,
to the best of its knowledge threatened against, relating to or involving or
otherwise affecting Parent which, if pending on the date of this Agreement,
would have been required to have been disclosed pursuant to Section 4.10 or
which relate to the consummation of the transaction contemplated by this
Agreement.
SECTION 6.11. Employee Benefits. Parent shall cause Surviving Corporation
to provide the eligible employees of Surviving Corporation and its subsidiaries
with benefits that are in the aggregate generally as favorable as the benefits
provided to the eligible employees of Parent and the Parent Subsidiaries,
provided, that, Parent, in its sole discretion, may elect to continue the health
care coverage currently maintained by the Company for such eligible employees.
The foregoing shall not limit the Parent's or Surviving Corporation's ability to
make any staffing decisions they deem appropriate.
SECTION 6.12 Indemnification. The Surviving Corporation shall honor any
obligation of the Company immediately prior to the Effective Time to indemnify
and hold harmless the present and former officers and directors of the Company
and of the Company Subsidiaries (the "Indemnitees") in respect of acts or
omissions occurring prior to the Effective Time to the extent required by the
Company's certificate of incorporation and bylaws, or any indemnification
agreement to which the Company and any Indemnitee are parties (copies of which
have been provided by the Company to the Surviving Corporation), in effect on
the date hereof, subject to any limitation imposed from time to time under
applicable law. For three years after the Effective Time, Parent will cause the
Surviving Corporation to provide officers' and directors' liability insurance in
respect of acts or omissions occurring prior to the Effective Time covering each
such Indemnitee on terms with respect to coverage and amounts roughly comparable
to the coverage and amounts currently provided by the Company's policy, which
provides for coverage in the amount of $2,000,000, so long as such coverage may
be obtained by Parent at a reasonable cost, the current cost of the Company's
insurance being deemed reasonable for this purpose.
SECTION 6.13. Financing. Parent shall use its reasonable best efforts to
obtain, prior to the time of printing of the Joint Proxy Statement, either (i) a
commitment from The First National Bank of Chicago ("First Chicago") for all
cash financing necessary for Parent and the Merger Subsidiary to consummate the
Merger, and conduct its activities following the Effective Time or (ii) the
consent of First Chicago and Boatmen's National Bank to the Merger under the
Company's current agreements therewith, the consent of Shawmut Bank Connecticut,
N.A. ("Shawmut") or its successor to the assumption by Parent or the Merger
Subsidiary of the Company's obligations under that certain Credit Agreement
dated June 27, 1994 by and between the Company and Shawmut (the "Credit
Agreement"), the extension of such Credit Agreement beyond its current term, and
the continuation of the Credit Agreement upon economic terms no less favorable
that those currently existing and reflecting an acknowledgement of the enhanced
credit standing of the combined entities after the Merger.
SECTION 6.14. Pooling Letter. Parent will use its reasonable best efforts
to obtain from Deloitte & Touche, LLP, a letter dated prior to the time of
printing of the Joint Proxy Statement, addressed to Parent and in form and
substance reasonably satisfactory to Parent, to the effect that the business
combination to be effected by the Merger is not required to be accounted for as
a pooling of interests by Parent for purposes of its consolidated financial
statements under generally accepted accounting principles and applicable SEC
rules and regulations (the "Pooling Letter"), provided, that, Parent may abandon
its efforts to obtain the Pooling Letter if it determines, in its sole
discretion, that the Pooling Letter is unnecessary (in which event the condition
in Section 8.2(i) shall lapse).
SECTION 6.15. Fairness Opinion. Parent will use its reasonable best efforts
to obtain from Furman Selz a written opinion ("Furman Selz Fairness Opinion"),
dated the time of mailing of the Joint Proxy
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Statement, or if dated previously, updated to such time, in either case to the
effect that the Merger is fair to the stockholders of the Parent from a
financial point of view.
SECTION 6.16. Reserve Opinion. Parent will use its reasonable best efforts
to obtain the opinion described in Section 8.2(g).
ARTICLE 7
COVENANTS OF PARENT AND THE COMPANY
The parties hereto agree that:
SECTION 7.1. Reasonable Best Efforts. Subject to the terms and conditions
of this Agreement, each party will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement. Parent's reasonable best efforts shall not be deemed to include
agreeing to change the Pricing Date.
SECTION 7.2. Certain Filings. The Company and Parent shall cooperate with
each other (a) in connection with the preparation of the Company Proxy Statement
and the Parent Proxy Statement (or the Joint Proxy Statement as provided in
Section 7.5) and the Registration Statement, (b) in determining whether any
action by or in respect of, or filing with, any, governmental body, agency or
official, or authority is required, or any actions, consents, approvals or
waivers are required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated by this
Agreement and (c) in seeking any such actions, consents, approvals or waivers or
making any such filings, furnishing information required in connection therewith
or with the Company Proxy Statement and the Registration Statement and seeking
timely to obtain any such actions, consents, approvals or waivers.
SECTION 7.3. Public Announcements. Neither Parent nor the Company will
issue any press release or make any public statement with respect to this
Agreement and the transactions contemplated hereby without the prior approval of
the other party, except as may be required by applicable law or any listing
agreement with any national securities exchange. Parent and the Company shall
consult with each other concerning, and endeavor in good faith to agree on, the
content of any such required announcement or disclosure.
SECTION 7.4. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.
SECTION 7.5. Joint Proxy Statement/Prospectus. It is understood and agreed
that the Company and Parent may prepare a Joint Proxy Statement and prospectus
in satisfaction of their respective obligations to prepare a Proxy Statement and
the Registration Statement.
ARTICLE 8
CONDITIONS TO THE MERGER
SECTION 8.1. Conditions to the Obligations of Each Party. The obligations
of the Company, Parent and Merger Subsidiary to consummate the Merger are
subject to the satisfaction or waiver at or prior to the Closing of the
following conditions:
(a) The shareholders of the Company and the Parent shall have duly approved
and adopted this Agreement, the Merger, and the other transactions contemplated
hereby to the extent required by applicable requirements of law and the
Certificate or Articles of Incorporation and By-laws of each of the Company and
the Parent.
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(b) any applicable waiting period under the HSR Act relating to the Merger
shall have expired or terminated;
(c) the transactions contemplated by this Agreement shall have been
approved by any federal, state, foreign or local governmental or regulatory
authority or self-regulatory body the approval of which is required to permit
the consummation thereof, including without limitation the Florida and Kansas
Commissioners of Insurance if required, without the imposition of any condition,
requirement or commitment which would reasonably be expected to have a Company
Material Adverse Effect, a Parent Material Adverse Effect, or a material adverse
effect on the business, operations, assets, conditions (financial or otherwise)
or results of operations of the Surviving Corporation;
(d) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger;
(e) the Company's Board of Directors shall have received from DLJ the DLJ
Fairness Opinion updated and re-issued at the time of mailing of the Company
Proxy Statement, which opinion shall not have been withdrawn;
(f) the Company shall have received from Bryan Cave LLP special counsel for
Parent and Merger Subsidiary, and from other counsel for Parent reasonably
satisfactory to the Company, written opinions dated as of the Effective Time and
substantially in the respective forms contained in Schedule I attached hereto or
otherwise in form and substance reasonably satisfactory to the Company;
(g) Parent shall have received from Lord, Bissell & Brook, special counsel
to the Company, Harnett Lesnick Ripps & Kahn, P.A., outside general counsel to
the Company, written opinions, dated as of the Effective Time and substantially
in the respective forms contained in Schedule II attached hereto or otherwise in
form and substance reasonably satisfactory to Parent.
(h) no court, arbitrator or governmental body, agency or official shall
have issued any order, and there shall not be any statute, rule or regulation,
restraining or prohibiting the consummation of the Merger or the effective
operation of the business of the Company, the Company Subsidiaries, the Parent
and Parent Subsidiaries after the Effective Time;
(i) all actions by or in respect of or filings with any governmental body,
agency, official, or authority required to permit the consummation of the
Merger, including but not limited to the Florida and Kansas Insurance
Departments and any other insurance regulatory agency in any state in which the
Company, the Company Subsidiaries, Parent and the Parent Subsidiaries do
business, shall have been obtained;
(j) the Registration Statement shall have been declared effective and no
stop order suspending the effectiveness of the Registration Statement shall be
in effect and no proceedings for such purpose shall be pending before or
threatened by the SEC;
(k) the shares of Parent Stock to be issued in connection with the Merger
shall have been approved for listing on the NYSE, subject to official notice of
issuance of satisfactory distribution;
(l) each of Parent and the Surviving Corporation shall execute and deliver
Employment Agreements with each of Frank T. Crohn and Donna J. Rubertone,
substantially in the forms of Exhibits A-1 and A-2 hereto as applicable, on or
before the Closing;
(m) there shall not have been a downgrading or threatened downgrading of
the Parent Insurance Subsidiary by A.M. Best; provided, that, in the event of a
threatened downgrading, the parties agree that (i) Parent shall promptly notify
the Company of such threatened downgrading, and (ii) neither Parent nor the
Company may terminate this Agreement pursuant to Section 9.1(f) or (g), as the
case may be, because of such threatened downgrading unless such threat has not
been withdrawn by A.M. Best within ten (10) calendar days from the date it was
received by Parent, and (X) Parent shall have used its reasonable best efforts
to have such threat withdrawn prior to such time, and (Y) if permitted by A.M.
Best, the Company and Parent shall have made a joint presentation to A.M. Best
with a request that it withdraw such threatened
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downgrading. If this Agreement is terminated pursuant to Section 9.1(f) or (g),
the parties shall make a joint announcement of such termination and the reason
therefor; and
(n) the parties shall have executed the form of the Warrant Agreement prior
to the mailing of the proxy statements by each party.
SECTION 8.2. Conditions to Obligations of Parent. The obligation of Parent
to consummate the transactions contemplated by this Agreement shall be subject
to the satisfaction or waiver at or prior to the Closing of the following
additional conditions:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in Article 3 that are qualified as to materiality shall be
true and correct, and the representations and warranties of the Company set
forth in Article 3 that are not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of the
Closing as though made on and as of the date of the Closing, except to the
extent such representations and warranties speak as of an earlier date or except
for transactions explicitly permitted by this Agreement. The representations and
warranties of the Company set forth in Article 3 shall also be true and correct
in the aggregate as of the date of this Agreement and as of the Closing with the
same effect as though made on and as of the date of the Closing, except to the
extent the breaches of all the representations and warranties, if any
(excluding, for this purpose, any qualifications as to materiality therein) in
the aggregate do not have a Company Material Adverse Effect.
(b) Performance of Obligations of Company. The Company shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time.
(c) Certificate. Parent shall have received a certificate dated as of the
date of the Closing and signed on behalf of Company by the Chief Executive
Officer and Chief Financial Officer the Company, to the effect that the
conditions to Parent's obligations set forth in Sections 8.2(a) and (b) have
been satisfied.
(d) No Material Adverse Change. There shall not have occurred any one or
more events with respect to the Company or the Company Subsidiaries between the
Company Balance Sheet Date and the date of the Closing which, individually or in
the aggregate, had, or may be reasonably expected to have, a Company Material
Adverse Effect, a Parent Material Adverse Effect or a Surviving Corporation
Adverse Effect including, without limitation, a downgrading or threatened
downgrading of the Company Insurance Subsidiary by A.M. Best (which is hereby
deemed to be such a Material Adverse Effect) or a development or developments in
any litigation listed in the Company Disclosure Schedule with respect to Section
3.14 which, individually or in the aggregate, had, or may be reasonably expected
to have, a Company Material Adverse Effect.
(e) Comfort Letter. Parent shall have received a "comfort letter" from
Deloitte & Touche, LLP, the Company's independent certified public accountants,
dated the date of the Company Proxy Statement and updated as of the date of the
Closing, with respect to the financial information regarding the Company and the
Company Subsidiaries in form and substance reasonably satisfactory to Parent,
and shall have received their consent to the inclusion of their report on the
Company's financial statements included in the Registration Statement.
(f) Tax Opinion. Parent shall have received from its counsel an opinion to
the effect that the Merger when consummated in accordance with the terms hereof
and any plan of merger entered into by the parties will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Code, that no gain or
loss will be recognized by Parent or the Company on consummation of the Merger,
and that the exchange of Parent Stock for Shares will not give rise to
recognition of gain or loss for federal income tax purposes to the stockholders
of the Company, except with respect to the receipt of the Cash Portion Per
Share, the Parent Warrants and cash in lieu of a fractional share of Parent
Stock and Parent Warrant, and the Merger will not give rise to recognition of
gain or loss for federal income tax purposes to Parent.
(g) Reserves. Parent shall have received an unqualified opinion of an
independent actuarial firm, satisfactory to Parent, that the reserves and assets
held by the Company and the Company Insurance Subsidiary are adequate and
sufficient to fund the legal and contractual obligations of the Company and the
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Company Insurance Subsidiary to the Company Insurance Subsidiary's policy
holders as of June 30, 1995. Such opinion must be accompanied by an Actuarial
Memorandum of the same independent actuarial firm, describing the Company's
Asset Adequacy Analysis.
(h) Blue Sky Compliance. Parent shall have received all state securities or
"blue sky" authorizations necessary to issue Parent Stock and Parent Warrants
pursuant to the Merger.
(i) Pooling Letter. Unless waived, Parent shall have received the Pooling
Letter dated no later than the time of printing of the Joint Proxy Statement.
(j) Fairness Opinion. Parent shall have received the Furman Selz Fairness
Opinion, dated the time of mailing of the Joint Proxy Statement, or if dated
previously, updated to such time.
(k) Resignations. Parent shall have received written resignations from such
office from all directors and officers of the Company and the Company
Subsidiaries.
(l) Affiliates. Parent shall have received a signed "affiliates letter"
from all affiliates of the Company (i) restricting the shares of Parent Stock
received from them unless sold pursuant to the requirements of Rule 145 or other
exemption from the Federal securities laws, and an opinion to that effect
reasonably satisfactory to Parent (both as to counsel and form of opinion) and
(ii) providing for a legend referencing such restriction.
(m) Financing. Parent shall have received, no later than the date of
printing of the Joint Proxy Statement, either (a) a commitment from First
Chicago for all cash financing necessary for Parent and the Merger Subsidiary to
consummate the Merger, and conduct its activities following the Effective Time
or (b) consents or waivers to the execution of this Agreement and to the
consummation of each of the transactions contemplated hereby from (i) Shawmut or
its successor (to the assumption by Parent or the Merger Subsidiary of the
Company's obligations under the Credit Agreement, the extension of such Credit
Agreement beyond its current term, and the continuation of the Credit Agreement
upon economic terms no less favorable that those currently existing and
reflecting an acknowledgement of the enhanced credit standing of the combined
entities after the Merger, and (ii) Parent's senior lenders, First Chicago and
Boatmen's National Bank.
(n) Option Plan Amendment. The stockholders of Parent shall have approved
an amendment to the 1989 AmVestors Financial Corporation Non-Qualified Stock
Option Plan to increase the number of shares issuable under such plan by at
least 150,000 shares.
(o) Releases. Parent shall have received appropriate releases from holders
of options issued pursuant to Financial Benefit Group, Inc.'s Employee Incentive
Stock Option Plan as described in Section 1.5(f).
SECTION 8.3. Conditions to Obligations of the Company. The obligation of
the Company to consummate the transactions contemplated by this Agreement shall
be subject to the satisfaction or waiver at or prior to the Closing of the
following additional conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Subsidiary set forth in Article 4 that are qualified as to
materiality shall be true and correct, and the representations and warranties of
Parent and Merger Subsidiary set forth in Article 4 that are not so qualified
shall be true and correct in all material respects, in each case as of the date
of this Agreement and as of the Closing as though made on and as of the date of
the Closing, except to the extent such representations and warranties speak as
of an earlier date or except for transactions permitted by this Agreement. The
representations and warranties of Parent set forth in Article 4 shall also be
true and correct in the aggregate as of the date of this Agreement and as of the
Closing with the same effect as though made on and as of the date of the
Closing, except to the extent the breaches of all the representations and
warranties, if any (excluding, for this purpose, any qualifications as to
materiality therein) in the aggregate do not have a Parent Material Adverse
Effect.
(b) Performance of Obligations of Parent and Merger Subsidiary. Parent and
Merger Subsidiary shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the
Effective Time.
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(c) Certificate. The Company shall have received a certificate dated as of
the date of the Closing and signed on behalf of Parent and Merger Subsidiary by
the respective Chief Executive Officers and Chief Financial Officers of each
such entity, to the effect that the conditions to the Company's obligations set
forth in Sections 8.3(a) and (b) have been satisfied.
(d) No Material Adverse Change. There shall not have occurred any one or
more events with respect to Parent, the Parent Subsidiaries or the Merger
Subsidiary between the Parent Balance Sheet Date and the date of the Closing
which, individually or in the aggregate, had, or may be reasonably expected to
have, a Parent Material Adverse Effect, including without limitation a
development or developments in any litigation listed in the Parent Disclosure
Schedule with respect to Section 4.12 which, individually or in the aggregate,
had, or may be reasonably expected to have, a Parent Material Adverse Effect.
(e) Tax Opinion. The Company shall have received from its counsel an
opinion to the effect that the Merger when consummated in accordance with the
terms hereof and any plan of merger entered into by the parties will constitute
a tax-free reorganization within the meaning of Section 368(a) of the Code, that
no gain or loss will be recognized by Parent or the Company on consummation of
the Merger, and that the exchange of Parent Stock for Shares will not give rise
to recognition of gain or loss for federal income tax purposes to the
stockholders of the Company, except with respect to the receipt of the Cash
Portion Per Share, the Parent Warrants and cash in lieu of a fractional share of
Parent Stock and Parent Warrant, and the Merger will not give rise to
recognition of gain or loss for federal income tax purposes to the Company.
(f) Reserves. The Company shall have received an unqualified opinion of an
independent actuarial firm, satisfactory to the Company, that the reserves and
assets held by Parent and the Parent Insurance Subsidiary are adequate and
sufficient to fund the legal and contractual obligations of Parent and the
Parent Insurance Subsidiary to Parent Insurance Subsidiary's policy holders as
of June 30, 1995. Such opinion must be accompanied by an Actuarial Memorandum of
the same independent actuarial firm, describing Parent's Asset Adequacy
Analysis.
ARTICLE 9
TERMINATION
SECTION 9.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement, the Merger, and the transactions contemplated
hereby, by the stockholders of the Company):
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent, if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise prohibited
or if any judgment, injunction, order or decree enjoining Parent or the Company
from consummating the Merger is entered and such judgment, injunction, order or
decree shall become final and nonappealable;
(c) by either Parent or the Company, if the Effective Time shall not have
occurred on or before January 31, 1996;
(d) by either Parent or the Company, if the stockholders of the Company or
Parent fail to approve and adopt this Agreement, the Merger and other
transactions contemplated hereby at a meeting duly convened therefor;
(e) by Parent, if the Company shall have received any Acquisition Proposal
that the Board of Directors of the Company has determined is more favorable to
the Company's stockholders than the transactions contemplated by this Agreement,
or has otherwise declined to make, withdrawn or modified its recommendation for
the Company's shareholders to approve this Agreement, the Merger and the
transactions contemplated hereby;
(f) by Parent, if any of the conditions specified in Sections 8.1 and 8.2
hereof has not been met or waived by Parent on or prior to the Effective Time or
at such time as such condition can no longer be satisfied;
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(g) by the Company, if any of the conditions specified in Sections 8.1 and
8.3 hereof has not been met or waived by the Company on or prior to the
Effective Time or at such time as such condition can no longer be satisfied; or
(h) by either Parent or the Company if the Parent Stock Price is less than
$9.50 or greater than $14.50.
The party desiring to terminate this Agreement pursuant to clauses (b),
(c), (d), (e), (f), (g) or (h) shall give written notice of such termination to
the other party in accordance with Section 10.1.
SECTION 9.2. Payments and Expenses. In recognition of the considerable time
and expense that the Parent has expended and will expend in entering into this
Agreement, and pursuing the Merger and the other transactions contemplated
hereby, and in order to induce Parent and Merger Subsidiary to enter into this
Agreement, the Company shall pay to the Parent the amounts described in (a) and
(b) below.
(a) In the event that this Agreement is terminated and the Merger has not
been consummated (other than as a result of the material breach by the Parent or
Merger Subsidiary of their representations, warranties or covenants contained in
this Agreement or the exercise by either party of the right to terminate under
Section 9.1(h)), and if no Triggering Event (as hereinafter defined) has
occurred, the Company shall reimburse the Parent for its time and expenses in
pursuing and structuring the Merger in an amount equal to $250,000. In the event
that this Agreement is terminated and the Merger has not been consummated as a
result of the material breach by the Parent or Merger Subsidiary of their
representations, warranties or covenants contained in this Agreement (and there
shall have been no material breach by the Company of its representations,
warranties or covenants contained in this Agreement), and if no Triggering Event
has occurred, the Parent shall reimburse the Company for its time and expenses
in pursuing and structuring the Merger in an amount equal to $250,000.
(b) The Company shall pay to Parent $1,000,000 if the Merger is not
consummated and any of the following have previously occurred ("Triggering
Events"):
(i) any other party shall have in any manner proposed (whether to
management, the directors or the shareholders of the Company or otherwise)
or communicated or announced its interest in pursuing an Extraordinary
Transaction (after execution of this Agreement), such proposal or interest
is publicly communicated or announced by any party, and the shareholders of
the Company disapprove the Merger, this Agreement or the transactions
contemplated hereby.
(ii) more than 25% of the Shares held by the directors of the Company
are voted against, or abstain from voting on, the Merger, this Agreement
and the transactions contemplated hereby.
(iii) the Company enters into an agreement (or reaches an agreement in
principle) providing for an Extraordinary Transaction or the directors or
shareholders of the Company shall have authorized or approved the entering
into any such agreement or agreement in principle by the Company or any
application, notification or filing seeking regulatory approval or
clearance of any such agreement, agreement in principle or Extraordinary
Transaction shall have been filed;
(iv) an Extraordinary Transaction shall be consummated by the Company;
(v) any other party shall have commenced, or publicly communicated an
intention to commence, a solicitation of proxies in opposition to approval
by the Company's shareholders of this Agreement and the shareholders of the
Company disapprove the Merger, this Agreement and the transactions
contemplated hereby; or
(vi) the Board of Directors declines to make, withdraws or amends its
recommendation to the Company's shareholders to approve this Agreement, the
Merger and the transactions contemplated hereby.
The fee described in this Section 9.2(b) shall not be payable in the event
that the Company has terminated this Agreement, pursuant to its rights under
Section 9.1, prior to the occurrence of a Triggering Event. The fee described in
this Section 9.2(b) shall also not be payable in the event that the Parent
terminates this Agreement (X) pursuant to its rights under Section 9.1(h), (Y)
because the Parent does not
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receive the pooling letter described in Section 8.2(i) or (Z) because of a
downgrading or threatened downgrading of the Parent Insurance Subsidiary or
Company Insurance Subsidiary by A.M. Best, which downgrading or threatened
downgrading is not primarily the result of a Triggering Event or actions taken
in connection therewith.
SECTION 9.3. Other Rights and Remedies. The payments described in Sections
9.2 hereof shall be in addition to, and not in limitation of, any right or
remedy that the Parent or Merger Subsidiary may otherwise have for a breach by
the Company of the provisions of this Agreement.
SECTION 9.4. Procedure Upon Termination. In the event of termination and
abandonment pursuant to this Article 9, this Agreement shall terminate and the
Merger shall be abandoned without further action by the Company or the Parent,
provided that the agreements contained in Sections 5.1 and 6.1 hereof shall
remain in full force and effect. If this Agreement is terminated as provided
herein, each party shall use its reasonable best efforts to redeliver all
documents, work papers and other material (including any copies thereof) of any
other party relating to the transactions contemplated hereby, whether so
obtained before or after the execution hereof, to the party furnishing the same.
Nothing contained in this Agreement shall relieve any party from any liability
for any breach of this Agreement prior to termination.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including telecopy or similar writing)
and shall be given,
if to Parent or Merger Subsidiary, to:
AmVestors Financial Corporation
415 S.W. Eighth Avenue
Topeka, Kansas 66603
Attention: Mark V. Heitz
President and General Counsel
telecopy: (913) 232-3534
With a copy to:
Bryan Cave LLP
211 North Broadway, Suite 3600
St. Louis, Missouri 63102
Attention: Michael A. DeHaven
telecopy: (314) 259-2020
if to the Company, to:
Financial Benefit Group, Inc.
Attention Frank T. Crohn
7251 West Palmetto Park Road
Boca Raton, Florida 33433
telecopy: (407) 394-8299
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With a copy to:
Harnett Lesnick Ripps & Kahn, P.A.
Attention: Bertram Harnett
7251 West Palmetto Park Road
Boca Raton, Florida 33433
telecopy: (407) 368-4315
and to:
Lord, Bissell & Brook
Attention David L. Skelding
115 South LaSalle Street
Chicago, Illinois 60603
telecopy (312) 443-0336
or such other address or telecopy number as such party may hereafter specify by
notice to the other parties hereto. Each such notice, request or other
communication shall be effective (a) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified in this Section and the appropriate
telecopy confirmation is received or (b) if given by any other means, when
delivered at the address specified in this Section.
SECTION 10.2. Survival of Representations and Warranties. The
representations and warranties and agreements contained herein and in any
certificate or other writing delivered pursuant hereto shall not survive the
Effective Time and the termination of this Agreement except for the
representations, warranties and agreements set forth in Sections 1.3, 1.5, 1.7,
2.3, 3.7, 3.16, 3.18, 4.15, 5.1, 6.1, 6.6, 6.7, 10.2 and 10.4.
SECTION 10.3. Amendments; No Waivers. (a) Any provision of this Agreement
may be amended or waived prior to the Effective Time if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company, Parent and Merger Subsidiary or in the case of a waiver, by the
party against whom the waiver is to be effective; provided that after the
adoption of this Agreement by the stockholders of the Company, no such amendment
or waiver shall, without the further approval of such stockholders, alter or
change (i) the amount or kind of consideration to be received in exchange for
any Shares of capital stock of the Company; (ii) any term of the certificate of
incorporation of the Surviving Corporation or (iii) any of the terms or
conditions of this Agreement if such alteration or change would adversely affect
the holders of any Shares of capital stock of the Company.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 10.4. Expenses. Except as otherwise provided in this Agreement,
each party hereto shall pay its own legal and accounting fees, costs and
expenses in connection with the negotiation and execution of this Agreement and
the transactions contemplated hereby.
SECTION 10.5 Affiliate Restrictions/Legends. The shares of Parent Stock
received by any affiliate, as that term is defined under the Securities Act,
shall be subject to the restrictions contained in Rule 145 under the Securities
Act and may not be resold by any such affiliate except in compliance with such
rule or another applicable exemption from registration under such Act and any
applicable state securities laws. The shares of Parent Stock received by any
such affiliate shall contain an appropriate legend.
SECTION 10.6. Entire Agreement/No Third Party Beneficiaries. All prior
negotiations and agreements between the parties hereto relating to the subject
matter hereof are superseded by this Agreement and as of the date hereof there
are no representations, warranties, understandings or agreements, whether
written or oral, expressed or implied, other than those specifically set forth
herein. There are no third party beneficiaries to this Agreement.
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SECTION 10.7. Waivers. Any failure by any of the parties hereto to comply
with any of the obligations, agreements or conditions set forth herein may be
waived by the other party or parties provided, however, that any such waiver
shall not be deemed a waiver of any other obligation, agreement or condition.
SECTION 10.8. Amendments, Supplements or Modifications. Each of the parties
agrees to cooperate fully in the effectuation of the transactions contemplated
hereby and to execute any and all additional documents or take such additional
actions as shall be reasonably necessary or appropriate for such purpose.
SECTION 10.9. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the prior written consent of the other parties hereto.
SECTION 10.10. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws and not the conflicts of laws
provisions of the State of Kansas.
SECTION 10.11. Exclusive Jurisdiction and Consent to Service of
Process. The Parties agree that any legal action, suit or proceeding arising out
of or relating to this Agreement or the agreements and transactions contemplated
hereby shall be instituted in a Federal court located in such District, or a
state court in such District or County, in which the Parent resides, which shall
be the exclusive jurisdiction and venue of said legal proceedings, and each
party hereto waives any objection which such party may now or hereafter have to
the laying of venue of any such action, suit or proceeding. Any and all service
of process and any other notice in any such action, suit or proceeding shall be
effective against such party upon notice to such party thereof as provided in
Section 10.1. Nothing contained herein shall be deemed to affect the right of
any party hereto to serve process in any manner permitted by law.
SECTION 10.12. Disclosure Schedules. Notwithstanding anything herein to the
contrary, any matter disclosed in any part of either the Company Disclosure
Schedule or the Parent Disclosure Schedule shall be deemed to be disclosed in
all parts of such Schedules where the other party could reasonably be expected
to ascertain the scope of the modification of any such other representation,
regardless of whether such matter is specifically cross-referenced. The
disclosure of any matter in a Schedule is not to be deemed determinative of or
an indication that such matter is material to the operations of the Company or
Parent, as the case may be.
SECTION 10.13. Counterparts: Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
FINANCIAL BENEFIT GROUP, INC.
By:
-------------------------------------
Title:
AMVESTORS FINANCIAL CORPORATION
By:
-------------------------------------
Title:
AMVESTORS ACQUISITION SUBSIDIARY, INC.
By:
-------------------------------------
Title:
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AMENDMENT NO. 1
DATED AS OF OCTOBER 17, 1995
TO
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 8, 1995
THIS AMENDMENT NO. 1 ("Amendment") is executed as of the 17th day of
October, 1995, by and among Financial Benefit Group, Inc., a Delaware
corporation, AmVestors Financial Corporation, a Kansas corporation ("Parent"),
and AmVestors Acquisition Subsidiary, Inc., a Delaware corporation and a wholly-
owned subsidiary of Parent.
WITNESSETH:
WHEREAS, the parties hereto have entered into that certain Agreement and
Plan of Merger dated as of September 8, 1995 (the "Merger Agreement"); and
WHEREAS, the parties desire to amend the Merger Agreement in certain
limited respects.
NOW, THEREFORE, for good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
SECTION 1. Amendment of the Merger Agreement. The Merger Agreement is,
effective as of the date hereof, hereby amended as follows:
(a) Section 1.2(b)(iii) of the Merger Agreement is amended to read in its
entirety as follows:
" (iii) each Share outstanding immediately prior to the Effective Time
shall, except as otherwise provided in Section 1.2(b)(i) or except as
provided in Section 1.4 with respect to Dissenting Shares (as defined
herein), if any, be converted into the right to receive (X) the Cash
Portion Per Share (as defined in Section 1.2(d)), plus (Y) a Parent Warrant
Fraction (as defined in Section 1.2(e)) of a Parent Warrant (as defined in
Section 1.2(e)) as determined pursuant to Section 1.2(e)), plus (Z) that
number of shares of common stock, no par value, of Parent (the "Parent
Stock") equal to $5.00 minus the Cash Portion Per Share ("Stock Portion Per
Share"), divided by the Parent Stock Price (as defined below), if the
Parent Stock Price is greater than or equal to $10.50 and less than or
equal to $13.25; that number of shares of Parent Stock equal to the Stock
Portion Per Share divided by $10.50, if the Parent Stock Price is less than
$10.50; and that number of shares equal to the Stock Portion Per Share
divided by $13.25 if the Parent Stock Price is greater than $13.25, in any
such case carried to the fourth decimal place (such amount of stock as so
determined being herein referred to as the "Stock Per Share Amount"). If
the Parent Stock Price is greater than $14.50 or less than $9.50 this
Agreement may be terminated in accordance with the provisions of Section
9.1(h) hereto.";
(b) Section 1.2(d) of the Merger Agreement is amended to read in its
entirety as follows:
" (d) The "Cash Portion Per Share" shall be equal to the amount
obtained by dividing (i) $10 million (or such greater amount not exceeding
$15 million that Parent may determine in its sole discretion) minus (x) any
amounts payable to holders of FBG Options (as defined in Section 3.7(b))
pursuant to Sections 1.5(c), 1.5(d) and 1.5(e), and minus (y) an amount
equal to $5.31 multiplied by the number of Dissenting Shares, by (ii) the
number of Shares outstanding immediately prior to the Effective Time minus
the Dissenting Shares (as defined in Section 1.4).";
(c) Section 1.4 of the Merger Agreement is amended to read in its entirety
as follows:
" SECTION 1.4. Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, Shares which are held by stockholders who have
not voted such Shares in favor of the Merger and who shall have delivered a
written demand for appraisal of such Shares in the manner provided in the
DGCL and who shall not have withdrawn such objection or waived such rights
prior to the Closing Date (the "Dissenting Shares") shall not be converted
into or be exchangeable for the right to receive the Merger
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Consideration provided in Section 1.2 hereof, unless and until such holder
shall have failed to perfect or shall have effectively withdrawn or lost
his right to appraisal and payment under the DGCL. If such holder shall
have so failed to perfect or shall have effectively withdrawn or lost such
right, his Shares shall thereupon be deemed to have been converted into and
to have become exchangeable for, at the Effective Time, the right to
receive the Merger Consideration provided for in Section 1.2 hereof,
without any interest thereon.";
(d) Section 8.2(n) of the Merger Agreement is amended to read in its
entirety as follows:
" (n) Option Plan Amendment. The stockholders of Parent shall have
approved an amendment to the 1989 AmVestors Financial Corporation
Non-Qualified Stock Option Plan to increase the number of shares issuable
under such plan by at least 275,000 shares."; and
(e) Section 8.2 of the Merger Agreement is amended by adding thereto a new
subsection (p) which shall read in its entirety as follows:
" (p) Dissenting Shares. Dissenting Shares shall not constitute more
than 10% of the outstanding Shares of Company A Stock on the Closing Date."
SECTION 2. Reference to and Effect on the Merger Agreement. Upon the
effectiveness of this Amendment, each reference in the Merger Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like import shall mean
and be, and any references to the Merger Agreement in any other document,
instrument or agreement executed and/or delivered in connection with the Merger
Agreement shall mean and be, a reference to the Merger Agreement as amended
hereby.
SECTION 3. Effect of this Amendment. Except as otherwise specifically
amended herein, the Merger Agreement, as modified by this Amendment, remains in
full force and effect.
SECTION 4. Governing Law. This Amendment shall be governed by and construed
in accordance with the internal laws and not the conflicts of laws provisions of
the State of Kansas.
SECTION 5. Counterparts: Effectiveness. This Amendment may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
SECTION 6. Definitions. Any capitalized terms used but not defined herein
shall have the meaning ascribed thereto in the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
FINANCIAL BENEFIT GROUP, INC.
By:
-------------------------------------
Title:
AMVESTORS FINANCIAL CORPORATION
By:
-------------------------------------
Title:
AMVESTORS ACQUISITION SUBSIDIARY, INC.
By:
-------------------------------------
Title:
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AMENDMENT NO. 2
DATED AS OF DECEMBER 28, 1995
TO
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 8, 1995
THIS AMENDMENT NO. 2 ("Amendment") is executed as of the 28th day of
December, 1995, by and among Financial Benefit Group, Inc., a Delaware
corporation, AmVestors Financial Corporation, a Kansas corporation ("Parent"),
and AmVestors Acquisition Subsidiary, Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent.
WITNESSETH:
WHEREAS, the parties hereto have entered into that certain Agreement and
Plan of Merger dated as of September 8, 1995 (as amended by that certain
Amendment No. 1 dated October 17, 1995, the "Merger Agreement"); and
WHEREAS, the parties desire to amend the Merger Agreement in certain
limited respects.
NOW, THEREFORE, for good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
SECTION 1. Amendment of the Merger Agreement. The Merger Agreement is,
effective as of the date hereof, hereby amended as follows:
Clause (c) of Section 9.1 of the Merger Agreement is amended to read in its
entirety as follows:
" (c) by either Parent or the Company, if the Effective Time shall not
have occurred on or before February 14, 1996;"
SECTION 2. Reference to and Effect on the Merger Agreement. Upon the
effectiveness of this Amendment, each reference in the Merger Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like import shall mean
and be, and any references to the Merger Agreement in any other document,
instrument or agreement executed and/or delivered in connection with the Merger
Agreement shall mean and be, a reference to the Merger Agreement as amended
hereby.
SECTION 3. Effect of this Amendment. Except as otherwise specifically
amended herein, the Merger Agreement, as modified by this Amendment, remains in
full force and effect.
SECTION 4. Governing Law. This Amendment shall be governed by and construed
in accordance with the internal laws and not the conflicts of laws provisions of
the State of Kansas.
SECTION 5. Counterparts: Effectiveness. This Amendment may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
SECTION 6. Definitions. Any capitalized terms used but not defined herein
shall have the meaning ascribed thereto in the Merger Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
FINANCIAL BENEFIT GROUP, INC.
By:
-------------------------------------
Title:
AMVESTORS FINANCIAL CORPORATION
By:
-------------------------------------
Title:
AMVESTORS ACQUISITION SUBSIDIARY, INC.
By:
-------------------------------------
Title:
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AMENDMENT NO. 3
DATED AS OF FEBRUARY 14, 1996
TO
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 8, 1995
THIS AMENDMENT NO. 3 ("Amendment") is executed as of the 14th day of
February, 1996, by and among Financial Benefit Group, Inc., a Delaware
corporation, AmVestors Financial Corporation, a Kansas corporation ("Parent"),
and AmVestors Acquisition Subsidiary, Inc., a Delaware corporation and a wholly-
owned subsidiary of Parent.
WITNESSETH:
WHEREAS, the parties hereto have entered into that certain Agreement and
Plan of Merger dated as of September 8, 1995 (as amended, the "Merger
Agreement"); and
WHEREAS, the parties desire to amend the Merger Agreement in certain
limited respects.
NOW, THEREFORE, for good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
SECTION 1. Amendment of the Merger Agreement. The Merger Agreement is,
effective as of the date hereof, hereby amended as follows:
(a) Clause (c) of Section 9.1 of the Merger Agreement is amended to read in
its entirety as follows:
" (c) by either Parent or the Company, if the Effective Time shall not
have occurred on or before April 8, 1996;" and
(b) It is understood that the proper interpretation of Section 8.2(m),
clause (a) is that a commitment from First Chicago for all cash financing
necessary for Parent and the Merger Subsidiary to consummate the Merger, and
conduct its activities following the Effective Time, must be effective and not
withdrawn for such condition to be satisfied.
(c) The ten day period referenced in Sections 1.5(d), 1.5(e), 1.5(f), and
1.5(g) shall be amended to be four days.
SECTION 2. Reference to and Effect on the Merger Agreement. Upon the
effectiveness of this Amendment, each reference in the Merger Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like import shall mean
and be, and any references to the Merger Agreement in any other document,
instrument or agreement executed and/or delivered in connection with the Merger
Agreement shall mean and be, a reference to the Merger Agreement as amended.
SECTION 3. Effect of this Amendment. Except as otherwise specifically
amended, the Merger Agreement, as modified by this Amendment, remains in full
force and effect.
SECTION 4. Governing Law. This Amendment shall be governed by and construed
in accordance with the internal laws and not the conflicts of laws provisions of
the State of Kansas.
SECTION 5. Counterparts: Effectiveness. This Amendment may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
SECTION 6. Definitions. Any capitalized terms used but not defined herein
shall have the meaning ascribed thereto in the Merger Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
FINANCIAL BENEFIT GROUP, INC.
By:
--------------------------------------
Title:
AMVESTORS FINANCIAL CORPORATION
By:
--------------------------------------
Title:
AMVESTORS ACQUISITION SUBSIDIARY, INC.
By:
--------------------------------------
Title:
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APPENDIX II -- OPINION OF FURMAN SELZ INCORPORATED
261
[Date of Proxy Statement]
Board of Directors
AmVestors Financial Corporation
415 S.W. Eighth Avenue
Topeka, Kansas 66601
Board Members:
We understand that AmVestors Financial Corporation ("AmVestors"), AmVestors
Acquisition Subsidiary, Inc. ("Acquisition Subsidiary"), a wholly owned
subsidiary of AmVestors, and Financial Benefit Group, Inc. ("FBG") have entered
into an agreement and plan of merger dated as of September 8, 1995, as amended
(the "Merger Agreement"). Pursuant to the Merger Agreement, AmVestors would
acquire FBG through the merger of FBG with and into the Acquisition Subsidiary
(the "Merger"). Upon consummation of the Merger, each share of FBG's class A
common stock, $.01 par value per share ("FBG Class A Common Stock") will be
converted into the right to receive a combination of (i) cash, (ii) a fraction
of a share of AmVestors common stock, no par value per share ("AmVestors Common
Stock"), and (iii) a fraction of an AmVestors Class A Warrant ("AmVestors
Warrant") (collectively, the "Merger Consideration"), valued in the aggregate at
$5.31 per share as described in the Merger Agreement. If the average closing
price of AmVestors Common Stock during the twenty consecutive trading days
ending three days prior to the Merger (the "AmVestors Stock Price") is greater
than or equal to $10.50 and less than or equal to $13.25 (with the fraction of
the share of AmVestors Common Stock (and therefore the aggregate value of the
Merger Consideration) increasing or decreasing as described in the Merger
Agreement) if the AmVestors Stock Price is outside of such range. Prior to the
Merger, each share of FBG class B common stock will be converted into 1.35
shares of FBG Class A Common Stock. The fraction of an AmVestors Warrant payable
per share of FBG Common Stock. The fraction of an AmVestors Warrant payable per
share of FBG Class A Common Stock in the Merger will be valued at $.31 (by
application of a Black-Scholes model) on the third trading day prior to the
Merger. Each AmVestors Warrant will have an exercise price equal to 135% of the
AmVestors Stock Price and be exercisable for a period of six years following the
date such price is determined.
You have requested our opinion, as investment bankers, as to the fairness,
from a financial point of view, to AmVestors, of the consideration to be offered
in the Merger.
As you are aware, we have performed various investment banking services for
AmVestors in the past, including acting as a managing underwriter for AmVestors'
public offering in November 1993, and have received customary fees for such
services. In the ordinary course of our business, we may actively trade in the
equity securities of AmVestors for our own account, our employees' accounts and
for the accounts of our customers and, accordingly, may at any time hold a long
or short position in such securities.
In conducting our analysis and arriving at our opinion as expressed herein,
we have reviewed and analyzed, among other things, the following:
(i) the Merger Agreement and the financial terms of the Merger set
forth therein;
(ii) selected publicly available information concerning AmVestors and
FBG, including 1994 Annual Reports, Annual Reports on Form 10-K for the
fiscal year ended December 31, 1994, Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 1995 and June 30, 1995, Proxy Statements
for the 1995 Annual Meeting of Stockholders, stock prices, news releases
and research reports;
(iii) financial and operating information with respect to the
business, operations and prospects of FBG furnished to us by FBG and
AmVestors;
(iv) the actuarial opinion letter as to the adequacy of FBG's reserves
prepared by Milliman & Robertson, furnished to us by AmVestors;
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(v) financial and operating information with respect to the business,
operations and prospects of AmVestors furnished to us by AmVestors;
(vi) the common stock price and trading histories of AmVestors common
stock and FBG Class A Common Stock;
(vii) a comparison of the financial positions and operating results of
FBG and AmVestors with those of publicly traded companies that we deemed
relevant;
(viii) a comparison of certain financial terms of the Merger to
certain financial terms of selected other business combinations that we
deemed relevant;
(ix) analyses of the respective contributions in terms of assets and
earnings of FBG and AmVestors to the combined companies and the relative
ownership of the combined companies by the current shareholders of
AmVestors and FBG;
(x) analyses of other potential financial effects of the Merger;
(xi) certain internal information relating to AmVestors and/or FBG,
including various financial forecasts and projections based upon differing
assumptions provided to us by management of AmVestors and/or FBG; and
(xii) possible synergies and other potential benefits arising from the
Merger.
We have also conducted discussions with various members of senior
management of FBG and AmVestors concerning their respective businesses,
operations, assets, present condition and future prospects to the extent deemed
appropriate by us. We have also conducted discussions with various members of
the senior management of AmVestors concerning the strategic and operating
benefits anticipated from the Merger, and conducted such other financial
studies, analyses and investigations as we deemed appropriate for the purposes
of rendering our opinion.
In arriving at our opinion, we assumed and relied upon the accuracy and
completeness of the financial and other information that was available to us
from public sources, that was provided to us by AmVestors or FBG or their
respective representatives or that was otherwise reviewed by us in arriving at
our opinion and have not attempted to independently verify, or undertake an
obligation to verify, such information. We have not visited or conducted a
physical inspection of the properties or facilities of AmVestors or FBG
(although representatives of Furman Selz have visited AmVestors' and FBG's
headquarters) nor have we obtained or assumed any responsibility for any
independent evaluation or appraisal of any such properties or facilities or of
the assets, liabilities or reserves of FBG or AmVestors. We have not conducted
any independent actuarial evaluations. In addition, we have assumed that
forecasts and projections prepared by the managements of AmVestors and FBG
represented the best current judgment of their managements as to the future
financial condition and results of operations of AmVestors and FBG,
respectively, and have assumed that such forecasts and projections have been
reasonably prepared based on such current judgment.
We are not expressing an opinion on FBG's reserve adequacy and are relying
on the management of AmVestors' representation that the Merger is contingent on
AmVestors being provided with an opinion from an independent actuary stating
that FBG's reserves are adequate.
We have also taken into account an assessment of general economic, market
and financial conditions and our experience in similar transactions, as well as
our experience in securities valuation in general. Our opinion necessarily is
based upon conditions as they existed and can be evaluated on the date hereof
and on the information made available to us as of the date hereof. It should be
understood that, although subsequent developments may affect our opinion, we do
not have any obligation to update, revise or reaffirm our opinion. In addition,
upon the advice of AmVestors, we have assumed the Merger will be accounted for
as a purchase for GAAP reporting purposes. We have also assumed that, in the
course of obtaining necessary regulatory approvals for the Merger, no
restrictions will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger.
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AmVestors management has advised us that it does not believe that
consummation of the Merger will cause a downgrading of AmVestors' insurance
subsidiary by A.M. Best, and this opinion relies on such representation.
It is understood that this letter is solely for the benefit and use of the
Board of Directors of AmVestors in its consideration of the Merger. This opinion
is directed to AmVestors' Board of Directors, addresses only the fairness of the
Merger Consideration offered from a financial point of view to AmVestors'
shareholders as of the date of this opinion and does not constitute a
recommendation to any AmVestors shareholder as to how such shareholder should
vote at the AmVestors Special Meeting and should not be relied upon by any
shareholder as such. We were not requested to opine as to, and this opinion does
not in any manner address, AmVestors' underlying business decision to proceed
with or effect the Merger, or the relative merits of the Merger as compared to
any alternative business strategies which might exist for AmVestors or the
effect of any other transaction in which AmVestors might engage or any
agreements or arrangements which might be concluded between AmVestors and FBG
after the date hereof. This opinion may be included in its entirety in any
prospectus with respect to the Merger, but it may not be summarized, excerpted
from or otherwise publicly referred to without our prior written consent.
We did not participate in any negotiations or structuring of the Merger and
were engaged subsequent to the execution of the Merger Agreement.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that the Merger Consideration offered by AmVestors in the Merger is
fair, from a financial point of view, to AmVestors.
Very truly yours,
FURMAN SELZ INCORPORATED
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APPENDIX III -- OPINION OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
265
February 26, 1996
The Board of Directors
Financial Benefit Group, Inc.
7251 West Palmetto Park Road
Boca Raton, FL 33433
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of Financial Benefit Group, Inc. (the "Company") of the
consideration to be received by such stockholders in the merger (the "Merger")
to be effected pursuant to the terms of the Agreement and Plan of Merger (the
"Agreement") dated September 8, 1995, among the Company, AmVestors Financial
Corporation ("AmVestors") and AmVestors Acquisition Subsidiary, Inc., a
wholly-owned subsidiary of AmVestors ("Merger Subsidiary").
Pursuant to the Agreement, as of the Effective Time (as defined in the
Agreement) of the Merger of the Company with and into the Merger Subsidiary,
each share of Class A Common Stock of the Company will be converted into the
right to receive the Merger Consideration (as defined in the Agreement) in the
aggregate equal to $5.31 per share, consisting of a Cash Portion Per Share (as
defined in the Agreement), a Parent Warrant Fraction of a Parent Warrant (as
defined in the Agreement) and a Stock Portion Per Share (as defined in the
Agreement). The Stock Portion Per Share consists of AmVestors common stock and
the Parent Warrant Fraction of a Parent Warrant consists of a fraction of a
warrant exercisable into one share of AmVestors common stock. Pursuant to the
Agreement, the value of the Stock Portion Per Share and, as such, the value of
the Merger Consideration, may vary according to a predetermined formula which is
based on the average of the closing prices of AmVestors common stock reported in
the principal consolidated transaction reporting system for securities listed on
the New York Stock Exchange for the 20 trading day period ending the third
trading day prior to the Effective Time.
In arriving at our opinion, we have reviewed the Agreement as well as
financial and other information that was publicly available or furnished to us
by the Company and AmVestors including information provided during discussions
with their respective managements. Included in the information provided during
discussions with the respective managements were certain earnings projections
for AmVestors for fiscal years 1996 through 2000 prepared by the management of
AmVestors, and certain earnings projections for the Company for fiscal years
1996 through 2000 prepared by the management of the Company. In addition, we
have compared certain financial and securities data of the Company with certain
financial and securities data of various other companies whose securities are
traded in public markets, reviewed the historical stock prices and trading
volumes of the common stock of AmVestors and the Company, reviewed prices and
premiums paid in other business combinations and conducted such other financial
studies, analyses and investigations as we deemed appropriate for purposes of
this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that was
available to us from public sources, that was provided to us by the Company and
AmVestors or their respective representatives, or that was otherwise reviewed by
us. With respect to the financial projections supplied to us, we have assumed
that they are based on reasonable assumptions and reflect the best currently
available estimates and judgments of the management of the Company as to the
future operating and financial performance of the Company and of the management
of AmVestors as to the future operating and financial performance of AmVestors.
We did not assume any responsibility for making an independent evaluation of the
Company's or AmVestors' assets or liabilities nor for making an independent
verification of any of the information reviewed by us. We are not expressing any
opinion with respect to legal matters relating to the Merger and have relied as
to all legal matters relating to the Merger on advice of counsel.
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Our opinion is necessarily based on general economic, market, financial and
other conditions as they exist and on the information made available to us as of
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. Our opinion as expressed herein is limited to
the fairness, from a financial point of view, of the consideration to be
received by the Company's stockholders and does not address the Company's
underlying business decision to proceed with the Merger. We are expressing no
opinion herein as to the prices at which AmVestors' common stock will actually
trade at any time. This opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote with
respect to the Merger.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. DLJ has performed
investment banking and other services for the Company in the past and has been
compensated for such services. In the ordinary course of its business, DLJ may
trade securities of the Company or AmVestors for its own account or for the
account of its customers and, accordingly, may at any time hold a long or short
position in such securities.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that as of February 26, 1996 the consideration to be received by
the Company's stockholders pursuant to the Agreement is fair from a financial
point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
------------------------------------
Robert S. Fleischer
Managing Director
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APPENDIX IV -- SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
268
SECTION 262 Appraisal rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to the provisions of
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with the provisions of subsection (d) of this Section and
who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to Section 228 of this Chapter shall be entitled to
an appraisal by the Court of Chancery of the fair value of his shares of stock
under the circumstances described in subsections (b) and (c) of this Section. As
used in this Section, the word "stockholder" means a holder of record of stock
in a stock corporation and also a member of record of a non-stock corporation;
the words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a non-stock
corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251, 252, 254, 257, 258 or 263 of this Chapter;
(1) provided, however, that no appraisal rights under this Section shall be
available for the shares of any class or series of stock which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or (ii)
held of record by more than 2,000 stockholders; and further provided that no
appraisal rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its approval
the vote of the stockholders of the surviving corporation as provided in
subsection (f) of Section 251 of this Chapter.
(2) Notwithstanding the provisions of subsection (b)(1) of this Section,
appraisal rights under this Section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257 and 258 of this Chapter to accept for such stock
anything except (i) shares of stock of the corporation surviving or resulting
from such merger or consolidation; (ii) shares of stock of any other corporation
which at the effective date of the merger or consolidation will be either listed
on a national securities exchange or held of record by more than 2,000
stockholders; (iii) cash in lieu of fractional shares of the corporations
described in the foregoing clauses (i) and (ii); or (iv) any combination of the
shares of stock and cash in lieu of fractional shares described in the foregoing
clauses (i), (ii) and (iii) of this subsection.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this chapter is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this Section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this Section, including those set forth in subsections (d) and
(e), shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this Section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
Section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his
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shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with the provisions of this subsection and has
not voted in favor of or consented to the merger or consolidation of the
date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this Chapter, the surviving or resulting corporation,
either before the effective date of the merger or consolidation or within
10 days thereafter, shall notify each of the stockholders entitled to
appraisal rights of the effective date of the merger or consolidation and
that appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
Section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with the provisions of subsections (a) and (d) hereof and who is
otherwise entitled to appraisal rights, may file a petition in the Court of
Chancery demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days after
the effective date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by one or more publications at
least one week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with the provisions of this Section and who have
become entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
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(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed at trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this Section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this Section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and in the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any other state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all of
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this Section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this Section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this Section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation into which the
shares of such objecting Stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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APPENDIX V -- WARRANT AGREEMENT
272
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of , 1996, between AmVestors
Financial Corporation, a Kansas corporation (the "Company"), and Boatmen's Trust
Company, a Missouri corporation, warrant agent (the "Warrant Agent").
RECITALS
A. In connection with the merger of Financial Benefit Group, Inc., a
Delaware corporation ("FBG"), with and into AmVestors Acquisition Subsidiary,
Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (the
"Merger Subsidiary"), the Company, FBG and the Merger Subsidiary have entered
into the Agreement and Plan of Merger, dated as of September 8, 1995, as amended
(the "Merger Agreement").
B. Pursuant to Section 1.2(e) of the Merger Agreement, the Company proposes
to issue, as part of the merger consideration, a new issue of warrants (the
"Warrants"), entitling the holders thereof to purchase shares (the "Warrant
Shares") of common stock, no par value, of the Company (the "Common Stock") and
which Warrants shall be governed by the terms and provisions of this Warrant
Agreement.
C. The Company desires the Warrant Agent to act on behalf of the Company,
and the Warrant Agent is willing so to act, in connection with the issuance,
registration, registration of transfer, replacement and exchange of warrant
certificates and the exercise of Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
AGREEMENTS
SECTION 1. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the
instructions set forth herein, and the Warrant Agent hereby accepts such
appointment, upon the terms and conditions hereinafter set forth.
SECTION 2. Amount Issued. Subject to the provisions of this Warrant
Agreement, Warrants to purchase up to an aggregate of Warrant
Shares may be issued and delivered by the Company hereunder. The Warrants issued
hereunder shall be deemed to have been issued on the Closing Date (as defined in
the Merger Agreement).
SECTION 3. Purchase Price; Form of Warrant Certificate.
3.1 The certificates evidencing the Warrants (the "Warrant Certificates")
(and the forms of election to purchase Warrant Shares and of assignment to be
printed on the reverse thereof) shall be substantially in the form set forth in
Exhibit A hereto and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Warrant Agreement, or as
may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of The Nasdaq Stock Market or
any national stock exchange on which the Warrants may from time to time be
listed. The Warrant Certificates shall be dated as of the Closing Date, upon
initial issuance by the Company, and thereafter, upon transfer or exchange, as
of the date of countersignature thereof by the Warrant Agent.
3.2 Each Warrant shall entitle the holder thereof to purchase one share of
Common Stock upon the exercise thereof at the applicable Exercise Price (as
defined in Section 6 hereof) subject to adjustment as provided in Section 13
hereof; provided, however, that, as discussed in Section 13(f) herein, the
Warrants are exercisable only for whole shares and no fractional shares will be
issued. Each Warrant Certificate shall be executed on behalf of the Company by
the manual or facsimile signature of the present or any future president of the
Company, under its corporate seal, affixed or in facsimile, attested by the
manual or facsimile signature of the present or any future Secretary or
Assistant Secretary of the Company.
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3.3 The term "Common Stock" shall mean the aforementioned Common Stock,
together with any other securities or property that may be issued by the Company
in connection therewith or in substitution therefor, as provided herein.
SECTION 4. Registration and Countersignature.
4.1 The Warrant Agent shall maintain books for the registration, and
registration of transfer, of the Warrant Certificates. The Warrant Certificates
shall be countersigned by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. The Warrant Certificates shall be so
countersigned, however, by the Warrant Agent and shall be delivered by the
Warrant Agent, notwithstanding that the persons whose manual or facsimile
signatures appear thereon as proper officers of the Company shall have ceased to
be such officers at time of such countersignature or delivery.
4.2 Prior to due presentment for registration or transfer of the Warrant
Certificates, the Company and the Warrant Agent shall deem and treat the
registered holder thereof as the absolute owner of Warrants (notwithstanding any
notation of ownership or other writing on the Warrant Certificate made by anyone
other than the Company or the Warrant Agent), for the purpose of any exercise
thereof and for all other purposes and no transfer or exchange will be effective
unless made in accordance with Sections 10 and 11 herein and neither the Company
nor the Warrant Agent shall be affected by any notice to the contrary.
SECTION 5. Registration of Transfers and Exchanges. The Warrant Agent shall
from time to time register the transfer of any outstanding Warrant Certificates
upon the books to be maintained by the Warrant Agent for that purpose, upon
surrender thereof to the Company or to the Warrant Agent accompanied (if so
required by the Company or the Warrant Agent) by a written instrument or
instruments of transfer in form satisfactory to the Company and the Warrant
Agent, duly executed by the registered holder or by a duly authorized
representative or attorney, such signature to be guaranteed by an eligible
guarantee institution with a membership in an approved Medallion Signature
Guarantee Program, which institution may be a commercial bank, trust company or
savings association having an office in the United States, a broker or dealer
that is a member of the National Association of Securities Dealers, Inc. or a
member of a national securities exchange (any such entity, as further defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, an "Eligible
Institution"). In all cases of written requests pursuant to Sections 5 or 6
hereof by an attorney, the original power of attorney, duly approved, or copy
thereof, duly certified and satisfactory to the Warrant Agent, shall be
deposited and remain with the Warrant Agent. In the case of written request by
executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority satisfactory to the Warrant Agent
shall be produced and deposited with the Warrant Agent. Upon any such
registration of transfer, a new Warrant Certificate shall be issued to the
transferee and the surrendered Warrant Certificate shall be cancelled by the
Warrant Agent. Warrant Certificates so cancelled shall be delivered by the
Warrant Agent to the Company from time to time or otherwise disposed of by the
Warrant Agent in a manner satisfactory to the Company. Warrant Certificates may
be exchanged at the option of the holder thereof when surrendered at the
principal office of the Warrant Agent in St. Louis or the principal office of
the Company in Topeka (in such event the Company shall forward the Warrant
Certificates surrendered and the instruments of transfer to the Warrant Agent)
for another Warrant Certificate or other Warrant Certificates of like tenor and
representing in the aggregate the number of Warrants evidenced by the Warrant
Certificate or Warrant Certificates so surrendered. The Warrant Agent shall
countersign and deliver, in accordance with the provisions of this Section 5 and
of Section 4 hereof, the new Warrant Certificate or Warrant Certificates
required pursuant to the provisions of this Section 5, and the Company, whenever
required by the Warrant Agent, will supply the Warrant Agent with Warrant
Certificates duly executed on behalf of the Company for such purpose.
SECTION 6. Duration and Exercise of Warrants.
6.1 (a) The Warrants may be exercised at any time or from time to time
after the date hereof and will expire at 5:00 p.m., Central Standard time, on
, 2002 (the "Expiration Date"), at which time all rights evidenced
by the Warrants shall cease and the Warrants shall become void.
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(b) Subject to the provisions of this Warrant Agreement, the registered
holder of each Warrant shall have the right to purchase from the Company (and
the Company shall issue and sell to such registered holder) the number of fully
paid and nonassessable Warrant Shares set forth on such holder's Warrant
Certificate (or such number of Warrant Shares as may result from adjustments
made from time to time as provided in this Warrant Agreement), at the price of
$ per Warrant Share in lawful money of the United States of America (such
exercise price per Warrant Shares, as adjusted from time to time as provided
herein, being referred to herein as the "Exercise Price"), upon (i) surrender of
the Warrant Certificate to the Company at the principal office of the Warrant
Agent in St. Louis or the principal office of the Company in Topeka with the
exercise form on the reverse thereof duly completed and signed by the registered
holder or holders thereof or by a duly appointed legal representative thereof or
by a duly authorized attorney, such signature to be guaranteed by an Eligible
Institution if the Warrant Shares are to be issued to a person other than the
registered holder of the Warrants and (ii) payment, in lawful money of the
United States of America and in accordance with Section 6.2 hereof, of the
Exercise Price for the Warrant Share or Warrant Shares in respect of which such
Warrant is exercised. Upon surrender of a Warrant Certificate, and payment of
the Exercise Price, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the registered holder of
such Warrants and in such name or names as such registered holder may designate,
a certificate or certificates for the number of Warrant Shares so purchased upon
the exercise of such Warrants, together with cash in respect of any fraction of
a Warrant Share issuable upon such surrender. As set forth in Section 13(d), no
adjustment shall be made for certain cash dividends paid or payable on Warrant
Shares issuable upon exercise of a Warrant.
(c) Each person in whose name any certificate for Warrant Shares is issued
upon the exercise of Warrants shall for all purposes be deemed to have become
the holder of record of the Common Stock represented thereby on, and such
certificate shall be dated, the date upon which the Warrant Certificate
evidencing such Warrants was duly surrendered and payment of the Exercise Price
(and any applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Common Stock
transfer books of the Company are closed, such person shall be deemed to have
become the record holder of such Warrant Shares on, and such certificate shall
be dated, the next succeeding business day on which the Common Stock transfer
books of the Company are open.
6.2 The Exercise Price payable upon exercise of Warrants may be paid by
money order or bank draft. Subject to Section 7 hereof, upon surrender of a
Warrant Certificate and payment of the Exercise Price (and if the Exercise Price
is paid by check other than an official bank draft, upon collection of the
proceeds of such check), the Company shall issue and cause to be registered,
countersigned and delivered to or upon the written order of the registered
holder of such Warrant and in such name or names as may duly be designated, a
certificate for the Warrant Shares being issued pursuant to the Warrant then
being exercised (as adjusted as provided in Section 13 hereof). Such certificate
shall be deemed to have been issued and any person so designated to be named
therein shall be deemed to have become a holder of record of such share or
shares of Common Stock, as of the date of surrender of such Warrant Certificate
and payment of the Exercise Price; provided, however, that if, at the date of
surrender of such Warrant Certificate and payment of such Exercise Price, the
transfer books for the Common Stock shall be closed, the certificate for such
share or shares of Common Stock shall be issuable as of the date on which such
books shall next be opened (whether before, on or after the Expiration Date) and
until such date the Company shall be under no duty to deliver any certificate
for such share or shares.
6.3 In the event that less than all the Warrants represented by a Warrant
Certificate are exercised by the registered holder thereof or a duly authorized
representative before 5:00 p.m., Central Standard time, on the Expiration Date,
a new Warrant Certificate will be issued for the remaining number of Warrants
exercisable pursuant to the Warrant Certificate so surrendered, and the Warrant
Agent shall countersign and deliver the required new Warrant Certificate
pursuant to the provisions of this Section 6 and of Section 4 hereof and the
Company, whenever required by the Warrant Agent, shall deliver to the Warrant
Agent a Warrant Certificate duly executed on behalf of the Company for such
purpose.
6.4 The number of shares of Common Stock to be received upon exercise of a
Warrant and the price to be paid for a share of Common Stock are subject to
adjustment from time to time as hereinafter set forth.
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SECTION 7. Payment of Taxes. The Company shall pay all documentary stamp
and transfer taxes attributable to the original issuance of the Warrants and of
the shares of Common Stock upon the exercise of Warrants; provided, however,
that the Company shall not be required to (a) pay any tax which may be payable
in respect of any transfer or delivery of Warrant Certificates or the issuance
or delivery of certificates for shares of Common Stock in a name other than that
of the registered holder of the Warrant Certificate upon the exercise of a
Warrant or (b) issue or deliver any certificate for shares of Common Stock upon
the exercise of any Warrants until any such tax required to be paid under clause
(a) shall have been paid, all such tax being payable by the holder of such
Warrant at the time of surrender.
SECTION 8. Mutilated or Missing Warrant Certificates. In case any Warrant
Certificate shall be mutilated, lost, stolen or destroyed, upon cancellation of
the mutilated, lost, stolen or destroyed Warrant Certificate, the Company shall
issue, and the Warrant Agent shall countersign and deliver in exchange and
substitution for the mutilated, lost, stolen or destroyed Warrant Certificate, a
new Warrant Certificate of like tenor and evidencing the number of shares of
Common Stock purchasable upon exercise of the Warrant Certificate so mutilated,
lost, stolen or destroyed, but only upon receipt of evidence satisfactory to the
Warrant Agent of such loss, theft or destruction of such Warrant Certificate and
an indemnity, if requested, also satisfactory to it. Applicants for any such
substitute Warrant Certificate shall also comply with such other reasonable
requirements and pay such other reasonable charges as the Company or the Warrant
Agent may prescribe, including the posting of a customary bond. Any such new
Warrant Certificate shall constitute an original contractual obligation of the
Company, whether or not the allegedly mutilated, lost, stolen or destroyed
Warrant Certificate shall be at any time enforceable by anyone.
SECTION 9. Reservation of Shares; Stock Certificates. The Company covenants
and agrees that it shall at all times reserve or cause to be reserved for
issuance and delivery upon exercise of the Warrants, a sufficient number of
shares of Common Stock or other securities of the Company from time to time
issuable upon exercise of the Warrants. The Company covenants and agrees that it
shall take all such action as may be necessary to ensure that all such shares
shall be duly authorized and, when issued upon such exercise, shall be validly
issued, fully paid and nonassessable, free and clear of all liens, security
interests, charges and other encumbrances or restrictions on sale and free and
clear of all preemptive rights. The Company will keep a copy of this Warrant
Agreement on file with its transfer agent, Boatmen's Trust Company, or any
successor thereto (the "Transfer Agent"). The Warrant Agent is hereby
irrevocably authorized to requisition from time to time from such Transfer Agent
certificates issuable upon exercise of outstanding Warrants. The Company will
supply such Transfer Agent with duly executed certificates for such purpose. All
Warrant Certificates surrendered upon exercise of Warrants shall be cancelled by
the Warrant Agent and shall thereafter be delivered to the Company or otherwise
disposed of in a manner satisfactory to the Company. Unless all Warrants shall
have been exercised prior to 5:00 p.m. Central Standard time, on the Expiration
Date, the Warrant Agent shall certify to the Company, as of the close of
business on the Expiration Date, the total aggregate amount of Warrants then
outstanding, and thereafter no shares of Common Stock shall be subject to
reservation in respect of such Warrants.
SECTION 10. Transfer and Registration of Warrants and Warrant Shares.
10.1 The Warrants and the Warrant Shares, and any interest in either, may
be sold, assigned, pledged, encumbered or in any other manner transferred or
disposed of, in whole or in part, only in accordance with Section 11 hereof and
in compliance with applicable United States federal and state securities laws
and the terms and conditions hereof.
10.2 The Warrants have been registered under the Securities Exchange Act of
1934, as amended, pursuant to a registration statement on Form 8-A (Registration
No. [ ]) which was declared effective by the Securities and
Exchange Commission (the "SEC") on [ ], 1996. The Company will use
its best efforts to keep such registration statement in effect in accordance
with applicable federal securities laws through the Expiration Date or until
such earlier time as no Warrants remain outstanding. The Company covenants and
agrees:
(a) to prepare and file with the SEC such amendments and supplements
to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such
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Registration Statement effective in accordance with applicable federal
securities laws through the Expiration Date;
(b) as expeditiously as possible, to register or qualify the Warrants,
and to register or qualify the Warrant Shares, under the securities or Blue
Sky laws of each jurisdiction in which such registration or qualification
is necessary; and
(c) to pay all expenses incurred by the Company in complying with this
Section 10.2, including, without limitation, (i) all registration and
filing fees, (ii) all printing expenses, (iii) all fees and disbursements
of counsel and independent public accountants for the Company, (iv) all
Blue Sky fees and expenses (including fees and expenses of counsel in
connection with any Blue Sky surveys), and the entire expense of any
special audits incident to or required by any such registration.
SECTION 11. Exchange, Transfer or Assignment of Warrants. 11.1 The Warrants
may be exchanged or transferred, at the option of the holder, upon presentation
and surrender of Warrant Certificates to the Warrant Agent or to the Company,
for other Warrant Certificates of different denominations, entitling the holder
or holders thereof to purchase in the aggregate the same number of Warrant
Shares. Subject to the preceding sentence, a Warrant Certificate may be divided
or combined with other Warrant Certificates that carry the same rights upon
presentation thereof at the office of the Warrant Agent or the Company, together
with written notice specifying the names and denominations in which new Warrant
Certificates are to be issued and signed by the holder thereof.
11.2 The Warrants may be assigned or transferred, at the option of the
holder, upon surrender of Warrant Certificates to the Warrant Agent, with the
Warrant Assignment Form contained therein duly executed and accompanied by funds
sufficient to pay any transfer tax. The Warrant Agent shall execute and deliver
a new Warrant Certificate or Certificates in the name of the assignee or
assignees named in such instrument of assignment and, if the holder's entire
interest in the Warrants is not being transferred or assigned, in the name of
the holder, and the Warrant Certificate surrendered shall promptly be cancelled.
11.3 Any transfer, exchange or assignment of the Warrants shall be without
charge (other than the cost of any transfer tax to be paid by holder pursuant to
Section 7 hereof) to the holder and any new Warrant Certificates issued pursuant
to this Section 11 shall be dated the state such new Warrant Certificate is
issued.
Section 12. Rights of Warrant Holder. The holder of any Warrant shall not,
by virtue thereof, be entitled to any rights of a shareholder in the Company,
either at law or in equity, and the rights of the holder are limited to those
expressed in this Warrant Agreement.
Section 13. Antidilution Provisions. The Exercise Price and the number of
Warrant Shares that may be purchased upon the exercise of a Warrant and the
number of Warrants outstanding will be subject to change or adjustment as
follows:
(a) Stock Dividends, Stock Splits and Reverse Stock Splits and
Combinations. If at any time after the date of the issuance of the Warrants
and before 5:00 p.m., Central Standard time, on the Expiration Date, (i)
the Company shall fix a record date for the issuance of any stock dividend
payable in shares of capital stock of the Company or (ii) the number of
shares of Common Stock shall have been increased by a subdivision or stock
split of shares of Common Stock or decreased by a reverse stock split or
combination of shares of Common Stock, then, on the record date fixed for
the determination of holders of Common Stock entitled to receive such
dividend or immediately after the effective date of such subdivision, stock
split, reverse stock split or combination, as the case may be, the number
of Warrant Shares to be delivered upon exercise of any Warrant will be
appropriately increased or decreased, as the case may be, so that each
holder of a Warrant thereafter will be entitled to receive the number of
shares of Common Stock that such holder would have owned or have been
entitled to receive immediately following such action had the Warrant been
exercised immediately prior thereto, and the Exercise Price will be
appropriately adjusted. The time of occurrence of any event giving rise to
an adjustment made pursuant to this Section 13(a) shall, in the case of a
subdivision, stock split, reverse stock split or combination, be the
effective date thereof and shall, in the case of a dividend or
distribution, be the record date thereof.
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(b) Reorganization, Reclassification, Etc. If any capital
reorganization of the Company, or any reclassification of the Common Stock,
or any consolidation of the Company with or merger of the Company with or
into any other corporation or any sale, lease or other transfer of all or
substantially all of the assets of the Company to any other entity
(including any individual, partnership, joint venture, corporation, trust
or group thereof), shall be effected in such a way that the holders of the
Common Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, upon exercise of the
Warrants in accordance with the terms of this Warrant Agreement and the
Warrant Certificates, each holder shall have the right to receive the kind
and amount of stock, securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale, lease or
other transfer by a holder of the number of shares of Common Stock that
such holder would have owned or would have been entitled to receive upon
exercise of the Warrants had the Warrants been exercised immediately before
such reorganization, reclassification, consolidation, merger or sale, lease
or other transfer, subject to adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 13.
(c) Issuance. If at any time after the date of issuance of the
Warrants and before 5:00 p.m., Central Standard time, on the Expiration
Date the Company shall (i) issue any shares of Common Stock (other than
shares issued upon exercise of the Warrants or shares of Common Stock that
may be issued pursuant to any option, rights or warrants outstanding as of
the date hereof) without consideration or at a price per share less than
the Closing Price (as defined in Section 13(f) hereof) immediately prior to
such issuance, or (ii) issue options, rights or warrants to subscribe for
or purchase Common Stock (or securities convertible into Common Stock)
without consideration or at a price per share (or having a conversion price
per share, if a security convertible into Common Stock) less than the
Closing Price immediately prior to such issuance, the Exercise Price to be
in effect after the date of such issuance shall be determined by
multiplying the Exercise Price in effect immediately prior to such
distribution or issuance by a fraction (i) the numerator of which shall be
the number of shares of Common Stock outstanding on the date of such
issuance plus the number of shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so to be
issued or to be offered for subscription or purchase (or the aggregate
initial conversion price of the convertible securities so to be offered)
would purchase at such Closing Price and (ii) the denominator of which
shall be the number of shares of Common Stock outstanding on the date of
such issuance plus the number of additional shares of Common Stock to be
issued or to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible);
provided, however, that the provisions of this subsection (c) shall not
apply to any issuance of Common Stock upon exercise of any Warrants. There
shall be added to such subscription price and included in the amount
thereof for the purpose of making the above calculation the price paid to
the Company for any rights or warrants to subscribe for or purchase, or for
any securities convertible into, Common Stock which are exercised or
converted in connection with an issuance of Common Stock under this
subsection (c). In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be determined in good faith by the Board
of Directors of the Company. Shares of Common Stock owned by or held for
the account of the Company or any majority-owned subsidiary shall not be
deemed outstanding for the purpose of any such computation. An adjustment
made pursuant to this Section 13(c) shall become effective retroactively to
the time immediately after the date such issuance is fixed (which date of
issuance shall be the record date if a record date therefor is fixed).
(d) Distributions. If at any time after the date of issuance of the
Warrants and before 5:00 p.m., Central Standard time, on the Expiration
Date the Company shall, to or for the account or benefit of the holders of
the outstanding shares of Common Stock, make any distribution, payment or
transfer of any asset, property or security (but excluding those described
in Section 13(a) or (b) hereof and any cash distributions made as a
dividend which in any fiscal year in the aggregate are less than net
earnings from continuing operations for the previous fiscal year or
dividends which are consistent with past practice) of the Company or any of
its subsidiaries, and thereafter, successively upon each such distribution
or issuance, the Exercise Price in effect immediately prior to such
distribution or issuance shall forthwith be reduced to a price determined
by multiplying the Exercise Price in effect immediately prior to such
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distribution or issuance by a fraction (i) the numerator of which shall be
the Closing Price per share of Common Stock at the record date for the
determination of shareholders entitled to receive such distribution or
issuance, less the then fair market value (as determined in good faith by
the Board of Directors of the Company, whose determination shall be
conclusive) of the portion of such distribution applicable to one share of
Common Stock and (ii) the denominator of which shall be such Closing Price
per share of Common Stock. An adjustment made pursuant to this Section
13(d) shall become effective retroactively to the time immediately after
the record date for the determination of shareholders entitled to receive
such distribution or issuance.
(e) Fractional Shares. No fractional shares of Common Stock or scrip
shall be issued to any holder in connection with the exercise of a Warrant.
Instead of any fractional shares of Common Stock that would otherwise be
issuable to such holder, the Company will pay to such holder a cash amount
in respect of such fractional interest equal to that fractional interest of
the then current Closing Price.
(f) Definition of Closing Price. For the purposes of this Warrant
Agreement, "Closing Price" means the closing price per share of the Common
Stock on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or, if not listed or traded on any
such exchange, on The Nasdaq Stock Market or such other over-the-counter
quotations system on which such shares of Common Stock are traded or, if
not listed or traded on any such exchange or system, the fair market value
as reasonably determined by the Board of Directors of the Company or any
committee of such Board.
(g) Definition of Common Stock. Unless the context requires otherwise,
all references to Common Stock and Warrant Shares in this Warrant Agreement
and in the Warrant Certificates shall, in the event of an adjustment
pursuant to this Section 13, be deemed to refer also to any other
securities or property then issuable upon exercise of the Warrants as a
result of such adjustment. In the event that at any time, as a result of an
adjustment made pursuant to this Section 13, securities other than shares
of Common Stock are issuable upon exercise of the Warrants, thereafter the
number of such other shares so issuable shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained in this
Section 13, and all other provisions of this Warrant Agreement with respect
to Common Stock shall apply on like terms to any such other shares.
(h) Threshold Requirement. No adjustment in the Exercise Price or in
the number of Warrant Shares purchasable hereunder shall be required unless
such adjustment would require an increase or decrease of at least one
percent (1%) in such Exercise Price or in the number of Warrant Shares
purchasable upon the exercise of each Warrant; provided, however, that any
adjustments which by reason of this Section 13(g) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 13 shall be made to the
nearest cent and to the nearest one-thousandth of a Warrant Share, as the
case may be.
(i) Voluntary Adjustment by the Company. The Company may at its
option, at any time during the term of the Warrants, reduce the then
current Exercise Price to any amount and for any period of time deemed
appropriate by the Board of Directors of the Company or extend the
Expiration Date of the Warrants.
SECTION 14. Officer's Certificate. Whenever the number of Warrant Shares
that may be purchased upon exercise of the Warrants is adjusted as required by
the provisions of this Warrant Agreement, the Company will forthwith file in the
custody of its Secretary or an Assistant Secretary at its principal office and
with the Warrant Agent an officer's certificate showing the adjusted number of
Warrant Shares that may be purchased upon exercise of the Warrants and the
adjusted Exercise Price, determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustments and the manner of
computing such adjustment. Each such officer's certificate shall be made
available at all reasonable times for inspection by the holder.
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SECTION 15. Notice of Certain Events. Upon any adjustment of the Exercise
Price pursuant to Section 13, the Company shall promptly, but in any event
within 20 days thereafter, cause to be mailed to the registered holders of the
Warrants, a certificate setting forth the Exercise Price as so adjusted and the
number of shares of Common Stock issuable upon the exercise of each Warrant as
so adjusted and describing in reasonable detail the facts accounting for such
adjustment and the method of calculation used. Where appropriate, such
certificate may be given in advance and included as part of the notice required
to be mailed under the other provisions of this Section 15.
At any time during the period commencing on the date of this Warrant
Agreement and ending on the Expiration Date, in the event:
(a) the Company authorizes the issuance of rights or warrants to
subscribe for or purchase shares of Common Stock or any other subscription
rights or warrants to all holders of Common Stock; or
(b) there shall be an adjustment to the Warrants pursuant to Section
13(b) or 13(d) herein;
(c) of the voluntary or involuntary dissolution, partial dissolution,
liquidation or winding-up of the Company.
then the Company will cause to be mailed to the registered holders of the
Warrants, at least 20 days before the applicable record or effective date
hereinafter specified, a notice stating (A) the date as of which the holders of
Common Stock of record entitled to receive any such rights, warrants or
distributions are to be determined or (B) the date on which any such
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding-up is expected to become effective, and (C) the date as of which it is
expected that holders of Common Stock of record will be entitled to exchange
their shares of Common Stock for securities or other property, if any,
deliverable upon such reorganization, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding-up.
Notwithstanding the foregoing, failure to give notice as required by this
Warrant Agreement, shall not affect the validity of the underlying corporate
action taken.
SECTION 16. Listing on Securities Exchanges; Reservation of Shares. (a) The
Company will use its best efforts to cause all shares of the Common Stock from
time to time issuable upon the exercise of the Warrants to be listed on the New
York Stock Exchange, and will maintain such listing so long as any other shares
of Common Stock are so listed; and the Company shall so list on a national
securities exchange or The Nasdaq Stock Market, or such other over-the-counter
quotation system, and shall maintain such listing of, any other shares of
capital stock of the Company issuable upon the exercise of the Warrants if and
so long as any shares of capital stock of the same class are listed on such
national securities exchange or are traded on The Nasdaq Stock Market or such
over-the-counter quotation system. Any such listing or quotation will be at the
Company's expense.
(b) The Company will use its best efforts to cause the Warrants to be
listed on a national securities exchange or The Nasdaq Stock Market, or such
other over-the-counter quotation system on which any Common Stock may at any
time be listed. Any such listing or quotation will be at the Company's expense.
(c) For the purpose of enabling it to satisfy any obligation to issue
Warrant Shares upon the exercise of Warrants, the Company covenants and agrees
that it shall, at all times through the Expiration Date, reserve and keep
available, or cause to be reserved and available, free from preemptive rights a
sufficient number of shares of authorized but unissued Common Stock, the number
of Warrant Shares or other securities deliverable upon the exercise of all
outstanding Warrants, and the Transfer Agent for the Common Stock hereby is
irrevocably authorized and directed at all times to reserve such number of
authorized and unissued shares of Common Stock or such other securities as shall
be required for such purpose.
(d) The Company covenants and agrees that it shall take all such action as
may be necessary too ensure that all Warrant Shares will at the time of delivery
of certificates for such Warrant Shares (subject to payment of the Exercise
Price) be duly and validly authorized and issued and fully paid and
nonassessable shares, free from any preemptive rights and taxes, liens, charges
and security interests created by or imposed upon the Company.
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SECTION 17. Availability of Information. The Company shall comply with all
applicable public information reporting requirements of the SEC to which it may
from time to time be subject.
SECTION 18. Duties of Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Warrant Agreement upon the following
terms and conditions, by all of which the Company and the holders of Warrants,
by their acceptance thereof, shall be bound:
(a) The statements contained herein and in the Warrant Certificates
shall be taken as statements of the Company, and the Warrant Agent assumes
no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The
Warrant Agent assumes no responsibility with respect to the delivery of
Warrant Certificates except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Warrant
Agreement or in the Warrant Certificates to be complied with by the
Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant
Agent shall incur no liability or responsibility to the Company or to any
holder of any Warrant in respect of any action taken, suffered or omitted
by it hereunder in good faith and in accordance with the opinion or the
advice of such counsel, provided the Warrant Agent shall have exercised
reasonable care in the selection and continued employment of such counsel.
(d) The Warrant Agent shall incur no liability or responsibility to
the Company or to any holder of any Warrant for any action taken in good
faith reliance on any notice, resolution, waiver, consent, order,
certificate or other paper, document or instrument believed by it to be
genuine and to have been signed, sent or presented by the party or parties.
(e) The Company agrees (i) to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the
execution of this Warrant Agreement, (ii) to reimburse the Warrant Agent
for all expenses, taxes and governmental charges and other charges of any
kind and nature incurred by the Warrant Agent in the execution of this
Warrant Agreement (other than taxes measured by the Warrant Agent's net
income), and (iii) upon request, to advance to the Warrant Agent funds to
pay cash in lieu of fractional shares of Common Stock issuable upon
exercise of Warrants.
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to
involve expense unless the Company or one or more registered holders of
Warrants shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred. All rights of
action under this Warrant Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrant
Certificates or the production thereof at any trial or other proceeding
relative thereto, and any such action, suit or proceeding instituted by the
Warrant Agent shall be brought in its name as Warrant Agent, and any
recovery of judgment shall be for the ratable benefit of the registered
holders of the Warrants, as their respective rights or interest may appear.
(g) The Warrant Agent and any stockholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the Warrants
or other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to or otherwise act as fully and freely as though it were not
the Warrant Agent under this Warrant Agreement. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for the
Company or for any other legal entity.
The Warrant Agent shall act hereunder solely as agent, and its duties shall
be determined solely by the provisions hereof. The Warrant Agent shall not be
liable for anything which it may do or refrain from doing in connection with
this Warrant Agreement except for its own negligence, bad faith or willful
misconduct.
SECTION 19. Merger, Consolidation or Change of Name of Warrant Agent. Any
corporation into which the Warrant Agent may be merged or with which it may be
consolidated, or any corporation resulting
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from any merger or consolidation to which the Warrant Agent shall be a party, or
any corporation succeeding to the corporate trust business of the Warrant Agent,
shall be the successor to the Warrant Agent hereunder without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment as a successor
warrant agent under the provisions of Section 20 hereof. If at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Warrant Agreement, and if at that time any of the Warrant Certificates shall
have been countersigned but not delivered, any such successor to the Warrant
Agent may adopt the countersignature of the predecessor warrant agent and
deliver such Warrant Certificates so countersigned; and if at that time any of
the Warrant Certificates shall not have been countersigned, any successor to the
Warrant Agent may countersign such Warrant Certificates either in the name of
the predecessor Warrant Agent or in the name of the successor Warrant Agent; and
in all such cases such Warrant Certificates shall have the full force and effect
provided in the Warrant Certificates and in this Warrant Agreement.
If at any time the name of the Warrant Agent shall be changed and at such
time any of the Warrant Certificates shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersign under its prior name and
deliver Warrant Certificates so countersigned; and if at that time any of the
Warrant Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its changed
name; and in all such cases such Warrant Certificates shall have the full force
and effect provided in the Warrant Certificates and in this Warrant Agreement.
SECTION 20. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Warrant Agreement by giving to the Company
notice in writing, and to the holders of the Warrants notice in writing and
sent, postage prepaid, by first class mail to each registered holder of a
Warrant at such holder's address appearing in the Warrant Register, specifying a
date when such resignation shall take effect, which notice shall be sent at
least two weeks prior to the date so specified. If the Warrant Agent shall
resign or otherwise become incapable of acting, the Company shall appoint a
successor to the Warrant Agent. If the Company shall fail to make such
appointment within a period of 30 days after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Warrant Agent
or by the registered holder of a Warrant (who shall, with such notice, submit
such holder's Warrant Certificate for inspection by the Company), then the
registered holder of any Warrant may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent.
Notwithstanding any provision to the contrary contained herein, the removal or
resignation of the Warrant Agent will be effective upon the expiration of the
applicable notice period, and in the event a successor has not then been
appointed, the Company shall assume the role of Warrant Agent until such time as
a successor Warrant Agent has been appointed in accordance with the terms of
this Agreement. Any successor Warrant Agent shall be (a) a corporation organized
and doing business under the laws of the United States or of any state thereof,
in good standing, which is authorized under such laws to exercise corporate
trust or stock transfer powers and is subject to supervision or examination by
federal or state authority and which has at the time of its appointment as
Warrant Agent a combined capital surplus of at least twenty million dollars
($20,000,000) or (b) an affiliate of a corporation described in clause (a) of
this sentence. The Company shall cause written notice to be delivered to the
registered holders of Warrants notifying such holders of the name and address of
any successor Warrant Agent. After appointment the successor Warrant Agent shall
be vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Warrant Agent without further act or deed; but the
former Warrant Agent shall deliver and transfer to the successor Warrant Agent
any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Failure to
give any notice provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Warrant Agent or the appointment of the successor Warrant Agent, as the case may
be.
SECTION 21. Identity of Transfer Agent. Forthwith upon the appointment
after the date hereof of any subsequent Transfer Agent for shares of the Common
Stock, the Company will file with the Warrant Agent a statement setting forth
the name and address of such Transfer Agent.
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SECTION 22. Successors. All covenants and provisions of this Warrant
Agreement by or for the benefit of the Company, the Warrant Agent or the holders
of the Warrants shall bind and inure to the benefit of their respective
successors, assigns, heirs and personal representatives.
SECTION 23. Termination. This Warrant Agreement shall terminate at 5:00
p.m., Central Standard time, on the Expiration Date or such earlier date upon
which all Warrants have been exercised or redeemed, except that the Warrant
Agent shall account to the Company for all cash held by it at 5:00 p.m., Central
Standard time, on such Expiration Date.
SECTION 24. Governing Law. This Warrant Agreement and each warrant
certificate shall be governed by and construed in accordance with the laws of
the State of Kansas. The Company irrevocably agrees that all actions or
proceedings in any way, manner or respect, arising out of or from or related to
this Warrant Agreement shall be litigated in courts having situs within the City
of St. Louis, State of Kansas.
SECTION 24. Counterparts. This Warrant Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same agreement.
SECTION 25. Headings. The headings of sections of this Warrant Agreement
have been inserted for convenience of reference only, are not to be considered a
part hereof and shall in no way modify or restrict any of the terms or
provisions hereof.
SECTION 26. Amendments. This Warrant Agreement may be amended by the
written consent of the Company and the affirmative vote or the written consent
of holders holding not less than two-thirds in interest of the then outstanding
Warrants; provided, however, that, except as expressly provided herein, this
Warrant Agreement may not be amended to change (a) the Exercise Price, (b) the
period during which the Warrants may be exercised, (c) the number or type of
securities to be issued upon the exercise of the Warrants, or (d) the provisions
of this Section 26, without the consent of each holder of the Warrants.
SECTION 27. Notices. Any notice pursuant to this Warrant Agreement to be
given by the Warrant Agent or by the registered holder of any Warrant to the
Company shall be given in writing and shall be deemed effectively given upon
personal delivery to the Company or upon deposit with the United States Post
Office, postage prepaid, registered or certified mail with return receipt
requested and addressed (until another address is filed in writing by the
Company with the Warrant Agent) as follows:
AmVestors Financial Corporation
415 S.W. Eighth Avenue
P.O. Box 2039
Topeka, KS 66601-2039
Attention: Mark V. Heitz, President
Any notice pursuant to this Warrant Agreement to be given by the Company or by
the registered holder of any Warrant to the Warrant Agent shall be given in
writing and shall be deemed effectively given upon personal delivery to the
Company or upon deposit with the United States Post Office, postage prepaid,
registered or certified mail with return receipt requested and addressed (until
another address is filed in writing by the Warrant Agent with the Company or
notice of the address of a successor Warrant Agent is given pursuant to this
Warrant Agreement) as follows:
Boatmen's Trust Company
Corporate Trust Division
510 Locust Street, Second Floor
St. Louis, MO 63101
Attention: H.E. Bradford
SECTION 28. Benefits of This Warrant Agreement. Nothing in this Warrant
Agreement shall be construed to give to any person or corporation, other than
the Company, the Warrant Agent and the registered holders of the Warrants, any
legal or equitable right, remedy or claim under this Warrant Agreement; but this
Warrant Agreement shall be for the sole and exclusive benefit of the Company,
the Warrant Agent and the registered holders of the Warrants.
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IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed as of the first date written above.
AMVESTORS FINANCIAL CORPORATION
By:
------------------------------------
Name:
Title:
Attest:
By:
--------------------------------------------------------
Name:
Title:
BOATMEN'S TRUST COMPANY
By:
------------------------------------
Name:
Title:
Attest:
By:
--------------------------------------------------------
Name:
Title:
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EXHIBIT A
FORM OF WARRANT CERTIFICATE
NO. W-
VOID AFTER , 2002
WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK
AMVESTORS FINANCIAL CORPORATION
This certifies that FOR VALUE RECEIVED, is the
registered holder (the "Registered Holder") of the number of Warrants (the
"Warrants") specified above. Each Warrant represented hereby entitles the
Registered Holder, but only subject to the terms and conditions set forth herein
and in the Warrant Agreement (as hereinafter defined), to purchase one fully
paid and nonassessable share (each a "Warrant Share") of Common Stock, no par
value (the "Common Stock"), of AmVestors Financial Corporation, a Kansas
corporation (the "Company") at any time after issuance through the Expiration
Date (as hereinafter defined), upon presentation and surrender of this Warrant
Certificate and the Subscription Form on the reverse hereof duly executed at the
principal office of Boatmen's Trust Company as Warrant Agent or its successor
(the "Warrant Agent"), accompanied by payment of $ per share of Common Stock
(the "Exercise Price") in lawful money of the United States of America by money
order or certified or official bank check made payable to the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to, and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement, dated , 1996 (the "Warrant
Agreement"), by and between the Company and the Warrant Agent.
Prior to the Expiration Date, upon the occurrence of certain events
provided for in the Warrant Agreement, the Exercise Price or the number of
shares of Common Stock subject to purchase upon the exercise of each Warrant
represented hereby are subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder but no fractional shares of Common Stock will be issued. In
the case of the exercise of less then all of the Warrants represented hereby,
the Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates,
which the Warrant Agent shall countersign, for the balance of such Warrants.
The "Expiration Date" shall mean , 2002, or such earlier date
as all of the Warrants shall be exercised or redeemed. No Warrant may be
exercised after the 5:00 P.M. (Central Standard time) on the Expiration Date and
all rights of the registered holders of the Warrants shall cease after 5:00
P.M., Central Standard time, on the Expiration Date.
The Warrants have been registered under the Securities Exchange Act of
1934, as amended, pursuant to a registration statement on Form 8-A (Registration
No. [ ]) which was declared effective by the Securities and
Exchange Commission on [ ], 1996. The Company has agreed to use its
best efforts to keep such registration statement in effect until the Expiration
Date, or until such earlier time as no Warrants remain outstanding, and to
register and qualify the Warrants and the Warrant Shares to be delivered upon
exercise of the Warrants under the laws of each jurisdiction in which such
registration or qualification is necessary.
This Warrant Certificate is exchangeable upon surrender hereof by the
Registered Holder at the principal office of the Warrant Agent in St. Louis or
the principal office of the Company in Topeka for another Warrant Certificate or
Warrant Certificates of like tenor and representing in the aggregate the number
of Warrants evidenced by the Warrant Certificate or Warrant Certificates so
surrendered.
285
Prior to due presentment for registration or transfer of this Warrant
Certificate, the Company and the Warrant Agent shall deem and treat the
Registered Holder hereof as the absolute owner of Warrants (notwithstanding any
notation of ownership or other writing on the Warrant Certificate made by anyone
other than the Company or the Warrant Agent), for the purpose of any exercise
thereof and for all other purposes and no transfer or exchange will be effective
unless made in accordance with Sections 10 and 11 of the Warrant Agreement and
neither the Company nor the Warrant Agent shall be affected by any notice to the
contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Kansas.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
signed by its duly authorized officers and has caused its corporate seal to be
affixed hereunto.
Dated:
- -------------------------------------
AMVESTORS FINANCIAL CORPORATION
By:
-------------------------------------
Name: Ralph Laster, Jr.
Title: Chairman
ATTEST:
- ------------------------------------------------------
Name: Lynn F. Hammes
Title: Secretary
COUNTERSIGNED:
BOATMEN'S TRUST COMPANY,
as warrant agent
By:
-------------------------------------------------------
Authorized Officer
286
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO EXERCISE WARRANTS
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
- --------------------------------------------------------------------------------
and be delivered to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPE NAME AND ADDRESS)
and if such number of exercised Warrants shall not be all the Warrants evidenced
by this Warrant Certificate, that a new Warrant Certificate for the balance of
such Warrants be registered in the name of, and delivered to the Registered
Holder at the address stated below.
The undersigned represents that the exercise of the Warrants evidenced
hereby was solicited by a member of the National Association of Securities
Dealers, Inc., if not solicited by an NASD member, please write "unsolicited" in
the space below.
- ------------------------------ --------------------------------------------
(Name of NASD Member)
Dated:
- ------------------------------------------ X
------------------------------------------------------
(Signature of Registered Holder)
- ------------------------------ --------------------------------------------
- ------------------------------ --------------------------------------------
- ------------------------------ --------------------------------------------
(PLEASE PRINT OR TYPE NAME AND
ADDRESS OF REGISTERED HOLDER)
---------------------------------------------------------------
Signature Guarantee Stamp Required Here
if Securities are to be Delivered to
Person Other Than Registered Holder
287
ASSIGNMENT
TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO ASSIGN WARRANTS
FOR VALUE RECEIVED,
- ------------------------------------------------ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF TRANSFEREE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPE NAME AND ADDRESS)
- --------------------------------------------------------------------------------
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints
Attorney.
- --------------------------------------------------------------------------------
to transfer the Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated:
- ------------------------------------------------
X ------------------------------------------------
(Signature of Registered Holder)
- ---------------------------------------------------------
Signature Guarantee Stamp Required
Here
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND ALL REQUIRED
SIGNATURE GUARANTEES MUST BE PROVIDED BY A MEMBER OF THE MEDALLION STAMP
PROGRAM.
288
APPENDIX VI -- AMENDMENT TO AMVESTORS OPTION PLAN
289
AMENDMENT TO THE RESTATED AMVESTORS FINANCIAL
CORPORATION 1989 NONQUALIFIED STOCK OPTION PLAN
WHEREAS, AmVestors Financial Corporation ("Corporation") adopted the
Restated AmVestors Financial Corporation 1989 Nonqualified Stock Option Plan
("Plan"); and
WHEREAS, the Corporation retained the right to amend the Plan pursuant to
Paragraph 11 thereof; and
WHEREAS, the Corporation desires to amend the Plan effective as of January
1, 1996;
NOW, THEREFORE, effective as of January 1, 1996, the Plan is amended as
follows:
1. The following is added after the first sentence of Paragraph 4.
"Effective January 1, 1996, an additional 275,000 shares of the
Corporation's common stock shall be available to the Plan."
2. The following is added at the end of Paragraph 10.
"In the event the Corporation or a subsidiary enters into a
transaction described in Section 424(a) of the Internal Revenue Code
of 1986, as amended, with any other corporation, the Board of
Directors may grant options to employees or former employees of such
corporation in substitution of options previously granted to them
upon such terms and conditions as the Board of Directors shall
determine."
IN WITNESS WHEREOF, the foregoing Amendment was adopted this day of
, 199 .
VI-1
290
APPENDIX VII -- RESTATED AMVESTORS FINANCIAL CORPORATION
1989 NONQUALIFIED STOCK OPTION PLAN
291
TABLE OF CONTENTS
1. Statement of Purpose................................................................ 1
2. Administration by Board............................................................. 1
4. Availability of Stock............................................................... 2
5. Nonqualified Stock Option Agreement................................................. 2
6. Option Price........................................................................ 2
7. Manner of Exercise.................................................................. 2
8. Effective Date...................................................................... 3
9. Stock Reserve....................................................................... 3
10. Other Terms......................................................................... 3
11. Amendments to the Plan.............................................................. 4
12. Plan Termination.................................................................... 4
VII-1
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RESTATED AMVESTORS FINANCIAL CORPORATION
1989 NONQUALIFIED STOCK OPTION PLAN
1. Statement of Purpose. The purpose of this Restated Nonqualified Stock
Option Plan (the "Plan") is to establish and continue as close an identity as is
feasible between the interests of AmVestors Financial Corporation (the
"Corporation") and its subsidiaries and the Directors, officers and employees of
the Corporation and its subsidiaries (the "Eligible Participants"). The Plan is
intended to encourage a sense of proprietorship on the part of the Eligible
Participants, who will be largely responsible for the continued growth of the
Corporation and its subsidiaries, to recognize past valuable services of such
Eligible Participants, to furnish such Eligible Participants with further
incentive to develop and promote the business and financial success of the
Corporation and its subsidiaries, and to induce such Eligible Participants to
continue in the service of the Corporation or its subsidiaries by providing a
means whereby such Eligible Participants may be given an opportunity to purchase
shares of the Corporation's common stock. The Plan will also serve to effectuate
the Corporation's intention of granting options to certain Eligible Participants
in substitution for certain options originally granted to such Eligible
Participants under (a) the Corporation's old Incentive Stock Option Plan,
adopted August 14, 1986 (the "1986 Incentive Stock Options"); (b) the
Corporation's old Nonqualified Stock Option Plan, adopted August 14, 1986 (the
"1986 Nonqualified Stock Options"); and (c) the resolution adopted by the Board
of Directors (the "Board of Directors") of the Corporation on August 14, 1986,
pursuant to which certain options to purchase shares of common stock of American
Investors Life Insurance Company, Inc. were converted into options to purchase
shares of common stock of the Corporation (the "American Investors Options")
(collectively the "Exchange Options").
2. Administration by Board. The Plan shall be administered by the Board of
Directors. The Board of Directors shall be the sole determinant of which
Eligible Participants may be granted options to purchase shares of the
Corporation's common stock under the Plan, how many shares each Eligible
Participant may purchase, the price to be paid for the shares, the terms of
payment, the option period, and any interpretations of the Plan's intent and
operation. In administering the Plan, the vote of a majority of the Directors
voting, providing they constitute a quorum under the Corporation's bylaws, shall
be conclusive.
3. Persons Eligible. Persons eligible to receive options under the Plan
shall be such Eligible Participants (as such term is defined in Paragraph 1
above) as the Board of Directors, in its sole discretion, may select.
4. Availability of Stock. A total of 2,090,973 shares of the Corporation's
common stock shall be available to the Plan. These shares may come from
authorized but unissued shares and from issued and reacquired shares, including
shares issued in accordance with the Plan and reacquired by the Corporation.
Shares of common stock available to the Plan may be subject to any restrictions
placed on them by the Board of Directors in accordance with the terms of the
Plan or the Nonqualified Stock Option Agreement described below. The total
number of shares available to the Plan shall be adjusted to account for stock
splits, stock dividends, reverse stock splits, granting of warrants, and the
like.
5. Nonqualified Stock Option Agreement. Any stock option granted in
accordance with the Plan shall be granted only upon the execution, by both the
optionee and the Corporation, of a stock option agreement in the form of the
Nonqualified Stock Option Agreement attached hereto as Exhibit A; provided,
however, that the form of Nonqualified Stock Option Agreement attached hereto as
Exhibit A may be altered by the Corporation so that the Nonqualified Stock
Option Agreement granted to each holder of an Exchanged Option is substantially
similar to the option agreement previously issued to such holder. The terms and
conditions of the Nonqualified Stock Option Agreement may be changed by the
Board of Directors at any time, but these changes shall not affect Nonqualified
Stock Option Agreements in force at the time the changes are made. In no event,
however, shall any option granted in substitution for an Exchanged Option be
exercisable by its terms after the expiration of five (5) years from the date of
grant of the Exchanged Option.
6. Option Price. The Board of Directors shall determine the price at which
an optionee may purchase shares subject to an option hereunder, and such price
may be less than the market price of the shares at the time of the grant of the
option; provided, however, the option exercise price per share of stock under an
option granted in substitution for an Exchanged Option shall be equal to the
option exercise price per share under the Exchanged Option.
VII-2
293
7. Manner of Exercise. The payment of the option exercise price of an
option hereunder shall be either in cash or, if the Board of Directors, in its
sole discretion, so specifies, through delivery to the Corporation of shares of
the Corporation's common stock with an aggregate fair market value equal to the
option exercise price, or by any combination of cash and shares (if the Board of
Directors has approved payment through delivery of shares). The fair market
value of shares delivered as payment, in whole or in part, of the option
exercise price shall be:
(a) In the case of stock of a class traded on a national securities
exchange, the closing price per share of such stock on the date in
question, or if there is no trading of such stock on such date, the closing
price per share of such stock on the next preceding date on which such
stock was traded;
(b) In the case of stock traded in the NASDAQ National Market System,
the closing price per share of such stock on the date in question, or if
there is no trading of such stock on such date, the closing price per share
of such stock on the next preceding date on which such stock was traded;
(c) In the case of stock of a class reported on the NASDAQ automated
reporting system, the mean between the closing bid and asked prices per
share of such stock on the date in question, or if there is no trading of
such stock on such date, the mean between the closing bid and asked prices
per share of such stock on the next preceding date on which such stock was
traded; or
(d) In the case of stock of a class which is neither traded on a
national securities exchange or in the NASDAQ, the price per share
determined by the Board of Directors. In determining the fair market value
of such stock, the Board of Directors shall make a good faith attempt to
value the stock. The determination of the fair market value of such stock
by the Board of Directors shall be final, binding and conclusive.
8. Effective Date. This Plan, was adopted by the Board of Directors on
March 16, 1989. The effective date of this Plan is March 16, 1989.
9. Stock Reserve. The Corporation at all times during the term of this Plan
shall reserve and keep available such number of shares of its common stock as
will be sufficient to satisfy the requirements of this Plan, and shall pay all
fees and expenses necessarily incurred by the Corporation in connection with the
exercise of options granted hereunder.
10. Other Terms. Each option granted hereunder shall contain such other and
additional terms, not inconsistent with the terms of this Plan, as are deemed
necessary or desirable by the Board of Directors, including, without limitation,
such provisions as may be necessary in the judgment of the Board of Directors
(a) to cause the options and shares of common stock issued pursuant to the Plan
to be registered on Form S-8 promulgated pursuant to the Securities Act of 1933,
as amended, and the applicable rules and regulations thereunder, or any other
appropriate form, (b) to provide for the reimbursement of the Corporation for
taxes paid or advanced in respect of the issuance to optionees of options or
shares of common stock under the Plan and (c) to set forth the form of
restrictive legends to be placed on certificates representing shares of common
stock to be issued pursuant to the exercise of options relating to obligations
of the holder under the federal and state securities laws.
11. Amendments to the Plan. The Board of Directors may amend the terms and
conditions of the Plan at any time; provided, however, that no amendment shall
reduce the number of shares subject to any outstanding option or change the
terms or conditions thereof without the optionee's consent.
12. Plan Termination. The Board of Directors may determine the date on
which the Plan shall end. The Plan's termination shall not effect any
Nonqualified Stock Option Agreement in force on the termination date or any
restrictions placed on shares issued in accordance with the Plan.
VII-3
294
AMVESTORS FINANCIAL CORPORATION
NON-QUALIFIED STOCK OPTION AGREEMENT
'NAME'
NOVEMBER 21, 1994
VII-4
295
AMVESTORS FINANCIAL CORPORATION
NON-QUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement (the "Agreement") is made and
entered into this 21st day of November, 1994, between AmVestors Financial
Corporation, a Kansas corporation (the "Corporation"), and 'Name' (the
"Optionee").
WITNESSETH:
WHEREAS, on March 16, 1989, the Board of Directors of the Corporation
adopted the AmVestors Financial Corporation 1989 Nonqualified Stock Option Plan
(the "Plan");
WHEREAS, under the terms of the Plan, the Corporation may grant options to
purchase Shares of common stock of the Corporation to directors, officers and
employees of the Corporation and its subsidiaries; and
WHEREAS, this Agreement (a) defines certain of the rights and obligations
of the Optionee with respect to the option granted hereunder, (b) incorporates
the Plan herein by reference, and (c) serves to acknowledge receipt by the
Optionee of a copy of the Plan;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and sufficient consideration, the parties hereto agree as
follows:
1. Agreement Subject to Plan. This Agreement shall be subject to the terms
and conditions of the Plan. A majority of the Board of Directors may establish
rules and regulations, from time to time, regarding the operation of the Plan,
all of which shall be applicable to this Agreement provided they are consistent
with its provisions.
2. Grant of Option. Subject to the terms and conditions stated herein, the
Corporation grants to the Optionee an option to purchase Shares of the
Corporation's common stock (the "Shares") in the amount and at the price set out
in this Agreement.
3. Grant Date of Option. The grant date of this option is November 21,
1994. The option granted hereunder shall remain in existence until November 21,
2004, unless terminated or exercised as provided herein.
4. Payment and Number of Shares. Payment of the purchase price for Shares
purchased under the option granted herein must be made in full in cash at the
time of the exercise of the option. The total number of Shares that may be
purchased by the Optionee pursuant to this Agreement is 25,000.
5. Option Price. The price at which the Optionee may buy the Shares is
eight dollars and seventy-five cents ($8.75) per Share.
6. Option Not Transferable. The Optionee's option rights may be exercised
only by him/her or his/her personal representatives during his/her lifetime. The
option rights may not be transferred, sold, assigned, pledged, or hypothecated,
and any attempt to do so shall be void. The option rights are not subject to
levy, attachment, or other process of law and any attempt to levy, attach, or
otherwise transfer the option rights or place liens upon them shall be void. The
Optionee shall have no rights as a stockholder with respect to the option Shares
subject to the option until payment of the option price and delivery to him of
such Shares as herein provided.
7. Certain Changes in the Corporation's Stock. If and to the extent that
the number of issued Shares of common stock of the Corporation shall be
increased or reduced by reason of a change in par value, a stock dividend, a
stock split, a reclassification, or the like subsequent to March 1, 1991, the
number of Shares subject to the option and the option price per Share shall be
proportionately adjusted. If the Corporation is reorganized or consolidated or
merged with another corporation, the Optionee shall be entitled to receive
options covering Shares of such reorganized, consolidated, or merged corporation
in the same proportion, at an equivalent price, and subject to the same
conditions. For purposes of the preceding sentence, the excess of the aggregate
fair market value of the Shares subject to the option immediately after the
reorganization,
VII-5
296
consolidation, or merger over the aggregate option price of such Shares shall
not be more than the value of all Shares subject to the option immediately
before such reorganization, consolidation, or merger over the aggregate option
price of such Shares, and the new option or assumption of the old option shall
not give the Optionee additional benefits which he did not have under the old
option, or deprive him of benefits which he had under the old option.
8. Other Changes in the Corporation's Stock. If there are any changes in
the number or kind of Shares outstanding that affect the Corporation's common
stock or the stock or other securities into which the Corporation's common stock
has been changed, other than those described in Paragraph 7, a majority of the
Corporation's Board of Directors may make such changes in the Shares available
for purchase under this Agreement as it deems appropriate. Any adjustment in the
Shares available for purchase made in accordance with this Paragraph 8 shall be
binding upon the Optionee.
9. Manner in Which Option is Exercised During Optionee's Lifetime. Except
as limited by Paragraph 15 herein, any of the Optionee's option rights may be
exercised by the Optionee or his/her personal representative during his/her
lifetime by written notice addressed to the Corporation's corporate secretary,
signed by the Optionee or his/her personal representative. The notice shall
state the number of Shares to be purchased, shall be accompanied by a certified
check payable to the Corporation for the purchase price of the Shares purchased,
and in the event the option is being exercised by any person other than the
Optionee, shall be accompanied by appropriate proof of the right of such person
to exercise the option. Immediately following receipt of the check, the
Corporation shall issue a certificate or certificates for the Shares purchased
in the name of the Optionee or his/her personal representative and deliver the
certificate or certificates to the person who signed the notice.
10. Manner in Which Option is Exercised After Optionee's Death. If the
Optionee has not fully exercised his/her option rights before his/her death,
then the persons designated by the Optionee in a written notice on file with the
Corporation or, if no such persons have been designated, the Optionee's executor
or administrator, may exercise any of the Optionee's option rights until
terminated pursuant to Section 12. The rights shall be exercised in the same
manner as provided in Paragraph 9 except that the person entitled to exercise
the rights under this Paragraph 10 shall be substituted for the Optionee or the
Optionee's personal representative.
11. Violation of Law. The option granted by this Agreement may not be
exercised if its exercise would violate any applicable state securities law, any
registration under or any requirement of the Securities Act of 1933, as amended,
the Securities Exchange Act of 1934, as amended, the rules of an exchange on
which the Shares are traded, any law of the State of Kansas, or any other
federal law.
12. Termination of Option. Except as herein otherwise stated, the option to
the extent not heretofore exercised shall terminate upon the first to occur of
the following dates:
I. If the Employee is no longer employed by the Corporation or a
subsidiary of the Corporation, within twelve (12) months of
November 21, 1994, because of Employee's voluntary or involuntary
termination of employment, the option shall terminate at the date
and time of such termination of employment.
II. If the Employee is no longer employed by the Corporation or a
subsidiary of the Corporation and termination of employment is more
than twelve (12) months from November 21, 1994:
(a) the expiration of three (3) months after the first day on which
the Employee is no longer employed by the Corporation or a
subsidiary of the Corporation (except if termination of
employment is by reason of death or permanent and total
disability);
(b) the expiration of twelve (12) months after the first day on
which the Employee is no longer employed by the Corporation or a
subsidiary of the Corporation, if termination of employment is
by reason of the Employee's permanent and total disability;
(c) in the event of Employee's death while in the employ of the
Corporation or a subsidiary of the Corporation, his/her
executors or administrators may exercise, within twelve (12)
VII-6
297
months following the date of his/her death, the option as to any of the Shares
not theretofore exercised during his/her lifetime;
III. November 21, 2004.
13. Option Not Exercisable if Optionee Terminated For Cause. The option
rights granted by this Agreement may not be exercised and this option shall be
void if the employment of the Optionee is terminated for cause as defined
herein. An Optionee shall be deemed to have been terminated for cause if such
termination occurs by reason of dishonesty, fraud, embezzlement, or any other
malicious act substantially detrimental to the Corporation or one of its
subsidiaries.
14. Payment of Withholding Taxes. Unless the Optionee and the Corporation
have made other arrangements for the reimbursement of the Corporation for
withholding taxes paid (or to be paid) on behalf of the Optionee by the
Corporation as a result of the exercise of the option granted herein, then at
the time of the exercise of the option, the Corporation, as a means of
reimbursement, may withhold Shares of common stock having a fair market value
(at the time of the exercise of the option) equal to the amount of withholding
taxes paid (or to be paid) by the Corporation as a result of the exercise of the
option. For purposes of this Agreement, the "fair market value" of a Share of
common stock shall be, on any give day, the last transaction price per Share of
the Corporation's common stock on the date in question on the National Market
System of the National Association of Securities Dealers Automated Quotation
System (NMS/NASDAQ), or if there is no trading of stock on such date, the
closing price per Share on the next preceding date on which stock was traded.
15. Option Not Exercisable Within Twelve (12) Months of the Grant Date of
Option Except in the Event of Involuntary Termination of Employment. The option
rights granted by this Agreement may not be exercised within twelve (12) months
of the Grant Date of Option unless the Employee is no longer employed by the
Corporation or a subsidiary company and such termination of employment is
involuntary (including by reason of death or permanent and total disability).
16. Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and thereon.
17. Effective Date. The effective date of this Agreement is the grant date
set out in Paragraph 3.
18. Characterization of Option. The option granted hereunder shall not be
treated as an "incentive stock option" as such term is defined in Section 422(b)
of the Internal Revenue Code of 1986, as amended.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
AMVESTORS FINANCIAL CORPORATION
By:
--------------------------------------
President
ATTEST:
- ---------------------------------------------------------
Secretary
By:
--------------------------------------
Optionee
VII-7
298
PART II
INFORMATION NOT REQUIRED IN JOINT PROXY STATEMENT/PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 17-6305 of the General Corporation Code of the State of Kansas
permits a corporation, subject to the standards set forth therein, to indemnify
any person in connection with any threatened, pending or completed action, suit
or proceeding by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation. AmVestors Financial Corporation's
("AmVestors"') by-laws provide for indemnification of officers and directors to
the extent permitted by Section 17-6305. Pursuant to a policy of directors' and
officers' liability insurance, AmVestors' directors and officers are insured,
subject to certain limits, exceptions and other terms and conditions of such
policy, against loss arising from certain claims made against them by reason of
their serving as directors and officers of AmVestors.
ITEM 21(A). EXHIBITS.
See Exhibit Index.
ITEM 21(B). FINANCIAL STATEMENT SCHEDULES.
All financial statement schedules of AmVestors and FBG which are required
to be included herein are included in the Annual Report of AmVestors on Form
10-K for the fiscal year ended December 31, 1994 or the Annual Report of FBG on
Form 10-K for the fiscal year ended December 31, 1994, respectively, as the case
may be, which are incorporated herein by reference.
ITEM 22. UNDERTAKINGS.
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(2) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act") (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(4) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (3) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in
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299
connection with an offering of securities subject to Rule 415 under the Act,
will be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offering therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(6) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(7) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers and sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(b) That for the purposes of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
300
SIGNATURES
Pursuant to the requirements of the Securities Act the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Topeka, State of Kansas,
on February 23, 1996.
AMVESTORS FINANCIAL CORPORATION
By: /s/ RALPH W. LASTER, JR.
------------------------------------------
Ralph W. Laster, Jr.
Chief Executive Officer (Principal
Executive Officer)
Chief Financial Officer (Principal
Financial and Accounting Officer)
We, the undersigned officers and directors of AMVESTORS FINANCIAL
CORPORATION hereby severally and individually constitute and appoint Ralph W.
Laster, Jr. and Mark V. Heitz, and each of them, the true and lawful attorneys
and agents of each of us to execute in the name, place and stead of each of us
(individually and in any capacity stated below) any and all amendments to this
registration statement on Form S-4 and all instruments necessary or advisable in
connection therewith and to file the same with the Securities and Exchange
Commission, each of said attorneys and agents to have the power to act with or
without the others and to have full power and authority to do and to perform in
the name and on behalf of each of the undersigned every act whatsoever necessary
or advisable to be done in the premises as fully and to all intents and purposes
as any of the undersigned might or could do in person, and we hereby ratify and
confirm our signatures as they may be signed by our said attorneys and agents
and each of them to any and all such amendments and instruments.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------------------- -----------------
/s/ Ralph W. Laster, Jr. Chairman of the Board, Director, February 23, 1996
- ----------------------------------- Chief Executive Officer (Principal
Ralph W. Laster, Jr. Executive Officer) and Chief
Financial Officer (Principal
Financial and Accounting Officer)
/s/ JANIS L. ANDERSEN Director February 23, 1996
- -----------------------------------
Janis L. Andersen
/s/ ROBERT G. BILLINGS Director February 23, 1996
- -----------------------------------
Robert G. Billings
/s/ JACK H. BRIER Director February 23, 1996
- -----------------------------------
Jack H. Brier
/s/ MARK V. HEITZ Director, President and General February 23, 1996
- ----------------------------------- Counsel
Mark V. Heitz
/s/ R. REX LEE, M.D. Director February 23, 1996
- -----------------------------------
R. Rex Lee, M.D.
/s/ ROBERT R. LEE, II Director February 23, 1996
- -----------------------------------
Robert R. Lee, II
/s/ ROBERT T. MCELROY, M.D. Director February 23, 1996
- -----------------------------------
Robert T. McElroy, M.D.
/s/ JAMES V. O'DONNELL Director February 23, 1996
- -----------------------------------
James V. O'Donnell
II-3
301
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------------ ----
2.1 Agreement and Plan of Merger by and among AmVestors, AmVestors Acquisition
Subsidiary, Inc. and FBG dated as of 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 (attached as Appendix
I to the Joint Proxy Statement/Prospectus included in this Registration
Statement)* N/A
4.1 Articles of Incorporation as Amended and Restated of AmVestors (incorporated
herein by reference to Exhibit 3(a) to the Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1993 (dated October 26, 1993) (File No.
0-15330)) N/A
4.2 Bylaws of AmVestors
4.3 Warrant Agreement by and between AmVestors and Boatmen's Trust Company, as
Warrant Agent, (attached as Appendix V to the Joint Proxy Statement/Prospectus
included in this Registration Statement) N/A
4.4 Form of Warrant Certificate
4.5 AmVestors Financial Corporation 1989 Non-Qualified Stock Option Plan (attached
as Appendix VII to the Joint Proxy Statement/Prospectus included in this
Registration Statement) N/A
5.1 Opinion of Bryan Cave LLP
8.1 Tax Opinion of Bryan Cave LLP
8.2 Tax Opinion of Lord, Bissell & Brook
23.1 Consent of Deloitte & Touche, LLP
23.2 Consent of Deloitte & Touche, LLP
23.3 Consent of Bryan Cave LLP (included in Exhibits 5.1 and 8.1) N/A
23.4 Consent of Lord, Bissell & Brook (included in Exhibit 8.2) N/A
23.5 Consent of Furman Selz Incorporated
23.6 Consent of Donaldson, Lufkin & Jenrette Securities Corporation
23.7 Consent of Milliman & Robertson, Inc.
24.1 Power of Attorney (included in Signature Page) N/A
99.1 Form of Proxy Card for AmVestors Special Meeting of Stockholders
99.2 Form of Proxy Card for FBG Special Meeting of Stockholders
99.3 Form of Request for Direction with respect to the FBG Employee Stock Ownership
Plan
99.4 Form of Letter of Direction with respect to the FBG Employee Stock Ownership
Plan
99.5 Actuarial Opinions of Milliman & Robertson, Inc.
- -------------------------
* The Registrant hereby agrees to furnish supplementally a copy of any omitted
schedules to this Agreement to the Securities and Exchange Commission upon its
request.